<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1999
REGISTRATION NO. 333-72351
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NORTHERN BORDER PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1120873
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1400 Smith Street, Houston, Texas 77002
Telephone No. (713) 853-6161
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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Janet K. Place
1111 South 103rd Street
Omaha, Nebraska 68124-1000
(402) 398-7886
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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PLEASE SEND COPIES OF COMMUNICATIONS TO:
ROBERT S. BAIRD, ESQ.
Vinson & Elkins, L.L.P.
600 Congress Avenue, Suite 2700
Austin, Texas 78701
(512) 495-8400
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities offered
only in connection with dividend or interest reinvestment plans, please check
the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of each
class of securities Amount to be Proposed maximum Proposed maximum Amount of registration
to be registered registered offering price per unit aggregate offering price(2) fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Units 3,210,000(1) 100% $102,720,000 $28,557
===============================================================================================================================
</TABLE>
(1) Subject to Rule 462(b) under the Securities Act, in no event will the
aggregate initial offering price of the Common Units issued under this
Registration Statement exceed $123,264,000.
(2) We have estimated the proposed maximum aggregate offering price solely to
calculate the registration under Rule 475(o) of the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
3,210,000 COMMON UNITS
[LOGO]
NORTHERN BORDER PARTNERS, L.P.
REPRESENTING LIMITED PARTNER INTERESTS
-------------------
We are a publicly-traded Delaware limited partnership that owns a 70%
general partner interest in Northern Border Pipeline Company, a Texas general
partnership ("Northern Border Pipeline"). Northern Border Pipeline is the
largest transporter of natural gas from the Western Canadian Sedimentary Basin
to the midwestern United States. Northern Border Pipeline owns a 1,214-mile
interstate pipeline system that originates from the Canadian border and extends
to natural gas markets in the midwestern United States currently terminating
near Chicago, Illinois. Our interest in Northern Border Pipeline represents
substantially all of our assets.
This prospectus provides you with a general description of our Common
Units that may be offered by the offering unitholders. Each time these Common
Units are offered by the offering unitholders, we will provide you a prospectus
supplement that will contain specific information about the terms of the
offering. The prospectus supplement may also add, update or change information
in the prospectus. We will not receive any of the proceeds from the sale of
Common Units by the offering unitholders.
We currently have 29,347,313 Common Units outstanding. The Common
Units are traded on the New York Stock Exchange under the symbol "NBP."
-------------------
WE WILL PROVIDE SPECIFIC TERMS OF OFFERINGS OF THESE SECURITIES IN
PROSPECTUS SUPPLEMENTS.
YOU SHOULD READ THIS PROSPECTUS AND ANY SUPPLEMENT CAREFULLY BEFORE
YOU INVEST.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE COMMON UNITS. THIS
MEANS THAT NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON
THE ACCURACY, ADEQUACY OR COMPLETENESS OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE COMMON UNITS, AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE COMMON UNITS, IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
TO UNDERSTAND US AND THE TERMS OF OUR COMMON UNITS, YOU SHOULD
CAREFULLY READ THIS DOCUMENT TOGETHER WITH ANY AND ALL PROSPECTUS SUPPLEMENTS.
TOGETHER THESE DOCUMENTS WILL PROVIDE YOU WITH THE SPECIFIC TERMS OF THE
OFFERINGS. YOU SHOULD ALSO READ THE DOCUMENTS WE HAVE REFERRED YOU TO IN "WHERE
YOU CAN FIND MORE INFORMATION" BELOW FOR INFORMATION ON US AND FOR OUR FINANCIAL
STATEMENTS.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 12, 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THE OFFERED SECURITIES..........................................................2
WHERE YOU CAN FIND MORE INFORMATION.............................................2
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS.......................3
OUR BUSINESS....................................................................3
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES............................7
FERC REGULATION.................................................................8
ENVIRONMENTAL AND SAFETY COSTS AND LIABILITIES..................................10
COMMON UNITS....................................................................10
USE OF PROCEEDS.................................................................11
TAX CONSIDERATIONS..............................................................11
OFFERING UNITHOLDERS............................................................27
PLAN OF DISTRIBUTION............................................................28
LEGAL MATTERS...................................................................28
EXPERTS.........................................................................28
</TABLE>
THE OFFERED SECURITIES
This prospectus is part of a registration statement (No. 333- ) that
we filed with the SEC using a "shelf" registration process. Under this shelf
process, Northwest Border Pipeline Company and Panhandle Eastern Pipe Line
Company (together the "offering unitholders") may offer from time to time up to
3,210,000 Common Units representing limited partner interests. Each time the
Common Units are offered, we will provide you with a prospectus supplement that
will describe, among other things, the specific amounts and prices of the Common
Units being offered and the terms of the offering. The prospectus supplement may
also add, update or change information contained in this prospectus. Therefore,
before you invest in the Common Units, you should read this prospectus, any
prospectus supplements and all additional information referenced in the next
section.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information
with the SEC. You may read and copy any document we file at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's public reference rooms in New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC maintains a web site that
contains reports, information statements, and other information regarding
issuers that file electronically. SEC filings are also available on this web
site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we
file with it into this prospectus, which means that we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. Therefore, before you decide to invest in a particular
offering under this registration statement, you should always check for SEC
reports we may have filed after the date of this prospectus. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") until all offerings under this registration statement are
completed:
o Annual Report on Form 10-K for the year ended December 31, 1997; and
o Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
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You may request a copy of these filings at no cost, by making written or
telephone requests for such copies to:
Secretary Division
Northern Border Partners, L.P.
1400 Smith Street, Houston, Texas 77002
Telephone: 713-853-6161
You should rely only 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 any information. 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 each document.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains statements that constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. In general, any statement other than a statement of
historical fact is a forward looking statement. These statements appear in a
number of places in this prospectus and include statements regarding our plans,
beliefs and expectations with respect to, among other things:
o Future acquisitions;
o Expected future costs;
o Future capital expenditures;
o Trends affecting our future financial condition or results of operation; and
o Our business strategy regarding future operations.
Any such forward looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results for a number of reasons, including:
o Industry conditions;
o Future demand for natural gas;
o Availability of supplies of Canadian natural gas;
o Political and regulatory developments that impact Federal Energy Regulatory
Commission ("FERC") proceedings involving Northern Border Pipeline;
o Northern Border Pipeline's ability to replace its rate base as it is
depreciated and amortized;
o Competitive developments by Canadian and other U.S. natural gas
transmission companies;
o Political and regulatory developments in the U.S. and in Canada;
o Conditions of the capital markets; and
o Our ability to implement our Year 2000 readiness program.
OUR BUSINESS
We were formed in 1993 to acquire, own and participate in the
management of pipeline and other energy assets through a subsidiary limited
partnership, Northern Border Intermediate Limited Partnership. Northern Plains
Natural Gas Company ("Northern Plains"), Pan Border Gas Company ("Pan Border")
and Northwest Border Pipeline Company ("Northwest Border") serve as our general
partners (collectively, the "General Partners"). Northern Plains and Pan Border
are wholly-owned subsidiaries of Enron Corp. ("Enron"), and Northwest Border is
a wholly-owned subsidiary of The Williams Companies, Inc. ("Williams"). The
General Partners hold in us an aggregate 2% general partner interest and Common
Units representing an aggregate 14.5% limited partner interest. The combined
general and limited partner interests of the General Partners are:
o Northern Plains - 11.7%;
o Pan Border - 0.7%; and
o Northwest Border - 4.1%.
We own a 70% general partner interest in Northern Border Pipeline. The
remaining 30% general partner interests in Northern Border Pipeline are owned by
subsidiaries of TransCanada PipeLines Limited (the "TransCanada Subsidiaries").
Following is a chart showing our organization, our structure and our
interest in Northern Border Pipeline.
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NORTHERN BORDER PARTNERS, L.P.
ORGANIZATION STRUCTURE
[CHART]
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Our 70% interest in Northern Border Pipeline represents substantially
all of our assets and the source of substantially all of our earnings and cash
flow. Northern Border Pipeline owns a 1,214-mile United States interstate
pipeline system (the "Pipeline System") that transports natural gas from the
Montana-Saskatchewan border to natural gas markets in the midwestern United
States. Northern Border Pipeline initially constructed this Pipeline System in
1982 with capacity additions to the Pipeline System in 1991, 1992 and 1998. A
recent expansion, called The Chicago Project, was completed in late 1998, and
increased the Pipeline System's capacity by 42% to its current capacity of
2,373 million cubic feet per day ("MMcfd").
The Northern Border Management Committee, which is comprised of three
representatives selected by us (one designated by each General Partner) and one
representative of the TransCanada Subsidiaries, oversees the management of
Northern Border Pipeline. Northern Plains operates the Pipeline System pursuant
to an operating agreement. Northern Plains employs approximately 190 individuals
located at its headquarters in Omaha, Nebraska, and at various locations along
the pipeline route.
Northern Border Pipeline transports gas for shippers under a tariff
regulated by FERC. The tariff specifies the calculation of amounts to be paid by
shippers and the general terms and conditions of transportation service on the
Pipeline System. Northern Border Pipeline generates revenues from the receipt
and delivery of gas at points along the Pipeline System according to individual
transportation contracts with its shippers. Northern Border Pipeline does not
own the gas that it transports, and therefore it does not assume the risk of
loss from decreases in market prices for gas transported on the Pipeline System.
We also own Black Mesa Holdings, Inc. Black Mesa Holdings, Inc.,
through its wholly-owned subsidiary, Black Mesa Pipeline, Inc., owns a 273-mile,
18-inch diameter coal slurry pipeline that originates at a coal mine in Kayenta,
Arizona. The coal slurry pipeline transports crushed coal suspended in water. It
traverses westward through northern Arizona to the 1,500 megawatt Mohave Power
Station located in Laughlin, Nevada. The coal slurry pipeline is the sole source
of fuel for the Mohave Power Station, which consumes an average of 4.8 million
tons of coal annually. The capacity of the pipeline is fully contracted to the
coal supplier for the Mohave Power Station through the year 2005. The pipeline
is operated by Black Mesa Pipeline Operations, LLC, our wholly-owned subsidiary.
Our cash flow from the coal slurry pipeline represents only about 2% of our
total cash flow.
THE PIPELINE SYSTEM
The Pipeline System has pipeline access to natural gas reserves in the
Western Canadian Sedimentary Basin located in the Canadian provinces of Alberta,
British Columbia and Saskatchewan, as well as the Williston Basin in the United
States. The Pipeline System also has access to synthetic gas processed at the
Dakota Gasification Plant in North Dakota. Interconnecting pipeline facilities
provide Northern Border Pipeline shippers access to markets in the Midwest,
including Chicago. Northern Border Pipeline shippers can arrange transportation,
displacement and exchange arrangements with third parties to provide access
beyond Chicago to markets throughout the United States.
The Pipeline System consists of 822 miles of 42-inch diameter pipe
designed to transport 2373 MMcfd from the Canadian border to Ventura, Iowa;
30-inch diameter pipe and 36-inch diameter pipe, each approximately 147 miles in
length, designed to transport 1300 MMcfd from Ventura, Iowa to Harper, Iowa; and
226 miles of 36-inch diameter pipe and 19 miles of 30-inch diameter pipe
designed to transport 645 MMcfd from Harper, Iowa to a terminus near Manhattan,
Illinois (Chicago area). Along the pipeline there are fifteen compressor
stations with total rated horsepower of 476,500 and measurement facilities to
support the receipt and delivery of gas at various points. Other facilities
include five field offices and a microwave communication system with fifty-one
tower sites.
INTERCONNECTS
Interconnecting pipeline facilities provide Northern Border Pipeline's
shippers with flexible access to natural gas markets. The Pipeline System
interconnects with pipeline facilities of:
o Northern Natural Gas Company, an Enron subsidiary, at Ventura, Iowa as
well as multiple smaller interconnections in South Dakota, Minnesota
and Iowa;
o Natural Gas Pipeline Company of America at Harper, Iowa;
o MidAmerican Energy Company at Iowa City and Davenport, Iowa;
o Interstate Power Company at Prophetstown, Illinois;
o Northern Illinois Gas Company at Troy Grove and Minooka, Illinois;
o Midwestern Gas Transmission Company near Channahon, Illinois; and
o ANR Pipeline Company near Manhattan, Illinois; and
o The Peoples Gas Light and Coke Company near Manhattan,Illinois (Chicago
area) at the terminus of the Pipeline System.
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At its northern end, the Pipeline System is connected to the Foothills
Pipe Lines (Sask.) Ltd. System in Canada, which in turn is connected to the
pipeline systems of NOVA Gas Transmission Ltd. in Alberta and of Transgas
Limited in Saskatchewan. The NOVA system gathers and transports a substantial
portion of Canadian natural gas production. The Pipeline System also connects
with the facilities of Williston Basin Interstate pipeline at Glen Ullin and
Buford, North Dakota, facilities of Amerada Hess Corporation at Watford City,
North Dakota and facilities of Dakota Gasification Company at Hebron, North
Dakota in the northern portion of the system.
PROJECT 2000
In October 1998, Northern Border Pipeline filed a certificate
application with FERC to seek approval of its Project 2000 that seeks to expand
and extend the Pipeline System into Indiana by November 2000. In addition to
providing additional Canadian natural gas to United States' markets, Project
2000 would afford shippers on the extended pipeline system access to industrial
gas consumers in northern Indiana.
SHIPPERS
The Pipeline System serves a number of shippers with diverse financial
and business profiles. Based on shippers' cost of service obligations, 93% of
the capacity is contracted by producers and marketers. The remaining capacity is
contracted primarily by local distribution companies (5%) and interstate
pipelines (2%). At present, the termination dates of these contracts range from
October 31, 2001 to December 21, 2013. The weighted average contract life as
of December 31, 1998 (based on shippers' cost of service obligations) is
slightly under 8 years with 97% of capacity contracted through at least
mid-September 2003.
Northern Border Pipeline's largest shipper, Pan-Alberta Gas U.S., Inc.
("PAGUS"), currently holds 707 MMcfd, 26.5% of the capacity under three
transportation contracts. An affiliate of Enron provides guaranties for
300 MMcfd of PAGUS' contractual obligations through October 31, 2001. In
addition, PAGUS' remaining capacity is supported by various credit support
arrangements including, among others, a letter of credit, a guaranty from an
interstate pipeline company through October 31, 2001 for 150 MMcfd, an escrow
account and an upstream capacity transfer agreement.
In 1998, the Western Canadian Sedimentary Basin was the source of
approximately 88% of the natural gas transported by the Pipeline System. We
estimate that the Pipeline System's share of Canadian gas exported to the United
States in January 1999, the first full month of operations of The Chicago
Project, was nearly 24%.
COMPETITION
Northern Border Pipeline competes with other pipeline companies that
transport gas from the Western Canadian Sedimentary Basin or that transport gas
to end-use markets in the Midwest. Its competitive position is affected by the
availability of Canadian natural gas for export and demand for natural gas in
the United States. Shippers of gas produced in the Western Canadian Sedimentary
Basin have other options to transport Canadian natural gas to the United States,
including transportation on pipelines eastward in Canada or to markets on the
West Coast.
The sponsors of the Alliance Pipeline project recently received
Canadian and United States regulatory approvals for the construction of a new
pipeline to originate in western Canada and terminate in the vicinity of
Chicago, Illinois. These sponsors have announced their plans for the pipeline to
be in service by October 2000. If constructed, the new pipeline would compete
directly with Northern Border Pipeline by transporting gas from the Western
Canadian Sedimentary Basin to the midwestern United States. Although there may
be a large increase in natural gas moving from the Western Canadian Sedimentary
Basin into the Chicago market if the Alliance project is constructed, there are
several additional projects proposed to transport natural gas from the Chicago
area to growing eastern markets. The proposed projects, currently being pursued
by unrelated third parties, are targeting markets in eastern Canada and the
northeast United States. None of these proposed projects has received final
regulatory approval.
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CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Our business is managed by or under the direction of a three person
Partnership Policy Committee, whose members are designated by our three General
Partners. We have three representatives on the Northern Border Pipeline
Management Committee, each of whom votes a portion of our 70% voting interest on
the Northern Border Pipeline Management Committee. Our representatives on the
Northern Border Pipeline Management Committee are also designated by our General
Partners.
Our interests could conflict with the interests of our General Partners
or their affiliates, and in such case the members of our Partnership Policy
Committee will generally have a fiduciary duty to resolve such conflicts in a
manner that is in our best interest. Northern Border Pipeline's interests could
conflict with our interest or the interests of the TransCanada Subsidiaries and
their affiliates, and in such case our representatives on the Northern Border
Pipeline Management Committee will generally have a fiduciary duty to resolve
such conflicts in a manner that is in the best interest of Northern Border
Pipeline. Our fiduciary duty as a general partner of Northern Border Pipeline
may restrict us from taking actions that might be in our best interests but in
conflict with the fiduciary duty that our representatives or we owe to the
TransCanada Subsidiaries.
Unless otherwise provided for in a partnership agreement, the laws of
Delaware and Texas generally require a general partner of a partnership to
adhere to fiduciary duty standards, under which it owes its partners the highest
duties of good faith, fairness and loyalty. Similar rules apply to persons
serving on our Partnership Policy Committee or the Northern Border Pipeline
Management Committee. Because of the competing interests identified above, our
Partnership Agreement and the partnership agreement for Northern Border Pipeline
contain provisions that modify certain of these fiduciary duties. For example:
o Our Partnership Agreement states that the General Partners, their
affiliates and their officers and directors will not be liable for monetary
damages to us, our limited partners or their assignees for errors of
judgment or for any acts or omissions if the General Partners and such
other persons acted in good faith.
o Our Partnership Agreement allows the General Partners and our Partnership
Policy Committee to take into account the interests of parties in addition
to ours in resolving conflicts of interest.
o Our Partnership Agreement provides that the General Partners will not be in
breach of their obligations under our Partnership Agreement or their duties
to us or our unitholders if the resolution of a conflict is fair and
reasonable to us. The latitude given in our Partnership Agreement in
connection with resolving conflicts of interest may significantly limit the
ability of a unitholder to challenge what might otherwise be a breach of
fiduciary duty.
o Our Partnership Agreement provides that a purchaser of Common Units is
deemed to have consented to certain conflicts of interest and actions of
the General Partners and their affiliates that might otherwise be
prohibited and to have agreed that such conflicts of interest and actions
do not constitute a breach by the General Partners of any duty stated or
implied by law or equity.
o Our audit committee (which is composed of persons unaffiliated with any of
the General Partners) will, at the request of a General Partner or a member
of our Partnership Policy Committee, review conflicts of interest that may
arise between a General Partner and its affiliates (or the member of our
Partnership Policy Committee designated by it), on the one hand, and our
unitholders or us, on the other. Any resolution of a conflict approved by
our audit committee is conclusively deemed fair and reasonable to us.
o We have proposed to enter into an amendment to the partnership agreement
for Northern Border Pipeline that relieves the TransCanada Subsidiaries,
their affiliates and their transferees from any duty to offer business
opportunities to Northern Border Pipeline, with certain exceptions. The
proposed amendment would also relieve us from any duty to offer to Northern
Border Pipeline certain business opportunities that come to our attention.
We are required to indemnify the members of our Partnership Policy
Committee and General Partners, their affiliates and their respective officers,
directors, employees, agents and trustees to the fullest extent permitted by law
against liabilities, costs and expenses incurred by any such person who acted in
good faith and in a manner reasonably believed to be in, or (in the case of
a person other than one of the General Partners) not opposed to, our best
interests and, with respect to any criminal proceedings, had no reasonable cause
to believe the conduct was unlawful.
Some of our shippers are affiliated with our General Partners and the
TransCanada Subsidiaries. Enron Capital & Trade Resources Corp., a subsidiary of
Enron, and Transcontinental Gas Pipe Line Corporation, a subsidiary of Williams
hold 6.1% of the capacity. TransCanada PipeLines Limited, an affiliate of the
TransCanada Subsidiaries, holds 10.8% of the capacity.
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FERC REGULATION
GENERAL
FERC extensively regulates Northern Border Pipeline as a "natural gas
company" under the Natural Gas Act (the "NGA"). Under the NGA and the Natural
Gas Policy Act, FERC has jurisdiction over Northern Border Pipeline with respect
to virtually all aspects of its business, including:
o Transportation of natural gas;
o Rates and charges;
o Construction of new facilities;
o Extension or abandonment of service and facilities;
o Accounts and records;
o Depreciation and amortization policies;
o Acquisition and disposition of facilities;
o Initiation and discontinuation of services; and
o Certain other matters.
Northern Border Pipeline, where required, holds certificates of public
convenience and necessity issued by FERC covering its facilities, activities and
services. Without these certificates, a pipeline company cannot legally do
business. Under Section 8 of the NGA, FERC has the power to prescribe the
accounting treatment for items for regulatory purposes. The Northern Border
Pipeline books and records are periodically audited pursuant to Section 8.
FERC regulates Northern Border Pipeline's rates and charges for
transportation in interstate commerce. Natural gas companies may not charge
rates exceeding rates deemed just and reasonable by FERC. In addition, FERC
prohibits natural gas companies from unduly preferring or unreasonably
discriminating against any person with respect to pipeline rates or terms and
conditions of service. Certain types of rates may be discounted without further
FERC authorization.
COST OF SERVICE TARIFF
Northern Border Pipeline's firm transportation shippers contract to pay
for an allocable share of the cost of service associated with the Pipeline
System's capacity. During any given month, all such shippers pay a uniform
mileage-based charge for the amount of capacity contracted, calculated under a
cost of service tariff. The shippers are obligated to pay their allocable share
of the cost of service regardless of the amount of gas they actually transport.
The cost of service tariff is regulated by FERC and provides Northern Border
Pipeline an opportunity to recover all operations and maintenance costs of the
Pipeline System, taxes other than income taxes, interest, depreciation and
amortization, an allowance for income taxes and a regulated equity return.
Northern Border Pipeline may not charge or collect more than its cost of service
pursuant to its tariff on file with FERC.
Northern Border Pipeline's investment in the Pipeline System is
reflected in various accounts referred to collectively as its regulated "rate
base." The cost of service includes a return, with related income taxes, on the
rate base. Over time the rate base declines as a result of, among other things,
the monthly depreciation and amortization. The Northern Border Pipeline rate
base includes, as an additional amount, a one-time ratemaking adjustment to
reflect the receipt of a construction incentive on the original project. Since
inception the rate base adjustment, called an incentive rate of return
("IROR"), has been amortized through monthly additions to the cost of service.
As a result, our revenues and net income for 1998 included $9.9 million for
such amortization along with related income taxes, net of the effect of
minority interests. This impact on revenues and net income is expected to
continue until November 2001 when the IROR is fully amortized.
Northern Border Pipeline bills the cost of service on an estimated
basis for a six-month cycle. Any net excess or deficiency resulting from the
comparison of the actual cost of service determined for that period according to
its FERC tariff to the estimated billing is accumulated, including carrying
charges thereon, and is either billed to or credited back to the shippers'
accounts.
Northern Border Pipeline also provides interruptible transportation
service. Interruptible transportation service is transportation in certain
circumstances when capacity is available after satisfying firm service requests.
The maximum rate charged to interruptible shippers is calculated from cost of
service estimates on the basis of contracted capacity. Except for certain
limited situations, Northern Border Pipeline credits back to the firm shippers
all revenue from the interruptible transportation service.
In its 1995 rate case, Northern Border Pipeline reached a settlement
that was filed in a Stipulation and Agreement (the "Stipulation"). Although it
was contested, it was approved by FERC on August 1, 1997. In the Stipulation,
the depreciation rate was established at 2.5% from January 1, 1997 through the
in-service date of The Chicago Project, and at that time it was reduced to 2%.
Starting in the year 2000, the depreciation rate is scheduled to increase
gradually on an annual basis until it reaches 3.2% in 2002.
The Stipulation also determined several other cost of service
parameters. In accordance with the effective tariff, Northern Border Pipeline's
allowed equity rate of return is 12%. For at least seven years from the date The
Chicago Project was completed, Northern Border Pipeline, under the terms of the
Stipulation, may continue to calculate its allowance for income taxes as a part
of its cost of service in the manner it has historically used. In addition, a
settlement adjustment mechanism of $31 million was implemented, which
effectively reduces the allowed return on rate base.
Also as agreed to in the Stipulation, Northern Border Pipeline
implemented a capital project cost containment mechanism ("PCCM"). The purpose
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of the PCCM was to limit Northern Border Pipeline's ability to include cost
overruns on The Chicago Project in rate base and to provide incentives to
Northern Border Pipeline for cost underruns. The PCCM amount is determined by
comparing the final cost of The Chicago Project to the budgeted cost. If there
is a cost overrun of $6 million or less, the shippers will bear the actual cost
of the project through its inclusion in Northern Border Pipeline's rate base. If
there is a cost savings of $6 million or less, the full budgeted cost will be
included in the rate base. If there is a cost overrun or cost savings of more
than $6 million but less than 5% of the budgeted cost, that amount will be
allocated 50% to Northern Border Pipeline and 50% to its shippers (50% of the
difference between 5% of the budgeted cost and $6 million will be included in
Northern Border pipeline's rate base, and 50% will be excluded). All cost
overruns exceeding 5% of the budgeted cost are excluded from the rate base.
The Stipulation required the budgeted cost for The Chicago Project,
which had been initially filed with FERC for approximately $839 million, to be
adjusted for the effects of inflation and project scope changes, as defined in
the Stipulation. Such budgeted cost has been estimated as of the December 22,
1998 in-service date to be $889 million. Northern Border Pipeline's report to
FERC and its shippers in late December 1998, reflected the conclusion that,
based on information as of that date, once the budgeted cost has been
established, there would be no adjustment to rate base as a result of the PCCM.
Northern Border Pipeline is obligated by the Stipulation to update its
calculation of the PCCM six months after the in-service date of The Chicago
Project. The Stipulation requires the calculation of the PCCM to be reviewed by
an independent national accounting firm. Several parties to the Stipulation
advised FERC that they may have questions and desire further information about
the report, and may possibly wish to test it (or the final report) and its
conclusions in an appropriate proceeding in the future. The parties also stated
that if it is determined that Northern Border Pipeline is not permitted to
include certain claimed costs for The Chicago Project in its rate base, they
reserve their rights to seek refunds, with interest, of any overcollections.
Although we believe the initial computation has been made in accordance with the
terms of the Stipulation, we are unable to make a definitive determination at
this time whether any adjustments will be required. Should subsequent
developments cause costs not to be recovered pursuant to the PCCM, a non-cash
charge to write down transmission plant may result and such charge could be
material to our operating results.
Northern Border Pipeline is required by the terms of its tariff to file
a rate case with FERC by no later than May 31, 1999 for a redetermination of its
allowed equity rate of return. We cannot predict the impact, if any, of the
outcome of the next rate case.
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PROPOSED REGULATIONS
In a Notice of Proposed Rulemaking ("NOPR") issued on July 29, 1998,
FERC proposed changes to its regulations governing short-term transportation
services. Among the proposals considered in the NOPR are:
o Auctions for short-term capacity;
o Removal of price caps for secondary market transactions;
o Revisions to FERC's reporting requirements;
o Revisions to tariff provisions governing imbalances; and
o Negotiated services.
In a companion Notice of Inquiry issued the same day, FERC requested industry
comment on its pricing policies in the existing long-term market for
transportation services and its pricing policies for new capacity. FERC also
issued a NOPR to revise its procedures under which shippers or others may have
complaints considered by FERC. We cannot assess the impact on Northern Border
Pipeline of any final rules adopted by FERC as a result of these proceedings at
this time.
FERC also commenced proceedings to revise its pipeline construction
regulations. On September 30, 1998, FERC issued a NOPR to amend its regulations
to reflect current FERC policies governing the issuance of pipeline construction
certificates and to codify the filing of certain related information. Also on
September 30, 1998, FERC issued a NOPR that would give applicants seeking to
construct, operate or abandon natural gas services or facilities the option of
using a pre-filing collaborative process to resolve significant issues among
parties and the pipeline. The NOPR also proposes that a significant portion of
the environmental review process could be completed as part of the collaborative
process. As part of the NOPR, FERC intends to examine existing landowner
notification policies related to pipeline construction and certain environmental
and pipeline construction issues. We cannot assess the impact on Northern Border
Pipeline of any final rules adopted by FERC as a result of these proceedings at
this time.
ENVIRONMENTAL AND SAFETY COSTS AND LIABILITIES
Our operations are subject to federal and state laws and regulations
relating to environmental protection and operational safety. Although we believe
that our operations are in general compliance in all material respects with
applicable environmental and safety regulations, risks of substantial costs and
liabilities are inherent in pipeline operations, and we cannot give you any
assurances that we will not incur such costs and liabilities. Moreover, it is
possible that other developments, such as increasingly strict environmental and
safety laws, regulations and enforcement policies thereunder, and claims for
damages to property or persons resulting from our operations, could result in
substantial costs and liabilities to us. If we are unable to recover such
resulting costs, your cash distributions could be adversely affected.
COMMON UNITS
We currently have 29,347,313 Common Units outstanding, representing a
98% limited partner interest. Our Common Units are our only outstanding limited
partner interests. Thus, our equity consists of general partner interests
representing in the aggregate a 2% interest and Common Units representing in the
aggregate a 98% limited partner interest. Prior to January 19, 1999, we had
outstanding limited partner interests designated as Subordinated Units, but all
of our outstanding Subordinated Units were converted to Common Units on that
date.
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DISTRIBUTIONS
In general, the General Partners are entitled to 2% of all cash
distributions, and the holders of Common Units are entitled to the remaining 98%
of all cash distributions, except that the General Partners are entitled to
incentive distributions if the amount distributed with respect to any quarter
exceeds $0.605 per Common Unit ($2.42 annualized). Under the incentive
distribution provisions, the General Partners are entitled to 15% of amounts
distributed in excess of $0.605 per Common Unit, 25% of amounts distributed in
excess of $0.715 per Common Unit ($2.86 annualized) and 50% of amounts
distributed in excess of $0.935 per Common Unit ($3.74 annualized). We recently
announced an increase in our distribution to $0.61 per Common Unit ($2.44 per
Common Unit annualized), effective with the fourth quarter 1998 distribution to
be paid on February 12, 1999. The amounts that trigger incentive distributions
at various levels are subject to adjustment in certain events, as described in
our Partnership Agreement.
VOTING
Each holder of Common Units is entitled to one vote for each Common
Unit on all matters submitted to a vote of the unitholders; provided that, if at
any time any person or group owns beneficially 20% or more of all Common Units,
such Common Units so owned may not be voted on any matter and may not be
considered to be outstanding when sending notices of a meeting of unitholders
(unless otherwise required by law), calculating required votes, determining the
presence of a quorum or for other similar purposes under our Partnership
Agreement.
LISTING
Our outstanding Common Units are listed on the NYSE under the symbol
"NBP." Any additional Common Units we issue will also be listed on the NYSE.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for the Common Units is First Chicago
Trust Company of New York.
USE OF PROCEEDS
Unless otherwise indicated to the contrary in an accompanying
prospectus supplement, the net proceeds to be received by the offering
unitholders from the sale of the common units will be used by each offering
unitholder within its sole discretion.
TAX CONSIDERATIONS
This section is a summary of certain federal income tax considerations
that may be relevant to you and, to the extent set forth below under "Tax
Considerations-Legal Opinions and Advice," represents the opinion of our counsel
Vinson & Elkins L.L.P., ("Counsel"), insofar as it relates to matters of law and
legal conclusions. This section is based upon current provisions of the Internal
Revenue Code of 1986 (the "Code"), existing and proposed regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Subsequent changes may cause the tax consequences to vary
substantially from the consequences described below. Unless the context
otherwise requires, references in this section we make to ourselves are
references to both Northern Border Partners, L.P. and the Northern Border
Intermediate Limited Partnership.
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No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or our unitholders. Moreover, the
discussion focuses on our unitholders who are individual citizens or residents
of the United States and has only limited application to corporations, estates,
trusts or non-resident aliens. Accordingly, you should consult, and should
depend on, your own tax advisor in analyzing the federal, state, local and
foreign tax consequences of the purchase, ownership or disposition of Common
Units.
LEGAL OPINIONS AND ADVICE
Counsel has expressed its opinion that, based on the representations
and subject to the qualifications set forth in the detailed discussion that
follows, for federal income tax purposes:
o Northern Border Partners, L.P., Northern Border Intermediate Limited
Partnership and Northern Border Pipeline each will be treated as a
partnership; and
o Owners of Common Units (with certain exceptions, as described in "Limited
Partner Status" below) will be treated as partners of Northern Border
Partners, L.P (but not Northern Border Intermediate Limited Partnership).
In addition, all statements as to matters of law and legal conclusions contained
in this section, unless otherwise noted, reflect the opinion of Counsel. Counsel
has also advised us that, based on current law, the following general
description of the principal federal income tax consequences that should arise
from the purchase, ownership and disposition of Common Units, insofar as it
relates to matters of law and legal conclusions, addresses all material tax
consequences to our unitholders who are individual citizens or residents of the
United States.
No ruling has been requested from the Internal Revenue Service (the
"IRS") with respect to the foregoing issues or any other matter affecting us or
our unitholders. An opinion of counsel represents only such counsel's best legal
judgment and does not bind the IRS or the courts. Thus, no assurance can be
provided that the opinions and statements set forth herein would be sustained by
a court if contested by the IRS. The costs of any contest with the IRS will be
borne directly or indirectly by our unitholders and the General Partners.
Furthermore, no assurance can be given that our treatment or an investment in us
will not be significantly modified by future legislative or administrative
changes or court decisions. Any such modification may or may not be
retroactively applied.
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account his allocable
share of items of our income, gain, loss, deduction and credit in computing his
federal income tax liability, regardless of whether cash distributions are made.
Distributions by a partnership to a partner are generally not taxable unless the
amount of any cash distributed is in excess of the partner's adjusted basis in
his partnership interest.
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Pursuant to Treasury Regulations 301.7701-1, 301.7702-1 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, we and Northern Border
Pipeline were each 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:
o the entity had a reasonable basis for the claimed classification;
o the entity recognized the federal tax consequences of any change in
classification within five years prior to January 1, 1997; and
o the entity was not notified prior to May 8, 1996 that the entity
classification was under examination.
Based on these regulations and the applicable federal income tax law, Counsel
has opined that we and Northern Border Pipeline each have been and will be
classified as a partnership for federal income tax purposes.
In rendering its opinion, Counsel has relied on certain factual
representations and covenants made by us and the General Partners, including:
o Neither we nor Northern Border Pipeline will elect to be treated as an
association taxable as a corporation;
o We have been and will be operated in accordance with all applicable
partnership statutes and our Partnership Agreement and in the manner
described herein;
o Except as otherwise required by Section 704 of the Code and regulations
promulgated thereunder, the General Partners have had and will have, in the
aggregate, an interest in each material item of our income, gain, loss,
deduction or credit equal to at least 1% at all times during our existence;
o A representation and covenant of the General Partners that the General
Partners have and will maintain, in the aggregate, a minimum capital
account balance in us equal to 1% of our total positive capital account
balances;
o For each taxable year, less than 10% of our gross income has been and will
be derived 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 thereof and
naturally occurring carbon dioxide or (ii) other items of "qualifying
income" within the meaning of Section 7704(d) of the Code; and
o Northern Border Pipeline is organized and will be operated in accordance
with the Texas Revised Uniform Partnership Act and the Northern Border
Pipeline Partnership Agreement.
Counsel's opinion as to our partnership classification in the event of
a change in the General Partners is based upon the assumption that the new
general partners will satisfy the foregoing representations and covenants.
Section 7704 of the Code provides that publicly-traded partnerships
will, as a general rule, be taxed as corporations. However, an exception (the
"Natural Resource 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." Qualifying income includes income and gains
derived from the transportation of natural gas and coal. Other types of
qualifying income include interest, dividends, gains from the sale of real
property and gains from the sale or other disposition of capital assets held for
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the production of income that otherwise constitutes qualifying income. We have
represented that in excess of 90% of our gross income has been and will be
derived from fees and charges for transporting (through the Pipeline System)
natural gas. Based upon that representation, Counsel is of the opinion that our
gross income derived from these sources constitutes qualifying income.
If we fail to meet the Natural Resource Exception (other than a failure
determined by the IRS to be inadvertent that is cured within a reasonable time
after discovery), we will be treated as if we had transferred all of our assets
(subject to liabilities) to a newly-formed corporation (on the first day of the
year in which we fail to meet the Natural Resource Exception) in return for
stock in such corporation, and then distributed such stock to the partners in
liquidation of their interests in us. This contribution and liquidation should
be tax-free to our unitholders and us, so long as we, at such time, do not have
liabilities in excess of the basis of our assets. Thereafter, we would be
treated as a corporation for federal income tax purposes.
If we were treated as an association or otherwise taxable as a
corporation in any taxable year, as a result of a failure to meet the Natural
Resource Exception or otherwise, our items of income, gain, loss, deduction and
credit would be reflected only on our tax return rather than being passed
through to our unitholders, and our net income would be taxed at the entity
level at corporate rates. In addition, any distribution made to a unitholder
would be treated as either taxable dividend income (to the extent of our current
or accumulated earnings and profits), in the absence of earnings and profits as
a nontaxable return of capital (to the extent of the unitholder's basis in his
Common Units) or taxable capital gain (after the unitholder's basis in the
Common Units is reduced to zero). Accordingly, our treatment as an association
taxable as a corporation would result in a material reduction in a unitholder's
cash flow and after-tax return.
The discussion below is based on the assumption that we will be
classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Our unitholders who have become limited partners will be treated as
partners 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 herein, Counsel is of the opinion that (a) assignees who have executed
and delivered Transfer Applications and are awaiting admission as limited
partners and (b) our unitholders whose Common Units are held in street name or
by another nominee and who have the right to direct the nominee in the exercise
of all substantive rights attendant to the ownership of their Common Units will
be treated as partners for federal income tax purposes. As this ruling does not
extend, on its facts, to assignees of Common Units who are entitled to execute
and deliver Transfer Applications and thereby become entitled to direct the
exercise of attendant rights, but who fail to execute and deliver Transfer
Applications, Counsel's opinion does not extend to these persons. Income, gain,
deductions, losses or credits would not appear to be reportable by such a
unitholder, and any cash distributions received by such a unitholder would
therefore be fully taxable as ordinary income. These holders should consult
their own tax advisors with respect to their status as partners for federal
income tax purposes. A purchaser or other transferee of Common Units who does
not execute and deliver a Transfer Application may not receive certain federal
income tax information or reports furnished to record holders of Common Units
unless the Common Units are held in a nominee or street name account and the
nominee or broker has executed and delivered a Transfer Application with respect
to such Common Units.
A beneficial owner of Common Units whose Common Units have been
transferred to a short seller to complete a short sale would appear to lose his
status as a partner with respect to such Common Units for federal income tax
purposes. See "Tax Considerations-Tax Treatment of Operations-Treatment of Short
Sales."
TAX CONSEQUENCES OF COMMON UNIT OWNERSHIP
Flow-through of Taxable Income
We will pay no federal income tax. Instead, each unitholder will be
required to report on his income tax return his allocable share of our income,
gains, losses and deductions without regard to whether corresponding cash
distributions are received by such unitholder. Consequently, we may allocate
income to a unitholder although he has not received a cash distribution in
respect of such income.
Treatment of Partnership Distributions
Our distributions to a unitholder generally will not be taxable to the
unitholder for federal income tax purposes to the extent of his basis in his
Common Units immediately before the distribution. Cash distributions in excess
of a Common Unitholder's basis generally will be considered to be gain from the
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sale or exchange of the Common Units, taxable in accordance with the rules
described under "Tax Considerations-Disposition of Common Units." Any reduction
in a Common Unitholder's share of our liabilities for which no partner,
including the General Partners, bears the economic risk of loss ("nonrecourse
liabilities") will be treated as a distribution of cash to such unitholder.
Basis of Common Units
A unitholder's initial tax basis for his Common Units will be the
amount paid for the Common Unit plus his share of our nonrecourse liabilities.
The initial tax basis for a Common Unit will be increased by the unitholder's
share of our income and by any increase in the unitholder's share of our
nonrecourse liabilities. The basis for a Common Unit will be decreased (but not
below zero) by our distributions, including any decrease in the unitholder's
share of our nonrecourse liabilities, by the unitholder's share of our losses
and by the unitholder's share of our expenditures that are not deductible in
computing his taxable income and are not required to be capitalized. A
unitholder's share of our nonrecourse liabilities will be generally based on the
unitholder's share of our profits.
Limitations on Deductibility of Our Losses
To the extent we incur losses, a unitholder's share of deductions for
the losses will be limited to the tax basis of the unitholder's Common Units or,
in the case of an individual unitholder or a corporate unitholder if more than
50% of the value of his stock is owned directly or indirectly by five or fewer
individuals or certain tax-exempt organizations, to the amount that the
unitholder is considered to be "at risk" with respect to our activities, if that
is less than the unitholder's basis. A unitholder must recapture losses deducted
in previous years to the extent that our distributions cause the unitholder's at
risk amount to be less than zero at the end of any taxable year. Losses
disallowed to a unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to the extent that the unitholder's basis or
at risk amount (whichever is the limiting factor) is increased.
In general, a unitholder will be at risk to the extent of the purchase
price of his Common Units, but this will be less than the unitholder's basis for
his Common Units by the amount of the unitholder's share of any of our
nonrecourse liabilities. A unitholder's at risk amount will increase or decrease
as the basis of the unitholder's Common Units increases or decreases except that
changes in our nonrecourse liabilities will not increase or decrease the at risk
amount.
The passive loss limitations generally provide that individuals,
estates, trusts and 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 to be applied separately with respect to each
publicly-traded partnership. Consequently, the losses generated by us, if any,
will only be available to offset future income that we generate and will not be
available to offset income from other passive activities or investments
(including other publicly-traded partnerships) or salary or active business
income. Passive losses that are not deductible because they exceed the
unitholder's income that we generate may be deducted in full when the unitholder
disposes of his entire investment in a fully taxable transaction to an unrelated
party. The passive activity loss rules are applied after other applicable
limitations on deductions such as the at risk rules and the basis limitation.
A unitholder's share of our net income may be offset by any of our
suspended passive losses, but it may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly-traded partnerships. The IRS has announced that Treasury
Regulations will be issued that characterize net passive income from a
publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest.
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Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, the net passive income a unitholder receives from us will be
treated as investment income for this purpose. In addition, the unitholder's
share of our portfolio income will be treated as investment income.
Investment interest expense includes:
o Interest on indebtedness properly allocable to property held for
investment;
o A partnership's interest expense attributed to portfolio income; and
o The portion of interest expense incurred to purchase or carry an interest
in a passive activity to the extent attributable to portfolio income.
The computation of a unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a Common Unit to the extent attributable to his portfolio
income. Net investment income includes gross income from property held for
investment, gain attributable to the disposition of property held for investment
and amounts treated as portfolio income pursuant to the passive loss rules less
deductible expenses (other than interest) directly connected with the production
of investment income.
Allocation of Our Income, Gain, Loss and Deduction
Our Partnership Agreement provides that a capital account be maintained
for each partner, that the capital accounts generally be maintained in
accordance with the applicable tax accounting principles set forth in applicable
Treasury Regulations and that all allocations to a partner be reflected by an
appropriate increase or decrease in his capital account. Distributions upon our
liquidation are generally to be made in accordance with positive capital account
balances.
In general, if we have a net profit, items of income, gain, loss and
deduction will be allocated among the General Partners and our unitholders in
accordance with their respective percentage interests in us. A class of our
unitholders that receives more cash than another class, on a per unit basis,
with respect to a year, will be allocated additional income equal to that
excess. If we have a net loss, items of income, gain, loss and deduction will
generally be allocated for both book and tax purposes (1) first, to the General
Partners and our unitholders in accordance with their respective percentage
interests to the extent of their positive capital accounts and (2) second, to
the General Partners.
Notwithstanding the above, as required by Section 704(c) of the Code,
certain items of our income, deduction, gain and loss will be specially
allocated to account for the difference between the tax basis and fair market
value of property contributed to us ("Contributed Property"). In addition,
certain items of recapture income will be allocated to the extent possible to
the partner allocated the deduction giving rise to the treatment of such gain as
recapture income in order to minimize the recognition of ordinary income by some
of our unitholders, but these allocations may not be respected. If these
allocations of recapture income are not respected, the amount of the income or
gain allocated to a unitholder will not change, but instead a change in the
character of the income allocated to a unitholder would result. Finally,
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although we do not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts nevertheless result,
items of our income and gain will be allocated in an amount and manner
sufficient to eliminate the negative balance as quickly as possible.
Regulations provide that an allocation of items of our income, gain,
loss, deduction or credit, other than an allocation required by Section 704(c)
of the Code to eliminate the disparity between a partner's "book" capital
account (credited with the fair market value of Contributed Property) and "tax"
capital account (credited with the tax basis of Contributed Property) (the
"Book-Tax Disparity"), will generally be given effect for federal income tax
purposes in determining a partner's distributive share of an item of income,
gain, loss or deduction only if the allocation has substantial economic effect.
In any other case, a partner's distributive share of an item will be determined
on the basis of the partner's interest in us, which will be determined by taking
into account all the facts and circumstances, including the partner's relative
contributions to us, the interests of the partners in economic profits and
losses, the interests of the partners in cash flow and other non-liquidating
distributions and rights of the partners to distributions of capital upon
liquidation.
Under the Code, the partners in a partnership cannot be allocated more
depreciation, gain or loss than the total amount of any such item recognized by
that partnership in a particular taxable period. This rule, often referred to as
the "ceiling limitation," is not expected to have significant application to
allocations with respect to Contributed Property and thus, is not expected to
prevent our unitholders from receiving allocations of depreciation, gain or loss
from such properties equal to that which they would have received had such
properties actually had a basis equal to fair market value at the outset.
However, to the extent the ceiling limitation is or becomes applicable, our
Partnership Agreement requires that certain items of income and deduction be
allocated in a way designed to effectively "cure" this problem and eliminate the
impact of the ceiling limitations. Such allocations will not have substantial
economic effect because they will not be reflected in the capital accounts of
our unitholders.
The legislative history of Section 704(c) states that Congress
anticipated that Treasury Regulations would permit partners to agree to a more
rapid elimination of Book-Tax Disparities than required provided there is no tax
avoidance potential. Further, under recently enacted final Treasury Regulations
under Section 704(c), allocations similar to the curative allocations would be
allowed. However, since the final Treasury Regulations are not applicable to us,
Counsel is unable to opine on the validity of the curative allocations.
Counsel is of the opinion that, with the exception of curative
allocations and the allocation of recapture income discussed above, allocations
under our Partnership Agreement will be given effect for federal income tax
purposes in determining a partner's distributive share of an item of income,
gain, loss or deduction. There are, however, uncertainties in the Treasury
Regulations relating to allocations of partnership income, and investors should
be aware that some of the allocations in our Partnership Agreement may be
successfully challenged by the IRS.
TAX TREATMENT OF OUR OPERATIONS
Accounting Method and Taxable Year
We use the calendar year as our taxable year and adopt the accrual
method of accounting for federal income tax purposes.
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Initial Tax Basis, Depreciation and Amortization
The tax basis established for our various assets will be used for
purposes of computing depreciation and cost recovery deductions and, ultimately,
gain or loss on the disposition of such assets. Our assets initially had an
aggregate tax basis equal to the sum of each unitholder's tax basis in his
Common Units or Subordinated Units (which were converted into Common Units on
January 19, 1999) and the tax basis of the General Partners in their respective
general partner interests.
We allocated the aggregate tax basis among our assets based upon their
relative fair market values. Any amount in excess of the fair market values of
specific tangible and intangible assets will constitute goodwill, which is
subject to amortization over 15 years.
The IRS may (i) challenge either the fair market values or the useful
lives assigned to such assets or (ii) seek to characterize intangible assets as
goodwill. If any such challenge or characterization were successful, the
deductions allocated to a Common Unitholder in respect of such assets would be
reduced, and a unitholder's share of taxable income received from us would be
increased accordingly. Any such increase could be material.
To the extent allowable, the General Partners may elect to use the
depreciation and cost recovery methods that will result in the largest
depreciation deductions in our early years. Property that we subsequently
acquire or construct may be depreciated using accelerated methods permitted by
the Code.
If we dispose of depreciable property by sale, foreclosure, or
otherwise, all or a portion of any gain (determined by reference to the amount
of depreciation previously deducted and the nature of the property) may be
subject to the recapture rules and taxed as ordinary income rather than capital
gain. Similarly, a partner who has taken cost recovery or depreciation
deductions with respect to property owned by us may be required to recapture
such deductions upon a sale of his interest. See "Tax Considerations-Allocation
of Our Income, Gain, Loss and Deduction" and "Tax Considerations-Disposition of
Common Units-Recognition of Gain or Loss."
Costs we incurred in organizing may be amortized over any period we
select not shorter than 60 months. The costs incurred in promoting the issuance
of units must be capitalized and cannot be deducted currently, ratably or upon
our termination. There are uncertainties regarding the classification of costs
as organization expenses, that may be amortized, and as syndication expenses
which may not be amortized.
Section 754 Election
We previously made the election permitted by Section 754 of the Code.
This election is irrevocable without the consent of the IRS. The election
generally permits a purchaser of Common Units to adjust his share of the basis
in our properties ("inside basis") pursuant to Section 743(b) of the Code to
fair market value (as reflected by his Common Unit price). See "Tax
Considerations-Allocation of Our Income, Gain, Loss and Deduction." The Section
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743(b) adjustment is attributed solely to a purchaser of units and is not added
to the basis of our assets associated with all of our unitholders. (For purposes
of this discussion, a partner's inside basis in our assets will be considered to
have two components: (1) his share of our actual basis in such assets (the
"Common Basis"); and (2) his Section 743(b) adjustment allocated to each such
asset.)
Proposed Treasury Regulation Section 1.168-2(n) generally requires the
Section 743(b) adjustment attributable to recovery property to be depreciated as
if the total amount of such adjustment were attributable to newly-acquired
recovery property placed in service when the transfer occurs. Similarly, the
proposed Treasury Regulation Section 1.197-2(g)(3) generally requires that the
743(b) adjustment attributable to amortizable intangible assets under Section
197 should be treated as a newly-acquired asset placed in service in the month
when the transfer occurs. Under Treasury Regulation Section 1.167(c)-1(a)(6), a
Section 743(b) adjustment attributable to property subject to depreciation under
Section 167 of the Code rather than cost recovery deductions under Section 168
is generally required to be depreciated using either the straight-line method or
the 150% declining balance method. We intend to utilize the 150% declining
balance method on such property. The depreciation method and useful lives
associated with the Section 743(b) adjustment, therefore, may differ from the
method and useful lives generally used to depreciate the Common Basis in such
properties. Pursuant to our Partnership Agreement, the General Partners are
authorized to adopt a convention to preserve the uniformity of Common Units even
if such convention is not consistent with Treasury Regulation Section
1.167(c)-1(a)(6), Proposed Treasury Regulation Sections 1.168-2(n) or
1.197-2(g)(3). See "Tax Considerations-Uniformity of Common Units."
Although Counsel is unable to opine as to the validity of such an
approach, we intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property (to
the extent of any unamortized Book-Tax Disparity) using a rate of depreciation
or amortization derived from the depreciation or amortization method and useful
life applied to the Common Basis of such property, despite its inconsistency
with proposed Treasury Regulation Section 1.168-2(n), Treasury Regulation
Section 1.167(c)-1(a)(6) or Proposed Treasury Regulation Section 1.197-2(g)(3).
If we determine that such position cannot reasonably be taken, we may adopt a
depreciation or amortization convention under which all purchasers acquiring
Common Units in the same month would receive depreciation or amortization,
whether attributable to the Common Basis or the Section 743(b) basis, based upon
the same applicable rate as if they had purchased a direct interest in our
property. Such an aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to certain of our
unitholders. See "Tax Considerations-Uniformity of Common Units."
The allocation of the Section 743(b) adjustment must be made in
accordance with the principles of Section 1060 of the Code. Based on these
principles, the IRS may seek to reallocate some or all of any Section 743(b)
adjustment not so allocated by us to goodwill. Alternatively, it is possible
that the IRS may seek to treat the portion of such Section 743(b) adjustment
attributable to the Underwriter's discount as if allocable to a non-deductible
syndication cost.
A Section 754 election is advantageous if the transferee's basis in his
Common Units is higher than such Common Units' share of the aggregate basis of
our assets immediately prior to the transfer. In such case, pursuant to the
election, the transferee would take a new and higher basis in his share of our
assets for purposes of calculating, among other items, his depreciation
deductions and his share of any gain or loss on a sale of our assets.
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<PAGE> 21
Conversely, a Section 754 election is disadvantageous if the transferee's basis
in such Common Units is lower than such Common Units' share of the aggregate
basis of our assets immediately prior to the transfer. Thus, the amount that a
unitholder will be able to obtain upon the sale of his Common Units may be
affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and
we will make them on the basis of certain assumptions as to the value of our
assets and other matters. There is no assurance that the determinations we make
will not be successfully challenged by the IRS and that the deductions
attributable to them will not be disallowed or reduced. Should the IRS require a
different basis adjustment to be made, and should, in the General Partners'
opinion, the expense of compliance exceed the benefit of the election, the
General Partners may seek permission from the IRS to revoke our Section 754
election. If such permission is granted, a purchaser of Common Units subsequent
to such revocation probably will incur increased tax liability.
Alternative Minimum Tax
Each unitholder will be required to take into account his distributive
share of any items of our income, gain or loss for purposes of the alternative
minimum tax. A portion of our depreciation deductions may be treated as an item
of tax preference for this purpose.
A unitholder's alternative minimum taxable income derived from us may
be higher than his share of our net income because we may use more accelerated
methods of depreciation for purposes of computing federal taxable income or
loss. The minimum tax rate for individuals is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption amount and to 28%
on any additional alternative minimum taxable income. You should consult with
your tax advisors as to the impact of an investment in Common Units on your
liability under the alternative minimum tax.
Valuation of Our Property
The federal income tax consequences of the acquisition, ownership and
disposition of Common Units will depend in part on our estimates of the relative
fair market values, and determinations of the initial tax basis, of our assets.
Although we may from time to time consult with professional appraisers with
respect to valuation matters, many of the relative fair market value estimates
will be made solely by us. These estimates are subject to challenge and will not
be binding on the IRS or the courts. In the event the 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 our
unitholders might change, and our unitholders might be required to amend their
previously filed tax returns or to file claims for refunds.
Treatment of Short Sales
A unitholder who engages in a short sale (or a transaction having the
same effect) with respect to Common Units will be required to recognize the gain
(but not the loss) inherent in such Common Units. See "Tax Considerations-
Disposition of Common Units." In addition, it would appear that a unitholder
whose Common Units are loaned to a "short seller" to cover a short sale of
Common Units would be considered as having transferred beneficial ownership of
those Common Units and would, thus, no longer be a partner with respect to those
Common Units during the period of the loan. As a result, during this period, any
of our income, gain, deduction, loss or credit with respect to those Common
Units would appear not to be reportable by the unitholder, any cash
distributions received by the unitholder with respect to those Common Units
would be fully taxable and all of such distributions would appear to be treated
as ordinary income. The IRS may also contend that a loan of Common Units to a
"short seller" constitutes a taxable exchange. If the IRS successfully made this
contention, the lending unitholder may be required to recognize gain or loss.
Unitholders desiring to assure their status as partners should modify their
brokerage account agreements, if any, to prohibit their brokers from borrowing
their Common Units.
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<PAGE> 22
DISPOSITION OF COMMON UNITS
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of Common Units equal to the
difference between the amount realized and the unitholder's tax basis for the
Common Units sold. A unitholder's amount realized will be measured by the sum of
the cash or the fair market value of other property received plus his share of
our nonrecourse liabilities. Since the amount realized includes a unitholder's
share of our nonrecourse liabilities, the gain recognized on the sale of Common
Units may result in a tax liability in excess of any cash received from such
sale.
Gain or loss recognized by a unitholder (other than a "dealer" in
Common Units) on the sale or exchange of a Common Unit held for more than twelve
months will generally be taxable as long-term capital gain or loss. A
substantial portion of this gain or loss, however, will be separately computed
and taxed as ordinary income or loss under section 751 of the Code to the extent
attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to inventory we owned. The term "unrealized
receivables" includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory and
deprecation recapture may exceed net taxable gain realized upon the sale of the
Common Unit and may be recognized even if there is a net taxable gain realized
upon the sale of the Common Unit. Any loss recognized on the sale of Common
Units will generally be a capital loss. Thus, a unitholder may recognize both
ordinary income and a capital loss upon a disposition of Common Units. Net
capital loss may offset no more than $3,000 of ordinary income in the case of
individuals and may only be used to offset capital gain in the case of a
corporation.
The IRS has ruled that a partner acquiring interests in a partnership
in separate transactions at different prices must maintain an aggregate adjusted
tax basis in a single partnership interest and that, upon sale or other
disposition of some of the interests, a portion of such aggregate tax basis must
be allocated to the interests sold on the basis of some equitable apportionment
method. This ruling is unclear as to how the holding period is affected by this
aggregation concept. If this ruling is applicable to you, the aggregation of
your tax basis effectively prohibits you from choosing among Common Units with
varying amounts of unrealized gain or loss as would be possible in a stock
transaction. Thus, the ruling may result in an acceleration of gain or deferral
of loss on a sale of a portion of your Common Units. It is not clear whether the
ruling applies to publicly-traded partnerships, such as us, the interests in
which are evidenced by separate interests, and accordingly Counsel is unable to
opine as to the effect such ruling will have on you. If you are considering the
purchase of additional Common Units or a sale of Common Units purchased at
differing prices, you should consult your tax advisor as to the possible
consequences of such ruling.
Allocations Between Transferors and Transferees
In general, our taxable income and losses will be determined annually
and will be prorated on a monthly basis and subsequently apportioned among our
unitholders in proportion to the number of Common Units they owned as of the
close of business on the last day of the preceding month. However, gain or loss
realized on a sale or other disposition of our assets other than in the ordinary
course of business shall be allocated among our unitholders of record as of the
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<PAGE> 23
opening of the New York Stock Exchange on the first business day of the month in
which such gain or loss is recognized. As a result of this monthly allocation, a
unitholder transferring Common Units in the open market may be allocated income,
gain, loss, deduction, and credit accrued after the transfer.
The use of the monthly conventions discussed above may not be permitted
by existing Treasury Regulations and, accordingly, Counsel is unable to opine on
the validity of the method of allocating income and deductions between the
transferors and the transferees of Common Units. If a monthly convention is not
allowed by the Treasury Regulations (or only applies to transfers of less than
all of a unitholder's interest), our taxable income or losses might be
reallocated among our unitholders. We are authorized to revise our method of
allocation between transferors and transferees (as well as among partners whose
interests otherwise vary during a taxable period) to conform to a method
permitted by future Treasury Regulations.
A unitholder who owns Common Units at any time during a quarter and who
disposes of such Common Units prior to the record date set for a distribution
with respect to such quarter will be allocated items of our income and gain
attributable to such quarter during which such Common Units were owned but will
not be entitled to receive such cash distribution.
Notification Requirements
A unitholder who sells or exchanges Common Units is required to notify
us in writing of such sale or exchange within 30 days of the sale or exchange
and, in any event, no later than January 15 of the year following the calendar
year that the sale or exchange occurred. We are required to notify the IRS of
such transaction and to furnish certain information to the transferor and
transferee. However, these reporting requirements do not apply with respect to a
sale by an individual who is a citizen of the United States and who effects such
sale through a broker. Additionally, a transferor and a transferee of a Common
Unit will be required to furnish statements to the IRS, filed with their income
tax returns for the taxable year in which the sale or exchange occurred, that
set forth the amount of the consideration received for such Common Unit that is
allocated to our goodwill or going concern value. Failure to satisfy such
reporting obligations may lead to the imposition of substantial penalties.
Constructive Termination
Both we and Northern Border Intermediate Limited Partnership will be
considered to be 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. Such a termination could result in the non-uniformity of
Common Units for federal income tax purposes. Our constructive termination will
cause a termination of Northern Border Intermediate Limited Partnership. Such a
termination could also result in penalties or loss of basis adjustments under
Section 754 of the Code if we were unable to determine that the termination had
occurred.
In the case of a unitholder reporting on a fiscal year other than a
calendar year, the closing of our tax year may result in more than 12 months of
our taxable income or loss being includable in our taxable income for the year
of termination. In addition, each unitholder will realize taxable gain to the
extent that any money constructively distributed to him (including any net
reduction in his share of partnership nonrecourse liabilities) exceeds the
adjusted basis on his Common Units. New tax elections we are required to make,
including a new election under Section 754 of the Code, must be made subsequent
to the constructive termination. A constructive termination would also result in
a deferral of our deductions for depreciation. In addition, a termination might
either accelerate the application of or subject us to any tax legislation
enacted with effective dates after the closing of the offering made hereby.
Entity-Level Collections
If we are required under applicable law to pay any federal, state or
local income tax on behalf of any unitholder, any General Partner or any former
unitholder, our Partnership Policy Committee is authorized to pay such taxes
from our funds. Such payments, if made, will be deemed current distributions of
cash to our unitholders and the General Partners. The General Partners are
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authorized to amend our Partnership Agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of Common Units and to
adjust subsequent distributions so that after giving effect to such deemed
distributions, the priority and characterization of distributions otherwise
applicable under our Partnership Agreement is maintained as nearly as is
practicable. Such payments could give rise to an overpayment of tax on behalf of
an individual partner in which event the partner could file a claim for credit
or refund.
Uniformity of Common Units
Since we cannot match transferors and transferees of Common Units,
uniformity of the economic and tax characteristics of the Common Units to a
purchaser of such Common Units must be maintained. In the absence of uniformity,
compliance with a number of federal income tax requirements, both statutory and
regulatory, could be substantially diminished. A lack of uniformity can result
from a literal application of Proposed Treasury Regulation Section 1.168-2(n)
and Treasury Regulation Section 1.167(c)-1(a)(6) or Proposed Treasury Regulation
Section 1.197-2(g)(3) and from the application of the "ceiling limitation" on
our ability to make allocations to eliminate Book-Tax Disparities attributable
to Contributed Properties and our property that has been revalued and reflected
in the partners' capital accounts ("Adjusted Properties"). Any such
non-uniformity could have a negative impact on the value of a unitholder's
interest in us.
We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property or
Adjusted Property (to the extent of any unamortized Book-Tax Disparity) using
the rate of depreciation derived from the depreciation method and useful life
applied to the Common Basis of such property, despite its inconsistency with
Proposed Treasury Regulation Section 1.168- 2(n) and Treasury Regulation Section
1.167(c)-1(a)(6) or Proposed Treasury Regulation Section 1.197-2(g)(3). See "Tax
Considerations-Tax Treatment of Operations-Section 754 Election." If we
determine that such a position cannot reasonably be taken, we may adopt
depreciation and amortization conventions under which all purchasers acquiring
Common Units in the same month would receive depreciation and amortization
deductions, whether attributable to the Common Basis or the Section 743(b)
basis, based upon the same applicable rate as if they had purchased a direct
interest in our property. If such an aggregate approach is adopted, it may
result in lower annual depreciation and amortization deductions than would
otherwise be allowable to certain of our unitholders and risk the loss of
depreciation and amortization deductions not taken in the year that such
deductions are otherwise allowable. We will not adopt this convention if we
determine that the loss of depreciation and amortization deductions will have a
material adverse effect on our unitholders. If we choose not to utilize this
aggregate method, we may use any other reasonable depreciation and amortization
convention to preserve the uniformity of the intrinsic tax characteristics of
any Common Units that would not have a material adverse effect on our
unitholders. The IRS may challenge any method of depreciating or amortizing the
Section 743(b) adjustment described in this paragraph. If such a challenge was
sustained, the uniformity of Common Units might be affected.
Items of income and deduction will be specially allocated in a manner
that is intended to preserve the uniformity of intrinsic tax characteristics
among all Common Units, despite the application of the "ceiling limitation" to
Contributed Properties and Adjusted Properties. Such special allocations will be
made solely for federal income tax purposes. See "Tax Considerations-Tax
Consequences of Common Unit Ownership" and "Tax Considerations-Allocation of Our
Income, Gain, Loss and Deduction."
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Tax-Exempt Organizations and Certain Other Investors
Ownership of Common Units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and, as
described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax (including individual retirement accounts and other retirement plans)
are subject to federal income tax on unrelated business taxable income.
Virtually all of the taxable income derived by such an organization from the
ownership of a Common Unit will be unrelated business taxable income, and thus
will be taxable to such a unitholder.
Regulated investment companies are required to derive 90% or more of
their gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or certain related sources. It is not anticipated
that any significant amount of our gross income will qualify as such income.
Non-resident aliens and foreign corporations, trusts or estates that
acquire Common Units will be considered to be engaged in business in the United
States on account of their ownership of Common Units, and as a consequence they
will be required to file federal tax returns in respect of their distributive
shares of our income, gain, loss deduction or credit and pay federal income tax
at regular rates on such income. Generally, a partnership is required to pay a
withholding tax on the portion of the Partnership's income that is effectively
connected with the conduct of a United States trade or business and which is
allocable to the foreign partners, regardless of whether any actual
distributions have been made to such partners. However, under rules applicable
to publicly-traded partnerships, we will withhold at the rate of 39.6% on actual
cash distributions made quarterly to foreign unitholders. Each foreign
unitholder must obtain a taxpayer identification number from the IRS and submit
that number to our 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 us to change these
procedures.
Because a foreign corporation that owns Common Units will be treated as
engaged in a United States trade or business, such a unitholder may be subject
to United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its allocable share of our earnings and profits (as
adjusted for changes in the foreign corporation's "U.S. net equity") that are
effectively connected with the conduct of a United States trade or business.
Such a tax may be reduced or eliminated by an income tax treaty between the
United States and the country with respect to which the foreign corporate
unitholder is a "qualified resident."
Assuming that the Common Units are regularly traded on an established
securities market, a foreign unitholder who sells or otherwise disposes of a
Common Unit and who has not held more than 5% in value of the Common Units at
any time during the five-year period ending on the date of the disposition will
not be subject to federal income tax on gain realized on the disposition that is
attributable to real property held by us, but (regardless of a foreign
unitholder's percentage interest in us or whether Common Units are regularly
traded) such unitholder may be subject to 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 unitholder. A foreign unitholder
will be subject to federal income tax on gain attributable to real property held
by us if the holder held more than 5% in value of the Common Units during the
five-year period ending on the date of the disposition or if the Common Units
were not regularly traded on an established securities market at the time of the
disposition.
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ADMINISTRATIVE MATTERS
Our Information Returns and Audit Procedures
We intend to furnish to each of our unitholders within 90 days after
the close of each taxable year, certain tax information, including a Schedule
K-1, that sets forth each of our unitholders' allocable shares of our income,
gain, loss, deduction and credit. In preparing this information that will
generally not be reviewed by Counsel, we will use various accounting and
reporting conventions, some of which have been mentioned in the previous
discussion, to determine the respective unitholders' allocable share of income,
gain, loss, deduction and credits. There is no assurance that any such
conventions will yield a result that conforms to the requirements of the Code,
regulations or administrative interpretations of the IRS. We cannot assure
prospective unitholders that the IRS will not successfully contend in court that
such accounting and reporting conventions are impermissible.
The federal income tax information returns we filed may be audited by
the IRS. Adjustments resulting from any such audit may require some or all of
our unitholders to file amended tax returns, and possibly may result in an audit
of such unitholders' own returns. Any audit of a unitholder's return could
result in adjustments of non-partnership as well as partnership items.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss, deduction and credit are determined at the partnership level in a
unified partnership proceeding rather than in separate proceedings with the
partners. The Code provides for one partner to be designated as the "Tax Matters
Partner" for these purposes. Our Partnership Agreement appoints Northern Plains
as the Tax Matters Partner.
The Tax Matters Partner will make certain elections on our behalf and
our unitholders' behalf and can extend the statute of limitations for assessment
of tax deficiencies against our unitholders with respect to our items. The Tax
Matters Partner may bind a unitholder with less than a 1% profits interest in us
to a settlement with the IRS unless such unitholder elects, by filing a
statement with the IRS, not to give such authority to the Tax Matters Partner.
The Tax Matters Partner may seek judicial review (to which all of our
unitholders are bound) of a final partnership administrative adjustment and, if
the Tax Matters Partner fails to seek judicial review, such review may be sought
by any of our unitholders having at least 1% interest in our profits and by our
unitholders having in the aggregate at least a 5% profits interest. However,
only one action for judicial review will go forward, and each unitholder with an
interest in the outcome may participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is not consistent
with the treatment of the item on our return to avoid the requirement that all
items be treated consistently on both returns. Intentional or negligent
disregard of the consistency requirement may subject a unitholder to substantial
penalties.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are
required to furnish to us:
o The name, address and taxpayer identification number of the beneficial
owners and the nominee;
o Whether the beneficial owner is (i) a person that is not a United States
person, (ii) a foreign government, an international organization or any
wholly-owned agency or instrumentality of either of the foregoing or (iii)
a tax-exempt entity;
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o The amount and description of Common Units held, acquired or transferred
for the beneficial owner; 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 United States persons and certain
information on Common Units they acquire, hold or transfer for their own
account. A penalty of $50 per failure (up to a maximum of $100,000 per calendar
year) is imposed by the Code for failure to report such information to us. The
nominee is required to supply the beneficial owner of the Common Units with the
information furnished to us.
Registration as a Tax Shelter
The Code requires that "tax shelters" be registered with the Secretary
of the Treasury. The temporary Treasury Regulations interpreting the tax shelter
registration provisions of the Code are extremely broad. It is arguable that we
are not subject to the registration requirement on the basis that (i) we do not
constitute a tax shelter or (ii) we constitute a projected income investment
exempt from registration. However, we have registered as a tax shelter with the
IRS because of the absence of assurance that we will not be subject to tax
shelter registration and in light of the substantial penalties that might be
imposed if registration is required and not undertaken. ISSUANCE OF THE
REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN US OR THE CLAIMED
TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. Our tax
shelter registration number is 93271000031. A unitholder who sells or otherwise
transfers a Common Unit in a subsequent transaction must furnish the
registration number to the transferee. The penalty for failure of the transferor
of a Common Unit to furnish such registration number to the transferee is $100
for each such failure. The unitholders must disclose our tax shelter
registration number on Form 8271 to be attached to the tax return on which any
deduction, loss, credit or other benefit we generate is claimed or income
received from us is included. A unitholder who fails to disclose the tax shelter
registration number on his return, without reasonable cause for such failure,
will be subject to a $50 penalty for each such failure. Any penalties discussed
herein are not deductible for federal income tax purposes.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax that is attributable to one or more of certain listed
causes, including substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Code. No penalty will be imposed,
however, with respect to any portion of an underpayment if it is shown that
there was a reasonable cause for 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 is attributable to a position adopted on the
return (i) with respect to which there is, or was, "substantial authority" or
(ii) as to which there is a reasonable basis and the pertinent facts of such
position are disclosed on the return. Certain more stringent rules apply to "tax
shelters," a term that does not appear to include us. If any item of our income,
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gain, loss, deduction or credit included in the distributive shares of our
unitholders might result in such an "understatement" of income for which no
substantial authority exists, we must disclose the pertinent facts on our
return. In addition, we will make a reasonable effort to furnish sufficient
information for our unitholders to make adequate disclosure on their returns to
avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any
property (or the adjusted basis of any property) claimed on a tax return is 200%
or more of the amount determined to be the correct amount of such valuation or
adjusted basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400% or more than
the correct valuation, the penalty imposed increases to 40%.
Other Taxes
You should consider state and local tax consequences of purchasing our
Common Units. We own property or are doing business in Arizona, Illinois, Iowa,
Minnesota, Montana, Nebraska, North Dakota, Oklahoma, South Dakota and Texas.
You will likely be required to file state income tax returns and/or to pay taxes
in most of these states and may be subject to penalties for failure to comply
with such requirements. Some of these states require that a partnership withhold
a percentage of income from amounts that are to be distributed to a partner that
is not a resident of the state. The amounts withheld, which may be greater or
less than a particular partner's income tax liability to the state, generally do
not relieve the non-resident partner from the obligation to file a state income
tax return. Amounts withheld will be treated as if distributed to our
unitholders for purposes of determining the amounts distributed by us. Based on
current law and its estimate of our future operations, we anticipate that any
amounts required to be withheld will not be material. In addition, an obligation
to file tax returns or to pay taxes may arise in other states.
It is your responsibility to investigate the legal and tax
consequences, under the laws of pertinent states or localities, of your
investment in us. Further, it is your responsibility to file all state and
local, as well as federal, tax returns that may be required of you. Counsel has
not rendered an opinion on the state and local tax consequences of an investment
in us.
OFFERING UNITHOLDERS
The table below sets forth the following information with respect to
each offering unitholder: (1) the number of Common Units and the percentage of
the outstanding Common Units owned of record; (2) the number of Common Units
being offered hereby; and (3) the number of Common Units to be owned of record
upon completion of the offerings under this registration statement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
OWNERSHIP BEFORE OWNERSHIP AFTER
OFFERING OFFERING
- ----------------------------------------------------------------------------------------------
Units to
Name Units Percent Be Sold Shares
---- ----- ------- ------- ------
<S> <C> <C> <C> <C>
Panhandle Eastern Pipe Line Company(1) 2,086,500 7.1 2,086,500 --
Northwest Border Pipe Line Company (2)(3) 1,123,500 3.8 1,123,500 --
==============================================================================================
</TABLE>
(1) Panhandle Eastern Pipe Line Company has provided a guaranty for 150 MMcfd
of PAGUS' contracted capacity through October 31, 2001.
(2) Northwest Border Pipeline Company, a wholly-owned subsidiary of The
Williams Companies, Inc., serves as one of our three General Partners as
described above under "Our Business."
27
<PAGE> 29
(3) Transcontinental Gas Pipe Line Corporation, a subsidiary of The Williams
Companies, Inc., is one of our shippers. See "Conflicts of Interest and
Fiduciary Responsibilities."
PLAN OF DISTRIBUTION
Under this prospectus, the offering unitholders intend to offer Common
Units to the public through one or more broker-dealers, through underwriters, or
directly to investors. The offering unitholders will fix a price or prices, and
they may change the price of the Common Units offered from time to time at
market prices prevailing at the time of any sale under this shelf registration,
prices related to such market prices, or negotiated prices. The offering
unitholders will pay or allow distributors' or sellers' commissions that will
not exceed those customary in the types of transactions involved. Broker-dealers
may act as agent or may purchase Common Units as principal and thereafter resell
such Common Units from time to time in or through one or more transactions
(which may involve crosses and block transactions) or distributions on the New
York Stock Exchange, in the over-the-counter market, or in private transactions.
Broker-dealers or underwriters may receive compensation in the form of
underwriting discounts or commissions and may receive commissions from
purchasers of the Common Units for whom they may act as agents. If any
broker-dealer purchases the Common Units as principal, it may effect resales of
the Common Units from time to time to or through other broker-dealers, and other
broker-dealers may receive compensation in the form of concessions or
commissions from the purchasers of Common Units for whom they may act as agents.
To the extent required, the names of the specific managing underwriter
or underwriters, if any, as well as other important information, will be set
forth in a prospectus supplement. In such event, the discounts and commissions
that the offering unitholders will allow or pay to the underwriters, if any,
and the discounts and commissions that the underwriters may allow or pay to
dealers or agents, if any, will be set forth in, or may be calculated from,
the prospectus supplement.
Any underwriters, brokers, dealers and agents who participate in any
sale of the Common Units may also be customers of, engage in transactions with,
or perform services for the offering unitholders or their affiliates or us in
the ordinary course of business.
IN CONNECTION WITH THIS OFFERING, UNDERWRITERS, BROKERS OR DEALERS
PARTICIPATING IN THE OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON UNITS AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
LEGAL MATTERS
Vinson & Elkins L.L.P. will pass upon the validity of the Common Units
offered in this prospectus and the material federal income tax considerations
regarding the Common Units. The underwriter's own legal counsel will advise them
about other issues relating to any offering.
EXPERTS
The consolidated financial statements and schedule included in our
Annual Report on Form 10-K for the year ended December 31, 1997, incorporated by
reference in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports. Our consolidated
financial statements and schedule referred to above and Arthur Andersen's
reports have been incorporated by reference herein in reliance upon their
authority as experts in accounting and auditing in giving said reports.
28
<PAGE> 30
- --------------------------------------------------------------------------------
3,210,000 COMMON UNITS
[LOGO]
NORTHERN BORDER
PARTNERS, L.P.
REPRESENTING LIMITED
PARTNER INTERESTS
------------------
PROSPECTUS
------------------
- --------------------------------------------------------------------------------
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth those expenses we will incur in
connection with the issuance and distribution of the securities being
registered. Except for the SEC registration fee, all amounts shown are
estimates.
<TABLE>
<S> <C>
Filing Fee for Registration Statement $ 28,557.00
----------
Legal Fees and Expenses $ 50,000.00
----------
Accounting Fees and Expenses $ 20,000.00
----------
Miscellaneous $ 20,000.00
----------
Total $118,557.00
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS, GENERAL PARTNERS AND POLICY COMMITTEE
MEMBERS.
Our Partnership Agreement contains the following provisions relating
to indemnification of officers, general partners and Partnership Policy
Committee members:
6.8 Indemnification.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, each General Partner, the
members of our Partnership Policy Committee, any Departing Partner, any Person
who is or was an officer or director of the Partnership, a General Partner or
any Departing Partner and all other Indemnitees shall be indemnified and held
harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
legal fees and expenses), judgments, fines, penalties, interest, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as (i) a General Partner, a member of our
Partnership Policy Committee, a Departing Partner or any of their Affiliates,
(ii) an officer, director, employee, partner, agent or trustee of the
Partnership, a General Partner, any Departing Partner or any of their Affiliates
or (iii) 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;
provided, further, no indemnification pursuant to this Section 6.8 shall be
available to the General Partners with respect to their obligations incurred
pursuant to the Indemnity Agreement, the Underwriting Agreement or the
Conveyance Agreement (other than obligations incurred by the General Partners on
behalf of the Partnership or the Intermediate Partnership). The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not create a
II-1
<PAGE> 32
presumption that the Indemnitee acted in a manner contrary to that specified
above. Any indemnification pursuant to this Section 6.8 shall be made only out
of the assets of the Partnership, it being agreed that the General Partners
shall not be personally liable for such indemnification and shall have no
obligation to us to contribute or loan any monies or property to the Partnership
to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including,
without limitation, legal fees and expenses) incurred by an Indemnitee who is
indemnified pursuant to Section 6.8(a) in defending any claim, demand, action,
suit or proceeding shall, from time to time, be advanced by the Partnership
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Partnership of an undertaking by or on behalf of the
Indemnitee to repay such amount if it shall be determined that the Indemnitee is
not entitled to be indemnified as authorized in this Section 6.8.
(c) The indemnification provided by this Section 6.8 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the holders of Outstanding Common Units, as a
matter of law or otherwise, both as to actions in the Indemnitee's capacity as
(i) a General Partner, a member of our Partnership Policy Committee, a Departing
Partner or an Affiliate thereof, (ii) an officer, director, employee, partner,
agent or trustee of the Partnership, a General Partner, any Departing Partner or
an Affiliate thereof or (iii) a Person serving at the request of the Partnership
in another entity in a similar capacity, and as to actions in any other capacity
(including, without limitation, any capacity under the Underwriting Agreement),
and shall continue as to an Indemnitee who has ceased to serve in such capacity
and shall inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the
General Partners or their Affiliates for the cost of) insurance, on behalf of
the General Partners, the members of our Partnership Policy Committee and such
other Persons as our Partnership Policy Committee shall determine, against any
liability that may be asserted against or expense that may be incurred by such
Person in connection with the Partnership's activities, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 6.8, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 6.8(a); and action taken
or omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.8 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.8 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
II-2
<PAGE> 33
(i) No amendment, modification or repeal of this Section 6.8 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligation of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.8 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
ITEM 16. EXHIBITS.
*3.1 Form of Amended and Restated Agreement of Limited Partnership of
Northern Border Partners, L.P. (Exhibit 3.1 No. 2 to our Form S-1
Registration Statement, Registration No. 33-66158 ("Form S-1")).
5 Opinion of Vinson & Elkins, LLP, as to the validity of the Common
Units.
8 Tax opinion of Vinson & Elkins, LLP.
*10.1 Form of Amended and Restated Agreement of Limited Partnership For
Northern Border Intermediate Limited Partnership (Exhibit 10.1 to Form
S-1).
*10.2 Northern Border Pipeline Company General Partnership Agreement between
Northern Plains Natural Gas Company, Northwest Border Pipeline Company,
Pan Border Gas Company, TransCanada Border Pipeline Ltd. and TransCan
Northern Ltd., effective March 9, 1978, as amended (Exhibit 10.2 to
Form S-1).
*10.3 Operating Agreement between Northern Border Pipeline Company and
Northern Plains Natural Gas Company, dated February 28, 1980 (Exhibit
10.3 to Form S-1).
*10.4 Administrative Services Agreement between NBP Services Corporation,
Northern Border Partners, L.P. and Northern Border Intermediate Limited
Partnership (Exhibit 10.4 to Form S-1).
*10.5 Note Purchase Agreement between Northern Border Pipeline Company and
the parties listed therein, dated July 15, 1992 (Exhibit 10.6 to Form
S-1).
*10.5.1 Supplemental Agreement to the Note Purchase Agreement dated as of June
1, 1995 (Exhibit 10.6.1 to our Annual Report on Form 10-K for the year
ended December 31, 1995 ("1995 10-K")).
*10.6 Guaranty made by Panhandle Eastern Pipeline Company, dated October 31,
1992 (Exhibit 10.9 to Form S-1).
*10.7 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Gas Marketing, Inc.,
dated June 22, 1990 (Exhibit 10.10 to Form S-1).
*10.8.1 Amended Exhibit A to Northern Border Pipeline Company U.S. Shippers
Service Agreement between Northern Border Pipeline Company and Enron
Gas Marketing, Inc. (Exhibit 10.10.1 to our Annual Report on Form 10-K
for the year ended December 31, 1993 ("1993 10-K")).
*10.8.2 Amended Exhibit A to Northern Border Pipeline U.S. Shippers Service
Agreement between Northern Border Pipeline Company and Enron Gas
Marketing, Inc., effective November 1, 1994 (Exhibit 10.10.2 to our
Annual Report on Form 10-K for the year ended December 31, 1994 ("1994
10-K")).
*10.8.3 Amended Exhibit As to Northern Border Pipeline Company U.S. Shipper
Service Agreement effective, August 1, 1995 and November 1, 1995
(Exhibit 10.10.3 to 1995 10-K).
*10.8.4 Amended Exhibit A to Northern Border Pipeline Company U.S. Shipper
Service Agreement effective April l, 1998. (Exhibit 10.10.4 to our
Annual Report on Form 10-K for the year ended December 31, 1997 ("1997
10-K")).
*10.9.1 Guaranty made by Northern Natural Gas Company, dated October 7, 1993
(Exhibit 10.11.1 to 1993 10-K).
II-3
<PAGE> 34
*10.9.2 Guaranty made by Northern Natural Gas Company, dated October 7, 1993
(Exhibit 10.11.2 to 1993 10-K).
*10.10 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Western Gas Marketing
Limited, as agent for TransCanada PipeLines Limited, dated December 15,
1980 (Exhibit 10.13 to Form S-1).
*10.10.1 Amendment to Northern Border Pipeline Company Service Agreement
extending the term effective November 1, 1995 (Exhibit 10.13.1 to 1995
10-K).
*10.11 Form of Seventh Supplement Amending Northern Border Pipeline Company
General Partnership Agreement (Exhibit 10.15 to Form S-1).
*10.12 Form of Conveyance, Contribution and Assumption Agreement among
Northern Plains Natural Gas Company, Northwest Border Pipeline Company,
Pan Border Gas Company, Northern Border Partners, L.P., and Northern
Border Intermediate Limited Partnership (Exhibit 10.16 to Form S-1).
*10.13 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Transcontinental Gas Pipe
Line Corporation, dated July 14, 1983, with Amended Exhibit A effective
February 11, 1994 (Exhibit 10.17 to 1995 10-K).
*10.14 Form of Credit Agreement among Northern Border Pipeline Company, The
First National Bank of Chicago, as Administrative Agent, The First
National Bank of Chicago, Royal Bank of Canada, and Bank of America
National Trust and Savings Association, as Syndication Agents, First
Chicago Capital Markets, Inc., Royal Bank of Canada, and BancAmerica
Securities, Inc., as Joint Arrangers and Lenders (as defined therein)
dated as of June 16, 1997 (Exhibit 10(c) to Amendment No. 1 to Form
S-3, Registration Statement No. 333-40601 ("Form S-3")).
*10.15 Form of Credit Agreement among Northern Border Partners, L.P., Canadian
Imperial Bank of Commerce, as Agent and Lenders (as defined therein)
dated as of November 6, 1997 (Exhibit 10(d) to Amendment No. 1 to Form
S-3).
*10.16 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated October 15, 1997 (Exhibit 10.21 to 1997 10-K).
*10.17 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated October 15, 1997 (Exhibit 10.22 to 1997 10-K).
*10.18 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated August 5, 1997 with Amendment dated September 25,
1997 (Exhibit 10.25 to 1997 10-K).
*10.19 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated August 5, 1997 (Exhibit 10.26 to 1997 10-K).
*10.20 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and TransCanada Gas Services
Inc., as agent for TransCanada PipeLines Limited dated August 5, 1997
(Exhibit 10.27 to 1997 10-K).
*10.21 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and TransCanada Gas Services
Inc., as agent for TransCanada PipeLines Limited dated August 14, 1997
(Exhibit 10.28 to 1997 10-K).
*21 The subsidiaries of Northern Border Partners, L.P. are Northern Border
Intermediate Limited Partnership, Northern Border Pipeline Company,
Black Mesa Holdings, Inc., Black Mesa Pipeline, Inc., Black Mesa
Pipeline Operations L.L.C., WTS Technologies LLC and Williams
Technologies, Inc. (Exhibit 21 to 1997 10-K).
23.01 Consent of Arthur Andersen LLP.
- ---------------
*Indicates exhibits incorporated by reference as indicated; all other exhibits
are filed herewith.
II-4
<PAGE> 35
ITEM 17. UNDERTAKINGS.
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 in Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the
PLAN OF DISTRIBUTION not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement; provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by Northern Border Partners, L.P. pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of Northern Border Partners, L.P.'s annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the SEC 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.
II-5
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Omaha, Nebraska, on the 16th day of
February, 1999.
NORTHERN BORDER PARTNERS, L.P.
(A Delaware Limited Partnership)
By: /s/ JERRY L. PETERS
---------------------------------------
Name: Jerry L. Peters
---------------------------------------
Title: Chief Financial and Accounting Officer
---------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed by the following persons in
the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chief Executive Officer and February 16, 1999
- ------------------------------------- Chairman of our Partnership Policy Committee -----------------
Larry L. DeRoin (Principal Executive Officer)
* Member of Partnership Policy Committee February 16, 1999
- ------------------------------------- -----------------
Stanley C. Horton
* Member of Partnership Policy Committee February 16, 1999
- ------------------------------------- -----------------
Brian E. O'Neill
/s/ JERRY L. PETERS Chief Financial and Accounting Officer February 16, 1999
- ------------------------------------- -----------------
Jerry L. Peters
* By /s/ JERRY L. PETERS
--------------------------------
Jerry L. Peters
Attorney-in-fact
</TABLE>
II-6
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<S> <C>
*3.1 Form of Amended and Restated Agreement of Limited Partnership of
Northern Border Partners, L.P. (Exhibit 3.1 No. 2 to our Form S-1
Registration Statement, Registration No. 33-66158 ("Form S-1")).
5 Opinion of Vinson & Elkins, LLP, as to the validity of the Common
Units.
8 Tax opinion of Vinson & Elkins, LLP.
*10.1 Form of Amended and Restated Agreement of Limited Partnership For
Northern Border Intermediate Limited Partnership (Exhibit 10.1 to Form
S-1).
*10.2 Northern Border Pipeline Company General Partnership Agreement between
Northern Plains Natural Gas Company, Northwest Border Pipeline Company,
Pan Border Gas Company, TransCanada Border Pipeline Ltd. and TransCan
Northern Ltd., effective March 9, 1978, as amended (Exhibit 10.2 to
Form S-1).
*10.3 Operating Agreement between Northern Border Pipeline Company and
Northern Plains Natural Gas Company, dated February 28, 1980 (Exhibit
10.3 to Form S-1).
*10.4 Administrative Services Agreement between NBP Services Corporation,
Northern Border Partners, L.P. and Northern Border Intermediate Limited
Partnership (Exhibit 10.4 to Form S-1).
*10.5 Note Purchase Agreement between Northern Border Pipeline Company and
the parties listed therein, dated July 15, 1992 (Exhibit 10.6 to Form
S-1).
*10.5.1 Supplemental Agreement to the Note Purchase Agreement dated as of June
1, 1995 (Exhibit 10.6.1 to our Annual Report on Form 10-K for the year
ended December 31, 1995 ("1995 10-K")).
*10.6 Guaranty made by Panhandle Eastern Pipeline Company, dated October 31,
1992 (Exhibit 10.9 to Form S-1).
*10.7 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Gas Marketing, Inc.,
dated June 22, 1990 (Exhibit 10.10 to Form S-1).
*10.8.1 Amended Exhibit A to Northern Border Pipeline Company U.S. Shippers
Service Agreement between Northern Border Pipeline Company and Enron
Gas Marketing, Inc. (Exhibit 10.10.1 to our Annual Report on Form 10-K
for the year ended December 31, 1993 ("1993 10-K")).
*10.8.2 Amended Exhibit A to Northern Border Pipeline U.S. Shippers Service
Agreement between Northern Border Pipeline Company and Enron Gas
Marketing, Inc., effective November 1, 1994 (Exhibit 10.10.2 to our
Annual Report on Form 10-K for the year ended December 31, 1994 ("1994
10-K")).
*10.8.3 Amended Exhibit As to Northern Border Pipeline Company U.S. Shipper
Service Agreement effective, August 1, 1995 and November 1, 1995
(Exhibit 10.10.3 to 1995 10-K).
*10.8.4 Amended Exhibit A to Northern Border Pipeline Company U.S. Shipper
Service Agreement effective April l, 1998. (Exhibit 10.10.4 to our
Annual Report on Form 10-K for the year ended December 31, 1997 ("1997
10-K")).
*10.9.1 Guaranty made by Northern Natural Gas Company, dated October 7, 1993
(Exhibit 10.11.1 to 1993 10-K).
*10.9.2 Guaranty made by Northern Natural Gas Company, dated October 7, 1993
(Exhibit 10.11.2 to 1993 10-K).
*10.10 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Western Gas Marketing
Limited, as agent for TransCanada PipeLines Limited, dated December 15,
1980 (Exhibit 10.13 to Form S-1).
*10.10.1 Amendment to Northern Border Pipeline Company Service Agreement
extending the term effective November 1, 1995 (Exhibit 10.13.1 to 1995
10-K).
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
*10.11 Form of Seventh Supplement Amending Northern Border Pipeline Company
General Partnership Agreement (Exhibit 10.15 to Form S-1).
*10.12 Form of Conveyance, Contribution and Assumption Agreement among
Northern Plains Natural Gas Company, Northwest Border Pipeline Company,
Pan Border Gas Company, Northern Border Partners, L.P., and Northern
Border Intermediate Limited Partnership (Exhibit 10.16 to Form S-1).
*10.13 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Transcontinental Gas Pipe
Line Corporation, dated July 14, 1983, with Amended Exhibit A effective
February 11, 1994 (Exhibit 10.17 to 1995 10-K).
*10.14 Form of Credit Agreement among Northern Border Pipeline Company, The
First National Bank of Chicago, as Administrative Agent, The First
National Bank of Chicago, Royal Bank of Canada, and Bank of America
National Trust and Savings Association, as Syndication Agents, First
Chicago Capital Markets, Inc., Royal Bank of Canada, and BancAmerica
Securities, Inc., as Joint Arrangers and Lenders (as defined therein)
dated as of June 16, 1997 (Exhibit 10(c) to Amendment No. 1 to Form
S-3, Registration Statement No. 333-40601 ("Form S-3")).
*10.15 Form of Credit Agreement among Northern Border Partners, L.P., Canadian
Imperial Bank of Commerce, as Agent and Lenders (as defined therein)
dated as of November 6, 1997 (Exhibit 10(d) to Amendment No. 1 to Form
S-3).
*10.16 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated October 15, 1997 (Exhibit 10.21 to 1997 10-K).
*10.17 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated October 15, 1997 (Exhibit 10.22 to 1997 10-K).
*10.18 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated August 5, 1997 with Amendment dated September 25,
1997 (Exhibit 10.25 to 1997 10-K).
*10.19 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. dated August 5, 1997 (Exhibit 10.26 to 1997 10-K).
*10.20 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and TransCanada Gas Services
Inc., as agent for TransCanada PipeLines Limited dated August 5, 1997
(Exhibit 10.27 to 1997 10-K).
*10.21 Northern Border Pipeline Company U.S. Shippers Service Agreement
between Northern Border Pipeline Company and TransCanada Gas Services
Inc., as agent for TransCanada PipeLines Limited dated August 14, 1997
(Exhibit 10.28 to 1997 10-K).
*21 The subsidiaries of Northern Border Partners, L.P. are Northern Border
Intermediate Limited Partnership, Northern Border Pipeline Company,
Black Mesa Holdings, Inc., Black Mesa Pipeline, Inc., Black Mesa
Pipeline Operations L.L.C., WTS Technologies LLC and Williams
Technologies, Inc. (Exhibit 21 to 1997 10-K).
23.01 Consent of Arthur Andersen LLP.
</TABLE>
- ---------------
*Indicates exhibits incorporated by reference as indicated; all other exhibits
are filed herewith.
<PAGE> 1
EXHIBIT 5
February 12, 1999
Northern Border Partners, L.P.
1400 Smith Street
Houston, Texas 77002
Ladies and Gentlemen:
We have acted as counsel to Northern Border Partners, L.P., a Delaware
limited partnership (the "Partnership"), in connection with the offer by the
Partnership of units representing common limited partner interests in the
Partnership (the "Common Units") pursuant to the Registration Statement on Form
S-3 (the "Registration Statement") filed on February 12, 1999 with the
Securities and Exchange Commission under the Securities Act of 1933. We have
examined the Registration Statement, the Amended and Restated Agreement of
Limited Partnership of the Partnership, a form of which has been filed as an
exhibit to the Registration Statement (the "Partnership Agreement"), the
Certificate of Limited Partnership of Northern Border Partners, L.P. (the
"Certificate") filed with the Secretary of State of Delaware pursuant to the
Delaware Revised Uniform Limited Partnership Act in connection with the
formation of the Partnership and such other documents as we have deemed
necessary or appropriate for purposes of this opinion. In addition, we have
reviewed certain certificates of officers of the general partners of the
Partnership and of public officials, and we have relied on such certificates
with respect to certain factual matters that we have not independently
established.
Based upon the foregoing and subject to the limitations and
assumptions set forth herein, we are of the opinion that:
l. The Partnership has been duly formed and is validly existing as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act;
and
2. All of the Common Units offered by means of the Registration
Statement have been duly authorized by the Partnership Agreement and legally
issued and are fully paid and non-assessable, except as such non-assessability
may be affected by 17-607 of the Delaware Revised Uniform Limited Partnership
Act.
The opinions expressed herein are qualified in the following respects:
(A) We have assumed, without independent verification, that the
certificates for the Common Units will conform to the specimens
thereof examined by us and will have been duly countersigned by a
transfer agent and duly registered by a registrar of the Common
Units.
(B) We have assumed that (i) each document submitted to us for review
is accurate and complete, each such document that is an original
is authentic, each such document that is a copy conforms to an
authentic original and all signatures on each such document are
genuine, and (ii) each certificate from governmental officials
reviewed by us is accurate, complete and authentic, and all
official public records are accurate and complete.
(C) This opinion is limited in all respects to federal laws and the
Delaware Revised Uniform Limited Partnership Act.
We are rendering this opinion as of the time the Registration
Statement becomes effective. We hereby consent to the use of our name in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement. This consent does not constitute an admission that we
are "experts" within the meaning of such term as used in the Securities Act of
1933.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
Vinson & Elkins L.L.P.
<PAGE> 1
EXHIBIT 8
February 12, 1999
Northern Border Partners, L.P.
1400 Smith Street
Houston, Texas 77002
Gentlemen:
We have acted as counsel to Northern Border Partners, L.P., a Delaware
limited partnership (the "Partnership"), in connection with the offer and sale
of units representing limited partner interests in the Partnership (the "Common
Units") pursuant to a Registration Statement on Form S-3 (the "Registration
Statement") filed with the SEC under the Securities Act of 1933 (File No.
333-72351). Capitalized terms not defined herein shall have the meanings
ascribed to them in the Amended and Restated Agreement of Limited Partnership of
Northern Border Partners, L.P. (the "Partnership Agreement"), the form of which
has been filed as an exhibit to the Registration Statement.
The Partnership owns a 70.0% general partner interest in Northern
Border Pipeline Company ("Northern Border Pipeline"), a Texas general
partnership engaged in pipeline transportation of natural gas. The Partnership's
interest in Northern Border Pipeline is held through the Northern Border
Intermediate Limited Partnership, a Delaware limited partnership (the
"Intermediate Partnership"). Unless the context otherwise requires, references
to Partnership are references to both the Partnership and the Intermediate
Partnership.
You have requested our opinion that (i) each of the Partnership and
Northern Border Pipeline will be classified as a partnership for federal income
tax purposes and (ii) each Limited Partner and each beneficial owner of Common
Units will be treated as a partner of the Partnership for federal income tax
purposes. In addition, you have asked us to review the description of the
principal federal income tax consequences that should arise from the purchase,
ownership and disposition of Common Units found in the "Tax Considerations"
section of the Registration Statement.
In connection with the foregoing request, the Partnership and the
General Partners have made the following representations with respect to the
Partnership and Northern Border Pipeline:
(a) Neither the Partnership nor Northern Border Pipeline will elect to
be treated as an association taxable as a corporation;
(b) The Partnership has been and will continue to be operated in
accordance with (i) all applicable partnership statutes, (ii) the Partnership
Agreement, and (iii) the description thereof in the Registration Statement;
(c) Except as otherwise required by section 704 of the Code and
regulations promulgated thereunder, the General Partners will have, in the
aggregate, an interest in each material item of income, gain, loss, deduction or
credit of the Partnership equal to at least 1.0% at all times during the
existence of the Partnership;
(d) The General Partners will maintain, in the aggregate, a minimum
capital account balance in the Partnership equal to 1.0% of the total positive
capital account balances of the Partnership;
(e) For each taxable year, less than 10.0% of the gross income of the
Partnership will be derived 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 thereof, and
naturally occurring carbon dioxide or (ii) other items of "qualifying income"
within the meaning of section 7704(d) of the Code.
(f) Northern Border Pipeline has been and will continue to be operated
in accordance with the Texas Revised Uniform Partnership Act and the Northern
Border Pipeline Partnership Agreement.
Based upon the foregoing representations and covenants, the General
Partners' continued participation (or the participation of another party
satisfying the foregoing representations and covenants) as general partners of
the Partnership and the Code, existing regulations thereunder, published rulings
and judicial decisions currently outstanding, it is our opinion that (i) each of
the Partnership and Northern Border Pipeline will be classified as a partnership
for federal income tax purposes, and (ii) each Limited Partner and each
beneficial owner of Common Units will be treated as a partner of the Partnership
for federal income tax purposes. As used in this opinion, the term "beneficial
owner of Common Units" refers to (a) the assignees of Common Units who have
executed and delivered Transfer Applications and are awaiting admission as
Limited Partners, and (b) unitholders of the Partnership whose
<PAGE> 2
Common Units are held in street name or by another nominee and who have the
right to direct the nominee in the exercise of all substantive rights attendant
to the ownership of their Common Units.
In addition, we have reviewed the description of the principal federal
income tax consequences of the purchase, ownership and disposition of Common
Units contained in the "Tax Considerations" section of the Registration
Statement and, except as otherwise noted therein, all statements contained in
such description relating to matters of law and legal conclusions reflect our
opinion.
Finally, based on our review of the Registration Statement, we have
concluded that the "Tax Considerations" section of the Registration Statement
addresses all material tax consequences to the Partnership's Unitholders who are
individual citizens or residents of the United States.
We are rendering this opinion as of the time the Registration
Statement becomes effective. We hereby consent to the use of our name in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement. This consent does not constitute an admission that we
are "experts" within the meaning of such term as used in the Securities Act of
1933.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3 of our reports dated
January 26, 1998, included in Northern Border Partners, L.P.'s Annual Report on
Form 10-K for the year ended December 31, 1997, and to all references to our
Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Omaha, Nebraska,
February 9, 1999
