<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
CROWN PACIFIC PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C> <C>
DELAWARE 0800 93-1161833
(state or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
121 S.W. MORRISON ST., SUITE 1500
PORTLAND, OREGON 97204
(503) 274-2300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ROGER L. KRAGE
SECRETARY AND GENERAL COUNSEL
CROWN PACIFIC PARTNERS, L.P.
121 S.W. MORRISON ST., SUITE 1500
PORTLAND, OREGON 97204
(503) 274-2300
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
------------------
COPY TO:
ANDREWS & KURTH L.L.P.
4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002
(713) 220-4200
ATTENTION: ROBERT V. JEWELL
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the Registration Statement becomes effective.
------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
REGISTRATION FEE
<TABLE>
======================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Units representing limited partner interests $ 103,120,000 $ 31,248.48
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), based on the average of the high and low prices
of the Common Units on the New York Stock Exchange on October 1, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used by the registrant in connection with the issuance and sale from time to
time by the registrant of Common Units in connection with its acquisition of
the securities and assets of other businesses (the "Company Prospectus") and
one to be used by certain persons who have received Common Units of the
registrant in connection with acquisitions by the registrant of securities or
assets held by such persons, or their transferees, and who wish to offer and
sell such Common Units in transactions in which they and any broker-dealer
through whom such Common Units are sold may be deemed to be Underwriters
within the meaning of the Securities Act of 1933, as amended (the "Selling
Unitholders Prospectus"). The Company Prospectus and the Selling Unitholders
Prospectus will be identical in all respects except that they will contain
different front and back cover pages and the Selling Unitholders Prospectus
will contain an additional section under the caption "Manner of Offering."
The Company Prospectus is included herein and is followed by those pages to
be used in the Selling Unitholders Prospectus which differ from, or are in
addition to, those in the Company Prospectus. Each of the alternate or
additional pages for the Selling Unitholders Prospectus included herein has
been labeled "Alternate Page for Selling Unitholders Prospectus." If
required pursuant to Rule 424(b) of the General Rules and Regulations under
the Securities Act of 1933, as amended, ten copies of each of the
prospectuses in the forms in which they are used after the registration
statement becomes effective will be filed with the Securities and Exchange
Commission.
<PAGE>
4,000,000 COMMON UNITS
[LOGO]
CROWN PACIFIC PARTNERS, L.P.
COMMON UNITS
-------------------
This Prospectus relates to the offer and sale from time to time by Crown
Pacific Partners, L.P., (the "Partnership") of up to 4,000,000 common units
representing limited partnership interests (the "Common Units"), in
connection with acquisitions of other businesses, properties, or securities.
The Partnership intends to concentrate on acquisitions which would
complement its current mix of timber holdings and lumber mills. The
consideration for any such acquisition may consist of Common Units, cash,
notes or other evidences of debt, assumptions of liabilities or a combination
thereof. The Common Units covered by this Prospectus may be issued in
exchange for shares of capital stock, partnership interests or other assets
representing an interest, direct or indirect, in other companies or other
entities, in exchange for assets used in or related to the business of such
entities or otherwise pursuant to the agreements providing for such
acquisitions. The terms of such acquisitions and of the issuance of Common
Units under acquisition agreements will generally be determined by direct
negotiations with the owners or controlling persons of the business or
properties to be acquired or, in the case of entities that are more widely
held, through exchange offers to Unitholders or documents soliciting the
approval of statutory mergers, consolidations or sales of assets. It is
anticipated that the Common Units issued in any such acquisition will be
valued at a price reasonably related to the market value of the Common Units
either at the time of agreement on the terms of an acquisition or at the time
of delivery of the Common Units.
It is not expected that underwriting discounts or commissions will be
paid by the Partnership in connection with issuances of Common Units under
this Prospectus. However, finders' fees or brokers' commissions may be paid
from time to time in connection with specific acquisitions, and such fees may
be paid through the issuance of Common Units covered by this Prospectus. Any
person receiving such a fee may be deemed to be an underwriter within the
meaning of the Securities Act of 1933.
As of October 2, 1997 the Partnership had 21,331,189 Common Units
outstanding, all of which are available for trading on the New York Stock
Exchange (the "NYSE") and 5,773,088 Subordinated Units outstanding which are
not publicly traded. The Common Units offered hereby have been approved
for trading on the NYSE. On October 2, 1997, the closing price of the Common
Units on the NYSE was $25.81 per unit.
The Partnership is a Delaware limited partnership and all references
herein to the Partnership refer to the Partnership and its subsidiaries.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS IN THE
COMMON UNITS OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ___________, 1997.
<PAGE>
AVAILABLE INFORMATION
The Partnership has filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the Common Units offered by this Prospectus. As
permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement, including
the exhibits filed as a part thereof.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Reports, proxy statements and other information filed
by the Partnership can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; and at its Regional Offices located at Suite 1400,
500 West Madison Street, Chicago, Illinois 60661; and 7 World Trade Center,
New York, New York 10048 or may be obtained on the Internet at
http:\\www.sec.gov. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Common Units are traded on the New York
Stock Exchange ("NYSE") and such reports, proxy statements and other
information concerning the Partnership can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR INCORPORATED IN IT BY
REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROSPECTUS, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN
OFFER, IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE PARTNERSHIP SINCE THE DATE OF THIS PROSPECTUS.
2
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
IN THIS PROSPECTUS
The following documents filed with the Commission by the Partnership
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus:
(a) The Partnership's Annual Report on Form 10-K (File No. 0-24976)
for the fiscal year ended December 31, 1996, as amended by the
Form 10-K/A dated March 28, 1997;
(b) The Partnership's Quarterly Report on Form 10-Q (File No. 0-24976)
for the quarter ended March 31, 1997;
(c) The Partnership's Quarterly Report on Form 10-Q (File No. 0-24976)
for the quarter ended June 30, 1997; and
(d) The description of the Common Units contained in the Company's
registration statement on Form 8-A filed with the Commission on
October 20, 1994 pursuant to Section 12 of the Exchange Act.
All documents filed by the Partnership pursuant to Sections 13(a), 13(c),
14 and 15 (d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Common Units shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated by
reference or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that
a statement contained in this Prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference in this
Prospectus modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
All documents that are incorporated by reference in this Prospectus but
which are not delivered herewith are available without charge (other than
exhibits to such documents which are not specifically incorporated by
reference therein) upon request from Crown Pacific Partners, L.P., 121 S.W.
Morrison Street, Suite 1500, Portland, Oregon 97204, Attention: Mr. Mark
Conan, Controller and Treasurer, telephone (503) 274-2300.
FORWARD-LOOKING STATEMENTS
This Prospectus and the accompanying Prospectus Supplement contain or
incorporate by reference forward-looking statements. Where any such
forward-looking statement includes a statement of the assumptions or bases
underlying such forward-looking statement, the Partnership cautions that,
while such assumptions or bases are believed to be reasonable and are made in
good faith, assumed facts or bases almost always vary from actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, the Partnership expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or
accomplished. The words "believe", "expect", "estimate" and "anticipate" and
similar expressions identify forward-looking statements.
3
<PAGE>
THE PARTNERSHIP
Crown Pacific Partners, L.P. (the "Partnership") is a publicly held
Delaware limited partnership that owns and operates timberland properties and
wood product manufacturing operations in the northwest United States. The
Partnership's business consists of the growing and harvesting of timber for
sale as logs in domestic and export markets and the manufacture and sale of
lumber and other wood products. Lumber and other wood products are used
principally in new residential home construction, home remodeling and repair
and for general industrial uses. The Partnership currently owns and/or
controls approximately 738,000 acres of timberland in the Pacific Northwest
(the "Timberlands"), containing a total merchantable timber inventory of
approximately 4,723 million board feet ("MMBF"). In addition to its
Timberlands, the Partnership has significant manufacturing assets consisting
of five lumber mills in Oregon, Washington and Idaho and a chip mill in
Oregon (collectively, the "Manufacturing Facilities").
Crown Pacific Management Limited Partnership, a Delaware limited
partnership, is the managing general partner of the Partnership (the
"Managing General Partner"), and Crown Pacific, Ltd., an Oregon corporation
("CPL"), is the special general partner of the Partnership (in such capacity,
the "Special General Partner"). The Managing General Partner and the Special
General Partner are together referred to herein as the "General Partners."
Both of the General Partners are owned by Fremont Investors, Inc. (formerly
Fremont Group, Inc.) and its affiliates ("Fremont") and by Mr. Peter W. Stott
and Mr. Roger L. Krage.
The operations of the Partnership are carried out through, and the
Timberlands and operating assets are owned by, Crown Pacific Limited
Partnership, a Delaware limited partnership, and other subsidiary operating
partnerships and corporations (collectively, the "Operating Partnership"
unless the context otherwise requires). The Partnership owns a 98.9899%
limited partner interest in the Operating Partnership. The Managing General
Partner is the general partner of the Operating Partnership with a 1.0101%
general partner interest. The General Partners own an aggregate 2% general
partner interest in the Partnership and the Operating Partnership. Unless
the context otherwise requires, references herein to the Partnership include
the Partnership, the Operating Partnership and any other subsidiary operating
partnerships and corporations.
The principal executive offices of the Partnership, the Operating
Partnership and the General Partners are located at 121 S.W. Morrison Street,
Suite 1500, Portland, Oregon 97204. The telephone number at such offices is
(503) 274-2300.
RISK FACTORS
A PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS
AS WELL AS THE OTHER INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, BEFORE MAKING A DECISION TO INVEST IN THE COMMON UNITS.
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
CYCLICALITY OF FOREST PRODUCTS INDUSTRY WILL AFFECT THE PARTNERSHIP'S
RESULTS OF OPERATIONS. The Partnership's results of operations are, and will
continue to be, affected by the cyclical nature of the forest products
industry. Prices and demand for logs and manufactured wood products have
been, and in the future can be expected to be, subject to cyclical
fluctuations. The demand for logs and wood products is primarily affected by
the level of new residential construction activity, which is subject to
fluctuations due to changes in economic conditions, interest rates,
population growth, weather conditions and other factors. In addition to
housing starts, demand for wood products is also significantly affected by
repair and remodeling activities and industrial uses, demand for which has
historically been less cyclical. Decreases in the level of residential
construction activity will be reflected in reduced demand for logs and wood
products, resulting in lower prices for the Partnership's logs and wood
products and lower revenues, profits and cash flows.
FEDERAL TIMBER SUPPLY. Various factors, including environmental and
endangered species concerns, have limited, and are likely to continue to
limit, the amount of timber offered for sale by certain United States
government agencies,
4
<PAGE>
which historically have been major suppliers of timber to the United States
forest products industry. Although the Partnership intends to supply its
Manufacturing Facilities primarily with logs harvested from its Timberlands,
additional timber and log purchases are contemplated. The Partnership cannot
rely on purchases of federal timber and must therefore rely more heavily on
the acquisition of timber from other sources (including domestic private
timber owners, state agencies and foreign sellers) to supplement its supply
of fee timber. There can be no assurance that sales of timber from such other
sources may not be reduced or that the Partnership will be able to procure
sufficient logs at favorable prices to continue operation of the
Manufacturing Facilities at current levels of production or that suspension
of operations at, or closure of, one or more Manufacturing Facilities may not
be required in the future.
Although the Partnership believes that sales of timber by United States
government agencies are likely to remain at relatively low levels for the
foreseeable future, any reversal of policy that substantially increases such
sales could significantly reduce prices for logs, lumber and other wood
products, which could have a material adverse effect on the Partnership.
THE PARTNERSHIP'S ABILITY TO HARVEST TIMBER WILL BE SUBJECT TO
LIMITATIONS. Revenues, net income and cash flow from the Partnership's
future operations will be dependent to a significant extent on its ability to
harvest timber pursuant to its harvest plan from its approximately 738,000
acres of timberlands. The ability of the Partnership to harvest significant
amounts of timber in excess of its harvest plan is limited by the terms of
the Partnership's indebtedness. There can be no assurance that the
Partnership will in the future achieve the levels contemplated by its current
harvest plan.
Harvesting of the Timberlands may be affected by various factors,
including damage by fire, insect infestation, disease, prolonged drought and
natural disasters. Although damage from such causes usually is localized and
affects only a limited percentage of the timber, there can be no assurance
that any damage affecting the Timberlands will, in fact, be so limited. As is
typical in the forest products industry, the Partnership does not maintain
insurance coverage with respect to damage to the Timberlands. Even if such
insurance were available, the cost would be prohibitive. The Partnership also
does not maintain insurance on its log inventories. The Partnership does,
however, maintain insurance for loss of lumber and other wood products due to
fire and other occurrences. The risk of fire affecting the Timberlands is
greatest in the Oregon and Inland Regions and is less significant in the
Washington Region.
Weather conditions, access limitations and regulatory requirements
associated with proximity to streams and other water courses may also
restrict harvesting of the Timberlands. The risks posed by these factors are
greatest in the Washington Region, which is characterized by heavy rainfall,
rough terrain and numerous streams; somewhat reduced in the Inland Region,
where the thawing of frozen ground in the spring generally delays the
commencement of harvesting; and least significant in the Oregon Region, which
features relatively even terrain and few waterways.
THE PARTNERSHIP'S ABILITY TO SELL LOGS FOR EXPORT MAY BE LIMITED. The
Partnership engages in the sale of logs for export, which business is
substantially dependent on market conditions in the major Asian economies,
particularly Japan, and is affected by fluctuations in exchange rates. The
Partnership derived approximately 5.1% of its revenues during the year ended
December 31, 1996 from the sale of logs for export. Historically,
export-grade logs have been sold at a premium over the prices that would have
been received for the logs if sold in the domestic market. The lack of supply
of high-quality logs for export to Japan, however, due primarily to decreased
sales from public lands, has caused a shift in Japanese demand away from logs
to lumber.
From time to time, legislation has been unsuccessfully introduced in the
United States House of Representatives to prohibit the export of logs
originating from private lands. There can be no assurance that similar
legislation will not be introduced in subsequent sessions of Congress or that
such legislation will not become law. United States, Oregon and Washington
laws already prohibit the export of logs originating from government lands.
If a prohibition on log exports were enacted, the Managing General Partner
anticipates that the Partnership would respond by selling those logs
currently marketed for export to domestic customers at a lower price, which
could have an adverse effect on the Partnership.
5
<PAGE>
Under the Forest Resources Conservation and Shortage Act of 1990 and the
regulations promulgated thereunder, no person may purchase unprocessed timber
from federal lands west of the 100th meridian in the contiguous 48 states if
such timber is to be used in substitution for unprocessed timber originating
from private lands that has been exported or if such person has, during the
preceding 24-month period, exported unprocessed timber from private lands.
This prohibition does not apply to a person who acquires unprocessed timber
from federal lands within an approved sourcing area and who does not export
unprocessed timber from private lands within the sourcing area. Since the
Partnership is engaged in the export of logs from the Washington Region, it
is required to have, and has been granted, a sourcing area for its acquisition
of federal timber in other regions. Various parties, including one of Crown
Pacific's competitors, instituted litigation in July 1995 in U.S. District
Court in Idaho seeking to overturn the government's approval of Crown Pacific's
sourcing areas. In November 1996, the plaintiffs and the Federal government as
defendant reached a settlement agreement whereby Crown Pacific's
previously-approved sourcing areas would be remanded for review by the United
States Forest Service ("USFS"). In addition, a new, more restrictive federal
regulation regarding sourcing areas has been promulgated by the USFS. There
can be no assurance that a review of the Partnership's sourcing areas by the
USFS using this more restrictive regulation will be favorable to the
Partnership. If such review is not favorable it may have a material adverse
effect on the Partnership's operations.
THE PARTNERSHIP EXPERIENCES SIGNIFICANT COMPETITION. The forest
products industry is highly competitive in terms of price and quality. Many
of the Partnership's competitors have substantially greater financial and
operating resources than the Partnership. Wood products are subject to
increasing competition from a variety of non-wood and "laminated" or
engineered wood products. In addition, the Partnership is subject to
competition from lumber products and logs imported from foreign sources to
the United States as well as to the export markets served by the Partnership.
To the extent there is a significant increase in competitive pressures from
substitute products or other domestic or foreign suppliers, it could have a
material adverse effect on the Partnership.
THE PARTNERSHIP IS DEPENDENT ON KEY PERSONNEL. The Managing General
Partner believes the Partnership's success depends in part upon the efforts
and abilities of its senior management team, in particular Mr. Peter Stott
and Mr. Roger Krage. The failure of the Managing General Partner to retain
such personnel could adversely affect the Partnership's operations. Mr. Stott
and Mr. Krage have entered into employment agreements with the Managing
General Partner. In addition, an event of default will occur under the
Partnership's bank credit agreements if, without lender consent, Mr. Stott at
any time is not either the Chief Executive Officer (as he now serves) or the
Chairman of the Board of the Managing General Partner.
THE PARTNERSHIP IS SUBJECT TO FEDERAL AND STATE ENVIRONMENTAL
REGULATION. The Manufacturing Facilities emit air contaminants, discharge
industrial wastewater and stormwater and generate and dispose of both
hazardous and nonhazardous wastes. The Partnership is subject to regulation
under federal and state statutes, including the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act ("RCRA"), and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund"), as well as similar state laws and regulations.
There can be no assurance that future legislation or administrative or judicial
action with respect to protection of the environment will not adversely affect
the Partnership or the operation of the Manufacturing Facilities.
The regulations applicable to the Partnership's operations include
certain regulations governing the storage and handling of materials,
controlling the discharge of materials into the environment, requiring
removal and/or remediation and imposing civil and criminal penalties for
violations. Each of the primary statutory and regulatory programs that apply
to the Partnership's operations imposes civil penalties for violation of the
requirements of the programs as well as potential remediation expenses,
natural resource damages, injunctions, cease and desist orders and criminal
penalties. Such laws and regulations may expose the Partnership to liability
for the conduct of, or conditions caused by, others or for acts of the
Partnership that were in compliance with all applicable laws at the time such
acts were performed. Laws and regulations protecting the environment have
generally become more stringent in recent years and could become more
stringent in the future. Some environmental statutes impose strict liability,
rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person.
6
<PAGE>
THE PARTNERSHIP'S OPERATIONS ARE SUBJECT TO ENDANGERED SPECIES
REGULATION. The federal Endangered Species Act and counterpart state
legislation protect species threatened with possible extinction. Protection
of endangered and threatened species may include restrictions on timber
harvesting, road building and other silvicultural activities on private,
federal and state land containing the affected species. A number of species
indigenous to the Pacific Northwest have been protected under the Endangered
Species Act, including the northern spotted owl, marbled murrelet, mountain
caribou, grizzly bear, bald eagle and various anadromous fish species.
Based on independent consulting reports and management's knowledge of
the Timberlands, the Managing General Partner does not believe that there are
any species protected under the Endangered Species Act and counterpart state
legislation that would have a material adverse effect on the Partnership's
ability to harvest the Timberlands in accordance with current harvest plans.
There can be no assurance, however, that species on or around the Timberlands
may not subsequently receive protected status under the Endangered Species
Act or that currently protected species may not be discovered in significant
numbers on or around the Timberlands. Any such changes could materially and
adversely affect the Partnership's operations.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH
PARTNERSHIP PERFORMANCE. Although the Partnership will distribute 100% of
Available Cash (as defined in the Partnership Agreement), there can be no
assurance regarding the amounts of Available Cash to be distributed by the
Partnership. The actual amounts of Available Cash will depend upon numerous
factors, including the Partnership's profitability, required principal and
interest payments on the Partnership's debt, restrictions contained in the
Partnership's debt agreements, the effect of acquisitions, fluctuations in
working capital, capital expenditures, reserves, prevailing economic
conditions and financial, business and other factors, some of which are
beyond the control of the Partnership and the Managing General Partner. The
Partnership Agreement gives the Managing General Partner broad discretion in
establishing reserves that affect the amount of Available Cash. Because the
business of the Partnership is seasonal, the Managing General Partner
anticipates that it may make additions to reserves during certain of the
Partnership's fiscal quarters in order to fund operating expenses, interest
payments and cash distributions with respect to other fiscal quarters. In
addition, the Partnership is required to establish reserves in respect of
future payments of principal and interest on the Partnership's indebtedness.
As a result of these and other factors, there can be no assurance regarding
the actual levels of cash distributions by the Partnership, and the
Partnership's ability to distribute cash may also be limited during the
existence of any events of default under any of the Partnership's debt
agreements.
THE PARTNERSHIP HAS INCURRED SUBSTANTIAL INDEBTEDNESS. As of March 31,
1997, the Partnership had approximately $392 million in long-term indebtedness
and the amount of such indebtedness as a percentage of total capitalization
was 63%. As a result, the Partnership has long-term indebtedness that is
substantial in relation to partners' equity. The ability of the Partnership
to make principal and interest payments will depend on future performance, which
is subject to many factors, some of which will be outside the Partnership's
control. In addition, the agreements governing the Partnership's indebtedness
contain restrictive covenants that limit the ability of the Partnership to incur
additional indebtedness. Payment of principal and interest on the Partnership's
long-term indebtedness, as well as compliance with the requirements and
covenants of the agreements governing such indebtedness, may limit the
Partnership's ability to make distributions to Unitholders.
HOLDERS OF COMMON UNITS HAVE LIMITED VOTING RIGHTS; THE MANAGING
GENERAL PARTNER WILL MANAGE AND CONTROL THE PARTNERSHIP. The Managing
General Partner will manage and control the activities of the Partnership.
Unlike the holders of common stock in a corporation, holders of Common Units
will have only limited voting rights on matters affecting the Partnership's
business. Holders of Common Units will have no right to elect the General
Partners on an annual or other continuing basis. The Managing General Partner
may not be removed at any time unless the approval of the holders of at least
66 2/3% of the outstanding Common Units and Subordinated Units (collectively,
the "Units") (excluding Units owned by the General Partners and their
affiliates) is received. As a result, holders of Common Units will have
limited influence on matters affecting the operation of the Partnership and
third parties may find it difficult to attempt to gain control from the
Managing General Partner or to influence the activities of the Partnership.
7
<PAGE>
ABILITY OF THE PARTNERSHIP TO ISSUE ADDITIONAL UNITS. Subject to
certain exceptions, the Partnership may issue an unlimited number of
additional Units or other equity securities of the Partnership for such
consideration and on such terms and conditions as are established by the
Managing General Partner, in its sole discretion without the approval of any
limited partners. Prior to the end of the Subordination Period (as defined in
the Partnership Agreement), however, the Partnership may not issue in excess
of 20,029,250 Common Units (including the 4,000,000 Common Units subject to
this Prospectus and 500,000 Common Units subject to a separate "shelf"
registration statement but excluding Common Units issued upon conversion of
Subordinated Units) or an equivalent amount of securities ranking on a parity
with the Common Units and may not issue any equity securities of the
Partnership ranking prior or senior to the Common Units without the approval
of the holders of at least 66 2/3% (a majority in the case of a merger) of the
outstanding Common Units at such time (excluding Common Units held by the
General Partners and their affiliates). After the end of the Subordination
Period, the Partnership may issue limited partner interests of any type
without the approval of the Unitholders. The Partnership Agreement does not
impose any restriction on the Partnership's ability to issue equity
securities ranking junior to the Common Units at any time. Based on the
circumstances of each case, the issuance of additional Units may dilute the
value of the interests of the then-existing Unitholders in the net assets of
the Partnership. See "The Partnership Agreement -- Issuance of Additional
Securities."
ISSUANCE OF ADDITIONAL COMMON UNITS WILL REDUCE DISTRIBUTION SUPPORT
PROVIDED BY SUBORDINATED UNITS. During the Subordination Period, holders of
Common Units will have certain preferences as to distributions over holders
of Subordinated Units, thereby enhancing the Partnership's ability to pay the
Minimum Quarterly Distribution and First and Second Target Distributions on
the Common Units. The issuance of additional Common Units effectively reduces
the support provided by the subordination feature of the Subordinated Units
by increasing the aggregate Minimum Quarterly Distribution and First and
Second Target Distributions on the Common Units.
PROVISIONS OF THE PARTNERSHIP AGREEMENT MAY DISCOURAGE REMOVAL OF THE
MANAGING GENERAL PARTNER OR MANAGEMENT. The Partnership Agreement contains
certain provisions that are intended to discourage a person or group from
attempting to remove the current Managing General Partner or otherwise change
the management of the Partnership. If the Managing General Partner is removed
other than for cause, the Subordination Period will end and all outstanding
Subordinated Units will convert into Common Units and any existing arrearages
on the Common Units will be extinguished. If any person or group (other than
the General Partners or their affiliates or successors or persons who acquire
20% or more of the Common Units from Fremont, Fremont's affiliates or
subsequent transferees of the Units owned by Fremont or its affiliates)
acquires beneficial ownership of 20% or more of the Common Units, such person
or group will lose its voting rights with respect to all of its Common Units.
The effect of these provisions may be to diminish the price at which the
Common Units will trade under certain circumstances.
THE MANAGING GENERAL PARTNER WILL HAVE A LIMITED CALL RIGHT WITH
RESPECT TO THE COMMON UNITS. If at any time less than 10% of the then issued
and outstanding Common Units are held by persons other than the General
Partners and their affiliates, the Managing General Partner will have the
right, which it may assign to any of its affiliates or the Partnership, to
acquire all, but not less than all, of the remaining Common Units held by
such unaffiliated persons at specified prices. See "The Partnership Agreement
- -- Limited Call Right." As a consequence of the Managing General Partner's
right to purchase outstanding Common Units, a Unitholder may have his or her
Common Units purchased even though he or she may not desire to sell them, or
the price paid may be less than the amount the Unitholder would desire to
receive upon a sale of such Common Units.
UNITHOLDERS MAY NOT HAVE LIMITED LIABILITY IN CERTAIN CIRCUMSTANCES.
The limitations on the liability of holders of Common Units for the
obligations of a limited partnership have not been clearly established in
some states. If it were determined that the Partnership had been conducting
business in any state without compliance with the applicable limited
partnership statute, or that the right or the exercise of the right by the
holders of Common Units as a group to remove or replace either of the General
Partners, to make certain amendments to the Partnership Agreement or to take
other action pursuant to the Partnership Agreement constituted participation
in the "control" of the Partnership's business, then the holders of Common
Units could be held liable for the Partnership's obligations to the same
extent as a general partner. In addition, under certain circumstances a
Unitholder may be liable to the Partnership for the amount of a distribution
for a period of three years from the date of distribution. See "The
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Partnership Agreement -- Limited Liability" for a discussion of the
limitations on liability and the implications thereof to a holder of Common
Units.
CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
THE GENERAL PARTNERS AND THEIR AFFILIATES MAY HAVE CONFLICTS OF INTEREST
WITH THE PARTNERSHIP AND THE HOLDERS OF COMMON UNITS. Conflicts of interest
could arise as a result of the relationships between the Partnership on the
one hand and the General Partners and their affiliates on the other hand. The
partners, directors and officers of each of the General Partners have
fiduciary duties to manage such General Partners in a manner beneficial to
the partners or Unitholders of such General Partners. At the same time, the
General Partners have fiduciary duties to manage the Partnership in a manner
beneficial to the Partnership and the limited partners of the Partnership.
The Partnership Agreement permits the General Partners to consider, in
resolving conflicts of interest, the interests of other parties in addition
to the interests of holders of Common Units, thereby limiting the General
Partners' fiduciary duties to such holders. The duties of the General
Partners, as general partners, to the Partnership and the limited partners of
the Partnership, therefore, may come into conflict with the duties of the
directors and officers of the General Partners to their partners or
Unitholders.
THE PARTNERSHIP AGREEMENT MODIFIES THE FIDUCIARY DUTIES OF THE GENERAL
PARTNERS. Certain provisions of the Partnership Agreement contain
exculpatory language purporting to limit the liability of the General
Partners to the Partnership and the holders of Common Units. The General
Partners will not be in breach of their obligations under the Partnership
Agreement or their duties to the Partnership or the Unitholders if the
resolution of a conflict of interest is fair and reasonable to the
Partnership, and any resolution will conclusively be deemed to be fair and
reasonable to the Partnership if such resolution is (i) approved by the Audit
Committee, (ii) on terms no less favorable to the Partnership than those
generally being provided to or available from unrelated third parties or
(iii) fair to the Partnership, taking into account the totality of the
relationship between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership). In
resolving such conflict, the Managing General Partner may (unless the
resolution is specifically provided for in the Partnership Agreement)
consider the relative interests of the parties involved in such conflict or
affected by such action, any customary or accepted industry practices or
historical dealings with a particular person or entity and, if applicable,
generally accepted accounting practices or principles and such other factors
as it deems relevant. Thus, unlike the strict duty of a fiduciary who must
act solely in the best interests of his beneficiary, the Partnership
Agreement permits the Managing General Partner to consider the interests of
all parties to a conflict of interest, including the interests of the General
Partners. In connection with the resolution of any conflict that arises,
unless the Managing General Partner has acted in bad faith, the action taken
by the Managing General Partner will not constitute a breach of the
Partnership Agreement, any other agreement or any standard of care or duty
imposed by the Delaware Act (as defined in the Partnership Agreement) or
other applicable law. The Partnership Agreement also provides that in certain
circumstances the Managing General Partner may act in its sole discretion, in
good faith or pursuant to other appropriate standards. See "Conflicts of
Interest and Fiduciary Responsibility."
TAX CONSEQUENCES
For a general discussion of the expected federal income tax consequences
of owning and disposing of Common Units, see "Tax Considerations."
TAX TREATMENT IS DEPENDENT ON PARTNERSHIP STATUS. The availability to a
holder of Common Units of the federal income tax benefits of an investment in
the Partnership depends, in large part, on the classification of the
Partnership as a partnership for federal income tax purposes. Based on
certain representations made by the General Partners, Andrews & Kurth L.L.P.,
special counsel to the Partnership ("Counsel"), is of the opinion that, under
current law, the Partnership is classified as a partnership for federal
income tax purposes. However, except as described in "Tax Considerations," no
ruling from the IRS as to such status has been or will be requested or
received, and the opinion of Counsel is not binding on the IRS. Moreover, in
order for the Partnership to continue to be classified as a
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partnership for federal income tax purposes, at least 90% of the
Partnership's gross income for each taxable year must consist of qualifying
income. See "Tax Considerations -- Tax Consequences of Unit Ownership --
Partnership Status."
If the Partnership were classified as an association taxable as a
corporation for federal income tax purposes, the Partnership would pay tax on
its income at corporate rates, distributions would generally be taxed to the
holders of Common Units as corporate distributions, and no income, gains,
losses or deductions would flow through to the holders of Common Units.
Because a tax would be imposed upon the Partnership as an entity, the cash
available for distribution to the holders of Common Units would be
substantially reduced. Treatment of the Partnership as an association taxable
as a corporation or otherwise as a taxable entity would result in a material
reduction in the anticipated cash flow and after-tax return to the holders of
Common Units and thus would likely result in a substantial reduction in the
value of the Common Units. See "Tax Considerations -- Tax Consequences of
Unit Ownership -- Partnership Status."
There can be no assurance that the law will not be changed so as to
cause the Partnership to be treated as an association taxable as a
corporation for federal income tax purposes or otherwise to be subject to
entity-level taxation. The Partnership Agreement provides that, if a law is
enacted or existing law is modified or interpreted in a manner that subjects
the Partnership to taxation as a corporation or otherwise subjects the
Partnership to taxation as a corporation for federal, state or local income
tax purposes, certain provisions of the Partnership Agreement relating to the
Minimum Quarterly Distribution and the Target Distributions will be subject
to change, including a decrease in the amounts thereof to reflect the impact
of such law on the Partnership. See "Cash Distribution Policy -- Adjustment
of Minimum Quarterly Distribution and Target Distribution Levels."
NO IRS RULING WITH RESPECT TO TAX CONSEQUENCES. No ruling has been
requested or received from the IRS with respect to classification of the
Partnership as a partnership for federal income tax purposes or any other
matter affecting the Partnership except as described in "Tax Considerations."
Accordingly, the IRS may adopt positions that differ from Counsel's
conclusions expressed herein. It may be necessary to resort to administrative
or judicial proceedings in an effort to sustain some or all of Counsel's
conclusions, and some or all of such conclusions ultimately may not be
sustained. The costs of any such proceeding will be borne directly or
indirectly by the holders of Common Units and the General Partners.
PASSIVE LOSS RULES/LIMITATIONS ON PASSIVE INCOME GENERATORS. In the
case of taxpayers subject to the passive loss rules (generally, individuals
and closely held corporations), losses generated by the Partnership, if any,
will only be available to offset future income generated by the Partnership
and cannot be used to offset income from other activities, including passive
activities or investments. Unused passive losses may be deducted when the
Unitholder disposes of all of his Units in a fully taxable transaction with
an unrelated party. Net income from the Partnership (other than certain
portfolio income) may be offset by unused Partnership losses carried over
from prior years, but not by losses from other passive activities, including
losses from other publicly traded partnerships. See "Tax Considerations --
Tax Consequences of Unit Ownership -- Limitations on Deductibility of
Partnership Losses."
TAX LIABILITY EXCEEDING CASH DISTRIBUTIONS OR PROCEEDS FROM DISPOSITIONS
OF COMMON UNITS. A holder of Common Units will be required to pay federal
income taxes and, in certain cases, state and local income taxes on his
allocable share of the Partnership's income, whether or not he receives cash
distributions from the Partnership. No assurance can be given that a
Unitholder will receive cash distributions from the Partnership equal to his
allocable share of taxable income of the Partnership or even the tax
liability to him relating to that income. Further, it is possible that a
holder of Common Units could incur a tax liability, in excess of the amount
of cash received, upon the sale of his Common Units. See "Tax Considerations
- -- Other Tax Considerations" for a discussion of certain state and local tax
considerations that may be relevant to prospective Unitholders.
OWNERSHIP OF COMMON UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER
INVESTORS. An investment in Common Units by certain tax-exempt organizations
(including individual retirement accounts and other retirement plans),
regulated investment companies and foreign persons raises issues unique to
such persons. For example, virtually all of the taxable income derived from
the ownership of a Unit by organizations exempt from federal income
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tax will be unrelated business taxable income and thus may be taxable to such
a Unitholder. See "Tax Considerations -- Uniformity of Units -- Tax-Exempt
Organizations and Certain Other Investors."
TAX SHELTER REGISTRATION; POTENTIAL IRS AUDIT. The Partnership has been
registered with the IRS as a "tax shelter." No assurance can be given that
the Partnership will not be audited by the IRS or that tax adjustments will
not be made. The rights of a partner owning less than a 1% profit interest in
the Partnership to participate in the federal income tax audit process are
very limited. Further, any adjustments in the Partnership's returns will lead
to adjustments in the partners' returns and may lead to audits of partners'
returns and adjustments of items unrelated to the Partnership. Each partner
would bear the cost of any expenses incurred in connection with an
examination of his personal tax return.
CHANGES IN FEDERAL INCOME TAX LAWS. Legislation passed by Congress in
1997 as part of the Taxpayer Relief Act of 1997 (the "TRA of 1997") alters
the tax reporting system and the deficiency collection system applicable to
large partnerships (generally defined as electing partnerships with more than
100 partners) and makes certain additional changes to the treatment of large
partnerships. The TRA of 1997 is generally intended to simplify the
administration of the tax rules governing large partnerships.
The TRA of 1997 also affects the taxation of certain financial products,
including partnership interests. The TRA of 1997 treats a taxpayer as having
sold an "appreciated" partnership interest (one in which gain would be
recognized if such interest were sold) if the taxpayer or related persons
enters into one or more positions with respect to the same or substantially
identical property which, for some period, substantially eliminates both the
risk of loss and opportunity for gain on the appreciated financial position
(including selling "short against the box" transactions). See "Tax
Considerations -- Disposition of Common Units."
President Clinton has proposed legislation in conjunction with his
budget for fiscal year 1998 (the "Budget Proposal") that would require
taxpayers, including Unitholders, to use the average cost basis for
securities sold. Similar proposals were made by the Clinton administration
in 1996.
As of the date of this Prospectus, it is not possible to predict whether
any of the changes set forth in the Budget Proposal or any other changes in
the federal income tax laws that would impact the Partnership and the Common
Unitholders will ultimately be enacted or, if enacted, what form they will
take, what the effective dates will be, and what, if any, transition rules
will be provided.
UNIFORMITY OF COMMON UNITS AND NONCONFORMING DEPLETION, DEPRECIATION AND
AMORTIZATION CONVENTIONS. Because the Partnership cannot match transferors
and transferees of Units, uniformity of the economic and tax characteristics
of the Common Units to a purchaser of Common Units must be maintained. To
maintain uniformity and for other reasons, the Partnership has adopted and
will adopt certain depletion, depreciation and amortization conventions that
may not conform with all aspects of certain proposed and final Treasury
Regulations. Although these conventions are commonly used by publicly traded
partnerships, the IRS may challenge these conventions and, if such a
challenge were sustained, the uniformity of Common Units could be affected.
Non-uniformity could adversely affect the amount of tax depletion,
depreciation and amortization available to a purchaser of Common Units and
could have a negative impact on the value of the Common Units. See "Tax
Considerations -- Uniformity of Units."
STATE, LOCAL AND OTHER TAX CONSIDERATIONS. In addition to federal
income taxes, Unitholders will generally be subject to other taxes, such as
state and local taxes, unincorporated business taxes, and estate, inheritance
or intangible taxes that may be imposed by the various jurisdictions in which
the Partnership does business or owns property. A Unitholder may be required
to file state income tax returns and to pay state income taxes in some or all
of such jurisdictions and may be subject to penalties for failure to comply
with those requirements. It is the responsibility of each Unitholder to file
all state and local, as well as federal, tax returns that may be required of
such Unitholder. Counsel has not rendered an opinion on the state or local
tax consequences of an investment in the Partnership. See "Tax Considerations
- -- State, Local and Other Tax Considerations."
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PARTNERSHIP TAX INFORMATION AND AUDITS. The Partnership furnishes each
holder of Common Units with a Schedule K-1 that sets forth his allocable
share of income, gains, losses and deductions. In preparing these schedules,
the Partnership will use various accounting and reporting conventions and
adopt various depletion, depreciation and amortization methods. There is no
assurance that these schedules will yield a result that conforms to statutory
or regulatory requirements or to administrative pronouncements of the IRS.
Further, the Partnership's tax return may be audited, and any such audit
could result in an audit of a partner's individual tax return as well as
increased liabilities for taxes because of adjustments resulting from the
audit.
CASH DISTRIBUTION POLICY
The Partnership will distribute to its partners, on a quarterly basis,
all of its Available Cash in the manner described herein. Available Cash is
defined in the Partnership Agreement and generally means, with respect to any
fiscal quarter of the Partnership, the sum of all of the cash received by the
Partnership from all sources plus reductions to reserves less all cash
disbursements of the Partnership and additions to reserves. There can be no
assurance that the Partnership will have sufficient Available Cash with
respect to any quarter to distribute the Minimum Quarterly Distribution or
any other amount to Unitholders. A portion of the Partnership's distributions
may constitute a return of an investor's capital. The tax consequences of an
investment in the Partnership are complex. See "Tax Considerations -- Tax
Consequences of Unit Ownership -- Ratio of Taxable Income to Distributions."
The Managing General Partner's decisions regarding amounts to be placed
in or released from reserves will have a direct impact on the amount of
Available Cash because increases and decreases in reserves are taken into
account in computing Available Cash. The Managing General Partner may
establish cash reserves in such amounts as it determines in its reasonable
discretion to be necessary or appropriate (i) to provide for the proper
conduct of the Partnership's business, (ii) to provide funds for
distributions to the Unitholders and the General Partners in respect of any
one or more of the next four quarters and (iii) to comply with applicable law
or any Partnership loan agreement or other agreement.
Cash distributions will be characterized as either distributions of Cash
from Operations or distributions of Cash from Interim Capital Transactions.
This distinction affects the amounts distributed to Common Unitholders and
Subordinated Unitholders relative to the General Partners. See "--
Distributions of Cash From Interim Capital Transactions."
Cash from Operations is defined in the Partnership Agreement and
generally refers to all cash generated by the operations of the Partnership's
business, after deducting related cash expenditures, reserves, debt service
and certain other items.
Cash from Interim Capital Transactions is also defined in the
Partnership Agreement and will generally be generated only by borrowings
(other than for working capital purposes), sales of debt and equity
securities and sales or other dispositions of assets for cash (other than
inventory, accounts receivable and other assets disposed of in the ordinary
course of business).
To avoid the difficulty of trying to determine whether Available Cash
distributed by the Partnership is Cash from Operations or Cash from Interim
Capital Transactions, all Available Cash distributed by the Partnership from
any source will be treated as Cash from Operations until the sum of all
Available Cash distributed as Cash from Operations equals the cumulative
amount of Cash from Operations actually generated from the date the
Partnership commenced operations through the end of the quarter prior to such
distribution. Any excess Available Cash (irrespective of its source) will be
deemed to be Cash from Interim Capital Transactions and distributed
accordingly.
If Cash from Interim Capital Transactions is distributed in respect of
each Common Unit (including the Common Units offered hereby) and Subordinated
Unit in an aggregate amount per Unit equal to the initial public offering
price of the Common Units ($21.50, the "Initial Unit Price"), plus any
arrearages with respect to the Common Units, the distinction between Cash
from Operations and Cash from Interim Capital Transactions will cease, and
both types of
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Available Cash will be treated as Cash from Operations. The Managing General
Partner does not anticipate that there will be significant amounts of Cash
from Interim Capital Transactions generated.
The Subordinated Units constitute a separate class of interests in the
Partnership, and the rights of holders of such interests to participate in
distributions to limited partners differ from the rights of the holders of
Common Units. For any given quarter, any Available Cash will be distributed
to the General Partners and to the holders of Common Units, and it may also
be distributed to the holders of Subordinated Units depending upon the amount
of Available Cash for the quarter, whether or not the Subordination Period
has ended, and other factors discussed below.
The discussion below indicates the percentages of cash distributions
required to be made to the General Partners and the Common Unitholders and
the circumstances under which holders of Subordinated Units are entitled to
cash distributions and the amounts thereof. In the following general
discussion of how Available Cash is distributed, references to Available
Cash, unless otherwise stated, mean Available Cash that constitutes Cash from
Operations.
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
The Partnership will make distributions to its partners with respect to
each fiscal quarter of the Partnership prior to dissolution of the
Partnership in an amount equal to 100% of its Available Cash for such
quarter. The Managing General Partner has made, and expects to make,
distributions of all Available Cash within 45 days after the end of each
fiscal quarter ending March 31, June 30, September 30 and December 31, to
holders of record on the applicable record date, which will generally be
between 30 and 35 days after the end of such quarter. The Minimum Quarterly
Distribution and each of the Target Distribution levels are subject to
certain adjustments as described below under "-- Distributions of Cash from
Interim Capital Transactions" and "-- Adjustment of Minimum Quarterly
Distribution and Target Distribution Levels."
The references below to the 2% of Available Cash constituting Cash from
Operations distributed to the General Partners are references to the amount
of the General Partners' percentage interest in distributions from the
Partnership and the Operating Partnership on a combined basis. The Managing
General Partner owns a .99% general partner interest in the Partnership and a
1.0101% general partner interest in the Operating Partnership, and the
Special General Partner owns a .01% general partner interest in the
Partnership. Other references in this Prospectus to the General Partners' 2%
interest or to distributions of 2% of Available Cash to the General Partners
are also references to the General Partners' combined percentage interest in
the Partnership and the Operating Partnership.
DISTRIBUTIONS OF CASH FROM OPERATIONS DURING THE SUBORDINATION PERIOD
Distributions by the Partnership of Available Cash constituting Cash
from Operations with respect to any quarter during 1997 will be made in the
following manner:
FIRST, 98% to the Common Unitholders, pro rata, and 2% to the
General Partners, pro rata, until there has been distributed in
respect of each Common Unit an amount equal to the Minimum
Quarterly Distribution for such quarter;
SECOND, 98% to the Common Unitholders, pro rata, and 2% to the
General Partners, pro rata, until there has been distributed in
respect of each Common Unit an amount equal to any cumulative
Common Unit Arrearages with respect to any prior quarter;
THIRD, 98% to the Subordinated Unitholders, pro rata, and 2% to
the General Partners, pro rata, until there has been distributed
in respect of each Subordinated Unit an amount equal to the
Minimum Quarterly Distribution for such quarter;
FOURTH, 98% to the Common Unitholders, pro rata, and 2% to the
General Partners, pro rata, until there has been distributed in
respect of each Common Unit (in addition to any distribution to
Common Unitholders with respect
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to Common Unit Arrearages), a total of $0.538 for such quarter
in respect of each Unit (the "Second Target Distribution");
FIFTH, 98% to the Subordinated Unitholders, pro rata, and 2% to
the General Partners, pro rata, until there has been distributed
in respect of each Subordinated Unit, an amount equal to the
Second Target Distribution for such quarter; and
SIXTH, 100% to the Common Unitholders, the Subordinated
Unitholders and the General Partners in proportion to the total
amount of Available Cash constituting Cash from Operations
previously distributed to such class of partner, as specified in
clauses FIRST through FIFTH above with respect to the current and
all preceding quarters during the calendar year ending
December 31, 1997.
Distributions by the Partnership of Available Cash constituting Cash
from Operations with respect to any of the four quarters in the calendar year
ending December 31, 1998 and any other subsequent quarter during the
Subordination Period, will be made in the following manner:
FIRST, 98% to the Common Unitholders, pro rata, and 2% to the
General Partners, pro rata, until there has been distributed in
respect of each Common Unit an amount equal to the Minimum
Quarterly Distribution for such quarter;
SECOND, 98% to the Common Unitholders, pro rata, and 2% to the
General Partners, pro rata, until there has been distributed in
respect of each Common Unit an amount equal to any cumulative
Common Unit Arrearages with respect to any prior quarter;
THIRD, 98% to the Subordinated Unitholders, pro rata, and 2% to
the General Partners, pro rata, until there has been distributed
in respect of each Subordinated Unit an amount equal to the
Minimum Quarterly Distribution for such quarter;
FOURTH, 98% to all Common Unitholders, pro rata, and 2% to the
General Partners, pro rata, until there has been distributed in
respect of each Common Unit (in addition to any distributions to
Common Unitholders with respect to Common Unit Arrearages) an
aggregate amount equal to the Second Target Distribution for such
quarter;
FIFTH, 98% to all Subordinated Unitholders, pro rata, and 2% to
the General Partners, pro rata, until there has been distributed
in respect of each Subordinated Unit an aggregate amount equal to
the Second Target Distribution for such quarter; and
THEREAFTER, in the manner described under "-- Incentive
Distributions and Hypothetical Annualized Yield" below.
DISTRIBUTIONS OF CASH FROM OPERATIONS AFTER THE SUBORDINATION PERIOD
The Subordination Period will continue until the Conversion Date, which
will be the first day of any quarter beginning on or after January 1, 2000 in
respect of which (a) distributions of Available Cash on all Units equaled or
exceeded the Second Target Distribution for each of the three consecutive
non-overlapping four-quarter periods immediately preceding such date and (b)
there are no arrearages on the Common Units. Notwithstanding the foregoing,
50% of the outstanding Subordinated Units will convert into an equal number
of Common Units on the first day of any quarter beginning on or after January
1, 1999 in respect of which (a) distributions of Available Cash on all Units
equaled or exceeded the applicable Target Distribution with respect to any
quarter for each of the three consecutive non-overlapping four-quarter
periods immediately preceding such date and (b) there are no arrearages on
the Common Units. For purposes of the foregoing sentences, in determining the
amount of Available Cash constituting Cash from Operations distributed in any
four-quarter period, there will be excluded any positive balance in Cash from
Operations at the beginning of such four-quarter period and any net increase
in working capital borrowings in such four-quarter period and, with respect
to the third of three consecutive four-quarter periods only, any net decrease
in
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reserves. Upon the expiration of the Subordination Period, the outstanding
Subordinated Units will automatically convert into an equal number of Common
Units, and the Common Units will no longer accrue distribution arrearages. In
addition, if the Managing General Partner is removed other than for cause,
the Subordination Period will end and all outstanding Subordinated Units will
convert into Common Units and any existing Common Unit Arrearages will be
extinguished.
Distributions by the Partnership of Available Cash constituting Cash
from Operations with respect to any quarter after the Subordination Period
will be made in the following manner:
FIRST, 98% to all Unitholders, pro rata, and 2% to the General
Partners, pro rata, until there has been distributed in respect
of each Unit an amount equal to the Minimum Quarterly
Distribution for such quarter; and
THEREAFTER, in the manner described under "-- Incentive
Distributions and Hypothetical Annualized Yield" below.
INCENTIVE DISTRIBUTIONS
For any quarter in 1998 and thereafter for which Available Cash
constituting Cash from Operations has been distributed in respect of both the
Common Units and the Subordinated Units in an amount equal to the Minimum
Quarterly Distribution and, for any such quarter during the Subordination
Period, Available Cash constituting Cash from Operations has been distributed
in respect of the Common Units in such amount as may be necessary to
eliminate any Common Unit Arrearages, then any additional Available Cash
constituting Cash from Operations will be distributed among the Unitholders
and the General Partners in the following manner:
FIRST, 98% to all Unitholders, pro rata, and 2% to the General
Partners, pro rata, until the Unitholders have received (in
addition to any distributions to Common Unitholders with respect
to Common Unit Arrearages for any quarter during the
Subordination Period) a total of $0.566 for such quarter in
respect of each Unit (the "Third Target Distribution");
SECOND, 85% to all Unitholders, pro rata, 2% to the General
Partners, pro rata, and 13% to the Managing General Partner,
until the Unitholders have received (in addition to any
distributions to Common Unitholders with respect to Common Unit
Arrearages for any quarter during the Subordination Period) a
total of $0.679 for such quarter in respect of each Unit (the
"Fourth Target Distribution");
THIRD, 75% to all Unitholders, pro rata, 2% to the General
Partners, pro rata, and 23% to the Managing General Partner,
until the Unitholders have received (in addition to any
distributions to Common Unitholders with respect to Common Unit
Arrearages for any quarter during the Subordination Period) a
total of $0.904 for such quarter in respect of each Unit (the
"Fifth Target Distribution"); and
THEREAFTER, 50% to all Unitholders, pro rata, 2% to the General Partners, pro
rata, and 48% to the Managing General Partner.
DISTRIBUTIONS OF CASH FROM INTERIM CAPITAL TRANSACTIONS
Distributions by the Partnership of Available Cash that constitutes Cash
from Interim Capital Transactions will be made in the following manner:
FIRST, 98% to the holders of Common Units and Subordinated Units, pro rata,
and 2% to the General Partners, pro rata, until the Partnership has
distributed, in respect of each Unit, during the period from December 22,
1994 through the date of distribution, Available Cash constituting Cash from
Interim Capital Transactions in an aggregate amount equal to the Initial Unit
Price ($21.50 per Unit);
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SECOND, 98% to the holders of Common Units, pro rata, and 2% to the General
Partners, pro rata, until the Partnership has distributed, in respect of each
Common Unit, Available Cash constituting Cash from Interim Capital
Transactions in an aggregate amount equal to any Common Unit Arrearages; and
THEREAFTER, all distributions of Available Cash that constitute Cash from
Interim Capital Transactions will be distributed as Available Cash
constituting Cash from Operations.
As Cash from Interim Capital Transactions is distributed, it is treated
as if it were a repayment of the Initial Unit Price. To reflect such a
repayment of the Initial Unit Price, the Minimum Quarterly Distribution and
each of the Target Distribution levels will be adjusted downward by
multiplying each such amount by a fraction, the numerator of which is the
Unrecovered Initial Unit Price immediately after giving effect to such
repayment and the denominator of which is the Unrecovered Initial Unit Price
immediately prior to such repayment. The Unrecovered Initial Unit Price for
all Units, including the Common Units offered hereby, is $21.50 per Unit
(which was the initial public offering price of the Common Units). Assuming
Cash from Interim Capital Transactions of $10.75 per Unit is distributed to
Unitholders (assuming no prior adjustments), then the amount of the Minimum
Quarterly Distribution and each of the Target Distribution levels would be
reduced to 50% of its initial level.
When "payback" of the Initial Unit Price has occurred, I.E., when the
Unrecovered Initial Unit Price is zero (and accrued arrearages have been
paid), then in effect the Minimum Quarterly Distribution and each of the
Target Distribution levels will have been reduced to zero. Thereafter, all
distributions of Available Cash from all sources will be treated as if they
were Cash from Operations.
Distributions of Cash from Interim Capital Transactions will not reduce
the Minimum Quarterly Distribution or Target Distribution for the quarter
with respect to which they are distributed.
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION
LEVELS
The Minimum Quarterly Distribution and each of the Target Distribution
levels will be proportionately adjusted upward or downward, as appropriate,
in the event of any combination or subdivision of Common Units (whether
effected by a distribution payable in Common Units or otherwise), but not by
reason of the issuance of additional Common Units for cash or property. For
example, in the event of a two-for-one split of the Common Units (assuming no
prior adjustments), the Minimum Quarterly Distribution and each of the Target
Distribution levels would each be reduced to 50% of its initial level.
In addition, as noted above under "-- Distributions of Cash from Interim
Capital Transactions" if a distribution is made of Available Cash
constituting Cash from Interim Capital Transactions, the Minimum Quarterly
Distribution and each of the Target Distribution levels will be adjusted in
the manner described therein.
The Minimum Quarterly Distribution and each of the Target Distribution
levels may also be adjusted if legislation is enacted or if existing law is
modified or interpreted in a manner that causes the Partnership to become
taxable as a corporation or otherwise subjects the Partnership to taxation as
an entity for federal, state or local income tax purposes. In such event, the
Minimum Quarterly Distribution and each of the Target Distribution levels
would be reduced to an amount equal to the product of (i) the Minimum
Quarterly Distribution and each of the Target Distribution levels, multiplied
by (ii) one minus the sum of (x) the maximum effective federal income tax
rate to which the Partnership is subject as an entity plus (y) any increase
that results from such legislation in the effective overall state and local
income tax rate to which the Partnership is subject as an entity for the
taxable year in which such event occurs (after taking into account the
benefit of any deduction allowable for federal income tax purposes with
respect to the payment of state and local income taxes). For example,
assuming the Partnership was not previously subject to state and local income
tax, if the Partnership were to become taxable as an entity for federal
income tax purposes and the Partnership became subject to a maximum marginal
federal, and effective state and local, income tax rate of 38%, then the
Minimum Quarterly Distribution and the Target Distribution levels would each
be reduced to 62% of the amount thereof immediately prior to such adjustment.
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DISTRIBUTIONS OF CASH UPON LIQUIDATION
Following the commencement of the dissolution and liquidation of the
Partnership, assets will be sold or otherwise disposed of and the partners'
capital account balances will be adjusted to reflect any resulting gain or
loss. The proceeds of such liquidation will, first, be applied to the payment
of creditors of the Partnership in the order of priority provided in the
Partnership Agreement and by law and, thereafter, be distributed to the
Common Unitholders, the Subordinated Unitholders (if the Subordinated Units
are outstanding at the time of liquidation) and the General Partners in
accordance with their respective capital account balances, as so adjusted.
Although operating losses are allocated to all holders of Units pro
rata, the allocations of gains and losses attributable to liquidation are
intended to entitle the holders of outstanding Common Units to a preference
over the holders of outstanding Subordinated Units upon the liquidation of
the Partnership, to the extent of the Unrecovered Initial Unit Price plus any
Common Unit Arrearages. However, no assurance can be given that the gain or
loss upon liquidation of the Partnership will be sufficient to achieve this
result. The manner of such adjustment is as provided in the Partnership
Agreement.
With respect to a liquidation of the Partnership, any net gain (or
unrealized gain attributable to assets distributed in kind) will generally be
allocated to the partners as follows:
FIRST, to the General Partners and the holders of Units that have negative
balances in their capital accounts to the extent of and in proportion to such
negative balances;
SECOND, 98% to the holders of Common Units, pro rata, and 2% to the General
Partners, pro rata, until the capital account for each Common Unit is equal
to the Unrecovered Initial Unit Price in respect of such Common Unit plus any
Common Unit Arrearages (including the amount of the Minimum Quarterly
Distribution for the fiscal quarter during which dissolution of the
Partnership occurs) in respect of such Common Unit;
THIRD, 98% to the holders of Subordinated Units, pro rata, and 2% to the
General Partners, pro rata, until the capital account for each Subordinated
Unit is equal to the Unrecovered Initial Unit Price in respect of such
Subordinated Unit plus the amount of the Minimum Quarterly Distribution for
the fiscal quarter during which dissolution of the Partnership occurs;
FOURTH, 98% to all Unitholders, pro rata, and 2% to the General Partners, pro
rata, until there has been allocated an amount per Unit equal to (a) the sum
of the excess of the Third Target Distribution per Unit over the Minimum
Quarterly Distribution per Unit for each quarter during the existence of the
Partnership, less (b) the amount per Unit of any distributions of Available
Cash constituting Cash from Operations in excess of the Minimum Quarterly
Distribution per Unit that was distributed to the Unitholders for any such
quarter (the amount in this subclause (b) not to exceed the amount described
in subclause (a) of this clause FOURTH);
FIFTH, 85% to the Unitholders, pro rata, 2% to the General Partners, pro
rata, and 13% to the Managing General Partner, until there has been allocated
an amount per Unit equal to (a) the sum of the excess of the Fourth Target
Distribution per Unit over the Third Target Distribution per Unit for each
quarter during the existence of the Partnership, less (b)(i) the amount per
Unit of any distributions of Available Cash constituting Cash from Operations
in excess of the Minimum Quarterly Distribution per Unit that was distributed
to the Unitholders for any such quarter less (ii) the amount described in
subclause (b) of clause FOURTH above (the amount in this subclause (b) not to
exceed the amount described in subclause (a) of this clause FIFTH);
SIXTH, 75% to all Unitholders, pro rata, 2% to the General Partners, pro
rata, and 23% to the Managing General Partner, until there has been allocated
an amount per Unit equal to (a) the sum of the excess of the Fifth Target
Distribution per Unit over the Fourth Target Distribution per Unit for each
quarter during the existence of the Partnership, less (b)(i) the amount per
Unit of any distributions of Available Cash constituting Cash from Operations
in excess of the Minimum Quarterly Distribution per Unit that was distributed
to the Unitholders for any such quarter
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less (ii) the amounts described in subclause (b) of clause FIFTH above and
subclause (b) of clause FOURTH above (the amount in this subclause (b) not to
exceed the amount described in subclause (a) of this clause SIXTH); and
THEREAFTER, 50% to all Unitholders, pro rata, 2% to the General Partners, pro
rata, and 48% to the Managing General Partner.
Any net loss or unrealized loss will generally be allocated to the General
Partners and the Unitholders as follows: FIRST, 98% to the Unitholders in
proportion to the positive balances in their respective capital accounts, and 2%
to the General Partners, in proportion to the positive balances in their
respective capital accounts, until the positive balances in the Common
Unitholders' respective capital accounts have been reduced to the amount of
the Unrecovered Initial Unit Price plus any Common Unit Arrearages; SECOND,
98% to the Subordinated Unitholders in proportion to the positive balances in
such Subordinated Unitholders' respective capital accounts and 2% to the
General Partners, in proportion to the positive balances in their respective
capital accounts, until the positive balances in such Subordinated
Unitholders' respective capital accounts have been reduced to zero; THIRD,
98% to the Common Unitholders in proportion to the positive balances in such
Common Unitholders' respective capital accounts and 2% to the General
Partners, in proportion to the positive balances in their respective capital
accounts, until the positive balances in such Common Unitholders' respective
capital accounts have been reduced to zero; and THEREAFTER, to the General
Partners, in proportion to their respective percentage interests.
Notwithstanding the discussion above regarding the allocation of net
gains and net losses upon dissolution of the Partnership, in certain
circumstances, items of gross income or gain will be first allocated to the
Managing General Partner in order to provide it, to the extent possible, the
full amount allocable to the Managing General Partner upon liquidation;
PROVIDED, HOWEVER, that no such allocations will be made to the Managing
General Partner to the extent that such allocations would cause the Common
Unitholders to receive in liquidation less than the Unrecovered Initial Unit
Price plus the amount of any Common Unit Arrearages.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY
CONFLICTS OF INTEREST
Certain conflicts of interest may arise as a result of the General
Partners' relationships with their Unitholders or partners, on the one hand,
and the Partnership, on the other hand. The directors and officers of the
general partners of the Managing General Partner and of the Special General
Partner have fiduciary duties to manage such General Partner, including its
investments in its subsidiaries and affiliates, in a manner beneficial to its
Unitholders or limited partners. In general, as general partners of the
Partnership, the General Partners have a fiduciary duty to manage the
Partnership in a manner beneficial to the Partnership and the Unitholders.
The Partnership Agreement contains provisions that allow the Managing General
Partner to take into account the interests of parties in addition to the
Partnership in resolving conflicts of interest, thereby limiting the fiduciary
duties of the General Partners to the Unitholders, as well as provisions that
may restrict the remedies available to Unitholders for actions taken that
might, without such limitations, constitute breaches of fiduciary duty. The
duty of the directors and officers of the general partners of the Managing
General Partner and of the Special General Partner to the Unitholders or
limited partners of such General Partner may, therefore, come into conflict
with their duties to the Partnership and the Unitholders.
Conflicts of interest may arise in the situations described below, among
others:
CERTAIN ACTIONS TAKEN BY THE MANAGING GENERAL PARTNER MAY AFFECT THE
AMOUNT OF CASH AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS OR HASTEN THE
CONVERSION OF SUBORDINATED UNITS. Decisions of the Managing General Partner
with respect to the amount and timing of timber harvests, property sales,
cash expenditures, capital expansions and acquisitions, borrowings, issuance
of additional Units and reserves may affect whether, or the extent to which,
there is sufficient Available Cash constituting Cash from Operations to meet
the Minimum Quarterly Distribution and Target Distributions on all Units in
such quarter or subsequent quarters. The Partnership Agreement provides that
any such actions by the Partnership or the approval thereof by the Managing
General Partner will not constitute a breach of any
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duty owed by the Managing General Partner to the Partnership or the
Unitholders, including actions that have the purpose or effect, directly or
indirectly, of enabling the Managing General Partner to receive incentive
distributions or hastening the expiration of the Subordination Period and the
conversion of the Subordinated Units into Common Units; provided that the
Managing General Partner may not use increases in working capital borrowings
to hasten the expiration of the Subordination Period or the conversion of any
Subordinated Units into Common Units. The Partnership Agreement provides that
the Partnership may borrow funds from the Managing General Partner and its
affiliates on terms no less favorable to the Partnership than would be
obtained from an unrelated third party lender. The General Partners and their
affiliates may not borrow funds from the Partnership. Further, any actions
taken by the Managing General Partner consistent with the standards of
reasonable discretion set forth in the definitions of Available Cash, Cash
from Operations and Cash from Interim Capital Transactions will be deemed not
to constitute breaches of any duties of the Managing General Partner to the
Partnership or the Unitholders.
THE PARTNERSHIP REIMBURSES THE MANAGING GENERAL PARTNER AND ITS
AFFILIATES FOR CERTAIN EXPENSES. Under the terms of the Partnership
Agreement, the Managing General Partner and its affiliates are reimbursed by
the Partnership for certain expenses incurred on behalf of the Partnership,
including costs incurred in providing staff and support services to the
Partnership. See "Management."
THE MANAGING GENERAL PARTNER MAY SEEK TO LIMIT THE LIABILITY OF THE
GENERAL PARTNERS WITH RESPECT TO THE PARTNERSHIP'S OBLIGATIONS. Whenever
possible, the Managing General Partner may seek to limit the Partnership's
liability under contractual arrangements to all or particular assets of the
Partnership, with the other party thereto having no recourse against the
Managing General Partner, the Special General Partner or their respective
assets. The Partnership Agreement provides that any action by the Managing
General Partner in so limiting the liability of the General Partners or that
of the Partnership will not be deemed to be a breach of the Managing General
Partner's fiduciary duties, even if the Partnership could have obtained more
favorable terms without such limitation on liability.
CONTRACTS BETWEEN THE PARTNERSHIP, ON THE ONE HAND, AND THE MANAGING
GENERAL PARTNER AND ITS AFFILIATES, ON THE OTHER, WILL NOT BE THE RESULT OF
ARM'S-LENGTH NEGOTIATIONS. Under the terms of the Partnership Agreement, the
Managing General Partner is not restricted from paying itself or its
affiliates for any services rendered or entering into additional contractual
arrangements with any of them on behalf of the Partnership. Neither the
Partnership Agreement nor any of the other agreements, contracts and
arrangements between the Partnership, on the one hand, and the Managing
General Partner and its affiliates, on the other, are or will be the result
of arm's-length negotiations. All such transactions must be on terms which
are fair and reasonable to the Partnership. Any such transaction will be
deemed fair and reasonable if (i) it is approved by the Audit Committee, (ii)
its terms are no less favorable to the Partnership than those generally being
provided to or available from unrelated third parties, or (iii) taking into
account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or
advantageous to the Partnership), the transaction is fair to the Partnership.
The Managing General Partner and its affiliates will have no obligation to
permit the Partnership to use any facilities or assets of the Managing
General Partner and such affiliates, except as may be provided in contracts
entered into from time to time specifically dealing with such use, nor will
the Managing General Partner and its affiliates have any obligation to enter
into any such contracts.
COMMON UNITHOLDERS WILL HAVE NO RIGHT TO ENFORCE OBLIGATIONS OF THE
GENERAL PARTNERS AND THEIR AFFILIATES UNDER AGREEMENTS WITH THE PARTNERSHIP.
Any agreements between the Partnership and a General Partner and its
affiliates will not grant to the holders of Common Units, separate and apart
from the Partnership, the right to enforce the obligations of such General
Partner and its affiliates in favor of the Partnership. Therefore, the
Managing General Partner, in its capacity as a general partner of the
Partnership, will be primarily responsible for enforcing such obligations.
AFFILIATES OF THE GENERAL PARTNERS MAY COMPETE WITH THE PARTNERSHIP.
The General Partners and their affiliates are restricted from competing with
the Partnership by engaging in the following activities ("Restricted
Activities"): the (i) acquisition, exchange, operation or sale of
timber-producing real property or rights to harvest timber, a principal
purpose of which is producing logs or other forest products, (ii) harvesting
of timber other than harvesting
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that is incidental to the ownership or operation of real property not owned
or operated for a principal purpose of producing logs or other forest
products, (iii) sale, exchange or purchase of logs other than sales,
exchanges or purchases that are incidental to the ownership or operation of
real property not owned or operated for a principal purpose of producing logs
or other forest products, (iv) acquisition or sale of any facilities used to
convert logs into lumber, plywood or other wood products, (v) conversion of
logs into lumber, plywood or other wood products, (vi) marketing and sale of
lumber, plywood or other wood products, (vii) import or export of logs,
lumber, plywood or other wood products to or from the United States, (viii)
manufacture, marketing or sale of manufactured, engineered or substitute wood
products to the extent such products compete with products produced by the
Partnership and (ix) any and all other activities relating to the United
States forest products industry to the extent such activities compete with
activities of the Partnership; provided, however, that (a) the sale, lease,
exchange, transfer or other disposition by the Special General Partner of (1)
any timber-producing real property owned by the Special General Partner on
December 22, 1994, and (2) any timber-producing real property subsequently
acquired by the Special General Partner in exchange for or utilizing the
proceeds from the sale of the property described in the foregoing clause (1)
or (b) the harvesting of timber by the Special General Partner from any real
property described in the foregoing clause (a), is permitted so long as the
resulting logs are sold to the Operating Partnership on terms and conditions
permitted under the Partnership Agreement. Affiliates of the General
Partners and the Special General Partner may, however, engage in any other
activity in competition with the Partnership.
Notwithstanding the foregoing, Fremont, Sequoia Ventures Inc.
("Sequoia"), an affiliate of Fremont, and their subsidiaries may make or
maintain (i) a non-controlling investment in any entity that engages in
Restricted Activities and (ii) a controlling investment in any entity that
engages in Restricted Activities (A) if such Restricted Activities do not
directly and materially compete with the Partnership, (B) if such Restricted
Activities (except as provided in clause (C) below) are conducted in North
America and directly and materially compete with the Partnership, provided
that prior to making such investment Fremont, Sequoia or their subsidiaries
first offer the Partnership the opportunity to make such investment or (C) if
such entity conducts all of its operations outside of North America except
for the marketing and sale of logs, lumber, plywood or other wood products
(including manufactured, engineered or substitute wood products) in North
America. None of Fremont, Sequoia or their subsidiaries will be so restricted
if and when none of them any longer owns an interest in either of the General
Partners. As a result, conflicts of interest may arise between Fremont,
Sequoia and their subsidiaries on the one hand, and the Partnership, on the
other. There can be no assurance that there will not be competition between
the Partnership and Fremont, Sequoia or their subsidiaries. Although Bechtel
Group, Inc., Bechtel Enterprises, Inc. and their subsidiaries (collectively,
the "Bechtel Entities") may be within the definition of "affiliates" (as
defined in the Partnership Agreement) of the General Partners by virtue of
the overlapping equity ownership among these entities and Fremont and Sequoia,
the foregoing competition restrictions do not apply to the Bechtel Entities.
COMMON UNITS ARE SUBJECT TO THE GENERAL PARTNER'S LIMITED CALL RIGHT.
The Partnership Agreement provides that it does not constitute a breach of
the Managing General Partner's fiduciary duties if the Managing General
Partner exercises its right to call for and purchase Common Units as provided
in the Partnership Agreement or to assign this right to its affiliates or to
the Partnership. The Managing General Partner thus may use its own
discretion, free of fiduciary duty restrictions, in determining whether to
exercise such right. As a consequence, a Common Unitholder may have his
Common Units purchased even though he may not desire to sell them, and even
though the price paid may be less than the amount he would desire to receive
upon sale of his Common Units. For a description of such right, see "The
Partnership Agreement -- Limited Call Right."
FIDUCIARY DUTIES OF THE GENERAL PARTNERS
The General Partners are accountable to the Partnership and the Unitholders
as fiduciaries. Consequently, the General Partners must exercise good faith and
integrity in handling the business and affairs of the Partnership. In contrast
to the relatively well developed law concerning fiduciary duties owed by
officers and directors to the shareholders of a corporation, the law concerning
the duties owed by general partners to other partners and to partnerships is
relatively undeveloped. The Delaware Act does not define with particularity the
fiduciary duties owed by general partners, but fiduciary duties are generally
considered to include an obligation to act with the highest good
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faith, fairness and loyalty. Such duty of loyalty would generally prohibit a
general partner of a Delaware limited partnership from taking any action or
engaging in any transaction as to which it has a conflict of interest.
However, the Delaware Act provides that Delaware limited partnerships may, in
their partnership agreements, restrict or expand the fiduciary duties that
might otherwise be applied by a court in analyzing the standard duty owed by
general partners to limited partners. In order to induce the Managing General
Partner to manage the business of the Partnership, the Partnership Agreement,
as permitted by the Delaware Act, contains various provisions that have the
effect of restricting the fiduciary duties that might otherwise be owed by
the Managing General Partner to the Partnership and its partners and waiving
or consenting to conduct by the Managing General Partner and its affiliates
that might otherwise raise issues as to compliance with fiduciary duties or
applicable law.
The Partnership Agreement provides that whenever a conflict of interest
arises between the General Partners or their affiliates, on the one hand, and
the Partnership or any other partner, on the other, the Managing General
Partner will resolve such conflict. The General Partners will not be in
breach of their obligations under the Partnership Agreement or their duties
to the Partnership or the Unitholders if the resolution of such conflict is
fair and reasonable to the Partnership, and any resolution will conclusively
be deemed to be fair and reasonable to the Partnership if such resolution is
(i) approved by the Audit Committee, (ii) on terms no less favorable to the
Partnership than those generally being provided to or available from
unrelated third parties or (iii) fair to the Partnership, taking into account
the totality of the relationship between the parties involved (including
other transactions that may be particularly favorable or advantageous to the
Partnership). In resolving such conflict, the Managing General Partner may
(unless the resolution is specifically provided for in the Partnership
Agreement) consider the relative interests of the parties involved in such
conflict or affected by such action, any customary or accepted industry
practices or historical dealings with a particular person or entity and, if
applicable, generally accepted accounting practices or principles and such
other factors as it deems relevant. Thus, unlike the strict duty of a fiduciary
who must act solely in the best interests of his beneficiary, the Partnership
Agreement permits the Managing General Partner to consider the interests of all
parties to a conflict of interest, including the interests of the General
Partners. In connection with the resolution of any conflict that arises, unless
the Managing General Partner has acted in bad faith, the action taken by the
Managing General Partner will not constitute a breach of the Partnership
Agreement, any other agreement or any standard of care or duty imposed by the
Delaware Act or other applicable law. The Partnership Agreement also provides
that in certain circumstances the Managing General Partner may act in its sole
discretion, in good faith or pursuant to other appropriate standards.
The Delaware Act provides that a limited partner may institute legal action
on behalf of a partnership (a partnership derivative action) to recover damages
from a third party where the general partner has failed to institute the action
or where an effort to cause the general partner to do so is not likely to
succeed. In addition, the statutory or case law of certain jurisdictions may
permit a limited partner to institute a legal action on behalf of himself and
all other similarly situated limited partners (a class action) to recover
damages from a general partner for violations of its fiduciary duties to the
limited partners.
The Partnership Agreement also provides that any standard of care and
duty imposed thereby or under the Delaware Act or any applicable law, rule or
regulation is modified, waived or limited, to the extent permitted by law, as
required to permit the Managing General Partner and its officers and
directors to act under the Partnership Agreement or any other agreement
contemplated therein and to make any decision pursuant to the authority
prescribed in the Partnership Agreement so long as such action is reasonably
believed by the Managing General Partner to be in, or not inconsistent with,
the best interests of the Partnership. Further, the Partnership Agreement
provides that the General Partners and officers and directors acting on their
behalf (or on behalf of any general partner thereof) will not be liable for
monetary damages to the Partnership, the limited partners or assignees for
errors of judgment or for any acts or omissions of the General Partners if
such other persons acted in good faith. In addition, under the terms of the
Partnership Agreement, the Partnership is required to indemnify the General
Partners and the officers, directors, employees, affiliates, partners, agents
and trustees acting on their behalf, to the fullest extent permitted by law,
against liabilities, costs and expenses incurred by the General Partners or
other such persons, if the General Partners or such persons acted in good
faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of the Partnership and, with respect to any criminal
proceedings, had no reasonable cause to believe the
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conduct was unlawful. See "The Partnership Agreement -- Indemnification."
Thus, the General Partners may be indemnified for their negligent acts if
they meet such requirements concerning good faith and the best interests of
the Partnership.
DESCRIPTION OF THE COMMON UNITS
The Common Units are registered under the Exchange Act, and the rules
and regulations promulgated thereunder.
Purchasers of Common Units and subsequent transferees of Common Units (or
their brokers, agents or nominees on their behalf) will be required to execute
Transfer Applications, the form of which is included as Appendix A to this
Prospectus. Purchasers of Common Units may hold the Common Units in nominee
accounts, provided that the broker (or other nominee) executes and delivers a
Transfer Application and becomes a limited partner. The Partnership will be
entitled to treat the nominee holder of a Common Unit as the absolute owner
thereof, and the beneficial owner's rights will be limited solely to those that
it has against the nominee holder as a result of or by reason of any
understanding or agreement between such beneficial owner and nominee holder.
Generally, the Common Units represent limited partner interests in the
Partnership, which entitle the holders thereof to participate in Partnership
distributions and exercise the rights or privileges available to limited
partners under the Partnership Agreement.
TRANSFER AGENT AND REGISTRAR
DUTIES. American Stock Transfer & Trust Company acts as a registrar and
transfer agent (the "Transfer Agent") for the Common Units and receives a fee
from the Partnership for serving in such capacities. All fees charged by the
Transfer Agent for transfers of Common Units are borne by the Partnership and
not by the holders of Common Units, except that fees similar to those
customarily paid by Unitholders for surety bond premiums to replace lost or
stolen certificates, taxes and other governmental charges, special charges
for services requested by a holder of a Common Unit and other similar fees or
charges will be borne by the affected holder. There is no charge to holders
for disbursements of the Partnership's cash distributions. The Partnership
will indemnify the Transfer Agent, its agents and each of their respective
shareholders, directors, officers and employees against all claims and losses
that may arise out of acts performed or omitted in respect of its activities
as such, except for any liability due to any negligence, gross negligence,
bad faith or intentional misconduct of the indemnified person or entity.
RESIGNATION OR REMOVAL. The Transfer Agent may at any time resign, by
notice to the Partnership, or be removed by the Partnership, such resignation
or removal to become effective upon the appointment by the Managing General
Partner of a successor transfer agent and registrar and its acceptance of
such appointment. If no successor has been appointed and accepted such
appointment within 30 days after notice of such resignation or removal, the
Managing General Partner is authorized to act as the transfer agent and
registrar until a successor is appointed.
TRANSFER OF UNITS
Until a Common Unit has been transferred on the books of the
Partnership, the Partnership and the Transfer Agent, notwithstanding any
notice to the contrary, may treat the record holder thereof as the absolute
owner for all purposes, except as otherwise required by law or stock exchange
regulations. The transfer of the Common Units to persons that purchase
directly from the Underwriters will be accomplished through the completion,
execution and delivery of a Transfer Application by such investor in
connection with such Common Units. Any subsequent transfers of a Common Unit
will not be recorded by the Transfer Agent or recognized by the Partnership
unless the transferee executes and delivers a Transfer Application. By
executing and delivering a Transfer Application (the form of which is set
forth as Appendix A to this Prospectus and which is also set forth on the
reverse side of the certificates representing the Common Units), the
transferee of Common Units (i) becomes the record holder of such Common Units
and shall constitute an assignee until admitted into the Partnership as a
substitute limited partner, (ii) automatically requests admission as a
substituted limited partner in the Partnership, (iii) agrees to be bound by
the terms and conditions of, and executes, the Partnership Agreement, (iv)
represents that such transferee has the capacity,
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power and authority to enter into the Partnership Agreement, (v) grants
powers of attorney to the Managing General Partner and any liquidator of the
Partnership as specified in the Partnership Agreement and (vi) makes the
consents and waivers contained in the Partnership Agreement. An assignee
will become a substituted limited partner of the Partnership in respect of
the transferred Common Units upon the consent of the Managing General Partner
and the recordation of the name of the assignee on the books and records of
the Partnership. Such consent may be withheld in the sole discretion of the
Managing General Partner.
Common Units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission
as a substituted limited partner in the Partnership in respect of the
transferred Common Units. A purchaser or transferee of Common Units who does
not execute and deliver a Transfer Application obtains only (a) the right to
assign the Common Units to a purchaser or other transferee and (b) the right
to transfer the right to seek admission as a substituted limited partner in
the Partnership with respect to the transferred Common Units. Thus, a
purchaser or transferee of Common Units who does not execute and deliver a
Transfer Application will not receive cash distributions unless the Common
Units are held in a nominee or "street name" account and the nominee or
broker has executed and delivered a Transfer Application with respect to such
Common Units, and may not receive certain federal income tax information or
reports furnished to record holders of Common Units. The transferor of
Common Units will have a duty to provide such transferee with all information
that may be necessary to obtain registration of the transfer of the Common
Units, but a transferee agrees, by acceptance of the certificate representing
Common Units, that the transferor will not have a duty to insure the
execution of the Transfer Application by the transferee and will have no
liability or responsibility if such transferee neglects or chooses not to
execute and forward the Transfer Application to the Transfer Agent. See "The
Partnership Agreement -- Transfer Restrictions."
THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. The Partnership will provide prospective investors
with a copy of the Partnership Agreement and the Limited Partnership
Agreement for the Operating Partnership (the "Operating Partnership
Agreement") upon request at no charge. The following discussion is qualified
in its entirety by reference to the Partnership Agreement. The Partnership is
the sole limited partner of the Operating Partnership, which owns, manages
and operates the Partnership's business. The Managing General Partner and the
Special General Partner serve as the general partners of the Partnership,
owning a 0.99% and 0.01% general partner interest, respectively, in the
Partnership. The Managing General Partner is the sole general partner of the
Operating Partnership, owning a 1.0101% general partner interest in the
Operating Partnership. The General Partners collectively own a 2% general
partner interest in the business and properties owned by the Partnership and
the Operating Partnership on a combined basis. Unless specifically described
otherwise, references herein to the "Partnership Agreement" constitute
references to the Partnership Agreement and the Operating Partnership
Agreement, collectively.
Certain provisions of the Partnership Agreement are summarized elsewhere
in this Prospectus under various headings. With regard to various transactions
and relationships of the Partnership with the General Partners and their
affiliates, see "Conflicts of Interest and Fiduciary Responsibility." With
regard to distributions of Available Cash, see "Cash Distribution Policy." With
regard to allocations of taxable income and taxable loss, see "Tax
Considerations." Prospective investors are urged to review these sections of
this Prospectus and the Partnership Agreement carefully.
ORGANIZATION AND DURATION
The Partnership and the Operating Partnership are Delaware limited
partnerships. The Managing General Partner and the Special General Partner
are the general partners of the Partnership, and the Managing General Partner
is the sole general partner of the Operating Partnership. The General
Partners hold an effective 2% interest as general partners, and the
Unitholders hold a 98% interest as limited partners in the Partnership and
the Operating Partnership
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on a combined basis. The Partnership will dissolve on December 31, 2084,
unless sooner dissolved pursuant to the terms of the Partnership Agreement.
PURPOSE
The purpose of the Partnership under the Partnership Agreement is
limited to serving as the limited partner of the Operating Partnership and
engaging in any business activity that may be engaged in by the Operating
Partnership or that is approved by the Managing General Partner. The
Operating Partnership Agreement provides that the Operating Partnership may
engage in any activity engaged in by its predecessors immediately prior to
the formation of the Operating Partnership in 1994, any activities that are,
in the sole judgment of the Managing General Partner, reasonably related
thereto and any other activity approved by the Managing General Partner. The
Managing General Partner is authorized in general to perform all acts deemed
necessary to carry out such purposes and to conduct the business of the
Partnership.
CAPITAL CONTRIBUTIONS
The holders of Units are not obligated to make additional capital
contributions to the Partnership, except as described below under "-- Limited
Liability."
POWER OF ATTORNEY
Each limited partner, and each person who acquires a Unit from the
holder thereof and executes and delivers a Transfer Application with respect
thereto, grants to the Managing General Partner and, if a liquidator of the
Partnership has been appointed, to such liquidator, a power of attorney to,
among other things, execute and file certain documents required in connection
with the qualification, continuance or dissolution of the Partnership, or the
amendment of the Partnership Agreement in accordance with the terms thereof
and to make consents and waivers contained in the Partnership Agreement.
RESTRICTIONS ON AUTHORITY OF THE MANAGING GENERAL PARTNER
The authority of the Managing General Partner is limited in certain
respects under the Partnership Agreement. The Managing General Partner is
prohibited, without the prior approval of holders of record of at least a
majority of the Units (excluding, during the Subordination Period, Units held
by the General Partners and their affiliates), from, among other things,
selling, exchanging or otherwise disposing of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions (including by way of merger, consolidation or other combination)
or approving on behalf of the Partnership the sale, exchange or other
disposition of all or substantially all of the assets of the Partnership;
provided that the Partnership may mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of the Partnership's assets
without such approval. The Partnership may also sell all or substantially all
of its assets pursuant to a foreclosure or other realization upon the
foregoing encumbrances without such approval. The Unitholders are not
entitled to dissenters' rights of appraisal under the Partnership Agreement
or applicable Delaware law in the event of a merger or consolidation of the
Partnership, a sale of substantially all of the Partnership's assets or any
other event. Except as otherwise provided in the Partnership Agreement, any
amendment to a provision of the Partnership Agreement generally will require
the approval of the holders of at least a majority of the outstanding Units.
See "-- Amendment of Partnership Agreement" below.
In general, the Managing General Partner may not take any action, or
refuse to take any reasonable action, without the consent of the holders of
at least a majority of each class of outstanding Units (excluding, during the
Subordination Period, Units owned by the General Partners and their
affiliates), the effect of which would be to cause the Partnership to be
treated as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes.
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WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNERS
The Managing General Partner has agreed not to withdraw voluntarily as a
general partner of the Partnership and the Operating Partnership prior to
December 31, 2004 (with limited exceptions described below), without obtaining
the approval of at least 66 2/3% of the outstanding Units (excluding Units held
by the General Partners and their affiliates) and furnishing an opinion of
counsel that such withdrawal (following the selection of a successor managing
general partner) will not result in the loss of the limited liability of the
limited partners of the Partnership or cause the Partnership to be treated as
an association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes (an "Opinion of Counsel"). On or after December 31,
2004, the Managing General Partner may withdraw as a general partner (without
first obtaining approval from the Unitholders) by giving 90 days' written
notice, and such withdrawal will not constitute a violation of the Partnership
Agreement. Notwithstanding the foregoing, the Managing General Partner may
withdraw without Unitholder approval upon 90 days' notice to the limited
partners if more than 50% of the outstanding Units are held or controlled by
one person and its affiliates (other than the General Partners and their
affiliates). The Special General Partner may withdraw as a general partner of
the Partnership at any time upon 90 days' written notice and furnishing an
Opinion of Counsel.
In addition, the Partnership Agreement permits the General Partners (in
certain limited instances) to sell all of their general partner interests in
the Partnership without the approval of the Unitholders. See "-- Transfer of
General Partner Interests." The Special General Partner shall withdraw as a
general partner of the Partnership at any time after a transfer of its
general partner interest in the Partnership upon obtaining the consent of the
Managing General Partner. If the Special General Partner is removed or
withdraws and no successor is appointed, the Managing General Partner will
continue the business of the Partnership.
Upon the withdrawal or removal of the Managing General Partner under any
circumstances (other than as a result of a transfer by the Managing General
Partner of all or a part of its general partner interest in the Partnership),
the holders of a majority of the outstanding Units (excluding Units held by
the General Partners and their affiliates) may select a successor to such
withdrawing or removed Managing General Partner. If such a successor is not
elected, or is elected but an Opinion of Counsel cannot be obtained, the
Partnership will be dissolved, wound up and liquidated, unless within 180
days after such withdrawal a majority of the Unitholders (excluding Units
held by the General Partners and their affiliates) agree in writing to
continue the business of the Partnership and to the appointment of a
successor managing general partner. See "-- Termination and Dissolution."
Neither the Managing General Partner nor the Special General Partner may
be removed unless such removal is approved by the vote of the holders of not
less than 66 2/3% of the outstanding Units (excluding Units held by the
General Partners and their affiliates) and the Partnership receives an
Opinion of Counsel. Any such removal is also subject to the appointment of a
successor managing general partner in the manner described above. The
Partnership Agreement also provides that if the Managing General Partner is
removed other than for cause, the Subordination Period will end and all
outstanding Subordinated Units will convert into Common Units and any
existing Common Units Arrearages will be extinguished.
Withdrawal or removal of the Managing General Partner as a general partner
of the Partnership also constitutes withdrawal or removal, as the case may be,
of the Managing General Partner as general partner of the Operating Partnership.
In the event of withdrawal of a General Partner where such withdrawal
violates the Partnership Agreement or removal of a General Partner by the
limited partners under circumstances where cause exists, a successor general
partner will have the option to purchase the general partner interest of the
departing General Partner (the "Departing Partner") in the Partnership and
the Operating Partnership for a cash payment equal to the fair market value
of such interest. Under all other circumstances where a General Partner
withdraws or is removed by the limited partners, the Departing Partner will
have the option to require the successor general partner to purchase such
general partner interest of the Departing Partner for such amount. In each
case, such fair market value will be determined by agreement between the
Departing Partner and the successor general partner, or if no agreement is
reached, by an
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independent investment banking firm or other independent expert selected by
the Departing Partner and the successor general partner (or if no expert can
be agreed upon, by an expert chosen by agreement of the experts selected by
each of them). In addition, the Partnership will also be required to reimburse
the Departing Partner for all amounts due the Departing Partner, including
without limitation, all employee-related liabilities, including severance
liabilities, incurred in connection with the termination of the employees
employed by the Departing Partner for the benefit of the Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing
Partner's general partner interest in the Partnership will be converted into
Common Units equal to the fair market value of such interest as determined by
an investment banking firm or other independent expert selected in the manner
described in the preceding paragraph.
TRANSFER OF GENERAL PARTNER INTERESTS
Except for a transfer by either General Partner of all, but not less
than all, of its general partner interest in the Partnership to an affiliate
or in connection with the merger or consolidation of either General Partner
with or into another entity or the transfer by either of the General Partners
of all or substantially all of its assets to another person or entity, the
General Partners may not transfer all or any part of their general partner
interests in the Partnership to another person or entity prior to December
31, 2004, without the approval of holders of at least a majority of the
outstanding Units (excluding, during the Subordination Period, any Units held
by the General Partners or their affiliates); provided that, in each case,
such transferee assumes the rights and duties of the General Partner to whose
interest such transferee has succeeded, agrees to be bound by the provisions
of the Partnership Agreement, furnishes an Opinion of Counsel and, in the
case of the Managing General Partner, agrees to purchase all (or the appropriate
portion thereof, as applicable) of the Managing General Partner's interest in
the Operating Partnership and agrees to be bound by the provisions of the
Operating Partnership Agreement. At any time, the partners or shareholders of
the General Partners may sell or transfer their interests in the General
Partners to a third party without the approval of the Unitholders.
REIMBURSEMENT FOR SERVICES
The Partnership Agreement provides that the General Partners are not
entitled to receive any compensation for their services as general partners
of the Partnership; PROVIDED, HOWEVER, that Fremont is paid a semi-annual fee
of $50,000 by the Managing General Partner for management services and is
reimbursed for its out-of-pocket expenses incurred in the provision of such
services. In addition, the General Partners are entitled to be reimbursed on
a monthly basis (or such other basis as the Managing General Partner may
reasonably determine in its sole discretion) for all direct and indirect
expenses they incur or payments they make on behalf of the Partnership,
including the fee paid to Fremont, and all other necessary or appropriate
expenses allocable to the Partnership or otherwise reasonably incurred by the
General Partners in connection with the operation of the Partnership's
business. The Partnership Agreement provides that the Managing General
Partner shall determine the fees and expenses that are allocable to the
Partnership in any reasonable manner determined by the Managing General
Partner in its sole discretion.
CHANGE OF MANAGEMENT PROVISIONS
The Partnership Agreement contains certain provisions that are intended
to discourage a person or group from attempting to remove the Managing General
Partner as managing general partner of the Partnership or otherwise change
management of the Partnership. If the Managing General Partner is removed other
than for cause, the Subordination Period will end and all outstanding
Subordinated Units will convert into Common Units and any existing Common Unit
Arrearages will be extinguished. If any person or group other than the General
Partners and their affiliates acquires beneficial ownership of 20% or more of
the Common Units, such person or group loses voting rights with respect to all
of its Common Units; provided, that any person who, directly or indirectly,
acquires beneficial ownership of 20% or more of the Common Units from Fremont,
Fremont's affiliates or subsequent
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transferees of the Common Units owned by Fremont or its affiliates will not
lose its voting rights with respect to any Common Units beneficially owned by
such person.
TRANSFER RESTRICTIONS
Except as described below under "-- Limited Liability," the Units will
be fully paid, and holders of Units will not be required to make additional
contributions to the Partnership.
Each purchaser of Common Units in this offering or in the open market
who wishes to become a holder of record must execute and deliver to the
Partnership a Transfer Application (the form of which is attached as Appendix
A to this Prospectus) whereby such recipient requests admission as a
substituted limited partner in the Partnership, makes certain representations
and agrees to certain provisions. If such action is not taken, a recipient
will not be registered as a record holder of Common Units or issued a Common
Unit certificate. Purchasers may hold Common Units in nominee accounts. See
"Description of the Common Units."
An assignee of a Common Unit, after executing and delivering a Transfer
Application, but pending its admission as a substituted limited partner in
the Partnership, is entitled to an interest in the Partnership equivalent to
that of a limited partner with respect to the right to share in allocations
and distributions from the Partnership, including liquidating distributions.
The Managing General Partner will vote and exercise other powers attributable
to Common Units owned by an assignee who has not become a substituted limited
partner at the written direction of such assignee. See "-- Meetings; Voting."
A transferee who does not execute and deliver a Transfer Application will be
treated neither as an assignee nor as a record holder of Common Units, and will
not receive cash distributions, federal income tax allocations or reports
furnished to record holders of Common Units. The only right such a transferee
will have is the right to negotiate such Common Units to a purchaser or other
transferee and the right to transfer the right to request admission as a
substitute limited partner or a substituted special limited partner in respect
of the transferred Common Units to a purchaser or other transferee who executes
and delivers a Transfer Application in respect of the Common Units. A nominee or
broker who has executed a Transfer Application with respect to Common Units held
in street name or nominee accounts will receive the distributions, allocations
and reports pertaining to such Common Units. An assignee will become a
substituted limited partner only with the Managing General Partner's consent,
which consent may be given or withheld in its absolute and sole discretion.
NON-CITIZEN ASSIGNEES; REDEMPTION
If the Partnership is or becomes subject to federal, state or local laws
or regulations that, in the reasonable determination of the Managing General
Partner, create a substantial risk of cancellation or forfeiture of any
property in which the Partnership has an interest because of the nationality,
citizenship or other related status of any limited partner or assignee, the
Partnership may redeem the Common Units held by such limited partner or
assignee at their Current Market Price. In order to avoid any such
cancellation or forfeiture, the Managing General Partner may require each
limited partner or assignee to furnish information about his nationality,
citizenship, residency or related status. If a limited partner or assignee
fails to furnish information about such nationality, citizenship, residency
or other related status within 30 days after a request for such information,
such limited partner or assignee may be treated as a non-citizen assignee (a
"Non-citizen Assignee"). In addition to other limitations on the rights of an
assignee who is not a substituted limited partner, a Non-citizen Assignee
does not have the right to direct the voting of his Common Units and may not
receive distributions in kind upon liquidation of the Partnership. See "--
Transfer Restrictions."
ISSUANCE OF ADDITIONAL SECURITIES
Subject to certain exceptions, the Partnership may issue an unlimited
number of additional Units or other equity securities of the Partnership for
such consideration and on such terms and conditions as are established by the
Managing General Partner in its sole discretion without the approval of any
Unitholders. On the date of this Prospectus and prior to the end of the
Subordination Period, however, the Partnership may not issue (a) in excess of
20,029,250 Common Units (including the 4,000,000 Common Units subject to this
Prospectus and 4,000,000 Common
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Units subject to a separate "shelf" registration statement but excluding
Common Units issued upon conversion of Subordinated Units) or an equivalent
amount of securities ranking on a parity with the Common Units or (b) any
equity securities of the Partnership with rights as to distributions and
allocations or in liquidation ranking prior or senior to the Common Units, in
either case without the approval of the holders of at least 66 2/3% of the
outstanding Common Units (excluding Common Units held by the General Partners
and their affiliates); PROVIDED, HOWEVER, that if Units are to be issued in
connection with a merger or consolidation requiring the approval of a
majority of the outstanding Common Units, the required vote shall be a
majority of the outstanding Common Units (excluding, during the Subordination
Period, Common Units held by the General Partners and their affiliates).
After the end of the Subordination Period, there is no restriction under
the Partnership Agreement on the ability of the Partnership to issue additional
limited or general partner interests having rights to distributions or rights
in liquidation on a parity with or senior to the Common Units. Therefore,
after the Subordination Period, the Managing General Partner, without a vote
of the Unitholders, may cause the Partnership to issue additional Common Units
or other equity securities of the Partnership on a parity with or senior to the
Common Units. In addition, in accordance with Delaware law and the provisions
of the Partnership Agreement, the Managing General Partner may cause the
Partnership to issue additional partnership interests that, in the Managing
General Partner's sole discretion, have special voting rights to which the
Common Units are not entitled. The Partnership Agreement does not impose any
restriction on the Partnership's ability to issue equity securities ranking
junior to the Common Units at any time.
The General Partners will have the right, which they may from time to
time assign in whole or in part to any of their affiliates, to purchase
Common Units, Subordinated Units or other equity securities of the
Partnership from the Partnership whenever, and on the same terms that, the
Partnership issues such securities to persons other than the General Partners
and their affiliates, to the extent necessary to maintain the percentage
interest of the General Partners and their affiliates in the Partnership that
existed immediately prior to each such issuance.
Additional issuances of Units, including Subordinated Units or other
equity securities of the Partnership ranking junior to the Common Units, may
reduce the likelihood of, and the amount of, any distributions above the
Minimum Quarterly Distribution or Target Distributions.
LIMITED CALL RIGHT
If at any time less than 10% of the then issued and outstanding Common
Units are held by persons other than the General Partners and their
affiliates, the Managing General Partner will have the right, which it may
assign in whole or in part to any of its affiliates or to the Partnership, to
acquire all, but not less than all, of the remaining Common Units held by
such unaffiliated persons as of a record date to be selected by the Managing
General Partner, on at least 30 but not more than 60 days' notice. The
purchase price in the event of such a purchase shall be the greater of (a)
the highest price paid by either of the General Partners or any of their
affiliates for any Common Units purchased within the 90 days preceding the
date on which the Managing General Partner first mails notice of its election
to purchase such Common Units and (b) the Current Market Price as of the date
three days prior to the date such notice is mailed. As a consequence of the
Managing General Partner's right to purchase outstanding Common Units, a
holder of Common Units may have his Common Units purchased even though he may
not desire to sell them, or the price paid may be less than the amount the
holder would desire to receive upon the sale of his Common Units.
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by or with
the consent of the Managing General Partner. In order to adopt a proposed
amendment, the Managing General Partner is required to obtain written
approval of the holders of the number of Units required to approve such
amendment or call a meeting of the limited partners to consider and vote upon
the proposed amendment, except as described below. Proposed amendments
(unless otherwise specified) must be approved by holders of at least a
majority of the outstanding Units, except that no amendment may be made that
would (i) enlarge the obligations of any limited partner without its consent,
(ii) enlarge the obligations of either of the General Partners, without its
consent, which may be given or withheld in its sole
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discretion, (iii) restrict in any way any action by or rights of the Managing
General Partner as set forth in the Partnership Agreement, (iv) modify the
amounts distributable, reimbursable or otherwise payable by the Partnership
to the General Partners, (v) change the term of the Partnership or (vi) give
any person the right to dissolve the Partnership other than the Managing
General Partner's right to dissolve the Partnership with the approval of at
least a majority of the outstanding Units (excluding, during the Subordination
Period, Units held by the General Partners and their affiliates) or change
such right of the Managing General Partner in any way.
The Managing General Partner may make amendments to the Partnership
Agreement without the approval of any limited partner or assignee to reflect
(i) a change in the name of the Partnership, the location of the principal
place of business of the Partnership or the registered agent or the
registered office of the Partnership, (ii) admission, substitution,
withdrawal or removal of partners in accordance with the Partnership
Agreement, (iii) a change that, in the sole discretion of the Managing
General Partner, is necessary or appropriate to qualify or continue the
qualification of the Partnership as a partnership in which the limited
partners have limited liability or to ensure that neither the Partnership nor
the Operating Partnership will be treated as an association taxable as a
corporation or otherwise subject to taxation as an entity for federal income
tax purposes, (iv) an amendment that is necessary, in the opinion of counsel
to the Partnership, to prevent the Partnership or the General Partners (or
any general partner thereof) or their directors, officers or managers acting
on their behalf (or on behalf of any general partner thereof) from in any
manner being subjected to the provisions of the Investment Company Act of
1940, as amended, the Investment Advisors Act of 1940, as amended, or "plan
asset" regulations adopted under the Employee Retirement Income Security Act
of 1974, as amended, whether or not substantially similar to plan asset
regulations currently applied or proposed, (v) subject to the limitations on
the issuance of additional Common Units or other limited or general partner
interests described above, an amendment that in the sole discretion of the
Managing General Partner is necessary or desirable in connection with the
authorization of additional limited or general partner interests, (vi) any
amendment expressly permitted in the Partnership Agreement to be made by the
Managing General Partner acting alone, (vii) an amendment effected, necessitated
or contemplated by a merger agreement that has been approved pursuant to the
terms of the Partnership Agreement, (viii) any amendment that, in the sole
discretion of the Managing General Partner, is necessary or desirable in
connection with the formation by the Partnership of, or its investment in,
any corporation, partnership or other entity (other than the Operating
Partnership) as otherwise permitted by the Partnership Agreement, (ix) a
change in the fiscal year and taxable year of the Partnership and changes
related thereto and (x) any other amendments substantially similar to any of
the foregoing.
In addition, the Managing General Partner may make amendments to the
Partnership Agreement without the approval of any limited partner or assignee
if such amendments (i) do not (in the sole discretion of the Managing General
Partner) adversely affect the limited partners in any material respect, (ii)
are necessary or desirable to satisfy any requirements, conditions or guidelines
contained in any opinion, directive, ruling or regulation of any federal or
state agency or judicial authority or contained in any federal or state
statute, (iii) are necessary or desirable to implement certain tax-related
provisions of the Partnership Agreement, (iv) are necessary or desirable to
facilitate the trading of the Units or to comply with any rule, regulation,
guideline or requirement of any securities exchange on which the Units are or
will be listed for trading, compliance with any of which the Managing General
Partner deems to be in the best interests of the Partnership and the
Unitholders or (v) are required or contemplated by the Partnership Agreement.
The Managing General Partner is not required to obtain an Opinion of
Counsel as to the tax consequences or the possible effect on limited liability
of amendments described in the two immediately preceding paragraphs. No other
amendments to the Partnership Agreement may become effective without the
approval of holders of at least 95% of the Units unless the Partnership
obtains an Opinion of Counsel to the effect that such amendment will not
cause the Partnership to be treated as an association taxable as a
corporation or otherwise cause the Partnership to be subject to entity level
taxation for federal income tax purposes and will not affect the limited
liability of any limited partner in the Partnership or the limited partner of
the Operating Partnership.
Any amendment that materially and adversely affects the rights or
preferences of any type or class of limited partner interests in relation to
other types or classes of limited partner interests or the general partner
interests requires
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the approval of at least a majority of the type or class of limited partner
interests so affected (excluding any such limited partner interests held by
the General Partners and their affiliates).
MEETINGS; VOTING
Except as described below with respect to a person or group owning 20%
or more of all Common Units, Unitholders or assignees who are record holders
of Common and Subordinated Units on the record date set pursuant to the
Partnership Agreement are entitled to notice of, and to vote at, meetings of
limited partners of the Partnership and to act with respect to matters as to
which approvals may be solicited. With respect to voting rights attributable
to Common Units that are owned by an assignee who is a record holder but who
has not yet been admitted as a limited partner, the Managing General Partner
will be deemed to be the limited partner with respect thereto and will, in
exercising the voting rights in respect of such Common Units on any matter,
vote such Common Units at the written direction of such record holder. Absent
such direction, such Common Units will not be voted (except that, in the case
of Common Units held by the Managing General Partner on behalf of Non-citizen
Assignees, the Managing General Partner will distribute the votes in respect
of such Common Units in the same ratios as the votes of limited partners in
respect of other Common Units are cast).
Any action that is required or permitted to be taken by the limited
partners may be taken either at a meeting of the limited partners or without
a meeting if consents in writing waiving notice and setting forth the action
so taken are signed by holders of such number of limited partner interests as
would be necessary to authorize or take such action at a meeting of the limited
partners. Meetings of the limited partners may be called by the Managing General
Partner or by limited partners owning at least 20% of the outstanding Units
of the class for which a meeting is proposed. Limited partners may vote either
in person or by proxy at meetings. A majority (or two-thirds, if that is the
vote required to take action at the meeting in question) of the outstanding
limited partner interests of the class for which a meeting is to be held
(excluding, if such are excluded from such vote, limited partner interests held
by the General Partners and their affiliates) represented in person or by proxy
constitutes a quorum at a meeting of limited partners of the Partnership.
Each record holder of a Unit has a vote according to his percentage
interest in the Partnership, although additional limited partner interests
having special voting rights could be issued by the Managing General Partner.
See "-- Issuance of Additional Securities." However, Common Units owned
beneficially by any person and its affiliates (other than the General
Partners and their affiliates, including without limitation Fremont or its
affiliates) that own beneficially 20% or more of all Common Units may not be
voted on any matter and will not be considered to be outstanding when sending
notices of a meeting of limited partners, calculating required votes,
determining the presence of a quorum or for other similar purposes; PROVIDED,
that the Common Units beneficially owned by any person who acquires, directly
or indirectly, from Fremont, Fremont's affiliates or subsequent transferees
of the Units owned by Fremont or its affiliates on December 22, 1994 will be
considered to be outstanding for such purposes. The Partnership Agreement
provides that Units held in nominee or street name account will be voted by
the broker (or other nominee) pursuant to the instruction of the beneficial
owner unless the arrangement between the beneficial owner and his nominee
provides otherwise. Except as otherwise provided in the Partnership Agreement,
Subordinated Units will vote together with Common Units as a single class.
Any notice, demand, request, report or proxy material required or permitted
to be given or made to record holders of Units (whether or not such record
holder has been admitted as a limited partner) under the terms of the
Partnership Agreement will be delivered to the record holder by the
Partnership or by the Transfer Agent at the request of the Partnership.
INDEMNIFICATION
The Partnership Agreement provides that the Partnership will indemnify
and hold harmless each General Partner, any departing General Partner, any
general partner of a General Partner or a departing General Partner, any
person who is or was an officer, director, employee, agent or trustee of a
General Partner, a departing General Partner, or
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a general partner of a General Partner or a departing General Partner, any
person who is or was an affiliate of a General Partner, a departing General
Partner, or a general partner of a General Partner or a departing General
Partner, and any person who is or was serving at the request of a General
Partner or a departing General Partner as an officer, director, employee,
agent, trustee or partner of another person (collectively, "Indemnitees" and
individually each an "Indemnitee"), to the fullest extent permitted by law,
from and against any and all losses, claims, damages, liabilities (joint or
several), expenses (including, without limitation, legal fees and expenses),
judgments, fines, penalties, interest, settlements and other amounts arising
from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which any Indemnitee may
be involved, or is threatened to be involved, as a party or otherwise, by
reason of its status as any of the foregoing, provided that in each case the
Indemnitee acted in good faith and in a manner which such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. Any indemnification under these
provisions will be only out of the assets of the Partnership, and the General
Partners will not be personally liable for, or have any obligation to contribute
or loan funds or assets to the Partnership to enable it to effectuate, such
indemnification. The Partnership is authorized to purchase and maintain (or
to reimburse the General Partners or their affiliates for the cost of)
insurance against liabilities asserted against and expenses incurred by such
persons in connection with the Partnership's activities, whether or not the
Partnership would have the power to indemnify such person against such
liabilities under the provisions described above.
LIMITED LIABILITY
Assuming that a limited partner does not participate in the control of
the business of the Partnership within the meaning of the Delaware Act and
that he otherwise acts in conformity with the provisions of the Partnership
Agreement, his liability under the Delaware Act will be limited, subject to
certain possible exceptions, to the amount of capital he is obligated to
contribute to the Partnership in respect of his Common Units plus his share
of any undistributed profits and assets of the Partnership. However, if it
were determined that the right or exercise of the right by the limited
partners as a group to remove or replace the General Partners, or the rights
of the limited partners to approve certain amendments to the Partnership
Agreement or to take other action pursuant to the Partnership Agreement
constituted "participation in the control" of the Partnership's business for
the purposes of the Delaware Act, then the limited partners could be held
personally liable for the Partnership's obligations under the laws of the
State of Delaware to the same extent as the General Partners.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner to the extent that at the time of the distribution,
after giving effect to the distribution, all liabilities of the partnership,
other than liabilities to partners on account of their partnership interests
and nonrecourse liabilities, exceed the fair value of the assets of the
limited partnership. For the purpose of determining the fair value of the
assets of a limited partnership, the Delaware Act provides that the fair
value of property subject to nonrecourse liability shall be included in the
assets of the limited partnership only to the extent that the fair value of
that property exceeds that nonrecourse liability. The Delaware Act provides
that a limited partner who receives such a distribution and knew at the time
of the distribution that the distribution was in violation of the Delaware
Act will be liable to the limited partnership for the amount of the
distribution for three years from the date of the distribution. Under the
Delaware Act, an assignee who becomes a substituted limited partner of a
limited partnership is liable for the obligations of his assignor to make
contributions to the partnership, except the assignee is not obligated for
liabilities that are unknown to him at the time he became a limited partner
and could not be ascertained from the partnership agreement.
The Operating Partnership conducts business in the States of Washington,
Oregon, Idaho, California and Montana and may conduct business in other
states. Maintenance of limited liability may require compliance with legal
requirements in the jurisdictions in which the Operating Partnership conducts
business, including qualifying the Operating Partnership to do business
there. Limitations on the liability of limited partners for the obligations
of a limited partnership have not been clearly established in many
jurisdictions. If it were determined that the Partnership was, by virtue of
its limited partner interest in the Operating Partnership or otherwise,
conducting business in any state without compliance with the applicable
limited partnership statute, or that the right or exercise of the right by
the
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limited partners as a group to remove or replace the General Partners, or the
rights of the limited partners or the special limited partners to approve
certain amendments to the Partnership Agreement, or to take other action
pursuant to the Partnership Agreement constituted "participation in the
control" of the Partnership's business for the purposes of the statutes of
any relevant jurisdiction, then the limited partners could be held personally
liable for the Partnership's obligations under the law of such jurisdiction
to the same extent as the General Partners. The Partnership will operate in
such manner as the Managing General Partner deems reasonable and necessary or
appropriate to preserve the limited liability of Unitholders.
BOOKS AND REPORTS
The Managing General Partner is required to keep appropriate books of
the business of the Partnership at the principal offices of the Partnership.
The books will be maintained for both tax and financial reporting purposes on
an accrual basis. The fiscal year of the Partnership is the calendar year.
As soon as practicable, but in no event later than 120 days after the
close of each fiscal year, the Managing General Partner will furnish each
record holder of Units (as of a record date selected by the Managing General
Partner) with an annual report containing audited financial statements of the
Partnership for the past fiscal year, prepared in accordance with generally
accepted accounting principles. As soon as practicable, but in no event later
than 90 days after the close of each quarter (except the fourth quarter), the
Managing General Partner will furnish each record holder of Units (as of a
record date selected by the Managing General Partner) a report containing
unaudited financial statements of the Partnership with respect to such
quarter and such other information as may be required by law.
The Managing General Partner will use all reasonable efforts to furnish
each record holder of Units information reasonably required for tax reporting
purposes within 90 days after the close of each calendar year. Such
information is expected to be furnished in summary form so that certain
complex calculations normally required of partners can be avoided. The
Managing General Partner's ability to furnish such summary information to
holders of Units will depend on the cooperation of such holders in supplying
certain information to the Managing General Partner. Every holder of Units
(without regard to whether he supplies such information to the Managing
General Partner) will receive information to assist him in determining his
federal and state tax liability and filing his federal and state income tax
returns.
RIGHT TO INSPECT PARTNERSHIP BOOKS AND RECORDS
The Partnership Agreement provides that a limited partner can for a
purpose reasonably related to such person's interest as a limited partner,
upon reasonable demand and at his own expense, have furnished to him (i) a
current list of the name and last known address of each partner, (ii) a copy
of the Partnership's tax returns, (iii) information as to the amount of cash,
and a description and statement of the agreed value of any other property or
services, contributed or to be contributed by each partner and the date on
which each became a partner, (iv) copies of the Partnership Agreement, the
certificate of limited partnership of the Partnership, amendments thereto and
powers of attorney pursuant to which the same have been executed, (v)
information regarding the status of the Partnership's business and financial
condition and (vi) such other information regarding the affairs of the
Partnership as is just and reasonable. The Managing General Partner may, and
intends to, keep confidential from the limited partners trade secrets or other
information the disclosure of which the Managing General Partner believes in
good faith is not in the best interests of the Partnership or which the
Partnership is required by law or by agreements with third parties to keep
confidential.
TERMINATION AND DISSOLUTION
The Partnership will continue until December 31, 2084, unless sooner
dissolved pursuant to the Partnership Agreement. The Partnership will be
dissolved upon (i) the election of the Managing General Partner to dissolve
the Partnership, if approved by at least a majority of the outstanding Units
(excluding, during the Subordination Period,
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Units held by the General Partners and their affiliates), (ii) the sale,
exchange or other disposition of all or substantially all of the assets and
properties of the Partnership and the Operating Partnership, (iii) the entry
of a decree of judicial dissolution of the Partnership or (iv) the withdrawal
or removal of the Managing General Partner or the occurrence of any other
event that results in its ceasing to be the Managing General Partner (other
than by reason of a transfer of its general partner interest in accordance
with the Partnership Agreement or withdrawal or removal following approval
and admission to the Partnership of a successor). Upon a dissolution
pursuant to clause (iv), the holders of at least a majority of the Units
(excluding, during the Subordination Period, Units held by the General
Partners and their affiliates) may elect, within certain time limitations, to
reconstitute the Partnership and continue its business on the same terms and
conditions set forth in the Partnership Agreement by forming a new limited
partnership on terms identical to those set forth in the Partnership
Agreement and having as managing general partner an entity approved by at
least the holders of a majority of the Units (excluding, during the
Subordination Period, Units held by the General Partners and their
affiliates), subject to receipt by the Partnership of an Opinion of Counsel.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Partnership, unless the Partnership is
reconstituted and continued as a new limited partnership, the person
authorized to wind up the affairs of the Partnership (the "Liquidator") will,
acting with all of the powers of the Managing General Partner that such
Liquidator deems necessary or desirable in its good faith judgment in
connection therewith, liquidate the Partnership's assets and apply the
proceeds of the liquidation first to the payment of all creditors of the
Partnership and the creation of a reserve for contingent liabilities and then
to all partners in accordance with the positive balances in their respective
capital accounts. Under certain circumstances and subject to certain
limitations, the Liquidator may defer liquidation or distribution of the
Partnership's assets for a reasonable period of time or distribute assets to
partners in kind if it determines that a sale would be impractical or would
cause undue loss to the partners.
TAX CONSIDERATIONS
This section is a summary of all material tax considerations that may be
relevant to prospective Unitholders and, to the extent set forth below under
"Legal Opinions and Advice," represents the opinion of Andrews & Kurth L.L.P.,
special counsel to the General Partners and the Partnership ("Counsel"),
insofar as it relates to matters of law and legal conclusions. This section
is based upon current provisions of the Code, existing regulations and, to
the extent noted, proposed regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change with and without
retroactive effect. Subsequent changes in such authorities may cause the tax
consequences to vary substantially from the consequences described below.
LEGAL OPINIONS AND ADVICE
Counsel has expressed its opinion that, based on the accuracy of the
representations and subject to the qualifications set forth in the detailed
discussion that follows, for federal income tax purposes (i) the Partnership,
the Operating Partnership and the other subsidiary partnerships ("Subsidiary
Partnerships") will each be treated as a partnership, (ii) owners of Units
(with certain exceptions, as described in " -- Tax Consequences of Unit
Ownership -- Limited Partner Status" below) will be treated as partners of the
Partnership (but not the Operating Partnership or any Subsidiary
Partnership), (iii) distributions by the Partnership generally will not be
taxable to the Unitholder to the extent of his basis in his Units immediately
before the distribution, and (iv) with the exception of the allocation of
recapture income (discussed below), allocations under the Partnership
Agreement will be given effect in determining a Unitholder's distributive
share of items of income, gain, loss or deduction. In addition, all
statements as to matters of law and legal conclusions contained in this
section, unless otherwise noted, reflect the opinion of Counsel.
Although no attempt has been made in the following discussion to comment
on all federal income tax matters affecting the Partnership or prospective
Unitholders, Counsel has advised the General Partners that, based on current
law, the following is a general description of the principal federal income
tax consequences that should arise from the ownership and disposition of
Units which addresses all material tax consequences to prospective
Unitholders of the
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ownership and disposition of Units. The discussion focuses on prospective
Unitholders who are individual citizens or residents of the United States and
has only limited application to corporations, estates, trusts or non-resident
aliens or other Unitholders subject to specialized tax treatment (such as
REITS, tax exempt persons or mutual funds). Accordingly, each prospective
Unitholder should consult, and should depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences to him of
the ownership or disposition of Units.
For the reasons hereinafter described, Counsel has not rendered an
opinion with respect to the following federal income tax issues: (i) the
treatment of a Unitholder whose Units are loaned to a "short seller" to cover
a short sale of Units (see "-- Tax Treatment of Operations -- Treatment of
Short Sales"), (ii) whether a Unitholder acquiring Units in separate
transactions must maintain a single aggregate adjusted tax basis in his Units
(see "-- Disposition of Units -- Recognition of Gain or Loss"), (iii) whether
the Partnership's monthly convention for allocating taxable income and losses
is permitted by existing Treasury Regulations (see "-- Disposition of Units --
Allocations between Transferors and Transferees"), (iv) whether the
Partnership's method for depreciating Section 743 adjustments will be
recognized for federal income tax purposes (see "-- Uniformity of Units") and
(v) whether the allocations of recapture contained in the Partnership Agreement
will be respected for federal income tax purposes (see - "Allocation of
Partnership Income, Gain, Loss and Deduction").
Except as set forth below under "-- Tax Consequences of Unit Ownership
- -- Partnership Status," no ruling has been received or requested from the IRS
with respect to the foregoing issues or any other matter affecting the
Partnership or prospective Unitholders. Instead, the Partnership will rely on
an opinion of Counsel as to the matters set forth above. It should be noted
that an opinion of counsel represents only that 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 the Unitholders and the General Partners.
Furthermore, no assurance can be given that the treatment of the Partnership
or an investment therein will not be significantly modified by future
legislative or administrative changes or court decisions. Any such
modification may or may not be retroactively applied.
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TAX CONSEQUENCES OF UNIT OWNERSHIP
PARTNERSHIP STATUS. A partnership is not a taxable entity and incurs no
federal income tax liability. Instead, each partner is required to take into
account his allocable share of items of income, gain, loss and deduction of
the Partnership 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.
Other than as described below, no ruling has been sought or received
from the IRS as to the status of the Partnership, the Operating Partnership
or any Subsidiary Partnership as a partnership for federal income tax
purposes. Instead the Partnership has relied on the opinion of Counsel that,
based upon the Code, the regulations thereunder, published revenue rulings
and court decisions, the Partnership, the Operating Partnership and each
existing Subsidiary Partnership will be classified as a partnership for
federal income tax purposes.
In rendering its opinion as to periods before 1997, Counsel has relied
on the accuracy of the factual matters set forth below as to which the
General Partners have made representations. Such factual matters are as
follows:
(a) The Special General Partner, at all times while acting as a general
partner of the Partnership, will have a net worth, computed on a fair market
value basis, excluding its interests in, and any notes or receivables due
from, the Partnership, the Operating Partnership and any subsidiary
partnership, of not less than $25 million;
(b) The Partnership will be operated in accordance with (i) all
applicable partnership statutes and (ii) the Partnership Agreement;
(c) The Operating Partnership and each Subsidiary Partnership will be
operated in accordance with (i) all applicable partnership statutes and (ii)
the applicable partnership agreement; and
(d) For each taxable year, more than 90% of the gross income of the
Partnership will be derived from (i) the exploration, development,
production, processing, refining, transportation or marketing of any mineral
or natural resource, including timber, or (ii) other items of "qualifying
income" within the meaning of Section 7704(d) of the Code.
Because of the adoption of certain simplifying regulations (known as the
"check the box regulations") Counsel has rendered its opinion as to taxable
years beginning after 1996 relying on the accuracy of the following factual
matters as to which the General Partners have made representations:
(a) None of the Partnership, the Operating Partnership or any Subsidiary
Partnership will elect to be treated as an association or corporation;
(b) The Partnership will be operated in accordance with (i) all
applicable partnership statutes and (ii) the Partnership Agreement;
(c) The Operating Partnership and each subsidiary partnership will be
operated in accordance with (i) all applicable partnership statutes and (ii)
the applicable partnership agreement; and
(d) For each taxable year, more than 90% of the gross income of the
Partnership will be derived from (i) the exploration, development,
production, processing, refining, transportation or marketing of any mineral
or natural resource, including timber or (ii) other items of "qualifying
income" within the meaning of Section 7704(d) of the Code.
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Section 7704 of the Code provides that publicly-traded partnerships will,
as a general rule, be taxed as corporations. However, an exception (the
"Qualifying Income Exception") exists with respect to a publicly-traded
partnership if 90% or more of its gross income for every taxable year
consists of "qualifying income." Qualifying income includes income from the
processing, refining, marketing or transportation of timber. The Partnership's
principal sources of income include income from the sale of logs, the
transportation of logs and the operation of sawmills. The IRS has issued a
ruling to CPL, on behalf of the Partnership, that income from the operation of
sawmills (and the production of plywood) is qualifying income for this purpose.
The Managing General Partner, based upon the above ruling and analysis,
believes that more than 90% of the Partnership's gross income will be
qualifying income. The Managing General Partner believes that less than 5% of
the Partnership's gross income will not be qualifying income. The Managing
General Partner will use its best efforts to ensure that more than 90% of the
Partnership's gross income will be qualifying income.
If the Partnership fails to meet the Qualifying Income Exception (other
than a failure which is determined by the IRS to be inadvertent and which is
cured within a reasonable time after discovery), the Partnership will be
treated as if it had transferred all of its assets (subject to liabilities)
to a newly formed corporation (on the first day of the year in which it fails
to meet the Qualifying Income Exception) in return for stock in that
corporation, and then distributed that stock to the partners in liquidation
of their interests in the Partnership. This contribution and liquidation
should be tax-free to Unitholders and the Partnership, so long as the
Partnership, at that time, does not have liabilities in excess of the basis
of its assets. Thereafter, the Partnership would be treated as a corporation
for federal income tax purposes.
If the Partnership were treated as an association taxable as a
corporation in any taxable year, either as a result of a failure to meet the
Qualifying Income Exception or otherwise, its items of income, gain, loss and
deduction would be reflected only on its tax return rather than being passed
through to the Unitholders, and its net income would be taxed at the Partnership
level at corporate rates. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income (to the extent of the
Partnership's current or accumulated earnings and profits) or (in the absence
of earnings and profits) as a nontaxable return of capital (to the extent of
the 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,
treatment of either the Partnership, the Operating Partnership or any Subsidiary
Partnership 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 the Partnership,
the Operating Partnership and each existing Subsidiary Partnership will each
be classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS. Unitholders who have become limited partners
will be treated as partners of the Partnership for federal income tax
purposes. Moreover, the IRS has ruled that assignees of partnership interests
who have not been admitted to a partnership as partners, but who have the
capacity to exercise substantial dominion and control over the assigned
partnership interests, will be treated as partners for federal income tax
purposes. On the basis of this ruling, except as otherwise described 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)
Unitholders whose 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 Units will be treated as partners
of the Partnership for federal income tax purposes. As this ruling does not
extend, on its facts, to assignees of Units who may execute and deliver
Transfer Applications, but who fail to do so, Counsel's opinion does not
extend to them. Income, gain, deductions or losses 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 in the Partnership for federal income tax purposes. A purchaser or
other transferee of Units who does not execute and deliver a Transfer
Application may not receive certain federal income tax information or reports
furnished to record holders of Units unless the Units are held in a nominee
or street name account and the nominee or broker has executed and delivered a
Transfer Application with respect to those Units.
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A beneficial owner of Units whose 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 Units for federal income tax purposes. See "-- Tax
Treatment of Operations -- Treatment of Short Sales."
FLOW-THROUGH OF TAXABLE INCOME. No federal income tax will be paid by
the Partnership. Instead, each Unitholder will be required to report on his
income tax return his allocable share of the income, gains, losses and
deductions of the Partnership without regard to whether any cash
distributions are received by him. Consequently, a Unitholder may be
allocated income from the Partnership even if he has not received a cash
distribution.
TREATMENT OF PARTNERSHIP DISTRIBUTIONS. Distributions by the
Partnership to a Unitholder generally will not be taxable to the Unitholder
for federal income tax purposes to the extent of his basis in his Units
immediately before the distribution. Cash distributions in excess of a
Unitholder's basis generally will be considered to be gain from the sale or
exchange of the Units, taxable in accordance with the rules described under
"-- Disposition of Units" below. Any reduction in a Unitholder's share of the
Partnership's 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 that Unitholder. A decrease in a Common
Unitholder's limited partner interest in the Partnership because of the
issuance by the Partnership of additional Common Units could decrease his
share of nonrecourse liabilities of the Partnership, and thus could result in
a corresponding deemed distribution of cash to him. To the extent that
Partnership distributions cause a Unitholder's "at risk" amount to be less
than zero at the end of any taxable year, he must recapture any losses
deducted in previous years. See "-- Limitations on Deductibility of
Partnership Losses."
BASIS OF UNITS. A Unitholder's initial tax basis for his Units will be
the amount he paid for the Units plus his share of the Partnership's
nonrecourse liabilities. That basis will be increased by his share of
Partnership income and by any increases in his share of Partnership nonrecourse
liabilities. That basis will be decreased (but not below zero) by distributions
from the Partnership, by the Unitholder's share of Partnership losses, by any
decrease in his share of Partnership nonrecourse liabilities and by his share
of expenditures of the Partnership that are not deductible in computing its
taxable income and are not required to be capitalized. A limited partner will
have no share of Partnership debt which is recourse to a partner, but will
have a share, generally based on his share of profits, of Partnership debt
which is not recourse to any partner. See "-- Disposition of Units --
Recognition of Gain or Loss."
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES. The passive loss
limitations generally provide that individuals, estates, trusts and certain
closely held corporations and personal service corporations can deduct losses
from passive activities (generally, activities in which the taxpayer does not
materially participate) only to the extent of the taxpayer's income from
those passive activities. The passive loss limitations are applied separately
with respect to each publicly-traded partnership such as the Partnership.
Consequently, any passive losses generated by the Partnership will only be
available to offset future income generated by the Partnership other than
certain portfolio income 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 which are
not deductible because they exceed a Common Unitholder's income (other than
certain portfolio income) generated by the Partnership may be deducted in
full when he disposes of his entire investment in the Partnership 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, described below.
In addition to the passive loss limitations, the deduction by a Common
Unitholder of his share of Partnership losses will be limited to the tax
basis in his Common Units and, in the case of an individual Unitholder or a
corporate Unitholder (if more than 50% of the value of its stock is owned
directly or indirectly by five or fewer individuals or certain tax-exempt
organizations), to the amount which the Common Unitholder is considered to be
"at risk" with respect to the Partnership's activities. A Common Unitholder
must recapture losses deducted in previous years to the extent that
Partnership distributions cause the Common Unitholder's at risk amount to be
less than zero at the end of any taxable year. Losses disallowed to a Common
Unitholder or recaptured as a result of these limitations will carry forward
and will be allowable to the extent that the Common Unitholder's basis or at
risk amount (whichever is the limiting factor) is subsequently increased.
Upon the taxable disposition of a Common Unit, any gain recognized by a
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Common Unitholder can be offset by losses that were previously suspended by
the at risk limitation but may not be offset by losses suspended by the basis
limitation. Any excess loss (above such gain) previously suspended by the at
risk or basis limitations is no longer utilizable.
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, a
Unitholder's net passive income from the Partnership will be treated under
Treasury Regulations which are to be issued as investment income for this
purpose. In addition, a Unitholder's share of the Partnership's portfolio
income will be treated as investment income. Investment interest expense
includes (i) interest on indebtedness properly allocable to property held for
investment, (ii) a partnership's interest expense attributed to portfolio
income and (iii) the portion of interest expense incurred to purchase or
carry an interest in a passive activity to the extent attributable to
portfolio income. The computation of a Unitholder's investment interest
expense will take into account interest on any margin account borrowing or
other loan incurred to purchase or carry a Unit to the extent attributable to
portfolio income of the Partnership. Net investment income includes gross
income from 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,
but generally does not include gains attributable to the disposition of
property held for investment.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION. In general,
if the Partnership has a net profit, items of income, gain, loss and
deduction will be allocated among the General Partners and the Unitholders in
accordance with their respective interest in the Partnership. A class of
Unitholders (such as Common 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 the Partnership has a net loss,
items of income, gain, loss and deduction will generally be allocated (1)
first, to the General Partners and the Unitholders in accordance with their
respective interests in the Partnership to the extent of their positive
capital accounts; and (2) second, to the General Partners.
As required by Section 704(c) of the Code, certain items of Partnership
income, deduction, gain and loss will be allocated to account for the
difference between the tax basis and fair market value of certain property
held by the Partnership ("Contributed Property"). Under the Code, the
partners in a partnership cannot be allocated more depletion, depreciation,
gain or loss than the total amount of any such item recognized by that
partnership in a particular taxable period (the "ceiling limitation"). To the
extent the ceiling limitation is or becomes applicable, the 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 limitation. Regulations under Section 704(c) of the Code permit
a Partnership to make reasonable allocations to reduce or eliminate such
differences.
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 Common Unitholders, but these
allocations may not be respected under current law. Under recently issued
regulations, the allocations of depreciation recapture should be respected
but the Partnership may not be able to identify the Common Units to which
such depreciation recapture is to be allocated if Common Units are issued by
it at different times. If these allocations of recapture income are not
respected, the amount of the income or gain allocated to a Common Unitholder
will not change, but a change in the character of the income allocated to a
Common Unitholder would result.
Counsel is of the opinion that, with the exception of the allocation of
recapture income discussed above, allocations under the 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.
TAX TREATMENT OF OPERATIONS
ACCOUNTING METHOD AND TAXABLE YEAR. The Partnership uses December 31 as
the end of its taxable year and has adopted the accrual method of accounting
for federal income tax purposes. Each Unitholder will be required to include
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in income his allocable share of Partnership income, gain, loss and deduction
for the fiscal year of the Partnership ending within or with the taxable year
of the Unitholder. In addition, a Unitholder who has a taxable year ending on
other than December 31 and who disposes of all his Units following the close
of the Partnership's taxable year but before the close of his taxable year must
include his allocable share of Partnership income, gain, loss and deduction in
income for his taxable year with the result that he will be required to report
in income for his taxable year his distributive share of more than one year of
Partnership income, gain, loss and deduction. See "Disposition of Units --
Allocations Between Transferors and Transferees."
INITIAL TAX BASIS, DEPLETION, DEPRECIATION AND AMORTIZATION. The tax
basis of the assets of the Partnership will be used for purposes of computing
depletion, depreciation and cost recovery deductions and, ultimately, gain or
loss on the disposition of such assets. The Partnership assets initially had a
tax basis equal to the tax basis of the assets in the hands of the Partnership's
predecessors immediately prior to the formation of the Partnership plus the
amount of gain recognized by partners in the Partnership's predecessors as a
result of the formation of the Partnership. The federal income tax burden
associated with the difference between the fair market value of property held by
the Partnership and its tax basis immediately prior to this offering will be
borne by partners holding interests in the Partnership prior to this offering.
If the Partnership disposes of depreciable property (which would not
include timber assets) 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 the Partnership may be required to recapture such
deductions upon a sale of his interest in the Partnership. See "-- Tax
Consequences of Unit Ownership -- Allocation of Partnership Income, Gain, Loss
and Deduction" and "-- Disposition of Units -- Recognition of Gain or Loss."
Costs incurred in organizing the Partnership are being amortized over a
period of 60 months. The costs incurred in promoting the issuance of Units
must be capitalized and cannot be deducted currently, ratably or upon
termination of the Partnership. There are uncertainties regarding the
classification of costs as organization expenses, which may be amortized, and
as syndication expenses, which may not be amortized.
TIMBER INCOME. Section 631 of the Code provides special rules by which
gains or losses on the sale of timber, cut logs or the products into which
cut logs are converted, which would otherwise be taxable as ordinary income
or loss, may be treated, in whole or in part, as gains or losses from the
sale of property used in a trade or business under Section 1231 of the Code.
For a discussion of the treatment of Section 1231 gains and losses, see "--
Sales of Timberlands."
Section 631(a) of the Code provides that, if an election is made, the
cutting of timber during the year by a taxpayer who owns the timber or a
contract right to cut the timber shall be treated as the sale of that timber
for an amount equal to the fair market value of the timber as of the first day
of the taxable year in which the timber is cut. In computing the amount of gain
or loss, the taxpayer is entitled to offset his basis in the timber against its
fair market value. The gain or loss is recognized in the year the timber is cut
and is treated under Section 1231 of the Code as gain or loss from the sale of
property used in a trade or business. For a discussion of the treatment of
Section 1231 gains and losses, see "-- Sales of Timberlands." The fair market
value of the standing timber as of the first day of the taxable year in which
the timber is cut will become the tax basis of the cut timber (or the product
into which it is converted) for purposes of determining gain or loss on a
subsequent sale, which gain or loss would be ordinary income or loss in the year
of sale. The election under Section 631(a) is available only with respect to
timber or contract rights to cut timber that the taxpayer held for a period of
more than one year before such cutting. The election applies to all timber that
the taxpayer owns or has the right to cut, and once made cannot be revoked
without the consent of the IRS. The Partnership has made the election provided
by Section 631(a).
Section 631(b) of the Code provides that if the owner of timber (including
a holder of a contract right to cut timber) held for more than one year disposes
of such timber under any contract by virtue of which he "retains an economic
interest in such timber," the gain or loss realized will be treated under
Section 1231 of the Code as gain or loss from
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property used in a trade or business. For a discussion of the treatment of
Section 1231 gains and losses, see "-- Sales of Timberlands." In computing
such gain or loss, the amount realized is reduced by the adjusted basis in
such timber, determined as described in "-- Timber Depletion." For purposes
of Section 631(b), the timber generally is deemed to be disposed of on the
day on which the timber is cut (which is generally deemed to be the date
when, in the ordinary course of business, the quantity of the timber cut is
first definitely determined).
Although the Partnership is not aware of any pending or proposed
legislation which would amend Section 631 of the Code, that Section could be
amended in a manner which causes timber income to be treated as other than
Section 1231 income and any such amendment could have an adverse impact on
Unitholders.
Gains from sale of timber by the Partnership that do not qualify under
Section 631 generally will be taxable as ordinary income in the year of sale.
TIMBER DEPLETION. Timber is subject to cost depletion and is not
subject to accelerated cost recovery, depreciation or percentage depletion.
Timber depletion is determined with respect to each separate timber account
(containing timber located in a timber "block") and is equal to the product
obtained by multiplying the units of timber cut by a fraction, the numerator
of which is the aggregate adjusted basis of all timber included in such
account and the denominator of which is the total number of timber units in
such timber account. The depletion allowance so calculated represents the
adjusted tax basis of such timber for purposes of determining gain or loss on
disposition. The tax basis of timber in each timber account is reduced by the
depletion allowance for such account.
If a Section 631(a) election is in effect, the taxpayer will be entitled
to a depletion allowance as discussed above. Thereafter, the taxpayer's
adjusted basis with respect to such timber will be the fair market value of
the timber as of the first day of the taxable year in which the timber is
cut. As the cut timber (or the product into which it was converted) is sold,
the taxpayer's adjusted basis will be taken into account for purposes of
determining gain or loss on the sale. In the case of an outright sale of
timber or a disposition of timber treated as a sale under Section 631(b) of
the Code, the amount realized for the timber is reduced by the adjusted basis
in such timber. A taxpayer disposing of timber with a retained economic interest
in a transaction which fails to qualify under Section 631(b) also reduces the
amount realized from such disposition by the adjusted basis in the timber.
SALES OF TIMBERLANDS. If any tract of timberland is sold or otherwise
disposed of in a taxable transaction, the Partnership will recognize gain or
loss measured by the difference between the amount realized (including the
amount of any indebtedness assumed by the purchaser upon such disposition or
to which such property is subject) and the adjusted tax basis of such property.
Generally, the character of any gain or loss recognized upon that disposition
will depend upon whether the tract of timberland (i) is held for sale to
customers in the ordinary course of business (I.E., the Partnership is a
"dealer" with respect to such property), (ii) is held for "use in a trade or
business" within the meaning of Section 1231 of the Code or (iii) is held by
the Partnership as a "capital asset" within the meaning of Section 1221 of the
Code. In determining dealer status with respect to timberlands and other types
of real estate, the courts have identified a number of factors for
distinguishing between a particular property held for sale in the ordinary
course of business and one held for investment. Any determination must be
based on all the facts and circumstances surrounding the particular property
and sale in question.
The Partnership intends to hold its Timberlands for the purposes of
generating cash flow from the periodic harvesting and sale of timber and
achieving long-term capital appreciation. Although the Managing General Partner
may consider strategic sales of timberlands consistent with achieving long-term
capital appreciation, the Managing General Partner does not anticipate frequent
sales, nor significant marketing, improvement or subdivision activity in
connection with any strategic sale of timberland. However, in light of the
factual nature of this question, there is no assurance that the purposes of the
Partnership will not change and that future activities of the Partnership will
not cause it to be a "dealer" in timberlands.
In addition, were the IRS successfully to contend that any of the
Partnership's predecessors was a dealer with respect to any tracts of
timberland distributed to the Partnership, gains from sales of these tracts
within a five-year period from
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the date of contribution (which was December, 1994) would be taxable as
ordinary income. The Managing General Partner, however, believes that none of
the Partnership's predecessors was a dealer with respect to any of its
timberland holdings.
If the Partnership is not a dealer with respect to a particular tract of
timberland and the Partnership has held the timberland for a one-year period
primarily for use in its trade or business, the character of any gain or loss
realized from the disposition of such timberland will be determined under
Section 1231 of the Code. If the Partnership has not held a timberland tract
for more than one year at the time of sale, gain or loss from the sale
thereof will be ordinary.
A Unitholder's distributive share of any Section 1231 gain or loss of
the Partnership will be aggregated with any other gains and losses realized
by such Unitholder from the disposition of property used in the trade or
business, as defined in Section 1231(b) of the Code, and from the involuntary
conversion of such properties and of capital assets held in connection with a
trade or business or a transaction entered into for profit for the requisite
holding period. If a net gain results, all such gains and losses will be
capital gains and losses; if a net loss results, all such gains and losses
will be ordinary income and losses. Net Section 1231 gains will be treated as
ordinary income to the extent of prior net Section 1231 losses of the
taxpayer or predecessor taxpayer for the five most recent prior taxable years
beginning after December 31, 1981, to the extent such losses have not
previously been offset against Section 1231 gains. Losses are deemed
recaptured in the chronological order in which they arose.
If the Partnership is not a dealer with respect to a particular tract of
timberland, and the timberland is not used in a trade or business, that tract
will be a "capital asset" within the meaning of Section 1231 of the Code.
Gain or loss recognized from the disposition of that timberland will be taxable
as capital gain or loss, and the character of such capital gain or loss as
long-term or short-term will be based upon the Partnership's holding period in
such property at the time of its sale. The requisite holding period for
long-term capital gain is more than one year.
Because amounts realized upon the sale, exchange or other disposition of
a tract of timberland by the Partnership may be used to reduce any liability
to which the tract of timberland is subject, it is possible, although not
anticipated, that the Partnership's gain on the sale of such a tract could
exceed the distributive proceeds of the sale, and the income taxes payable on
the sale by the Unitholders could exceed their distributive share of any such
proceeds.
SECTION 754 ELECTION. The Partnership has made the election permitted by
Section 754 of the Code, which 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 the Partnership's properties ("inside basis") pursuant
to Section 743(b) of the Code to fair market value (as reflected by his Unit
price). The Section 743(b) adjustment is attributed solely to a purchaser of
Common Units and is not added to the bases of the Partnership's assets
associated with all of the Unitholders. (For purposes of this discussion, a
partner's inside basis in the Partnership's assets will be considered to have
two components: (1) his share of the Partnership's actual basis in such
assets ("Common Basis") and (2) his Section 743(b) adjustment allocated to
each such asset.)
Although Counsel is unable to opine as to the validity of such an approach,
the Partnership may depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of depreciable 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
apparent inconsistency with certain proposed and final Treasury regulations and
certain legislative history (none of which is expected to directly apply to a
material portion of the Partnership's assets). See " -- Uniformity of Units."
The allocation of the Section 743(b) adjustment must be made in
accordance with the Code. The IRS may seek to reallocate some or all of any
Section 743(b) adjustment not so allocated by the Partnership to goodwill
which, as an intangible asset, may be amortizable over a longer period of
time than the Partnership's tangible depletable or depreciable assets.
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A Section 754 election is advantageous if the transferee's basis in his
Units is higher than such Units' share of the aggregate basis to the
Partnership of the Partnership's assets immediately prior to the transfer. In
such a case, pursuant to the election, the transferee would take a new and
higher basis in his share of the Partnership's assets for purposes of
calculating, among other items, his depletion and depreciation deductions and
his share of any gain or loss on a sale of the Partnership's assets.
Conversely, a Section 754 election is disadvantageous if the transferee's
basis in such Units is lower than such Unit's share of the aggregate basis of
the Partnership's assets immediately prior to the transfer. Thus, the amount
which 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
will be made by the Partnership on the basis of certain assumptions as to the
value of Partnership assets and other matters. There is no assurance that the
determinations made by the Partnership 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 Managing General Partner's opinion, the expense of
compliance exceed the benefit of the election, the Managing General Partner
may seek permission from the IRS to revoke the Section 754 election for the
Partnership. If such permission is granted, a purchaser of 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 Partnership income, gain or
loss for purposes of the alternative minimum tax applicable to his
alternative minimum taxable income. A Unitholder's alternative minimum
taxable income derived from the Partnership may be higher than his share of
Partnership net income because the Partnership may use accelerated methods of
depreciation for purposes of computing federal taxable income or loss. The
minimum tax rate applicable to non-corporate Unitholders is 26% on the first
$175,000 of alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable income.
Prospective Unitholders should consult with their tax advisors as to the
impact of an investment in Units on their liability for the alternative
minimum tax.
VALUATION OF PARTNERSHIP PROPERTY AND BASIS OF PROPERTIES. The federal
income tax consequences of the acquisition, ownership and disposition of
Units will depend in part on estimates by the Managing General Partner of the
relative fair market values, and determinations of the initial tax basis, of
the assets of the Partnership. Although the Managing General Partner may from
time to time consult with appraisers with respect to valuation matters, many
of the relative fair market value estimates will be made solely by the
Managing General Partner. These estimates and determinations of basis are
subject to challenge and will not be binding on the IRS or the courts. If the
estimates of fair market value or determinations of basis are subsequently
found to be incorrect, the character and amount of items of income, gain,
loss or deductions previously reported by Unitholders might change, and
Unitholders might be required to adjust their tax liability for prior years.
TREATMENT OF SHORT SALES. It would appear that a Unitholder whose Units
are loaned to a "short seller" to cover a short sale of Units will be
considered as having transferred beneficial ownership of those Units and
would, thus, no longer be a partner with respect to those Units during the
period of the loan. As a result, during this period, any Partnership income,
gain, deduction or loss with respect to those Units would appear not to be
reportable by the Unitholder, any cash distributions received by the
Unitholder with respect to those Units would be fully taxable and all of such
distributions would appear to be treated as ordinary income. The IRS may also
contend that a loan of Units to a "short seller" constitutes a taxable
exchange. If this contention were successfully made, the lending Unitholder
may be required to recognize gain or loss. Unitholders desiring to assure
their status as partners should modify any brokerage account agreements to
prohibit their brokers from borrowing their Units. The IRS has announced that
it is actively studying issues relating to the tax treatment of short sales
of partnership interests.
The Taxpayer Relief Act of 1997 (the "TRA of 1997") also contains
provisions affecting the taxation of certain financial products and
securities, including partnership interests, by treating a taxpayer as having
sold an "appreciated" partnership interest (one in which gain would be
recognized if it were sold, assigned or otherwise terminated at its fair
market value) if the taxpayer or related persons enter into a short sale of,
an offsetting notional principal contract with respect to or a futures or
forward contract to deliver the same or substantially identical property, or
in the case of an appreciated financial position that is a short sale or
offsetting notional principal or futures or forward contract, the taxpayer or
related persons acquire, the same or substantially identical property. The
Secretary of Treasury is also authorized to issue regulations that treat a
taxpayer that enters into transactions or positions that have substantially
the same effect as the preceding transactions as having constructively sold
the financial position.
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DISPOSITION OF UNITS
RECOGNITION OF GAIN OR LOSS. Gain or loss will be recognized on a sale
of Units equal to the difference between the amount realized and the
Unitholder's tax basis for the Units sold. A Unitholder's amount realized
will generally be measured by the sum of the cash or the fair market value of
other property received plus his share of Partnership nonrecourse
liabilities. Because the amount realized includes a Unitholder's share of
Partnership nonrecourse liabilities, the gain recognized on the sale of Units
may result in a tax liability in excess of any cash received from such sale.
Prior Partnership distributions in excess of cumulative net taxable income
in respect of a Unit which decreased a Unitholder's tax basis in such Unit will,
in effect, become taxable income if the Unit is sold at or above original
cost (and may partially become taxable income even if the Unit is sold below
original cost.)
Gain or loss recognized by a Unitholder (other than a "dealer" in Units) on
the sale or exchange of a Unit held for more than one year will generally be
taxable as long-term capital gain or loss. A portion of this gain or loss,
however, will be separately computed and taxed as ordinary income or loss
under Section 751 of the Code to the extent attributable to assets giving
rise to depreciation recapture or other "unrealized receivables" or to
"inventory items" owned by the Partnership. The term "unrealized receivables"
includes potential recapture items, including depreciation recapture. Ordinary
income attributable to unrealized receivables, inventory items and depreciation
recapture may exceed net taxable gain realized upon the sale of the Unit and may
be recognized even if there is a net taxable loss realized on the sale of the
Unit. Thus, a Unitholder may recognize both ordinary income and a capital loss
upon a disposition of Units. Net capital loss may offset no more than $3,000 of
ordinary income in the case of individuals and may only be used to offset
capital gain in the case of a corporation.
The IRS has ruled that a partner acquiring interests in a partnership in
separate transactions 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 that tax basis must be allocated to the
interests sold on the basis of some equitable apportionment method not
specified by the IRS. The ruling is unclear as to how the holding period is
affected by this aggregation concept. If this ruling is applicable to the
holders of Units, the aggregation of tax bases of a holder of Units
effectively prohibits him from choosing among Units with varying amounts of
unrealized gain or loss as would be possible in a stock transaction. Thus,
the ruling may result in an acceleration of gain or deferral of loss on a
sale of a portion of a Unitholder's Units. It is not clear whether the ruling
applies to publicly-traded partnerships, such as the Partnership, the
interests in which are evidenced by separate certificates. Accordingly
Counsel is unable to opine as to the effect such ruling will have on the
Unitholders. A Unitholder considering the purchase of additional Units or a
sale of Units purchased at differing prices should consult his tax advisor as
to the possible consequences of such ruling.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
Partnership's taxable income and losses will be determined annually and will
be prorated on a monthly basis and subsequently apportioned among the
Unitholders in proportion to the number of Units owned by them as of the
opening of the first business day of the month to which they relate. However,
gain or loss realized on a sale or other disposition of Partnership assets
other than in the ordinary course of business will be allocated among the
Unitholders of record as of the opening of the NYSE on the first business day
of the month in which that gain or loss is recognized. As a result of this
monthly allocation, a Unitholder transferring Units in the open market may be
allocated income, gain, loss and deduction accrued after the date of transfer.
The use of this monthly convention may not be permitted by existing
Treasury Regulations and, accordingly, Counsel is unable to opine on the
validity of this method of allocating income and deductions between
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 the Unitholder's interest), taxable income or losses of the
Partnership might be reallocated among the Unitholders. The Managing General
Partner is authorized to revise the Partnership's method of allocation
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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 Units at any time during a quarter and who
disposes of such Units prior to the record date set for a distribution with
respect to that quarter will be allocated items of Partnership income and
gain attributable to the quarter during which those Units were owned but will
not be entitled to receive that cash distribution.
NOTIFICATION REQUIREMENTS. A Unitholder who sells or exchanges Units is
required to notify the Partnership in writing of that sale or exchange within
30 days of the sale or exchange and in any event by no later than January 15
of the year following the calendar year in which the sale or exchange
occurred. The Partnership is required to notify the IRS of that transaction
and to furnish certain information to the transferor and transferee. However,
these reporting requirements do not apply with respect to a sale by an
individual who is a citizen of the United States and who effects that sale
through a broker. Additionally, a transferor and a transferee of a Unit will
be required to furnish statements to the IRS, filed with their income tax
returns for the taxable year in which the sale or exchange occurred, which set
forth the amount of the consideration received for the Unit. Failure to satisfy
these reporting obligations may lead to the imposition of substantial penalties.
CONSTRUCTIVE TERMINATION. The Partnership and the Operating Partnership
(and any Subsidiary Partnership) will be considered to have been terminated
if there is a sale or exchange of 50% or more of the total interests in
Partnership capital and profits within a 12-month period. A termination of
the Partnership will cause a termination of the Operating Partnership and any
Subsidiary Partnership. A termination of the Partnership will result in the
closing of the Partnership's taxable year for all Unitholders. In the case of
a Unitholder reporting on a taxable year other than a fiscal year ending
December 31, the closing of the Partnership's taxable year may result in more
than 12 months' taxable income or loss of the Partnership being includable in
his taxable income for the year of termination. New tax elections required to
be made by the Partnership, including a new election under Section 754 of the
Code, must be made subsequent to a termination, and a termination could
result in a deferral of Partnership deductions for depreciation. A
termination could also result in penalties if the Partnership were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject the Partnership to, any tax
legislation enacted prior to the termination.
Under current regulations, a termination of the Partnership would result
in a deemed transfer by the Partnership of its assets to a new partnership in
exchange for an interest in the new partnership followed by a deemed
distribution of interests in the new partnership to the Unitholders in
liquidation of the Partnership.
ENTITY-LEVEL COLLECTIONS. If the Partnership is required or elects
under applicable law to pay any federal, state or local income tax on behalf
of any Unitholder or the General Partners or any former Unitholder, the
Managing General Partner is authorized to pay those taxes from Partnership
funds. Such payments, if made, will be treated as current distributions of
cash to the Unitholders and the General Partners. The Managing General
Partner is authorized to amend the Partnership Agreement in the manner
necessary to maintain uniformity of intrinsic tax characteristics of Units
and to adjust subsequent distributions, so that after giving effect to such
deemed distributions, the priority and characterization of distributions
otherwise applicable under the Partnership Agreement is maintained as nearly
as is practicable. Payments by the Partnership as described above could give
rise to an overpayment of tax on behalf of an individual partner in which
event the partner could file a claim for credit or refund.
UNIFORMITY OF UNITS
Because the Partnership cannot match transferors and transferees of Units,
uniformity of the economic and tax characteristics of the Units to a purchaser
of such Units must be maintained. In the absence of uniformity, it may be
difficult to comply with a number of federal income tax requirements, both
statutory and regulatory. A lack of uniformity can result from a literal
application of Proposed Treasury Regulation Section 1.168-2(n) and Treasury
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Regulation Section 1.167(c)-1(a)(6) on the legislative history of Section 197.
Any non-uniformity could have a negative impact on the value of the Units.
The Partnership may depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of depreciable
Contributed Property or adjusted property (to the extent of any difference
between the tax basis and book value of such property) 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, or treat
that portion as nonamortizable, despite its apparent inconsistency with
certain proposed and final Treasury Regulations and legislative history (none
of which is expected to directly apply to a material portion of the
Partnership's assets). See "-- Tax Treatment of Operations -- Section 754
Election." These positions are commonly taken by publicly traded partnerships.
Nevertheless, the IRS may challenge any method of depreciating the Section
743(b) adjustment adopted by the Partnership. If such a challenge were
sustained, the uniformity of Units might be affected and gain from the sale
of Units might be increased without the benefit of additional deductions.
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS. Ownership of
Units by employee benefit plans, other tax-exempt organizations, nonresident
aliens, foreign corporations, other foreign persons and regulated investment
companies raises issues unique to 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 (or IRAs) 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 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 the Partnership's gross income
will qualify as such income.
Non-resident aliens and foreign corporations, trusts or estates which
hold Units will be considered to be engaged in business in the United States
on account of ownership of Units and as a consequence will be required to
file federal tax returns in respect of their distributive shares of
Partnership income, gain, loss or deduction and pay federal income tax at
regular rates on that income. Generally, a partnership is required to pay a
withholding tax on the portion of the partnership's income which is
effectively connected with the conduct of a United States trade or business
and which is allocable to the foreign partners, regardless of whether any
actual distributions have been made to such partners. However, under rules
applicable to publicly-traded partnerships, the Partnership will withhold
(currently at the rate of 39.6%) on actual cash distributions made quarterly
to foreign Unitholders. Each foreign Unitholder must obtain a taxpayer
identification number from the IRS and submit that number to the Transfer
Agent of the Partnership on a Form W-8 in order to obtain credit for the
taxes withheld. A change in law may require the Partnership to change these
procedures.
Because a foreign corporation which owns Units will be treated as
engaged in a United States trade or business, such a Unitholder will 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 the Partnership's
earnings and profits (as adjusted for changes in the foreign corporation's
"U.S. net equity") which 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." In
addition, such a Unitholder is subject to special information reporting
requirements under Section 6038C of the Code.
Under an IRS ruling, a foreign Unitholder who sells or otherwise
disposes of a Unit will be subject to federal income tax on gain realized on
the disposition of such Unit to the extent that such gain is effectively
connected with a United States trade or business of the foreign Unitholder.
The Partnership does not expect that any material portion of any such gain
will avoid United States taxation. If less than all of any such gain is so
taxable, then Section 897 of the Code may
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increase the portion of any gain which is recognized by a foreign Unitholder
which is subject to United States income tax if that foreign Unitholder has
held more than 5% in value of the Units during the five-year period ending on
the date of the disposition or if the Units are not regularly traded on an
established securities market at the time of the disposition.
ADMINISTRATIVE MATTERS
PARTNERSHIP INFORMATION RETURNS AND AUDIT PROCEDURES. The Partnership
intends to furnish to each Unitholder, within 90 days after the close of each
calendar year, certain tax information, including a Schedule K-1, which sets
forth each Unitholder's allocable share of the Partnership's income, gain,
loss and deduction for the preceding Partnership taxable year. In preparing
this information, which will generally not be reviewed by counsel, the
Managing General Partner 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 and deduction.
There is no assurance that any of those conventions will yield a result which
conforms to the requirements of the Code, regulations or administrative
interpretations of the IRS. The Managing General Partner 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 filed by the Partnership may
be audited by the IRS. Adjustments resulting from any such audit may require
each Unitholder to adjust a prior year's tax liability, and possibly may result
in an audit of the Unitholder's own return. 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 and deduction 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. The Partnership Agreement appoints the
Managing General Partner as the Tax Matters Partner.
The Tax Matters Partner will make certain elections on behalf of the
Partnership and Unitholders and can extend the statute of limitations for
assessment of tax deficiencies against Unitholders with respect to
Partnership items. The Tax Matters Partner may bind a Unitholder with less
than a 1% profits interest in the Partnership 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 (by which all the Unitholders are bound) of a final
Partnership administrative adjustment and, if the Tax Matters Partner fails
to seek judicial review, such review may be sought by any Unitholder having
at least 1% interest in the profits of the Partnership and by the Unitholders
having in the aggregate at least a 5% profits interest. However, only one
action for judicial review will go forward, and each Unitholder with an
interest in the outcome may participate.
A Unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is not consistent
with the treatment of the item on the Partnership's return. Intentional or
negligent disregard of the consistency requirement may subject a Unitholder
to substantial penalties. Under the TRA of 1997, partners in electing large
partnerships, such as the Partnership, would be required to treat all
partnership items in a manner consistent with the partnership return.
The TRA of 1997 made a number of changes to the tax compliance and
administrative rules relating to partnerships that elect large partnership
treatment. One provision requires that each partner in an electing large
partnership, take into account his share of any adjustments to partnership
items in the year such adjustments are made. Alternatively, under the TRA of
1997, a partnership could elect to or, in some circumstances, could be
required to, directly pay the tax resulting from any such adjustments. In
either case, therefore, Common Unitholders could bear significant economic
burdens associated with tax adjustments relating to periods predating their
acquisition of Common Units. The Partnership has not determined at this time
whether it will make the election to be treated as a large partnership.
46
<PAGE>
NOMINEE REPORTING. Persons who hold an interest in the Partnership as a
nominee for another person are required to furnish to the Partnership (a) the
name, address and taxpayer identification number of the beneficial owner and
the nominee; (b) 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; (c) the amount and description of Units held,
acquired or transferred for the beneficial owner; and (d) 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 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 the
Partnership. The nominee is required to supply the beneficial owner of the Units
with the information furnished to the Partnership.
REGISTRATION AS A TAX SHELTER. The Code requires that "tax shelters" be
registered with the Secretary of the Treasury. The temporary Treasury
Regulations interpreting the tax shelter registration provisions of the Code
are extremely broad and the Managing General Partner has registered the
Partnership as a tax shelter with the IRS in the absence of assurance that
the Partnership will not be subject to tax shelter registration and in light
of the substantial penalties which might be imposed if registration is
required and not undertaken. The IRS has issued the following tax shelter
registration number to the Partnership: 95074000266. ISSUANCE OF THE
REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN THE PARTNERSHIP
OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
IRS. The Partnership must furnish the registration number to the Unitholders,
and a Unitholder who sells or otherwise transfers a Unit in a subsequent
transaction must furnish the registration number to the transferee. The
penalty for failure of the transferor of a Unit to furnish the registration
number to the transferee is $100 for each such failure. The Unitholders must
disclose the tax shelter registration number of the Partnership on Form 8271
to be attached to the tax return on which any deduction, loss or other
benefit generated by the Partnership is claimed or income of the Partnership
is included. A Unitholder who fails to disclose the tax shelter registration
number on his return, without reasonable cause for that failure, will be
subject to a $250 penalty for each failure. Any penalties discussed herein
are not deductible for federal income tax purposes.
ACCURACY-RELATED PENALTIES. An additional tax equal to 20% of the
amount of any portion of an underpayment of tax which is attributable to one
or more of certain listed causes, including negligence or disregard of rules
or regulations, substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Code. No penalty will be imposed,
however, with respect to any portion of an underpayment if it is shown that
there was a reasonable cause for that portion and that the taxpayer acted in
good faith with respect to that portion.
A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax
required to be shown on the return for the taxable year or $5,000 ($10,000
for most corporations). The amount of any understatement subject to penalty
generally is reduced if any portion is attributable to a position adopted on
the return (i) with respect to which there is, or was, "substantial
authority" or (ii) as to which there is a reasonable basis and the pertinent
facts of such position are disclosed on the return. Certain more stringent
rules apply to "tax shelters,"a term that in this context, does not appear to
include the Partnership. If any Partnership item of income, gain, loss or
deduction included in the distributive shares of Unitholders might result in
such an "understatement" of income for which no "substantial authority"
exists, the Partnership must disclose the pertinent facts on its return. In
addition, the Partnership will make a reasonable effort to furnish sufficient
information for 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%.
47
<PAGE>
OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders will generally be
subject to other taxes, such as state and local income taxes, unincorporated
business taxes, and estate, inheritance or intangible taxes that may be
imposed by the various jurisdictions in which the Partnership does business
or owns property. Although an analysis of those various taxes is not
presented here, each prospective Unitholder should consider their potential
impact on his investment in the Partnership. The Partnership currently owns
property and conducts substantially all of its business in Oregon, Idaho,
Washington, Montana and California. A Unitholder will generally be required
to file state income tax returns and to pay taxes in all these states other
than Washington and may be subject to penalties for failure to comply with
those requirements. Taxable income of the Partnership in other jurisdictions
has historically been de minimis, and filing requirements with respect to
such jurisdictions have generally been met by the Partnership. In certain
states, tax losses may not produce a tax benefit in the year incurred (if,
for example, the Partnership has no income from sources within that state)
and also may not be available to offset income in subsequent taxable years.
Some of the states may require the Partnership, or the Partnership may elect,
to withhold a percentage of income from amounts to be distributed to a
Unitholder who is not a resident of the state. Withholding, the amount of
which may be greater or less than a particular Unitholder's income tax
liability to the state, generally does not relieve the non-resident
Unitholder from the obligation to file an income tax return. Amounts withheld
will be treated as if distributed to Unitholders for purposes of determining
the amounts distributed by the Partnership. Based on current law and its
estimate of future Partnership operations, the General Partners anticipate
that any amounts required to be withheld will not be material. There can be
no assurance that in the future the Partnership will not conduct material
business operations in jurisdictions other than those described above.
Each Unitholder should investigate the legal and tax consequences, under
the laws of pertinent states and localities, of his investment in the
Partnership. Accordingly, each prospective Unitholder should consult, and
must depend upon, his own tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each Unitholder to file all
state and local, as well as federal, tax returns that may be required of such
Unitholder. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in the Partnership.
INVESTMENT IN THE PARTNERSHIP
BY EMPLOYEE BENEFIT PLANS
An investment in the Partnership by an employee benefit plan is subject
to certain additional considerations because the investments of such plans
are subject to the fiduciary responsibility and prohibited transaction
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and restrictions imposed by Section 4975 of the Code. As used
herein, the term "employee benefit plan" includes, but is not limited to,
qualified pension, profit-sharing and stock bonus plans, Keogh plans,
simplified employee pension plans and tax deferred annuities or Individual
Retirement Accounts established or maintained by an employer or employee
organization. Among other things, consideration should be given to (a)
whether such investment is prudent under Section 404(a)(1)(B) of ERISA; (b)
whether in making such investment, such plan will satisfy the diversification
requirement of Section 404(a)(1)(C) of ERISA; and (c) whether such investment
will result in recognition of unrelated business taxable income by such plan
and, if so, the potential after-tax investment return. See "Tax Considerations
- -- Uniformity of Units -- Tax-Exempt Organizations and Certain Other Investors."
The person with investment discretion with respect to the assets of an
employee benefit plan (a "fiduciary") should determine whether an investment
in the Partnership is authorized by the appropriate governing instrument and
is a proper investment for such plan.
Section 406 of ERISA and Section 4975 of the Code (which also applies to
Individual Retirement Accounts that are not considered part of an employee
benefit plan) prohibit an employee benefit plan from engaging in certain
transactions involving "plan assets" with parties that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.
In addition to considering whether the purchase of Common Units is a
prohibited transaction, a fiduciary of an employee benefit plan should
consider whether such plan will, by investing in the Partnership, be deemed
to own an
48
<PAGE>
undivided interest in the assets of the Partnership, with the result that the
General Partners also would be fiduciaries of such plan and the operations of
the Partnership would be subject to the regulatory restrictions of ERISA,
including its prohibited transaction rules, as well as the prohibited
transaction rules of the Code.
The Department of Labor issued final regulations on November 13, 1986
providing guidance with respect to whether the assets of an entity in which
employee benefit plans acquire equity interests would be deemed "plan assets"
under certain circumstances. Pursuant to these regulations, an entity's
assets would not be considered to be "plan assets" if, among other things,
(a) the equity interest acquired by employee benefit plans are publicly
offered securities -- I.E., the equity interests are widely held by 100 or
more investors independent of the issuer and each other, freely transferable
and registered pursuant to certain provisions of the federal securities laws,
(b) the entity is an "operating company" -- I.E., it is primarily engaged in
the production or sale of a product or service other than the investment of
capital either directly or through a majority owned subsidiary or
subsidiaries or (c) there is no significant investment by benefit plan
investors, which is defined to mean that less than 25% of the value of each
class of equity interest (disregarding certain interests held by the General
Partners, their affiliates, and certain other persons) is held by the
employee benefit plans referred to above, Individual Retirement Accounts and
other employee benefit plans not subject to ERISA (such as governmental
plans). The Partnership's assets should not be considered "plan assets" under
these regulations because it is expected that the investment will satisfy the
requirements in (a) and (b) above and may also satisfy the requirements in (c).
Plan fiduciaries contemplating a purchase of Units should consult with
their own counsel regarding the consequences under ERISA and the Code in
light of the serious penalties imposed on persons who engage in prohibited
transactions or other violations.
SECURITIES COVERED BY THIS PROSPECTUS
The Common Units covered by this Prospectus are available for use in
future acquisitions of businesses, properties or securities of entities or
persons engaged in the timber business. The consideration offered by the
Partnership in such acquisitions, in addition to the Common Units offered by
this Prospectus, may include cash, debt or other Partnership securities, or
assumption by the Partnership of liabilities of the businesses being
acquired, or a combination thereof. It is contemplated that the terms of
each acquisition will be determined by negotiations between the Partnership
and the management or the owners of the assets to be acquired or the owners
of the securities (including newly issued securities) to be acquired, with
the Partnership taking into account the quality of management, the past and
potential earning power and growth of the assets or securities to be
acquired, and other relevant factors. It is anticipated that the Common
Units issued in acquisitions hereunder will be valued at a price reasonably
related to the market value of the Common Units either at the time the terms
of the acquisition are tentatively agreed upon or at or about the time or
times of delivery of the Common Units.
LEGAL MATTERS
The validity of the Common Units will be passed upon for the Partnership
by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of Crown Pacific Partners, L.P. for the year
ended December 31, 1996 have been so incorporated in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
49
<PAGE>
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE PARTNERSHIP
SINCE THE DATE HEREOF, OR THAT INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------------
TABLE OF CONTENTS
Available Information ..................................................... 2
Information Incorporated by Reference ..................................... 3
Forward-Looking Statements ................................................ 3
The Partnership ........................................................... 4
Risk Factors .............................................................. 4
Cash Distribution Policy .................................................. 12
Conflicts of Interest and Fiduciary Responsibility ........................ 18
Description of the Common Units ........................................... 22
The Partnership Agreement ................................................. 23
Tax Considerations ........................................................ 33
Investment in the Partnership by Employee Benefit Plans ................... 48
Securities Covered By This Prospectus ..................................... 49
Legal Matters ............................................................. 49
Experts ................................................................... 49
===============================================================================
===============================================================================
CROWN PACIFIC PARTNERS, L.P.
4,000,000 Common Units
Representing
Limited Partner Interests
--------------
PROSPECTUS
--------------
OCTOBER , 1997
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE>
4,000,000 COMMON UNITS
[LOGO]
CROWN PACIFIC PARTNERS, L.P.
COMMON UNITS
-------------------
This Prospectus, as appropriately amended or supplemented, may be used
from time to time principally by persons (the "Selling Unitholders") who
have received common units representing limited partnership interests (the
"Common Units"), Crown Pacific Partners, L.P. (the "Partnership") in
connection with the acquisition by the Partnership of securities or assets
held by such persons, or their transferees, (the "Selling Unitholders") and
who wish to offer and sell such Common Units in transactions in which they
and any broker-dealer through whom such Common Units are sold may be deemed
to be Underwriters within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), as more fully described herein. The
Partnership will receive none of the proceeds from any such sale. Any
commissions paid or concessions allowed to any broker-dealer, and, if any
broker-dealer purchases such Common Units as principal, any profits
received on the resale of such Common Units, may be deemed to be
underwriting discounts and commissions under the Securities Act. Printing,
certain legal and accounting, filing and other similar expenses of this
offering will be paid by the Partnership. The Selling Unitholders will
generally bear all other expenses of this offering, including brokerage
fees and any underwriting discounts or commissions.
The Registration Statement of which this Prospectus is a part also
relates to the offer and issuance by the Partnership from time to time of
4,000,000 Common Units in connection with its acquisition of the securities
and assets of other businesses.
As of October 2, 1997 the Partnership had 21,331,189 Common Units
outstanding, all of which are available for trading on the New York Stock
Exchange (the "NYSE") and 5,773,088 Subordinated Units outstanding which are
not publicly traded. The Common Units offered hereby have been approved for
trading on the NYSE. On October 2, 1997, the closing price of the Common
Units on the NYSE was $25.81.
The Partnership is a Delaware limited partnership and all references
herein to the Partnership refer to the Partnership and its subsidiaries.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS IN THE
COMMON UNITS OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____________, 1997.
<PAGE>
[ALTERNATE PAGE FOR SELLING UNITHOLDERS PROSPECTUS]
MANNER OF OFFERING
This Prospectus, as appropriately amended or supplemented, may be used
from time to time principally by persons who have received Common Units in
connection with acquisitions by the Partnership of securities and assets held
by such persons, or their transferees, and who wish to offer and sell such
Common Units (such persons are herein referred to as "Selling Unitholders")
in transactions in which they and any broker-dealer through whom such Common
Units are sold may be deemed to be Underwriters within the meaning of the
Securities Act. The Partnership will receive none of the proceeds from any
such sales. There presently are no arrangements or understandings, formal or
informal, pertaining to the distribution of the Common Units described
herein. Upon the Partnership being notified by a Selling Unitholder that any
material arrangement has been entered into with a broker-dealer for the sale
of Common Units bought through a block trade, special offering, exchange
distribution or secondary distribution, a supplemented Prospectus will be
filed, pursuant to Rule 424(b) under the Securities Act, setting forth (i)
the name of each Selling Unitholder and the participating broker-dealer(s),
(ii) the number of Common Units involved, (iii) the price at which the Common
Units were sold, (iv) the commissions paid or the discounts allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out in this
Prospectus and (vi) other facts material to the transaction.
Selling Unitholders may sell the Common Units being offered hereby from
time to time in transactions (which may involve crosses and block
transactions) on the NYSE, in negotiated transactions or otherwise, at market
prices prevailing at the time of the sale or at negotiated prices. Selling
Unitholders may sell some or all of the Common Units in transactions
involving broker-dealers, who may act solely as agent and/or may acquire
Common Units as principal. Broker-dealers participating in such transactions
as agent may receive commissions from Selling Unitholders (and, if they act
as agent for the purchaser of such Common Units, from such purchaser), such
commissions computed in appropriate cases in accordance with the applicable
rules of the NYSE, which commissions may be at negotiated rates where
permissible under such rules. Participating broker-dealers may agree with
Selling Unitholders to sell a specified number of Common Units at a
stipulated price per share and, to the extent such broker-dealer is unable to
do so acting as an agent for the Selling Unitholder, to purchase as principal
any unsold Common Units at the price required to fulfill the broker-dealer's
commitment to Selling Unitholders. In addition or alternatively, Common
Units may be sold by Selling Unitholders and/or by or through other
broker-dealers in special offerings, exchange distributions or secondary
distributions pursuant to and in compliance with the governing rules of the
NYSE, and in connection therewith commissions in excess of the customary
commission prescribed by such governing rules may be paid to participating
broker-dealers, or, in the case of certain secondary distributions, a
discount or concession from the offering price may be allowed to
participating broker-dealers in excess of the customary commission.
Broker-dealers who acquire Common Units as principal may thereafter resell
such Common Units from time to time in transactions (which may involve
crosses and block transactions and which may involve sales to or through
other broker-dealers, including transactions of the nature described in the
preceding two sentences) on the NYSE, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices, and in connection with such resales may pay to or receive commissions
from the purchaser of such Common Units.
The Partnership may agree to indemnify each Selling Unitholder as an
Underwriter under the Securities Act against certain liabilities, including
liabilities arising under the Securities Act. Each Selling Unitholder may
indemnify any broker-dealer that participates in transactions involving sales
of the Common Units against certain liabilities, including liabilities
arising under the Securities Act.
The Selling Unitholders may resell the Common Units offered hereby only
if such securities are qualified for sale under applicable state securities
or "blue sky" laws or exemptions from such registration and qualification
requirements are available.
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
PARTNERSHIP SINCE THE DATE HEREOF, OR THAT INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------------
TABLE OF CONTENTS
Available Information................................................ 2
Information Incorporated by Reference................................ 3
Forward-Looking Statements........................................... 3
The Partnership...................................................... 4
Risk Factors......................................................... 4
Cash Distribution Policy............................................. 12
Conflicts of Interest and Fiduciary Responsibility................... 18
Description of the Common Units...................................... 22
The Partnership Agreement............................................ 23
Tax Considerations................................................... 33
Investment in the Partnership by Employee Benefit Plans.............. 48
Securities Covered by this Prospectus................................ 49
Legal Matters........................................................ 49
Experts.............................................................. 49
===============================================================================
===============================================================================
CROWN PACIFIC PARTNERS, L.P.
4,000,000 Common Units
Representing
Limited Partner Interests
------------
PROSPECTUS
------------
OCTOBER , 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table set forth the costs and expenses, other than selling
or underwriting discounts and commissions, to be incurred by the Partnership
in connection with the issuance and distribution of the Common Units being
registered. All amounts shown are estimated except the Commission
registration fee.
Securities and Exchange Commission registration fee $31,428
Blue Sky expenses, including legal fees 5,000
Printing and engraving expenses 2,000
Legal fees and expenses 20,000
Accounting fees and expenses 10,000
Miscellaneous 10,000
-------
Total $78,428
- -------------
* To be filed by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subject to the terms, conditions or restrictions set forth in the
Partnership Agreement, the Delaware Revised Uniform Limited Partnership Act
empowers Delaware limited partnerships to indemnify and hold harmless any
partner or other person from and against claims and demands incurred in its
capacity as a partner or other representative of the Partnership.
The Partnership Agreement provides that the Partnership will indemnify
and hold harmless each General Partner, any departing General Partner, any
general partner of a General Partner or a departing General Partner, any
person who is or was an officer, director, employee, agent or trustee of a
General Partner, a departing General Partner, or a general partner of a
General Partner or a departing General Partner, any person who is or was an
affiliate of a General Partner, a departing General Partner, or a general
partner of a General Partner or a departing General Partner, and any person
who is or was serving at the request of a General Partner or a departing
General Partner as an officer, director, employee, agent, trustee or partner
of another person (collectively, "Indemnitees" and individually each an
"Indemnitee"), to the fullest extent permitted by law, from and against any
and all losses, claims, damages, liabilities (joint or several), expenses
(including, without limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or
is threatened to be involved, as a party or otherwise, by reason of its
status as any of the foregoing, provided that in each case the Indemnitee
acted in good faith and in a manner which such Indemnitee reasonably believed
to be in or not opposed to the best interests of the Partnership and, with
respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful. Any indemnification under these provisions will be only
out of the assets of the Partnership, and the General Partners will not be
personally liable for, or have any obligation to contribute or loan funds or
assets to the Partnership to enable it to effectuate, such indemnification.
The Partnership is authorized to purchase and maintain (or to reimburse the
General Partners or their affiliates for the cost of) insurance against
liabilities asserted against and expenses incurred by such persons in
connection with the Partnership's activities, whether or not the Partnership
would have the power to indemnify such person against such liabilities under
the provisions described above.
II-1
<PAGE>
Reference is made to Exhibit 1.1 hereto, which contains provisions for
indemnification expressly for use in the Prospectus Supplements.
ITEM 16. EXHIBITS
Exhibit No. Exhibits
- ----------- --------
3.1+ -- Form of Second Amended and Restated Agreement of
Limited Partnership of Crown Pacific Partners, L.P.
(filed as Appendix A, pages A-1 through A-80, in the
Registrant's Registration Statement on Form S-3,
Registration No. 333-05099)
3.2+ -- Form of First Amendment to the Second Amended and
Restated Agreement of Limited Partnership of Crown
Pacific Partners, L.P. (filed as Exhibit 3.1 to the
Registrant's Report on Form 10Q for the quarter
ended March 31, 1997)
5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality
of the Common Units being registered
8.1 -- Opinion of Andrews & Kurth relating to Tax Matters
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Andrews & Kurth L.L.P. (included in
Exhibit 5.1)
23.3 -- Consent of Andrews & Kurth L.L.P. (included in
Exhibit 8.1)
+ Incorporated by reference to the indicated filing
ITEM 17. UNDERTAKINGS
A. 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.
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(b) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement; and
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in this
Registration Statement;
PROVIDED, HOWEVER, that paragraphs A(1)(a) and A(1)(b) above do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 15
above, or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Portland, Oregon, on 7th of
October, 1997.
CROWN PACIFIC PARTNERS, L.P.
By: Crown Pacific Management Limited
Partnership, as Managing General
Partner
By: /s/ Peter W. Stott
-----------------------------------
Peter W. Stott
President of HS Corp. of Oregon, a
general partner of Crown Pacific
Management Limited Partnership
By: /s/ Robert Jaunich II
-----------------------------------
Robert Jaunich II
President of Fremont Timber, Inc., a
general partner of Crown Pacific
Management Limited Partnership
Each person whose signature appears below appoints Peter W. Stott and
Roger L. Krage and each of them, any of whom may act without joinder of the
other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granted unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or would do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their
or his substitute and substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER 7, 1997.
Signature Title
--------- -----
/s/ Peter W. Stott President, Chief Executive Officer and
- ----------------------- Board of Control Member, Crown Pacific
Peter W. Stott Management Limited Partnership (Principal
Executive Officer)
/s/ Richard D. Snyder Vice President and Chief Financial
- ----------------------- Officer, Crown Pacific Management Limited
Richard D. Snyder Partnership (Principal Financial and
Accounting Officer)
/s/ Robert Jaunich II Member, Board of Control
- -----------------------
Robert Jaunich II
/s/ James Bondoux Member, Board of Control
- -----------------------
James Bondoux
II-4
<PAGE>
/s/ Richard B. Keller Member, Board of Control
- -----------------------
Richard B. Keller
/s/ John W. Larson Member, Board of Control
- -----------------------
John W. Larson
Christopher G. Mumford Member, Board of Control
- -----------------------
Christopher G. Mumford
/s/ William L. Smith Member, Board of Control
- -----------------------
William L. Smith
II-5
<PAGE>
October 7, 1997
Crown Pacific Partners, L.P.
121 S. W. Morrison
Portland, Oregon 97204
Ladies and Gentlemen:
We have acted as counsel in connection with the Registration
Statement on Form S-4 (the "Registration Statement") of Crown Pacific
Partners, L.P. (the "Partnership") relating to registration under the
Securities Act of 1933, as amended, of the offering and sale of by the
Partnership of up to 4,000,000 common units representing limited partner
interests (the "Common Units") of the Partnership.
As the basis for the opinion hereinafter expressed, we have
examined such statutes, regulations, partnership records and documents,
certificates of partnership and public officials and other instruments as we
have deemed necessary or advisable for the purposes of this opinion. In such
examination, we have assumed the authenticity of all documents submitted to
us as originals and the conformity with the original documents of all
documents submitted to us as copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that the up to 4,000,000 Common Units to be
issued by the Partnership, when issued and sold by the Partnership as
contemplated by the Registration Statement, will constitute legally issued,
fully paid and non-assessable Common Units of the Partnership, with no
personal liability attaching to the ownership thereof, except with respect to
the matters described under the caption "The Partnership Agreement--Limited
Liability" in the Registration Statement.
We hereby consent to the reference to our firm under the heading
"Validity of the Common Units" in the Registration Statement and the filing
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
ANDREWS & KURTH L.L.P.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD]
October 7, 1997
Crown Pacific Partners, L.P.
121 S.W. Morrison Street
Suite 1500
Portland, Oregon 97204
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel in connection with the Registration
Statement on Form S-4, (the "Registration Statement") of Crown Pacific
Partners, L.P. (the "Partnership"), relating to the registration of the
offering and sale (the "Offering") of up to 4,000,000 common units
representing limited partner interests of the Partnership (the "Common
Units"). In connection therewith, we have participated in the preparation of
the discussion set forth under the caption "Tax Considerations" (the
"Discussion") in the Registration Statement. Capitalized terms used and not
otherwise defined herein are used as defined in the Registration Statement.
The Discussion, subject to the qualifications stated therein,
constitutes our opinion as to the material United States federal income tax
consequences for purchasers of Common Units pursuant to the Offering.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name in the Discussion. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
Andrews & Kurth L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report
dated January 24, 1997 appearing on page 35 of Crown Pacific Partners, L.P.
Annual Report on Form 10-K for the year ended December 31, 1996. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Portland, Oregon
October 7, 1997
