e424b5
Pursuant to Rule
No. 424(b)(5)
Registration Nos. 333-123150
333-123150-01
Prospectus supplement
(To prospectus dated
March 23, 2005)
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$700,000,000
Enterprise Products Operating L.P.
7.034%
Fixed/Floating Rate Junior
Subordinated Notes due 2068
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Guaranteed
to the extent described in this prospectus supplement by
Enterprise Products Partners L.P.
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The 7.034% Fixed/Floating Rate Junior Subordinated Notes due
2068, which we refer to as the Notes, issued by
Enterprise Products Operating L.P. will bear interest from the
date they are issued to January 15, 2018, at the annual
rate of 7.034% of their principal amount, payable semi-annually
in arrears on January 15 and July 15 of each year, commencing
January 15, 2008, and thereafter will bear interest at an
annual rate equal to the greater of (1) the Three-Month
LIBOR Rate for the related interest period plus a spread of
268 basis points or (2) 7.034% per annum, payable
quarterly in arrears on January 15, April 15, July 15
and October 15 of each year, commencing April 15, 2018. The
Notes will mature on January 15, 2068.
We may elect to defer interest payments on the Notes on one or
more occasions for up to ten consecutive years as described in
this prospectus supplement. Deferred interest will accumulate
additional interest at a rate equal to the interest rate then
applicable to the Notes, to the extent permitted by law.
Enterprise Products Partners L.P. will guarantee, on a junior
subordinated basis, payment of the principal of, premium, if
any, and interest on the Notes.
We may redeem the Notes in whole or in part at any time on or
after January 15, 2018, at a redemption price equal to
their principal amount plus accrued and unpaid interest. In
addition, we may redeem the Notes prior to January 15, 2018
(a) in whole or in part, at any time, at a redemption price
equal to the Make-Whole Redemption Price and (b) in
whole but not in part, upon the occurrence of either a Tax Event
or a Rating Agency Event, at a redemption price equal to the
Special Event Make-Whole Redemption Price, in each case as
described in this prospectus supplement. Any redemption of the
Notes prior to January 15, 2038 is subject to the
limitations set forth in the Replacement Capital Covenant
described in this prospectus supplement.
Investing in the Notes involves certain risks. See Risk
Factors beginning on
page S-15
of this prospectus supplement and on page 3 of the
accompanying prospectus.
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Proceeds to
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Enterprise
Products
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Operating L.P.
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Public offering
price(1)
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Underwriting
discount
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before
expenses
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Per Note
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99.979%
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1.375%
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98.604%
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Total
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$699,853,000
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$9,625,000
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$690,228,000
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(1)
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The public offering price does not
include accrued interest, if any, on the Notes, from
May 24, 2007 to the date of delivery.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the Notes in book entry form
only, through the facilities of The Depository Trust Company,
against payment on May 24, 2007.
Joint
book-running managers
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JPMorgan |
Citi |
Lehman
Brothers |
Wachovia
Securities |
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Mizuho
Securities USA Inc. |
Raymond
James |
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Daiwa
Securities America Inc.
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The date of this prospectus
supplement is May 21, 2007.
Table of
contents
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Page
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Prospectus Supplement
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S-1
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S-15
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S-20
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S-21
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S-23
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S-24
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S-39
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S-40
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S-45
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S-46
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S-48
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S-48
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S-48
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S-49
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Prospectus
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About This Prospectus
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iv
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Our Company
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1
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Risk Factors
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3
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Use of Proceeds
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16
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Ratio of Earnings to Fixed Charges
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16
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Description of Debt Securities
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16
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Description of Our Common Units
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30
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Cash Distribution Policy
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32
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Description of Our Partnership
Agreement
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36
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Material Tax Consequences
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41
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Selling Unitholders
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54
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Plan of Distribution
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55
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Where You Can Find More Information
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57
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Forward-Looking Statements
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59
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Legal Matters
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59
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Experts
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60
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This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of Notes
and certain terms of the Notes and the Guarantee. The second
part is the accompanying prospectus, which describes certain
terms of the indenture under which the Notes will be issued and
which gives more general information, some of which may not
apply to this offering of Notes.
If the information varies between this prospectus supplement and
the accompanying prospectus, you should rely on the information
in this prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus or any free writing prospectus prepared
by or on behalf of us. We have not authorized anyone to provide
you with additional or different information. We are not making
an offer to sell these Notes or the Guarantee in any
jurisdiction where the offer is not permitted. You should not
assume that the information contained in this prospectus
supplement or the accompanying prospectus is accurate as of any
date other than the date on the front of this document or that
any information we have incorporated by reference is accurate as
of any date other than the date of the document incorporated by
reference. Our business, financial condition, results of
operations and prospects may have changed since these dates.
Summary
This summary highlights information from this prospectus
supplement and the accompanying prospectus to help you
understand our business, the Notes and the Guarantee (as defined
herein). It does not contain all of the information that is
important to you. You should read carefully the entire
prospectus supplement, the accompanying prospectus, the
documents incorporated by reference and the other documents to
which we refer for a more complete understanding of this
offering and our business. You should also read Risk
Factors beginning on
page S-15
of this prospectus supplement and on page 3 of the
accompanying prospectus for more information about important
risks that you should consider before making a decision to
purchase Notes in this offering.
Enterprise Products Partners L.P. (which we refer to as
Enterprise Parent) conducts substantially all of its
business through Enterprise Products Operating L.P. (which we
refer to as Enterprise) and the subsidiaries and
unconsolidated affiliates of Enterprise. Accordingly, in the
sections of this prospectus supplement that describe the
business of Enterprise and Enterprise Parent, unless the context
otherwise indicates, references to Enterprise,
us, we, our, and like terms
refer to Enterprise Products Operating L.P. together with its
subsidiaries and unconsolidated affiliates, including Duncan
Energy Partners L.P., a publicly traded, consolidated subsidiary
of Enterprise that completed its initial public offering in
February 2007. Enterprise is the borrower on substantially all
of the consolidated companys credit facilities and is the
issuer of substantially all of the companys publicly
traded notes, all of which are guaranteed by Enterprise Parent.
Enterprises financial results do not differ materially
from those of Enterprise Parent; the number and dollar amount of
reconciling items between Enterprises consolidated
financial statements and those of Enterprise Parent are
insignificant. All financial results presented in this
prospectus supplement are those of Enterprise Parent.
The Notes are solely obligations of Enterprise Products
Operating L.P. and, to the extent described in this prospectus
supplement, are guaranteed by Enterprise Parent. Accordingly, in
the other sections of this prospectus supplement, including
The offering and Description of the
Notes, unless the context otherwise indicates, references
to Enterprise, the Partnership,
us, we, our, and like terms
refer to Enterprise Products Operating L.P. and do not include
any of its subsidiaries or unconsolidated affiliates or
Enterprise Parent. Likewise, in such sections, unless the
context otherwise indicates, Enterprise Parent and
Parent Guarantor refer to Enterprise Products
Partners L.P. and not its subsidiaries or unconsolidated
affiliates.
Enterprise and
Enterprise Parent
We are a North American midstream energy company that provides a
wide range of services to producers and consumers of natural
gas, natural gas liquids, or NGLs, crude oil and certain
petrochemicals, and are an industry leader in the development of
pipeline and other midstream infrastructure in the continental
United States and Gulf of Mexico. Our midstream asset network
links producers of natural gas, NGLs and crude oil from some of
the largest supply basins in the United States, Canada and the
Gulf of Mexico with domestic consumers and international
markets. We operate an integrated midstream asset network within
the United States that includes natural gas gathering,
processing, transportation and storage; NGL fractionation (or
separation), transportation, storage and import and export
terminaling; crude oil transportation; and offshore production
platform services. NGL products (ethane, propane, normal butane,
isobutane and natural gasoline) are used as raw materials by the
petrochemical industry, as feedstocks by refiners in the
production of motor gasoline and as fuel by industrial and
residential users.
For the year ended December 31, 2006, Enterprise Parent had
revenues of $14.0 billion, operating income of
$860.1 million and net income of $601.2 million. For
the three months ended March 31,
S-1
2007, Enterprise Parent had revenues of $3.3 billion,
operating income of $187.9 million and net income of
$112.0 million.
Our business
segments
We have four reportable business segments: (i) NGL
Pipelines & Services; (ii) Onshore Natural Gas
Pipelines & Services; (iii) Offshore
Pipelines & Services and (iv) Petrochemical
Services. Our business segments are generally organized and
managed along our asset base according to the type of services
rendered (or technology employed) and products produced
and/or sold.
NGL Pipelines & Services. Our NGL
Pipelines & Services business segment includes our
(i) natural gas processing business and related NGL
marketing activities, (ii) NGL pipelines aggregating
approximately 13,295 miles and related storage facilities
including our
Mid-America
Pipeline System and (iii) NGL fractionation facilities
located in Texas and Louisiana. This segment also includes our
import and export terminal operations.
Onshore Natural Gas Pipelines &
Services. Our Onshore Natural Gas Pipelines &
Services business segment includes approximately
18,889 miles of onshore natural gas pipeline systems that
provide for the gathering and transmission of natural gas in
Alabama, Colorado, Louisiana, Mississippi, New Mexico, Texas and
Wyoming. In addition, we own two salt dome natural gas storage
facilities located in Mississippi and lease natural gas storage
facilities located in Texas and Louisiana.
Offshore Pipelines & Services. Our
Offshore Pipelines & Services business segment
includes (i) approximately 1,586 miles of offshore
natural gas pipelines strategically located to serve production
areas including some of the most active drilling and development
regions in the Gulf of Mexico, (ii) approximately
863 miles of offshore Gulf of Mexico crude oil pipeline
systems and (iii) six multi-purpose offshore hub platforms
located in the Gulf of Mexico with crude oil or natural gas
processing capabilities.
Petrochemical Services. Our Petrochemical Services
business segment includes four propylene fractionation
facilities, an isomerization complex and an octane additive
production facility. This segment also includes approximately
679 miles of petrochemical pipeline systems.
We provide the foregoing services directly and through our
subsidiaries and unconsolidated affiliates.
Our principal offices, including those of Enterprise Parent, are
located at 1100 Louisiana Street, 10th Floor, Houston,
Texas 77002, and our and Enterprise Parents telephone
number is
(713) 381-6500.
S-2
Organizational
structure
The following chart depicts our organizational structure at
May 21, 2007.
GP = General Partner Interest
LP = Limited Partner Interest
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(1)
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EPCO, Inc. and its private company
affiliates own the sole 0.01% GP interest and an aggregate 90.1%
LP interest in Enterprise GP Holdings L.P. The remaining LP
interests in Enterprise GP Holdings L.P. are publicly owned.
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(2)
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Does not include our general
partners interest in distributions above the minimum
quarterly distribution. With respect to the quarter ended
March 31, 2007, our general partner received 12.9% of the
cash we distributed to our partners.
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S-3
The
offering
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Issuer |
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Enterprise Products Operating L.P. |
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Securities Offered |
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$700,000,000 aggregate principal amount of our 7.034%
Fixed/Floating Rate Junior Subordinated Notes due 2068, which we
refer to as the Notes. |
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Guarantor |
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Enterprise Products Partners L.P. will guarantee, on a junior
subordinated basis, payment of the principal of, premium, if
any, and interest on the Notes. |
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Maturity |
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January 15, 2068. |
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Interest Rate; Fixed Rate Period; Floating Rate Period |
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The Notes will bear interest from the date of issuance to
January 15, 2018, which we refer to as the Fixed Rate
Period, at an annual rate of 7.034%, payable semi-annually
in arrears on January 15 and July 15 of each year, commencing
January 15, 2008, and thereafter, which we refer to as the
Floating Rate Period, at an annual rate equal to the
greater of (1) the sum of the Three-Month LIBOR Rate (as
defined in Description of the Notes Determining
the Floating Rate; Calculation Agent) for the related
interest period plus a spread of 268 basis points or
(2) 7.034% per annum, payable quarterly in arrears on
January 15, April 15, July 15 and October 15 of each
year, commencing April 15, 2018, unless payment is deferred
as described below. |
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For a more complete description of interest payable on the
Notes, see Description of the NotesInterest Rate and
Interest Payment Dates and Description of the
NotesDetermining the Floating Rate; Calculation
Agent. |
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Optional Deferral of Interest |
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We may defer interest payments on the Notes, from time to time,
for one or more periods (each, an Optional Deferral
Period) of up to 10 consecutive years per Optional
Deferral Period. In other words, we may declare at our
discretion up to a
10-year
interest payment moratorium on the Notes, and we may choose to
do that on more than one occasion. We may not defer payments
beyond the maturity date of, or redemption date for, the Notes. |
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Deferred interest not paid on an interest payment date will bear
interest from that interest payment date until paid at the then
prevailing interest rate on the Notes compounded semi-annually
during the Fixed Rate Period and quarterly during the Floating
Rate Period, as described under Description of the
NotesInterest Rate and Interest Payment Dates. We
refer to such deferred interest, the interest accrued thereon
and any accrued and unpaid interest on any interest payment date
during a deferral period collectively as Deferred
Interest. Once we pay all Deferred Interest resulting from
our optional deferral, such Optional Deferral Period will end
and we may later defer interest again for a new Optional
Deferral Period. |
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We have, however, no current intention of deferring interest
payments on the Notes. |
S-4
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Distribution Stopper |
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During any period in which we defer interest payments on the
Notes, subject to certain exceptions: |
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we and Enterprise Parent will not declare or make
any distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of our equity
securities;
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we and Enterprise Parent will not, and will cause
our respective majority-owned subsidiaries not to, make any
payment of interest, principal or premium, if any, on or repay,
purchase or redeem any of our debt securities (including
securities similar to the Notes) that contractually rank equally
with or junior to the Notes or the Guarantee, as
applicable; and
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we and Enterprise Parent will not, and will cause
our respective majority-owned subsidiaries not to, make any
payments under a guarantee of debt securities (including under a
guarantee of debt securities that are similar to the Notes) that
contractually ranks equally with or junior to the Notes or the
Guarantees, as applicable.
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This covenant is subject to the exceptions described under
Description of the NotesDistribution Stopper. |
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Subordination and Ranking |
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Our payment obligations under the Notes will be unsecured and
will, to the extent provided in the Indenture (as defined in
this prospectus supplement), be subordinated to the prior
payment in full of all of our present and future indebtedness
for borrowed money, indebtedness evidenced by securities, bonds,
notes and debentures, obligations under guarantees, direct
credit substitutes, hedge and derivative products, capitalized
lease obligations, letters of credit, cash management
arrangements, certain operating leases and other Senior
Indebtedness (as defined under Description of the
NotesSubordination; Ranking of the Notes; Payment
Blockage). However, the Notes will rank equally with our
trade accounts payable and certain other liabilities arising in
the ordinary course of our business, any of our indebtedness
which by its terms is expressly made equal in rank with the
Notes, indebtedness owed by us to our majority-owned
subsidiaries and our 8.375% Fixed/Floating Rate Junior
Subordinated Notes due 2066. |
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The Notes will rank senior in right of payment to all of our
present and future equity securities. |
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The Indenture does not limit our ability to incur additional
debt, including debt that ranks senior in priority of payment to
or pari passu with the Notes. |
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We conduct a significant amount of our operations through our
subsidiaries and unconsolidated affiliates, and a significant
amount of our assets include our ownership interests in such
entities. Holders of the Notes will have a junior position to
claims of creditors of our subsidiaries and unconsolidated
affiliates, including trade creditors, debt holders, secured
creditors, taxing authorities and guarantee holders. |
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Guarantee |
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Enterprise Parent will fully and unconditionally guarantee (the
Guarantee) the full and prompt payment of principal
of, premium, if any, and interest on the Notes, when and as the
same become due and payable (subject to our right to defer
interest as set forth under Description of the |
S-5
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NotesOptional Deferral of Interest), whether at
stated maturity, upon redemption, by declaration of acceleration
or otherwise, as described under Description of the
NotesParent Guarantee. The Guarantee will be
unsecured and subordinated to the senior indebtedness of
Enterprise Parent, as described under Description of the
NotesParent Guarantee. |
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Optional Redemption |
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We may redeem the Notes before their maturity, subject to the
limitations set forth in the Replacement Capital Covenant
discussed below, as follows: |
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in whole or in part at any time on or after
January 15, 2018, at a redemption price equal to 100% of
their principal amount plus accrued and unpaid interest;
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in whole or in part at any time prior to
January 15, 2018, at a redemption price equal to the
Make-Whole Redemption Price (as defined in
Description of the NotesOptional
Redemption); or
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in whole but not in part prior to January 15,
2018, after the occurrence of a Tax Event or Rating Agency Event
at a redemption price equal to the Special Event
Make-Whole Redemption Price (as defined in
Description of the NotesOptional Redemption).
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For a more complete description of the redemption provisions of
the Notes, see Description of the NotesOptional
Redemption. |
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Replacement Capital Covenant |
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At or around the time of the initial issuance of the Notes, we
and Enterprise Parent will enter into a Replacement Capital
Covenant in which we and it will covenant for the benefit of
holders of a designated series of long-term indebtedness that
ranks senior to the Notes that we and it will not redeem or
purchase (or cause any of our majority-owned subsidiaries to
purchase) or otherwise satisfy, discharge or defease (which we
are together referring to as defease or
defeasance, as applicable) any of the Notes on or
before January 15, 2038, unless, subject to certain
limitations, during the 180 days prior to the date of that
redemption, repurchase, defeasance or purchase we, Enterprise
Parent or one of our subsidiaries has received a specified
amount of proceeds from the sale of qualifying securities that
have characteristics that are the same as, or more equity-like
than, the applicable characteristics of the Notes. The
Replacement Capital Covenant is not intended for the benefit of
holders of the Notes and cannot be enforced by them, and the
Replacement Capital Covenant is not a term of the Indenture or
the Notes. |
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In the event that the Replacement Capital Covenant terminates
prior to January 15, 2038, as a result of there being no
eligible designated debt outstanding, we intend that if we
redeem the Notes, or if we, Enterprise Parent or one of our
majority-owned subsidiaries purchases the Notes, the redemption
or purchase price of the Notes will be paid with amounts that
include net proceeds received by us, Enterprise Parent or our
subsidiaries from the sale or issuance, during the
180-day
period prior to the date of such redemption or such purchase, by
us, Enterprise Parent or our subsidiaries to third-party
purchasers of securities for which we will receive equity-like
credit from the rating agencies which rate our securities, that
is equal to or greater than the equity-like credit then
attributed to the Notes being redeemed or purchased. The
determination of the equity-like credit of the Notes may result
in the issuance of an amount of new securities that may |
S-6
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be less than the principal amount of the Notes, depending upon,
among other things, the nature of the new securities issued and
the equity-like credit attributed by a rating agency to the
Notes and the new securities. |
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Events of Default |
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The following will be events of default under the Indenture
governing the terms of the Notes, as described in more detail
under Description of the NotesEvents of
Default: |
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the failure to pay principal when due;
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the failure to pay interest when due and payable
that continues for 30 days, subject to the right to defer
interest payments as described in Description of the
NotesOptional Deferral of Interest;
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certain events of bankruptcy, insolvency or
reorganization involving us; or
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Enterprise Parents Guarantee of the Notes
ceases to be in full force and effect or is declared null and
void in a judicial proceeding.
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Reopening of the Series |
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We may, without the consent of the holders of the Notes,
increase the principal amount of the series and issue additional
notes of such series having the same ranking, interest rate,
maturity and other terms as the Notes, except for issue date,
issue price and, if applicable, first interest payment date. Any
such additional notes may, together with the Notes, constitute a
single series of securities. |
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Use of Proceeds |
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We expect to receive aggregate net proceeds of approximately
$690.2 million from the sale of the Notes to the
underwriters after deducting the underwriters discount and
other offering expenses payable by us. We expect to use the net
proceeds of this offering to temporarily reduce borrowings
outstanding under our multi-year revolving credit facility and
for general partnership purposes. Affiliates of certain of the
underwriters are lenders under our multi-year revolving credit
facility and, accordingly, will receive a substantial portion of
the proceeds of this offering. Please read
Underwriting. |
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Ratings |
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The Notes will be rated Ba1, BB and BB+ by Moodys
Investors Service, Standard & Poors Rating
Services and Fitch Ratings Ltd., respectively. Credit ratings
are intended to provide banks and capital market participants
with a framework for comparing the credit quality of securities
and are not a recommendation to buy, sell or hold these
securities. Each rating may be subject to revision or withdrawal
at any time and should be evaluated independently of any other
rating. |
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Federal Income Tax Considerations |
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In connection with the issuance of the Notes,
Bracewell & Giuliani LLP will render an opinion to us
that, for United States federal income tax purposes, the Notes
will be classified as indebtedness (although there is no clear
authority directly on point). This opinion is subject to certain
customary conditions. See Certain United States Federal
Income Tax Considerations. |
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Each purchaser of the Notes agrees to treat the Notes as
indebtedness for all United States federal, state and local tax
purposes. We intend to treat the Notes in the same manner. |
S-7
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If we elect to defer interest on the Notes, the holders of the
Notes will be required to accrue income for United States
federal income tax purposes in the amount of the accumulated
interest payments on the Notes, in the form of original issue
discount, even though cash interest payments are deferred and
even though they may be cash basis taxpayers. |
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Risk Factors |
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Investing in the Notes involves certain risks. You should
carefully consider the risk factors discussed under the heading
Risk Factors beginning on
page S-15
of this prospectus supplement and on page 3 of the
accompanying prospectus and the other information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus before deciding to invest in the Notes. |
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Book-Entry Form/Denominations |
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The Notes will be issued in denominations of $1,000 and integral
multiples thereof in book-entry form and will be represented by
a permanent global certificate deposited with, or on behalf of,
The Depository Trust Company (DTC) and registered in
the name of a nominee of DTC. Beneficial interests in any of the
Notes will be shown on, and transfers will be effected only
through, records maintained by DTC or its nominee and any such
interest may not be exchanged for certificated securities,
except in limited circumstances. |
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Trading |
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We will not list the Notes for trading on any securities
exchange. |
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Trustee |
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Wells Fargo Bank, National Association. |
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Governing Law |
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The Notes and the Indenture will be governed by, and construed
in accordance with, the laws of the State of New York. |
S-8
Enterprise Parent
summary historical financial and operating data
The following tables set forth, for the periods and at the dates
indicated, summary historical financial and operating data for
Enterprise Parent. The summary historical income statement and
balance sheet data for the three years in the period ended
December 31, 2006 are derived from and should be read in
conjunction with the audited consolidated financial statements
of Enterprise Parent that are incorporated by reference into
this prospectus supplement. The summary historical income
statement and balance sheet data for the three month periods
ended March 31, 2006 and 2007 are derived from and should
be read in conjunction with the unaudited consolidated financial
statements of Enterprise Parent that are incorporated by
reference into this prospectus supplement.
The summary historical financial data includes the financial
measures of gross operating margin and EBITDA, which is an
abbreviation for earnings before interest, income taxes,
depreciation and amortization. Gross operating margin and EBITDA
are financial measures that are not calculated in accordance
with accounting principles generally accepted in the United
States of America as in effect from time to time, or
GAAP. Explanations of and reconciliations for these
non-GAAP financial measures are included in supplemental
sections of this prospectus supplement entitled
Enterprise Parent Non-GAAP Financial
Measures and Enterprise Parent
Non-GAAP Reconciliations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
historical
|
|
|
|
For the year
ended December 31,
|
|
|
For the three
Months ended March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in
millions, except per unit amounts)
|
|
|
|
|
Income statement
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,321.2
|
|
|
$
|
12,257.0
|
|
|
$
|
13,991.0
|
|
|
$
|
3,250.1
|
|
|
$
|
3,322.8
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
7,904.3
|
|
|
|
11,546.2
|
|
|
|
13,089.1
|
|
|
|
3,046.9
|
|
|
|
3,124.5
|
|
General and administrative
|
|
|
46.7
|
|
|
|
62.3
|
|
|
|
63.4
|
|
|
|
13.7
|
|
|
|
16.6
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
7,951.0
|
|
|
|
11,608.5
|
|
|
|
13,152.5
|
|
|
|
3,060.6
|
|
|
|
3,141.1
|
|
|
|
|
|
|
|
Equity in income (loss) of
unconsolidated affiliates
|
|
|
52.8
|
|
|
|
14.5
|
|
|
|
21.6
|
|
|
|
4.0
|
|
|
|
6.2
|
|
|
|
|
|
|
|
Operating income
|
|
|
423.0
|
|
|
|
663.0
|
|
|
|
860.1
|
|
|
|
193.5
|
|
|
|
187.9
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(155.7
|
)
|
|
|
(230.6
|
)
|
|
|
(238.0
|
)
|
|
|
(58.1
|
)
|
|
|
(63.4
|
)
|
Other, net
|
|
|
2.1
|
|
|
|
5.4
|
|
|
|
8.0
|
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(153.6
|
)
|
|
|
(225.2
|
)
|
|
|
(230.0
|
)
|
|
|
(56.1
|
)
|
|
|
(61.4
|
)
|
|
|
|
|
|
|
Income before provision for income
taxes, minority interest and changes in accounting principles
|
|
|
269.4
|
|
|
|
437.8
|
|
|
|
630.1
|
|
|
|
137.4
|
|
|
|
126.5
|
|
Provision for income taxes
|
|
|
(3.8
|
)
|
|
|
(8.3
|
)
|
|
|
(21.3
|
)
|
|
|
(2.9
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
historical
|
|
|
|
For the year
ended December 31,
|
|
|
For the three
Months ended March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in
millions, except per unit amounts)
|
|
|
|
|
Income before minority interest
and changes in accounting principles
|
|
|
265.6
|
|
|
|
429.5
|
|
|
|
608.8
|
|
|
|
134.5
|
|
|
|
117.7
|
|
Minority interest
|
|
|
(8.1
|
)
|
|
|
(5.8
|
)
|
|
|
(9.1
|
)
|
|
|
(2.2
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
Income before changes in
accounting principles
|
|
|
257.5
|
|
|
|
423.7
|
|
|
|
599.7
|
|
|
|
132.3
|
|
|
|
112.0
|
|
Cumulative effect of changes in
accounting principles
|
|
|
10.8
|
|
|
|
(4.2
|
)
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
268.3
|
|
|
$
|
419.5
|
|
|
$
|
601.2
|
|
|
$
|
133.8
|
|
|
$
|
112.0
|
|
|
|
|
|
|
|
Basic and diluted earnings per
unit (net of general partner interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per unit
|
|
$
|
0.87
|
|
|
$
|
0.91
|
|
|
$
|
1.22
|
|
|
$
|
0.28
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
Distributions to limited
partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit
|
|
$
|
1.5400
|
|
|
$
|
1.6975
|
|
|
$
|
1.8250
|
|
|
$
|
0.4450
|
|
|
$
|
0.4750
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,315.5
|
|
|
$
|
12,591.0
|
|
|
$
|
13,989.7
|
|
|
$
|
12,318.5
|
|
|
$
|
14,428.0
|
|
Total debt
|
|
|
4,281.2
|
|
|
|
4,833.8
|
|
|
|
5,295.6
|
|
|
|
4,396.3
|
|
|
|
5,448.7
|
|
Total partners equity
|
|
|
5,328.8
|
|
|
|
5,679.3
|
|
|
|
6,480.2
|
|
|
|
6,060.3
|
|
|
|
6,393.5
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities
|
|
$
|
391.5
|
|
|
$
|
631.7
|
|
|
$
|
1,175.1
|
|
|
$
|
494.3
|
|
|
$
|
420.8
|
|
Cash flows used in investing
activities
|
|
|
941.4
|
|
|
|
1,130.4
|
|
|
|
1,689.3
|
|
|
|
348.6
|
|
|
|
614.9
|
|
Cash provided by (used in)
financing activities
|
|
|
544.0
|
|
|
|
516.2
|
|
|
|
495.0
|
|
|
|
(152.7
|
)
|
|
|
231.1
|
|
Distributions received from
unconsolidated affiliates
|
|
|
68.0
|
|
|
|
56.1
|
|
|
|
43.0
|
|
|
|
8.3
|
|
|
|
16.9
|
|
Gross operating margin
|
|
|
655.2
|
|
|
|
1,136.3
|
|
|
|
1,362.5
|
|
|
|
312.5
|
|
|
|
324.5
|
|
EBITDA
|
|
|
623.2
|
|
|
|
1,079.0
|
|
|
|
1,307.9
|
|
|
|
301.1
|
|
|
|
305.3
|
|
Selected volumetric operating
data by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Pipelines &
Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes in
thousand barrels per day (MBbls/d)
|
|
|
1,411
|
|
|
|
1,478
|
|
|
|
1,577
|
|
|
|
1,443
|
|
|
|
1,607
|
|
NGL fractionation volumes (MBbls/d)
|
|
|
307
|
|
|
|
292
|
|
|
|
312
|
|
|
|
255
|
|
|
|
351
|
|
S-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
historical
|
|
|
For the year
ended December 31,
|
|
For the three
Months ended March 31,
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
|
(Dollars in
millions, except per unit amounts)
|
|
|
Equity NGL production (MBbls/d)
|
|
|
76
|
|
|
68
|
|
|
63
|
|
|
58
|
|
|
70
|
Fee-based natural gas processing
in million cubic feet per day (MMcf/d)
|
|
|
1,692
|
|
|
1,767
|
|
|
2,218
|
|
|
1,807
|
|
|
2,401
|
Onshore Natural Gas
Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes
in billion British thermal units per day (BBtus/d)
|
|
|
5,638
|
|
|
5,916
|
|
|
6,012
|
|
|
6,052
|
|
|
6,086
|
Offshore Pipelines &
Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes
(BBtus/d)
|
|
|
2,081
|
|
|
1,780
|
|
|
1,520
|
|
|
1,476
|
|
|
1,384
|
Crude oil transportation volumes
(MBbls/d)
|
|
|
138
|
|
|
127
|
|
|
153
|
|
|
113
|
|
|
153
|
Platform gas processing in
thousands cubic feet per day (Mcf/d)
|
|
|
306
|
|
|
252
|
|
|
159
|
|
|
157
|
|
|
162
|
Platform oil processing (MBbls/d)
|
|
|
14
|
|
|
7
|
|
|
15
|
|
|
7
|
|
|
20
|
Petrochemical Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes
(MBbls/d)
|
|
|
76
|
|
|
81
|
|
|
81
|
|
|
84
|
|
|
95
|
Propylene fractionation volumes
(MBbls/d)
|
|
|
57
|
|
|
55
|
|
|
56
|
|
|
52
|
|
|
61
|
Octane additive production volumes
(MBbls/d)
|
|
|
10
|
|
|
6
|
|
|
9
|
|
|
4
|
|
|
7
|
Petrochemical transportation
volumes (MBbls/d)
|
|
|
71
|
|
|
64
|
|
|
97
|
|
|
87
|
|
|
102
|
|
|
On February 5, 2007, a consolidated subsidiary of ours,
Duncan Energy Partners, completed an initial public offering of
its common units. Duncan Energy Partners owns equity interests
in certain of our midstream energy businesses. For financial
reporting purposes, we and Enterprise Parent consolidate the
financial statements of Duncan Energy Partners with those of our
own and reflect its operations in our business segments. We
control Duncan Energy Partners through our ownership of its
general partner. Public ownership of Duncan Energy
Partners net assets and earnings are presented as a
component of minority interest in our consolidated financial
statements. The borrowings of Duncan Energy Partners are
presented as part of our consolidated debt, however, we do not
have any obligation for the payment of interest or repayment of
borrowings incurred by Duncan Energy Partners. The results of
operations for Enterprise Parent for the three months ended
March 31, 2007 include two months of minority interest
expense associated with the public owners of Duncan Energy
Partners.
S-11
Enterprise Parent
non-GAAP financial measures
Set forth below are reconciliations of the non-GAAP financial
measures of gross operating margin and EBITDA to their most
directly comparable financial measure or measures calculated and
presented in accordance with GAAP.
Gross operating
margin
Enterprise Parent defines gross operating margin as operating
income before: (1) depreciation, amortization and accretion
expense; (2) operating lease expenses for which it does not
have a cash payment obligation; (3) gains and losses on the
sale of assets and (4) general and administrative costs.
Enterprise Parent views gross operating margin as an important
performance measure of the core profitability of its operations.
This measure forms the basis of its internal financial reporting
and is used by its senior management in deciding how to allocate
capital resources among business segments. Enterprise Parent
believes that investors benefit from having access to the same
financial measures that its management uses. The GAAP measure
most directly comparable to gross operating margin is operating
income.
EBITDA
Enterprise Parent defines EBITDA as net income plus interest
expense, provision for income taxes and depreciation,
amortization and accretion expense. EBITDA is used as a
supplemental financial measure by Enterprise Parents
management and by external users of financial statements such as
investors, commercial banks, research analysts and ratings
agencies, to assess:
|
|
|
the financial performance of Enterprise Parents assets
without regard to financing methods, capital structures or their
historical cost basis;
|
|
|
the ability of Enterprise Parents assets to generate cash
sufficient to pay interest costs and support its indebtedness;
|
|
|
Enterprise Parents operating performance and return on
capital as compared to those of other companies in the midstream
energy sector, without regard to financing and capital
structure; and
|
|
|
the viability of projects and the overall rates of return on
alternative investment opportunities.
|
EBITDA should not be considered an alternative to net income or
income from continuing operations, operating income, cash flow
from operating activities or any other measure of financial
performance presented in accordance with GAAP. This non-GAAP
financial measure is not intended to represent GAAP-based cash
flows. Historical EBITDA amounts have been reconciled to
Enterprise Parents consolidated net income and net cash
provided by operating activities.
S-12
Enterprise Parent
non-GAAP reconciliations
The following table presents a reconciliation of Enterprise
Parents non-GAAP financial measure of gross operating
margin to the GAAP financial measure of operating income and a
reconciliation of the non-GAAP financial measure of EBITDA to
the GAAP financial measures of net income and of net cash
provided by operating activities, on a historical basis for each
of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
historical
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
|
|
|
|
|
|
|
|
|
|
|
|
|
months ended
|
|
|
|
For the year
ended December 31,
|
|
|
March 31
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in
millions)
|
|
|
|
|
Reconciliation of Non-GAAP
Gross Operating Margin to GAAP Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
423.0
|
|
|
$
|
663.0
|
|
|
$
|
860.1
|
|
|
$
|
193.5
|
|
|
$
|
187.9
|
|
Adjustments to reconcile Operating
Income to Gross Operating Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and
accretion in operating costs and expenses
|
|
|
193.7
|
|
|
|
413.4
|
|
|
|
440.3
|
|
|
|
104.8
|
|
|
|
119.5
|
|
Operating lease expense paid by
EPCO in operating costs and expenses
|
|
|
7.7
|
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Gain on sale of assets in
operating costs and expenses
|
|
|
(15.9
|
)
|
|
|
(4.5
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
General and administrative costs
|
|
|
46.7
|
|
|
|
62.3
|
|
|
|
63.4
|
|
|
|
13.7
|
|
|
|
16.6
|
|
|
|
|
|
|
|
Total Gross Operating Margin
|
|
$
|
655.2
|
|
|
$
|
1,136.3
|
|
|
$
|
1,362.5
|
|
|
$
|
312.5
|
|
|
$
|
324.5
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP
EBITDA to GAAP Net income and GAAP
Net Cash Provided By Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
268.3
|
|
|
$
|
419.5
|
|
|
$
|
601.2
|
|
|
$
|
133.8
|
|
|
$
|
112.0
|
|
Adjustments to derive EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
155.7
|
|
|
|
230.6
|
|
|
|
238.0
|
|
|
|
58.1
|
|
|
|
63.4
|
|
Provision for income taxes
|
|
|
3.8
|
|
|
|
8.3
|
|
|
|
21.3
|
|
|
|
2.9
|
|
|
|
8.8
|
|
Depreciation, amortization and
accretion in costs and expenses
|
|
|
195.4
|
|
|
|
420.6
|
|
|
|
447.4
|
|
|
|
106.3
|
|
|
|
121.1
|
|
|
|
|
|
|
|
EBITDA
|
|
|
623.2
|
|
|
|
1,079.0
|
|
|
|
1,307.9
|
|
|
|
301.1
|
|
|
|
305.3
|
|
Interest expense
|
|
|
(155.7
|
)
|
|
|
(230.6
|
)
|
|
|
(238.0
|
)
|
|
|
(58.1
|
)
|
|
|
(63.4
|
)
|
Amortization in interest expense
|
|
|
3.5
|
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Provision for income taxes
|
|
|
(3.8
|
)
|
|
|
(8.3
|
)
|
|
|
(21.3
|
)
|
|
|
(2.9
|
)
|
|
|
(8.8
|
)
|
Provision for impairment charge
|
|
|
4.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Equity in loss (income) of
unconsolidated affiliates
|
|
|
(52.8
|
)
|
|
|
(14.5
|
)
|
|
|
(21.6
|
)
|
|
|
(4.0
|
)
|
|
|
(6.2
|
)
|
S-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
historical
|
|
|
|
|
|
|
|
|
|
|
|
For the three
|
|
|
|
|
|
|
|
|
|
|
|
months ended
|
|
|
For the year
ended December 31,
|
|
|
March 31
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
(Dollars in
millions)
|
|
|
Distributions from unconsolidated
affiliates
|
|
|
68.0
|
|
|
|
56.1
|
|
|
|
43.0
|
|
|
|
8.3
|
|
|
|
16.9
|
Gain on sale of assets
|
|
|
(15.9
|
)
|
|
|
(4.5
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
Operating lease expense paid by
EPCO (excluding minority interest portion)
|
|
|
7.7
|
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
0.5
|
|
|
|
0.5
|
Minority interest
|
|
|
8.1
|
|
|
|
5.8
|
|
|
|
9.1
|
|
|
|
2.2
|
|
|
|
5.7
|
Deferred income tax expense
|
|
|
9.6
|
|
|
|
8.6
|
|
|
|
14.5
|
|
|
|
1.5
|
|
|
|
1.6
|
Changes in fair market value of
financial instruments
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
Cumulative effect of changes in
accounting principles
|
|
|
(10.8
|
)
|
|
|
4.2
|
|
|
|
(1.5
|
)
|
|
|
(1.5
|
)
|
|
|
|
Net effect of changes in operating
accounts
|
|
|
(93.7
|
)
|
|
|
(266.4
|
)
|
|
|
83.4
|
|
|
|
247.1
|
|
|
|
168.9
|
|
|
|
|
|
|
Net Cash Provided By Operating
Activities
|
|
$
|
391.5
|
|
|
$
|
631.7
|
|
|
$
|
1,175.1
|
|
|
$
|
494.3
|
|
|
$
|
420.8
|
|
|
S-14
Risk
factors
An investment in the Notes involves certain risks. You should
carefully consider the supplemental risks described below in
addition to the risks described under Risk Factors
in our annual report on
Form 10-K
for the year ended December 31, 2006, which is incorporated
by reference herein, as well as the other information contained
in or incorporated by reference into this prospectus supplement
and the accompanying prospectus. If any of these risks were to
materialize, our business, results of operations, cash flows and
financial condition could be materially adversely affected. In
that case, the value of the Notes could decline, and you could
lose part or all of your investment.
We may elect
to defer interest payments on the Notes at our option for one or
more periods of up to ten consecutive years.
We may elect to defer payment of all or part of the current and
accrued interest otherwise due on the Notes for one or more
periods of up to ten consecutive years, as described under
Description of the NotesOptional Deferral of
Interest. If we exercise this option, you will not receive
any current income on your investment in the Notes during such
deferral period. In addition, although we are not permitted to
defer payment of interest for more than ten consecutive years,
we are permitted to defer interest for multiple periods of up to
ten years without triggering an event of default.
We will not be
able to pay current interest on the Notes until we have paid all
Deferred Interest, which could have the effect of extending
interest deferral periods.
We will be prohibited from paying current interest on the Notes
until we have paid all Deferred Interest on the Notes, even if
we have cash available from other sources. As a result, we will
not be able to pay current interest on the Notes, even if we
have funds available to pay such current interest, if we do not
have available funds to pay all Deferred Interest.
The Notes are
subordinated to substantially all of our direct
indebtedness.
Our payment obligations under the Notes are unsecured and
subordinated and rank junior in right of payment to all of our
current and future senior indebtedness, including
our indebtedness for borrowed money, indebtedness evidenced by
bonds, debentures, notes or similar instruments, obligations
arising from or with respect to guarantees and direct credit
substitutes, obligations associated with hedges and derivative
products, capitalized lease obligations and other senior
indebtedness, excluding our trade account payables, certain
other liabilities arising in the ordinary course of our
business, any of our indebtedness which by its terms is
expressly made equal in rank with or subordinated to the Notes,
indebtedness owed by us to our majority-owned subsidiaries and
our 8.375% Fixed/Floating Rate Junior Subordinated Notes due
2066. We cannot make any payments on the Notes if we have
defaulted on a payment of senior indebtedness and do not cure
the default within the applicable grace period, or if the senior
indebtedness becomes immediately due because of a default and
has not yet been paid in full.
As a result of the subordination provisions discussed in
Description of the NotesSubordination; Ranking of
the Notes; Payment Blockage, in the event of our
insolvency, funds that we would otherwise use to pay the holders
of the Notes will be used to pay the holders of our senior
indebtedness to the extent necessary to pay such indebtedness in
full. As a result of those payments, holders of the Notes may
recover less, ratably, than the holders of our senior
indebtedness. In addition, the holders of all of our senior
indebtedness may, under certain circumstances, restrict or
prohibit us from making payments on the Notes.
S-15
The Indenture does not limit our ability to incur additional
indebtedness and other obligations, including indebtedness and
other obligations that rank senior to or pari passu with
the Notes. At March 31, 2007, the direct indebtedness of
Enterprise that is senior to the Notes totaled approximately
$4.7 billion, and the direct indebtedness of Enterprise
that is pari passu with the Notes totaled approximately
$550 million. As discussed below, the Notes will also be
effectively subordinated to all of our subsidiaries and
unconsolidated affiliates existing and future indebtedness
and other obligations. At March 31, 2007, indebtedness of
our subsidiaries and unconsolidated affiliates totaled
approximately $715.7 million.
Enterprise
Parents guarantee of the Notes is subordinate to all of
its senior indebtedness.
Enterprise Parents guarantee of the Notes is subordinated
and ranks junior in right of payment to all of its current and
future senior indebtedness, including Enterprise
Parents indebtedness for borrowed money, indebtedness
evidenced by bonds, debentures, notes or similar instruments,
obligations arising from or with respect to guarantees and
direct credit substitutes, obligations associated with hedges
and derivative products, capitalized lease obligations and other
senior indebtedness, excluding its trade account payables,
certain other liabilities arising in the ordinary course of its
business, any indebtedness which by its terms is expressly made
equal in rank with or subordinated to its guarantee of the
Notes, obligations owed by Enterprise Parent to its
majority-owned subsidiaries and its guarantee of our 8.375%
Fixed/Floating Rate Junior Subordinated Notes due 2066.
Enterprise Parent will not be permitted to make any payments
under its guarantee if it has defaulted on a payment of senior
indebtedness.
We may require
cash from our subsidiaries to make payments on the
Notes.
We conduct the majority of our operations through our
subsidiaries and unconsolidated affiliates, some of which are
not wholly-owned, and we rely to a significant extent on
dividends, distributions, proceeds from inter-company
transactions, interest payments and loans from those entities to
meet our obligations for payment of principal and interest on
our outstanding debt obligations and corporate expenses,
including interest payments on the Notes, which may be subject
to contractual restrictions. Accordingly, the Notes are
structurally subordinated to all existing and future liabilities
of our subsidiaries and unconsolidated affiliates. Holders of
Notes should look only to our assets and the assets of
Enterprise Parent, and not any of our subsidiaries or
unconsolidated affiliates, for payments on the Notes. If we are
unable to obtain cash from such entities to fund required
payments in respect of the Notes, we may be unable to make
payments of principal of or interest on the Notes.
If interest on
the Notes is deferred, holders of the Notes will be required to
recognize income for United States federal income tax purposes
at the time interest accrues regardless of their method of
accounting before they actually receive interest payments in
cash.
If we defer interest payments on the Notes, each holder of the
Notes will be required to accrue income for United States
federal income tax purposes in the amount of the Deferred
Interest on the Notes, in the form of original issue discount.
In that event, you, as a holder of Notes,
|
|
|
will recognize income for United States federal income tax
purposes in advance of the receipt of cash corresponding to that
income even if you are on the cash basis of accounting; and
|
|
|
will not receive the cash related to that income from us if you
dispose of your Notes prior to the applicable record date for
any payments of those amounts.
|
S-16
We may elect
to cause the redemption of the Notes when prevailing interest
rates are relatively low.
We may redeem the Notes:
|
|
|
in whole or in part at any time prior to January 15, 2018
upon payment of the Make-Whole Redemption Price, as
discussed under Description of the NotesOptional
Redemption;
|
|
|
in whole at any time prior to January 15, 2018 after the
occurrence of a Tax Event or a Rating Agency Event for a price
equal to the Special Event Make-Whole Redemption Price, as
discussed under Description of the NotesOptional
Redemption; or
|
|
|
in whole or in part, on one or more occasions at any time on or
after January 15, 2018 at 100% of their principal amount
plus accrued and unpaid interest, as discussed under
Description of the NotesOptional Redemption.
|
We may choose to redeem the Notes for a variety of reasons,
including when prevailing interest rates are lower than the then
applicable interest rate on the Notes. In that case, you may not
be able to reinvest the redemption proceeds in a comparable
security at an effective interest rate as high as the interest
rate on the Notes.
As discussed in the next succeeding risk factor, our ability to
redeem the Notes will be limited by the terms of a Replacement
Capital Covenant that we are entering into for the benefit of
the holders of a designated series of our long-term indebtedness
that ranks senior to the Notes.
Our right to
redeem, repurchase, defease or purchase the Notes is limited by
a covenant that we are making in favor of certain other
debtholders.
By their terms, the Notes may be redeemed by us before their
maturity as described in Description of the
NotesOptional Redemption. However, around the time
of the initial issuance of the Notes, we are entering into a
Replacement Capital Covenant, which is described
under Certain Terms of the Replacement Capital
Covenant, that will limit our right to redeem or
repurchase the Notes. In the Replacement Capital Covenant, we
covenant for the benefit of holders of a designated series of
our long-term indebtedness that ranks senior to the Notes that
we will not redeem or repurchase Notes on or before
January 15, 2038 unless, subject to certain limitations,
during the 180 days prior to the date of that redemption,
repurchase, defeasance or purchase we, Enterprise Parent or one
of our or its subsidiaries has received a specified amount of
proceeds from the sale of qualifying securities that have
characteristics that are the same as, or more equity-like than,
the applicable characteristics of the Notes.
Our ability to raise proceeds from the sale of securities that
qualify under the Replacement Capital Covenant during the
180 days prior to a proposed redemption, repurchase,
defeasance or purchase will depend on, among other things, the
condition of our business and our financial condition, market
conditions at such time as well as the acceptability to
prospective investors of the terms of those securities.
Accordingly, there could be circumstances where we would wish to
redeem, repurchase, defease or purchase some or all of the Notes
and sufficient cash is available for that purpose, but we are
restricted from doing so because we have not been able to obtain
proceeds from the sale of securities that qualify under the
Replacement Capital Covenant.
The Trustee
has only limited rights of acceleration.
The Trustee may accelerate payment of the principal and accrued
and unpaid interest on the Notes only upon the occurrence and
continuation of an Event of Default. An Event of Default is
generally limited to
S-17
payment defaults after giving effect to our deferral rights, and
specific events of bankruptcy, insolvency and reorganization
relating to us or Enterprise Parent. There is no right to
acceleration upon breaches by us of other covenants under the
Indenture.
The tax
accounting for the Notes is uncertain.
We intend to treat the Notes as our indebtedness and to treat
stated interest on the Notes as ordinary interest income that is
includible in your gross income at the time the interest is paid
or accrued, in accordance with your regular method of tax
accounting. By purchasing the Notes you agree to report income
on this basis. However, the determination of whether an
instrument is indebtedness is an inherently factual one. Because
there are no regulations, rulings or other authorities that
address the United States federal income tax treatment of debt
instruments that are substantially similar to the Notes, other
treatments of the Notes are possible, and we can offer you no
assurance that the Internal Revenue Service or a court would
agree with our conclusion. See Certain United States
Federal Income Tax Considerations.
A market may
not develop for the Notes.
The Notes constitute a new issue of securities with no
established trading market and will not be listed on any
exchange. An active market for the Notes may not develop or be
sustained. As a result, we cannot assure you that you will be
able to sell your Notes or at what price. Although the
underwriters have indicated that they intend to make a market in
the Notes, as permitted by applicable laws and regulations, they
are not obligated to do so and may discontinue that
market-making at any time without notice.
If a trading
market develops for the Notes, trading may occur at prices that
do not fully reflect the value of deferred interest and, as a
result, a holder of Notes who disposes of his holdings between
record dates for interest payments may incur an adverse tax
effect.
A holder of Notes who disposes of Notes between record dates for
payments of interest will not receive an interest payment for
the period prior to the disposition but nevertheless will be
required to include accumulated but unpaid interest through the
date of disposition as ordinary income in such holders
gross income for United Stated federal income tax purposes. If a
trading market develops, the Notes may trade at prices that do
not fully reflect the value of Deferred Interest. As a result, a
holder of Notes who sells Notes between record dates for
interest payments may recognize a capital loss for tax purposes
as a result of a portion of the sale proceeds being allocated to
Deferred Interest. Any such capital loss may not be available to
offset the ordinary income recognized as a result of the
Deferred Interest because, subject to limited exceptions,
capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
The
aftermarket price of the Notes may be discounted significantly
if we defer interest payments.
If a deferral of an interest payment occurs or is perceived by
the market as being likely to occur, you may be unable to sell
your Notes at a price that reflects the value of Deferred
Interest or the face amount of your Notes. To the extent a
trading market develops for the Notes, that market may not
continue during a deferral period, or during periods in which
investors perceive that there is a likelihood of a deferral, and
you may be unable to sell Notes at those times, either at a
price that reflects the value of required payments under the
Notes or at all.
S-18
There are
restrictions on your ability to resell the Notes.
The Notes may not be purchased by or transferred to certain
types of benefit plans. See Certain ERISA
Considerations.
If we were to
become subject to entity level taxation for federal or state tax
purposes, then our cash available for payment on the Notes would
be substantially reduced.
Current law may change so as to cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to entity-level federal income taxation. If we were treated
as a corporation for United States federal income tax purposes,
we would pay United States federal income tax on our taxable
income at the corporate tax rate, which is currently a maximum
of 35%, and we likely would pay state taxes as well. Because a
tax would be imposed upon us as a corporation, the cash
available for payment on the Notes would be substantially
reduced. Therefore, treatment of us as a corporation would
result in a material reduction in our anticipated cash flows and
could cause a reduction in the value of the Notes.
In addition, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of
state income, franchise and other forms of taxation. For
example, we became subject in 2007 to a new entity-level tax on
the portion of our income generated in Texas. Specifically, the
Texas margin tax will be imposed at a maximum effective rate of
0.7% of our gross income apportioned to Texas. Imposition of
such tax on us by Texas, or any other state, will reduce the
cash available for payment on the Notes.
A successful
IRS contest of the United States federal income tax positions we
take may adversely impact the market for the Notes, and the
costs of any contests will reduce cash available for payment on
the Notes.
The IRS may adopt positions that differ from the positions we
take, even positions taken with advice of counsel. It may be
necessary to resort to administrative or court proceedings to
sustain some or all of the positions we take. A court may not
agree with some or all of the positions we take. Any contest
with the IRS may materially and adversely impact the market for
the Notes. In addition, the costs of any contest with the IRS,
principally legal, accounting and related fees, will result in a
reduction in the amount of cash available to us to pay the
principal of, and interest and premium, if any, on the Notes.
S-19
Use of
proceeds
We expect to receive aggregate net proceeds of approximately
$690.2 million from the sale of the Notes to the
underwriters after deducting the underwriters discount and
other offering expenses payable by us. We expect to use the net
proceeds of this offering to temporarily reduce borrowings
outstanding under our multi-year revolving credit facility and
for general partnership purposes.
In general, our indebtedness under the multi-year revolving
credit facility was incurred for working capital purposes,
capital expenditures and business combinations. Amounts repaid
under our multi-year revolving credit facility may be reborrowed
from time to time for acquisitions, capital expenditures and
other general partnership purposes. As of May 21, 2007, we
had $705.0 million of borrowings outstanding under our
multi-year revolving credit facility that bear interest at a
variable rate, which on a weighted-average basis is currently
approximately 5.92% per annum. Commitments of
$48 million under our multi-year revolving credit facility
mature in October 2010 and $1.2 billion of such commitments
mature in October 2011. Affiliates of certain of the
underwriters are lenders under our multi-year revolving credit
facility and, accordingly, will receive a substantial portion of
the proceeds of this offering. Please read
Underwriting.
S-20
Capitalization
The following table sets forth Enterprise Parents
capitalization as of March 31, 2007:
|
|
|
on a consolidated historical basis; and
|
|
|
on a consolidated as adjusted basis to give effect to
(i) the sale of $700,000,000 aggregate principal amount of
the Notes in this offering and (ii) the application of a
portion of the net proceeds we will receive to temporarily
reduce borrowings outstanding under our multi-year revolving
credit facility as if such amounts were applied on
March 31, 2007 as described under Use of
Proceeds.
|
The historical data in the table below is derived from and
should be read in conjunction with Enterprise Parents
consolidated historical financial statements, including the
accompanying notes, incorporated by reference in this prospectus
supplement. You should read Enterprise Parents financial
statements and notes that are incorporated by reference in this
prospectus supplement for additional information regarding
Enterprise Parents capital structure. The historical data
below does not reflect events after March 31, 2007.
S-21
Enterprise Parent
historical and as adjusted capitalization
As of
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
(dollars
in millions)
|
|
Historical
|
|
|
As
adjusted
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58.2
|
|
|
$
|
358.4
|
|
|
|
|
|
|
|
Long-term borrowings, including
current portions:
|
|
|
|
|
|
|
|
|
Multi-Year Revolving Credit
Facility, variable rate, due October 2011(1)
|
|
|
390.0
|
|
|
|
|
|
Pascagoula MBFC Loan, 8.70%
fixed-rate, due March 2010
|
|
|
54.0
|
|
|
|
54.0
|
|
Senior Notes B, 7.50%
fixed-rate, due February 2011
|
|
|
450.0
|
|
|
|
450.0
|
|
Senior Notes C, 6.375%
fixed-rate, due February 2013
|
|
|
350.0
|
|
|
|
350.0
|
|
Senior Notes D, 6.875%
fixed-rate, due March 2033
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes E, 4.00%
fixed-rate, due October 2007
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes F, 4.625%
fixed-rate, due October 2009
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes G, 5.60%
fixed-rate, due October 2014
|
|
|
650.0
|
|
|
|
650.0
|
|
Senior Notes H, 6.65%
fixed-rate, due October 2034
|
|
|
350.0
|
|
|
|
350.0
|
|
Senior Notes I, 5.00%
fixed-rate, due March 2015
|
|
|
250.0
|
|
|
|
250.0
|
|
Senior Notes J, 5.75%
fixed-rate, due March 2035
|
|
|
250.0
|
|
|
|
250.0
|
|
Senior Notes K, 4.95%
fixed-rate, due June 2010
|
|
|
500.0
|
|
|
|
500.0
|
|
Duncan Energy Partners
Revolving Credit Facility, variable rate, due February 2011(2)
|
|
|
169.0
|
|
|
|
169.0
|
|
Dixie revolving credit facility,
due June 2010
|
|
|
10.0
|
|
|
|
10.0
|
|
GulfTerra senior notes and senior
subordinated notes
|
|
|
5.1
|
|
|
|
5.1
|
|
Other, including unamortized
discounts and premiums
|
|
|
(36.6
|
)
|
|
|
(36.6
|
)
|
|
|
|
|
|
|
Total senior debt obligations
|
|
|
4,891.5
|
|
|
|
4,501.5
|
|
Junior Notes A, due August
2066
|
|
|
550.0
|
|
|
|
550.0
|
|
Junior Notes B, due January
2068
|
|
|
|
|
|
|
700.0
|
|
Unamortized premium and discounts
on Junior Notes
|
|
|
7.2
|
|
|
|
7.1
|
|
|
|
|
|
|
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Total debt obligations
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5,448.7
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5,758.6
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Minority interest
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433.6
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433.6
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Partners equity:
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Limited partners
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6,230.6
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6,230.6
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General partner
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127.2
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127.2
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Accumulated other comprehensive
income
|
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35.7
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35.7
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Total partners equity
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6,393.5
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6,393.5
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Total capitalization
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$
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12,275.8
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$
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12,585.7
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(1)
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As of May 21, 2007, we had
$705.0 million of borrowings outstanding under our
multi-year revolving credit facility. Commitments of
$48 million under our multi-year revolving credit facility
mature in October 2010 and $1.2 billion of such commitments
mature in October 2011.
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(2)
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The borrowings of Duncan Energy
Partners are presented as part of our consolidated debt,
however, we do not have any obligation for the payment of
interest or repayment of borrowings incurred by Duncan Energy
Partners.
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S-22
Ratio of earnings
to fixed charges
Enterprise Parents ratio of earnings to fixed charges for
each of the periods indicated is as follows:
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Three
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months
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ended
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Year ended
December 31,
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March 31,
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2002
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2003
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2004
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2005
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2006
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2007
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2.07
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2.02
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2.69
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2.69
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2.94
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2.30
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For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items:
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pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees;
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plus fixed charges;
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plus distributed income of equity investees;
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less capitalized interest; and
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less minority interest in pre-tax income of subsidiaries that
have not incurred fixed charges.
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The term fixed charges means the sum of the
following:
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interest expensed and capitalized, including amortized premiums,
discounts and capitalized expenses related to
indebtedness; and
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an estimate of the interest within rental expenses.
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The pro forma application of proceeds from the sale of Notes in
this offering to temporarily reduce borrowings outstanding under
our revolving credit facility will not result in a change of ten
percent or greater in the ratio of earnings to fixed charges.
S-23
Description of
the Notes
We have summarized below certain material terms and
provisions of the Notes. This summary is not a
complete description of all of the terms and provisions of the
Notes. You should read carefully the section
entitled Description of Debt Securities in the
accompanying prospectus for a description of other material
terms of the Notes, the Guarantee and the Base Indenture. For
more information, we refer you to the Notes, the Base Indenture
and the Supplemental Indenture, all of which are available from
us. We urge you to read the Base Indenture and the Supplemental
Indenture because they, and not this description, define your
rights as an owner of the Notes.
The Notes are a new series of debt securities that will be
issued under an Indenture dated as of October 4, 2004
(which we refer to as the Base Indenture), as
supplemented by the Ninth Supplemental Indenture to be dated the
date of delivery of the Notes (which we refer to as the
Supplemental Indenture, and, together with the Base
Indenture, as the Indenture), among Enterprise
Products Operating L.P., as issuer, Enterprise Products Partners
L.P., as parent guarantor, any subsidiary guarantors party
thereto, and Wells Fargo Bank, National Association, as trustee
(which we refer to as the Trustee). References in
this section to the Guarantee refer to the Parent
Guarantors Guarantee of payments on the Notes.
In addition to this new series of Notes, as of March 31,
2007, there were outstanding under the above-referenced
Indenture $550 million in aggregate principal amount of
8.375% fixed/floating rate junior subordinated notes due 2066,
$500 million in aggregate principal amount of
4.000% senior notes E due 2007, $500 million in
aggregate principal amount of 4.625% senior notes F
due 2009, $650 million in aggregate principal amount of
5.600% senior notes G due 2014, $350 million in
aggregate principal amount of 6.650% senior notes H
due 2034, $250 million in aggregate principal amount of
5.00% senior notes I due 2015, $250 million in
aggregate principal amount of 5.75% senior notes J due
2035 and $500 million in aggregate principal amount of
4.950% senior notes K due 2010.
General
The Notes:
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will initially be issued in an aggregate principal amount of
$700,000,000;
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will be issued in denominations of $1,000 in principal amount
and integral multiples thereof;
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are general unsecured junior subordinated obligations of
Enterprise;
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will bear interest from the date of issuance to January 15,
2018, at the annual rate of 7.034% of their principal amount,
payable semi-annually in arrears on January 15 and July 15 of
each year, commencing January 15, 2008, and thereafter, at
an annual rate equal to the greater of (1) the sum of the
Three-Month LIBOR Rate for the related interest period plus a
spread of 268 basis points or (2) 7.034% per annum,
payable quarterly in arrears on January 15, April 15,
July 15 and October 15 of each year, commencing April 15,
2018;
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provide that we may elect to defer payment of all or part of the
current and accrued interest otherwise due on the Notes for
multiple periods of up to ten consecutive years as described
below under Optional Deferral of Interest;
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will mature on January 15, 2068 and are not redeemable by
us prior to January 15, 2018 without payment of a
make-whole redemption price or a special event make-whole
redemption price as described below under Optional
Redemption;
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S-24
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are subordinated in right of payment, to the extent set forth in
the Indenture, to all of our existing and future Senior
Indebtedness and senior obligations; and
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are guaranteed on an unsecured and junior subordinated basis by
the Parent Guarantor, solely to the extent described below under
Parent Guarantee.
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We may, without the consent of the holders of the Notes,
increase the principal amount of the series and issue additional
notes of such series having the same ranking, interest rate,
maturity and other terms as the Notes except for issue date,
issue price and, if applicable, first interest payment date. Any
such additional notes may, together with the Notes, constitute a
single series of securities under the Indenture. The Notes and
any additional notes of the same series having the same terms as
the Notes offered hereby subsequently issued under the Indenture
may be treated as a single class for all purposes under the
Indenture, including, without limitation, voting waivers and
amendments. In addition, the Indenture does not limit our
incurrence or issuance of other senior, pari passu or
subordinated debt, whether under the Indenture relating to the
Notes or any existing or other indenture or agreement that we
may enter into in the future or otherwise. As of March 31,
2007, the direct indebtedness of Enterprise that is senior to
the Notes totaled approximately $4.7 billion, and the
direct indebtedness of Enterprise that is pari passu with
the Notes totaled approximately $550 million.
Maturity
The Notes will mature on January 15, 2068.
The Notes are
non-amortizing
and do not have the benefit of a sinking fund. This means that
we are not required to make any principal payments prior to
maturity or otherwise set aside amounts in respect of the
repayment of the Notes prior to their maturity.
Interest rate and
interest payment dates
The Notes will bear interest from the date of issuance to but
not including January 15, 2018, which we refer to as the
Fixed Rate Period, at an annual rate of 7.034% of
their principal amount, payable
semi-annually
in arrears on January 15 and July 15 of each year, commencing
January 15, 2008, and thereafter, which we refer to as the
Floating Rate Period, at an annual rate equal to the
greater of (1) the sum of the Three-Month LIBOR Rate for
the related interest period plus a spread of 268 basis
points or (2) 7.034% per annum, payable quarterly in
arrears on January 15, April 15, July 15 and October
15 of each year, commencing April 15, 2018.
Interest payments not paid when due will accrue interest at the
then applicable rate of interest on the amount of unpaid
interest, to the extent permitted by law, compounded
semi-annually during the Fixed Rate Period and quarterly during
the Floating Rate Period. The amount of interest payable during
the Fixed Rate Period will be computed based on a
360-day year
consisting of twelve
30-day
months, and the amount of interest payable during the Floating
Rate Period will be computed based on a
360-day year
and the number of days actually elapsed. The amount of interest
payable for any period shorter than a full quarterly period will
be computed on the basis of the actual number of days elapsed
per 30-day
month.
Determining the
floating rate; calculation agent
Following January 15, 2018, the Calculation Agent will
calculate the floating rate with respect to each interest period
and the amount of interest payable on each interest payment date
during the Floating Rate Period. The floating rate determined by
the Calculation Agent, absent manifest error, will be binding
and conclusive upon the beneficial owners and registered holders
of the Notes and us. Wells Fargo Bank, National Association will
act initially as Calculation Agent.
S-25
The floating rate for any interest period during the Floating
Rate Period will be equal to the greater of (1) the sum of
the Three-Month LIBOR Rate for the related interest period plus
a spread of 268 basis points or (2) 7.034% per annum.
The Three-Month LIBOR Rate, with respect to an
interest period, means the rate (expressed as a percentage per
year) for deposits in U.S. dollars for a three-month period
that appears on Reuters Page LIBOR01 as of 11:00 a.m.
(London time) on the second London banking day immediately
preceding the first day of such interest period (the LIBOR
determination date). The term Reuters
Page LIBOR01 means the display so designated on the
Reuters 3000 Xtra (or such other page as may replace that page
on that service, or such other service as may be nominated as
the information vendor, for the purpose of displaying rates or
prices comparable to the London Interbank Offered Rate for
U.S. dollar deposits).
If the Three-Month LIBOR Rate cannot be determined as described
above, we will select four major banks in the London interbank
market. We will request that the principal London offices of
those four selected banks provide their offered quotations to
prime banks in the London interbank market at approximately
11:00 a.m. (London time) on the LIBOR determination date
for such interest period. These quotations will be for deposits
in U.S. dollars for a three-month period. Offered
quotations must be based on a principal amount equal to an
amount that is representative of a single transaction in
U.S. dollars in the market at the time.
If two or more quotations are provided, the Three-Month LIBOR
Rate for such interest period will be the arithmetic mean of the
quotations. If fewer than two quotations are provided, we will
select three offered rates quoted by three major banks in New
York City on the LIBOR determination date for that interest
period. The rates quoted will be for loans in U.S. dollars
for a three-month period. Rates quoted must be based on a
principal amount equal to an amount that is representative of a
single transaction in U.S. dollars in the market at the
time. If fewer than three New York City banks selected by us are
quoting rates, the Three-Month LIBOR Rate for the applicable
interest period will be the same as for the immediately
preceding interest period or, if the immediately preceding
interest period was the Fixed Rate Period, the same as for the
most recent quarter for which the Three-Month LIBOR Rate can be
determined.
Business day means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which
commercial banks are authorized or required by law, regulation
or executive order to close in New York City or Houston, Texas.
London banking day means any Business day on which
dealings in deposits in U.S. dollars are transacted in the
London interbank market.
Payment; record
dates and transfer
Initially, the Notes will be issued only in permanent global
form. Beneficial interests in Notes in global form will be shown
on, and transfers of interests in Notes in global form will be
made only through, records maintained by The Depository Trust
Company, or DTC, and its participants. Under the limited
circumstances when the Notes are no longer in global form, Notes
in definitive form, if any, may be presented for registration of
transfer or exchange at the office or agency maintained by us
for such purpose (which initially will be the corporate trust
office of the Trustee located at 45 Broadway, 12th Floor,
New York, New York 10006).
Payment of principal of, premium, if any, and interest on Notes
in global form registered in the name of DTCs nominee will
be made in immediately available funds to DTCs nominee, as
the registered holder of such global notes. Under the limited
circumstances when the Notes are no longer in global form,
S-26
payment of interest on the Notes in definitive form may, at our
option, be made at the corporate trust office of the Trustee
indicated above or by check mailed directly to holders at their
respective registered addresses or by wire transfer to an
account designated by a holder.
The regular record date for interest payable on the Notes on any
interest payment date during the Fixed Rate Period will be the
immediately preceding January 1 or July 1, as the case may
be, and during the Floating Rate Period will be the immediately
preceding January 1, April 1, July 1 and
October 1, as the case may be.
No service charge will be made for any registration of transfer
or exchange of Notes, but we may require payment of a sum
sufficient to cover any transfer tax or other governmental
charge payable in connection therewith. We are not required to
register the transfer of or exchange any Notes selected for
redemption or for a period of 15 days before mailing a
notice of redemption of Notes.
The registered holder of Notes will be treated as the owner of
such Notes for all purposes, and all references in this
Description of the Notes to holders mean holders of
record, unless otherwise indicated. DTC will be the holder of
the global Note.
Optional deferral
of interest
We may elect to defer payment of all or part of the current and
accrued interest otherwise due on the Notes from time to time,
for one or more periods (each, an Optional Deferral
Period) of up to 10 consecutive years per Optional
Deferral Period. However, we may not optionally defer interest
payments on or after the maturity date of, or redemption date
for, the Notes.
Deferred interest not paid on an interest payment date will bear
interest from that interest payment date until paid at the then
prevailing interest rate on the Notes, compounded semi-annually
during the Fixed Rate Period and quarterly during the Floating
Rate Period. We refer to such deferred interest, the interest
accrued thereon and any accrued and unpaid interest on any
interest payment date during a deferral period collectively as
Deferred Interest. No interest will be due and
payable on the Notes until the end of an Optional Deferral
Period except upon a redemption of the Notes during such
Optional Deferral Period. At the end of the Optional Deferral
Period or on any redemption date, we will be obligated to pay
all Deferred Interest.
Once we pay all Deferred Interest resulting from our optional
deferral, such Optional Deferral Period will end and we may
later defer interest again for a new Optional Deferral Period.
If we defer interest for a period of 10 consecutive years from
the commencement of an Optional Deferral Period, we will be
required to pay all Deferred Interest at the conclusion of the
10-year
period, and, to the extent we do not do so, the Parent Guarantor
will be required to make guarantee payments in accordance with
the Guarantee. If we fail to pay in full all accrued and unpaid
interest at the conclusion of the
10-year
period, such failure continues for 30 days and the Parent
Guarantor fails to make guarantee payments with respect thereto,
an Event of Default that gives rise to acceleration of principal
and interest on the Notes will occur under the Indenture. See
Events of Default herein.
We will provide the Trustee with written notice of any optional
deferral of interest at least ten and not more than 60 business
days prior to the applicable interest payment date, other than
in the case of an optional deferral in connection with certain
defaults on Senior Indebtedness as described under
Subordination; Ranking of the Notes; Payment
Blockage, and any such notice will be forwarded promptly
by the Trustee to each holder of record of the Notes.
We have no current intention to exercise our right to defer
interest payments.
S-27
Distribution
stopper
During any period in which we defer interest payments on the
Notes, subject to the exceptions described below:
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we and the Parent Guarantor will not declare or make any
distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of our equity
securities;
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we and the Parent Guarantor will not, and will cause our
respective majority-owned subsidiaries not to make, any payment
of interest, principal or premium, if any, on or repay, purchase
or redeem any of our or the Parent Guarantors debt
securities (including securities similar to the Notes) that
contractually rank equally with or junior to the Notes or the
Guarantee, as applicable; and
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we and the Parent Guarantor will not, and will cause our
respective majority-owned subsidiaries not to make, any payments
under a guarantee of debt securities (including under a
guarantee of debt securities that are similar to the Notes) that
contractually ranks equally with or junior to the Notes or the
Guarantee, as applicable.
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Notwithstanding the foregoing, we, the Parent Guarantor and any
of our respective subsidiaries may take any of the following
actions at any time, including during an Optional Deferral
Period:
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make any purchase, redemption or other acquisition of any of our
equity securities in connection with any employment contract,
benefit plan or other similar arrangement with or for the
benefit of employees, officers, directors or agents or a
securities purchase or dividend or distribution reinvestment
plan, or the satisfaction of any obligations pursuant to any
contract or security outstanding on the date that the Optional
Deferral Period commences requiring the purchase, redemption or
acquisition of any of our equity securities;
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make any payment, repayment, redemption, purchase, acquisition
or declaration of a distribution as a result of a
reclassification of our equity securities or the exchange or
conversion of all or a portion of one class or series of our
equity securities for another class or series of our equity
securities;
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purchase fractional interests in our equity securities pursuant
to the conversion or exchange provisions of such securities or
the security being converted or exchanged, in connection with
the settlement of securities purchase contracts or in connection
with any split, reclassification or similar transaction;
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make a distribution paid or made in our equity securities (or
rights to acquire our equity securities), or a repurchase,
redemption or acquisition of our equity securities in connection
with the issuance or exchange of our equity securities (or of
securities convertible into or exchangeable for our equity
securities) and distributions in connection with the settlement
of securities purchase contracts outstanding on the date that
the Optional Deferral Period commences;
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make any redemption, exchange or repurchase of, or with respect
to, any rights outstanding under a rights plan or the
declaration or payment thereunder of a distribution of or with
respect to rights in the future;
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make any payments under (1) the Notes and under securities
similar to the Notes (including trust preferred securities) that
are (or, in the case of a trust preferred security, the
underlying debt obligation is) pari passu with the Notes,
which will include our 8.375% Fixed/Floating Rate Junior
Subordinated Notes due 2066 (the Subordinated Notes due
2066) and (2) the Guarantee and similar guarantees,
which will include Enterprise Parents guarantee of the
Subordinated Notes due 2066, associated with any instruments
that are (or, in the case of a trust preferred security, the
underlying debt obligation is)
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S-28
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pari passu with the Notes in each case, so long as any such
payments are made on a pro rata basis with the Notes and the
Guarantee, respectively; or
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make any regularly scheduled dividend or distribution payments
declared prior to the date that the Optional Deferral Period
commences.
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Optional
redemption
We may redeem the Notes before their maturity, subject to the
limitations set forth in the Replacement Capital Covenant
discussed under Certain Terms of the Replacement Capital
Covenant, as follows:
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in whole or in part at any time on or after January 15,
2018, at a redemption price equal to 100% of their principal
amount plus accrued and unpaid interest;
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in whole or in part at any time prior to January 15, 2018,
at a redemption price equal to the Make-Whole
Redemption Price (as defined below); or
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in whole but not in part prior to January 15, 2018, after
the occurrence of a Tax Event (as defined below) or Rating
Agency Event (as defined below), at a redemption price equal to
the Special Event Make-Whole Redemption Price (as defined
below).
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Notes called for redemption become due on the redemption date.
Notices of optional redemption will be mailed at least 30 but
not more than 60 days before the redemption date to each
holder of Notes to be redeemed at its registered address. The
notice of optional redemption for the Notes will state, among
other things, the amount of Notes to be redeemed, the redemption
date, the method of calculating the redemption price and each
place that payment will be made upon presentation and surrender
of Notes to be redeemed. If less than all of the Notes are
redeemed at any time, the Trustee will select the Notes to be
redeemed on a pro rata basis or by any other method the
Trustee deems fair and appropriate. Unless we default in payment
of the redemption price, interest will cease to accrue on the
redemption date with respect to any Notes called for optional
redemption.
We may not redeem the Notes in part if the principal amount has
been accelerated and such acceleration has not been rescinded or
unless all accrued and unpaid interest, including Deferred
Interest, has been paid in full on all outstanding Notes for all
interest periods terminating on or before the redemption date.
In the event of any redemption, neither we nor the Trustee will
be required to:
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issue, register the transfer of, or exchange, Notes for a period
of 15 days prior to the giving of any notice of
redemption; or
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register the transfer of or exchange any Notes selected, called
or being called for redemption.
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The provisions relating to defeasance in the accompanying
prospectus shall apply to the Notes.
The following definitions apply with respect to the redemption
of the Notes:
The Make-Whole Redemption Price will be equal
to (a) all accrued and unpaid interest to but not including
the redemption date, plus (b) the greater of (i) 100%
of the principal amount of the Notes being redeemed and
(ii) as determined by the Independent Investment Banker,
the sum of the present values of remaining scheduled payments of
principal and interest on the Notes (exclusive of interest
accrued to the redemption date) being redeemed from the
redemption date to January 15, 2018 (which we refer to as
the Remaining Life), discounted to the redemption
date on a semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the Treasury Yield plus 0.50%.
S-29
A Tax Event means the receipt by us of an opinion of
counsel experienced in such matters to the effect that, as a
result of any:
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amendment to, clarification of or change (including any
prospective change) in the laws or regulations of the United
States or any political subdivision or taxing authority of or in
the United States that is effective on or after the date of
issuance of the Notes;
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proposed change in those laws or regulations that is announced
on or after the date of issuance of the Notes;
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official administrative decision or judicial decision or
administrative action or other official pronouncement (including
a private letter ruling, technical advice memorandum or other
similar pronouncement) by any court, government agency or
regulatory authority interpreting or applying those laws or
regulations that is announced on or after the date of issuance
of the Notes; or
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threatened challenge asserted in connection with an audit of us
or our subsidiaries, or a threatened challenge asserted in
writing against any taxpayer that has raised capital through the
issuance of securities that are substantially similar to the
Notes, including any trust preferred or similar securities, that
occurs on or after the date of issuance of the Notes;
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there is more than an insubstantial risk that interest payable
by us on the Notes is not, or within 90 days of the date of
such opinion will not be, deductible by us, in whole or in part,
for United States federal income tax purposes.
A Rating Agency Event means a change by any
nationally recognized statistical rating organization within the
meaning of Section 3(a)(62) of the Exchange Act that
publishes a rating for us (a rating agency) to its
equity credit criteria for securities such as the Notes, as such
criteria is in effect on the date of the Supplemental Indenture
(the current criteria), which change results in
(i) any shortening of the length of time for which such
current criteria are scheduled to be in effect with respect to
the Notes, or (ii) a lower or higher equity credit being
given to the Notes as of the date of such change than the equity
credit that would have been assigned to the Notes as of the date
of such change by such rating agency pursuant to its current
criteria.
The Special Event Make-Whole Redemption Price
for the Notes if redeemed prior to January 15, 2018 in
connection with a Rating Agency Event or Tax Event will be equal
to (a) all accrued and unpaid interest to but not including
the redemption date, plus (b) the greater of (i) 100%
of the principal amount of the Notes being redeemed and
(ii) as determined by the Independent Investment Banker,
the sum of the present values of remaining scheduled payments of
principal and interest on the Notes (exclusive of interest
accrued to the redemption date) being redeemed from the
redemption date to January 15, 2018, discounted to the
redemption date on a semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the Treasury Yield plus 0.50%.
Treasury Yield means, with respect to any redemption
date applicable to the Notes, the rate per annum equal to the
semi-annual equivalent yield to maturity (computed as of the
third Business day immediately preceding the redemption date) of
the Comparable Treasury Issue, assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the applicable Comparable Treasury
Price for the redemption date.
Comparable Treasury Price means, with respect to any
redemption date, (a) the average, after excluding the
highest and lowest such Reference Treasury Dealer Quotations, of
up to five Reference Treasury Dealer Quotations for such
redemption date, or (b) if the Independent Investment
Banker obtains
S-30
fewer than five such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations
received.
Comparable Treasury Issue means the United States
Treasury security selected by the Independent Investment Banker
as having a maturity comparable to the Remaining Life that would
be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the Remaining Life;
however, if no maturity is within three months before or after
the end of the Remaining Life, yields for the two published
maturities most closely corresponding to such United States
Treasury security will be determined and the Treasury Yield will
be interpolated or extrapolated from those yields on a
straight-line basis, rounding to the nearest month.
Independent Investment Banker means any of
J.P. Morgan Securities Inc., Citigroup Global Markets Inc.,
Lehman Brothers Inc. or Wachovia Capital Markets, LLC, (and
their respective successors) or, if no such firm is willing and
able to select the applicable Comparable Treasury Issue, an
independent investment banking institution of national standing
appointed by the Trustee and reasonably acceptable to us.
Reference Treasury Dealer means (a) either
J.P. Morgan Securities Inc., Citigroup Global Markets Inc.,
Lehman Brothers Inc. or Wachovia Capital Markets, LLC, (and
their respective successors) and (b) one other primary
United States government securities dealer in New York City
selected by the Independent Investment Banker, each of which we
refer to as a Primary Treasury Dealer. However, if
any of the foregoing ceases to be a Primary Treasury Dealer, we
will substitute another Primary Treasury Dealer for such dealer.
Reference Treasury Dealer Quotations means, with
respect to each Reference Treasury Dealer and any redemption
date for the Notes, an average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third
Business day preceding the redemption date.
Enterprises right to redeem, repurchase, defease or
purchase the Notes, and the right of Enterprise and its
subsidiaries to purchase the Notes, are limited by a covenant
that Enterprise is making in favor of certain debtholders. See
Certain Terms of the Replacement Capital Covenant in
this prospectus supplement.
In the event that the Replacement Capital Covenant terminates
prior to January 15, 2038 as a result of there being no
eligible designated debt outstanding, we intend that, if we
redeem, repurchase, defease or purchase the Notes, or if we or
one of our subsidiaries purchases the Notes, the redemption or
purchase price of the Notes will be paid with amounts that
include net proceeds received by us, Enterprise Parent or our
subsidiaries from the sale or issuance, during the
180-day
period prior to the date of such redemption or such purchase, by
us, Enterprise Parent or our subsidiaries to third-party
purchasers of securities for which we will receive equity-like
credit from the rating agencies that rate our securities, that
is equal to or greater than the equity-like credit then
attributed to the Notes being redeemed, repurchased, defeased or
purchased. The determination of the equity-like credit of the
Notes may result in the issuance of an amount of new securities
that may be less than the principal amount of the Notes,
depending upon, among other things, the nature of the new
securities issued and the equity-like credit attributed by a
rating agency to the Notes and the new securities.
Certain
covenants
No Limitations on Liens. Holders of the Notes will
not have the benefit of and will not be entitled to enforce the
covenant in the Indenture restricting the ability of the Parent
Guarantor, Enterprise and their respective majority-owned
subsidiaries to, create, assume, incur or suffer to exist any
mortgage, lien,
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security interest, pledge, charge or other encumbrance other
than Permitted Liens, as described in Description of Debt
SecuritiesCertain Covenants in the accompanying
prospectus.
No Restriction on Sale-Leasebacks. Holders of the
Notes will not have the benefit of and will not be entitled to
enforce the covenant in the Indenture restricting the ability of
the Parent Guarantor, Enterprise and their respective
majority-owned subsidiaries to enter into Sale-Leaseback
Transactions, as described in Description of Debt
SecuritiesCertain Covenants in the accompanying
prospectus.
Merger, Consolidation or Sale of Assets. Each of the
Parent Guarantor and Enterprise will be subject to the
restriction in the indenture governing its ability to
consolidate with or sell, lease, convey all or substantially all
of its assets to, or merge with or into, any partnership,
limited liability company or corporation, as described in
Description of Debt SecuritiesCertain
Covenants in the accompanying prospectus.
Non-recourse
obligation
The Notes are obligations of Enterprise and, to the extent
provided in the Guarantee, are guaranteed by Enterprise Parent.
Pursuant to the Indenture, holders of the Notes will not have
recourse against our general partner, the general partner of
Enterprise Parent, any other partner of, or other person that
owns an equity interest directly or indirectly in, us,
Enterprise Parent or such general partners or against any of
their respective past, present or future directors, managers,
officers, employees, agents, members or partners. In addition,
holders of the Notes by their purchase and holding thereof
acknowledge the separateness of us, Enterprise Parent and our
respective general partners from each other and from any other
persons, including Enterprise GP Holdings L.P. and its
affiliates and EPCO, Inc. and its affiliates and that we,
Enterprise Parent and our respective general partners have
assets and liabilities that are separate from those of other
persons, including Enterprise GP Holdings L.P. and its
affiliates and EPCO Inc. and its affiliates.
Events of
Default
Any one or more of the following events that have occurred and
are continuing will constitute an Event of Default:
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we fail to pay principal on the Notes when due;
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we fail to pay accrued and unpaid interest on the Notes when due
and such default continues for 30 days; however, our
failure to pay interest during an Optional Deferral Period will
not constitute an Event of Default;
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certain events of bankruptcy, insolvency or reorganization occur
with respect to us; or
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the Guarantee ceases to be in full force and effect or is
declared null and void in a judicial proceeding.
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The Indenture provides that the Trustee must give holders notice
of any default or Event of Default within 90 days after it
becomes actually known to a responsible officer of the Trustee
unless the default or Event of Default has been cured or waived.
However, except in the cases of a default or an Event of Default
in payment on the Notes, the Trustee will be protected in
withholding the notice if its responsible officers determine
that withholding of the notice is in the interest of such
holders.
If an Event of Default (other than an Event of Default described
in the third bullet point above) occurs and is continuing, the
Trustee by notice to us, or the holders of at least 25% in
principal amount of the outstanding Notes by notice to us and
the Trustee, may, and the Trustee at the request of such holders
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will, declare the principal of, premium, if any, and interest,
including Deferred Interest, if any, on all the Notes to be due
and payable. Upon such a declaration, such principal, premium
and interest will be due and payable immediately.
If an Event of Default described in the third bullet point above
occurs and is continuing, the principal of, premium, if any, and
interest, including Deferred Interest, if any, on all the Notes
will become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any
holders. However, the effect of such provision may be limited by
applicable law.
The holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the
Notes and its consequences if rescission would not conflict with
any judgment or decree of a court of competent jurisdiction and
all existing Events of Default with respect to the Notes, other
than the nonpayment of the principal of, premium, if any, and
interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived.
The holders of a majority in aggregate principal amount of the
outstanding Notes may waive any past default under the Indenture
or the Notes, except:
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a default in payment of principal or interest on the
Notes; or
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a default under any provision of the Indenture that itself
cannot be modified or amended without the consent of the holder
of each outstanding Notes.
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The holders of a majority in principal amount of the Notes shall
have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, subject to the provisions of the Indenture.
We are required to file an officers certificate with the
trustee each year that states, to the knowledge of the
certifying officer, whether or not any defaults exist under the
terms of the Indenture.
Subordination;
ranking of the notes; payment blockage
Our payment obligations under the Notes will, to the extent
provided in the Indenture, be subordinated to the prior payment
in full of all of our present and future Senior Indebtedness, as
defined below. The Notes will rank senior in right of payment to
all of our present and future equity securities.
The holders of our Senior Indebtedness will be entitled to
receive payment in full of such Senior Indebtedness before
holders of the Notes will receive any payment of principal,
premium or interest with respect to the Notes:
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upon any payment or distribution of our assets to our creditors
in connection with our total or partial liquidation or
dissolution; or
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in a bankruptcy, receivership or similar proceeding relating to
us or our property.
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In these circumstances, until our Senior Indebtedness is paid in
full, any distribution to which holders of Notes would otherwise
be entitled will be made to the holders of Senior Indebtedness,
except that such holders may receive units representing limited
partner interests and debt securities that are subordinated to
Senior Indebtedness to at least the same extent as the Notes.
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If we do not pay any principal, premium or interest with respect
to Senior Indebtedness within any applicable grace period
(including at maturity), or any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness
is accelerated in accordance with its terms, we may not:
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make any payments of principal, premium, if any, or interest
with respect to the Notes;
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make any deposit for the purpose of defeasance of the
Notes; or
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purchase, redeem or otherwise retire any of the Notes,
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unless, in either case,
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the default has been cured or waived and the declaration of
acceleration has been rescinded;
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the Senior Indebtedness has been paid in full; or
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we and the Trustee receive written notice approving the payment
from the representatives of each issue of Designated Senior
Indebtedness (as defined below).
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During the continuance of any Senior Indebtedness default, other
than a default described in the immediately preceding paragraph,
that may cause the maturity of any Designated Senior
Indebtedness to be accelerated immediately without further
notice, other than any notice required to effect such
acceleration, or the expiration of any applicable grace periods,
we may not make payments on the Notes for a period called the
Payment Blockage Period. A Payment Blockage Period
will commence on the receipt by us and the Trustee of written
notice of the default, called a Blockage Notice,
from the representative of any Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period, and
will expire 179 days thereafter.
Generally, Designated Senior Indebtedness will
include any issue of Senior Indebtedness of at least
$100 million and any issue of Senior Indebtedness
designated by us or Enterprise Parent at the time of issuance as
Designated Senior Indebtedness.
The Payment Blockage Period may be terminated before its
expiration:
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by written notice from the person or persons who gave the
Blockage Notice;
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by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or
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if the default giving rise to the Payment Blockage Period is no
longer continuing.
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Unless the holders of Designated Senior Indebtedness shall have
accelerated the maturity of the Senior Indebtedness, we may
resume payments on the Notes after the expiration of the Payment
Blockage Period.
If (1) we do not pay principal, premium or interest with
respect to Senior Indebtedness within any applicable grace
period, (2) any other default on Senior Indebtedness occurs
and the maturity of such Senior Indebtedness is accelerated in
accordance with its terms or (3) we receive a Blockage
Notice, then, notwithstanding any notice requirements necessary
to invoke an Optional Deferral Period, we may elect to defer
payment of all or part of the current and accrued interest
otherwise due on the Notes on an interest payment date by giving
notice to the Trustee of such election not later than the time
we must remit payment of interest on the Notes to the Trustee
under the Supplemental Indenture on such interest payment date.
Any such notice will be forwarded promptly by the Trustee to
each holder of record of the Notes. However, we may only
exercise this right if we are otherwise entitled to elect to
optionally defer payment of interest on the Notes as described
under Optional Deferral of Interest.
S-34
Generally, not more than one Blockage Notice may be given in any
period of 360 consecutive days. The total number of days during
which any one or more Payment Blockage Periods are in effect,
however, may not exceed an aggregate of 179 days during any
period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the
Notes are paid in full, holders of the Notes will be subrogated
to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
Because of the subordination, in the event of our insolvency,
our creditors who are holders of Senior Indebtedness, as well as
certain of our general creditors, may recover more, ratably,
than the holders of the Notes.
The term Senior Indebtedness as used in this section
includes our obligations in respect of the principal of, any
interest and premium, if any, on and any other payments in
respect of any of the following, whether currently outstanding
or hereafter created or incurred:
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indebtedness for borrowed money;
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indebtedness evidenced by securities, bonds, notes and
debentures, including any of the same that are subordinated
(other than the Notes), issued under credit agreements,
indentures or other similar instruments (other than the
Supplemental Indenture), and other similar instruments;
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obligations arising from or with respect to guarantees and
direct credit substitutes (other than the Guarantee);
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obligations arising from or with respect to hedges and
derivative products (including, but not limited to, interest
rate, commodity and foreign exchange contracts);
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capitalized lease obligations;
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obligations arising from or with respect to any letter of
credit, bankers acceptance, security purchase facility,
cash management arrangement, or similar credit transactions;
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operating leases (but only to the extent the terms of such
leases expressly provide that the same constitute Senior
Indebtedness);
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guarantees of any of the foregoing; and
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any modifications, refundings, deferrals, renewals or extensions
of any of the foregoing or any other evidence of indebtedness
issued in exchange therefor,
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but does not include our obligations in respect of:
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trade accounts payable;
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any indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business to
the extent that the same is incurred from, and owed to, the
vendor of such goods or materials or the provider of such
services;
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any indebtedness which by its terms is expressly made equal in
rank and payment with or subordinated to the Notes;
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indebtedness owed by us to our majority-owned
subsidiaries; and
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our Subordinated Notes due 2066.
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The Notes will rank pari passu with and equal in right of
payment with the Subordinated Notes due 2066.
The obligations under the Notes will be structurally
subordinated to all indebtedness and other liabilities of our
subsidiaries and unconsolidated affiliates. In the event of an
insolvency, liquidation, bankruptcy proceeding or other
reorganization of any such entity, all of the existing and
future liabilities of such entity, including any claims of
lessors under capital and operating leases, trade creditors and
holders of preferred stock or units of that entity have the
right to be satisfied prior to receipt by us of any payment on
account of our status as an equity owner of such entity. At
March 31, 2007, the direct indebtedness of Enterprise that
is senior to the Notes totaled approximately $4.7 billion,
and the direct indebtedness of Enterprise that is pari passu
with the Notes totaled approximately $550 million. At
March 31, 2007, the indebtedness of our subsidiaries and
unconsolidated affiliates totaled approximately
$715.7 million. Moreover, the Indenture does not limit our
ability or the ability of our subsidiaries or unconsolidated
affiliates to incur additional indebtedness and other
obligations, including indebtedness and other obligations that
rank senior in priority of payment to or pari passu with
the Notes.
Parent
guarantee
The Parent Guarantor will fully and unconditionally guarantee on
an unsecured and junior subordinated basis the full and prompt
payment of principal of, premium, if any, and interest on the
Notes, when and as the same become due and payable (other than
during an Optional Deferral Period), whether at stated maturity,
upon redemption, by declaration of acceleration or otherwise.
The Parent Guarantors obligations under the Guarantee
will, to the extent provided in the Indenture, be subordinated
to the prior payment in full of all present and future Senior
Indebtedness of the Parent Guarantor, as defined below. The
Parent Guarantors obligations under the Guarantee will
rank senior in right of payment to all of its present and future
equity securities, including its common units.
The holders of the Parent Guarantors Senior Indebtedness
will be entitled to receive payment in full of such Senior
Indebtedness before holders of the Notes receive from the Parent
Guarantor any payment of principal, premium or interest with
respect to the Notes:
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upon any payment or distribution of the Parent Guarantors
assets to its creditors in connection with the Parent
Guarantors total or partial liquidation or
dissolution; or
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in a bankruptcy, receivership or similar proceeding relating to
the Parent Guarantor or its property.
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In these circumstances, until the Parent Guarantors Senior
Indebtedness is paid in full, any distribution to which holders
of Notes would otherwise be entitled under the Guarantee will be
made to the holders of its Senior Indebtedness, except that such
holders may receive equity securities and any debt securities
that are subordinated to Senior Indebtedness to at least the
same extent as the Guarantee.
If the Parent Guarantor does not pay any principal, premium or
interest with respect to its Senior Indebtedness within any
applicable grace period (including at maturity), or any other
default on its Senior Indebtedness occurs and the maturity of
such Senior Indebtedness is accelerated in accordance with its
terms, the Parent Guarantor may not:
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make any payments under the Guarantee of principal, premium, if
any, or interest with respect to the Notes;
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make any deposit under the Guarantee for the purpose of
defeasance of the Notes; or
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advance monies under the Guarantee to repurchase, redeem or
otherwise retire any of the Notes,
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unless, in either case,
S-36
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the default has been cured or waived and the declaration of
acceleration has been rescinded;
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the Senior Indebtedness has been paid in full; or
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the Parent Guarantor and the Trustee receive written notice
approving the payment from the representatives of each issue of
Designated Senior Indebtedness (as defined below).
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During the continuance of any Senior Indebtedness default, other
than a default described in the immediately preceding paragraph,
that may cause the maturity of any Designated Senior
Indebtedness to be accelerated immediately without further
notice, other than any notice required to effect such
acceleration, or the expiration of any applicable grace periods,
the Parent Guarantor may not make payments under the Guarantee
for a period called the Payment Blockage Period. A
Payment Blockage Period will commence on the receipt by the
Parent Guarantor and the Trustee of written notice of the
default, called a Blockage Notice, from the
representative of any Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period, and will expire
179 days thereafter.
Generally, Designated Senior Indebtedness will
include any issue of Senior Indebtedness of at least
$100 million and any issue of Senior Indebtedness
designated by us or Enterprise Parent at the time of issuance as
Designated Senior Indebtedness.
The Payment Blockage Period may be terminated before its
expiration:
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by written notice from the person or persons who gave the
Blockage Notice;
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by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or
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if the default giving rise to the Payment Blockage Period is no
longer continuing.
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Unless the holders of the Designated Senior Indebtedness shall
have accelerated the maturity of the Senior Indebtedness, the
Parent Guarantor may resume making payments under the Guarantee
after the expiration of the Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any
period of 360 consecutive days. The total number of days during
which any one or more Payment Blockage Periods are in effect,
however, may not exceed an aggregate of 179 days during any
period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the
Notes are paid in full, holders of the Notes will be subrogated
to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
Because of the subordination, in the event of the Parent
Guarantors insolvency, its creditors who are holders of
Senior Indebtedness, as well as certain of its general
creditors, may recover more, ratably, than the holders of the
Notes will recover under the Guarantee.
The term Senior Indebtedness as used in this section
includes the Parent Guarantors obligations in respect of
the principal of, any interest and premium, if any, on and any
other payments in respect of any of the following, whether
currently outstanding or hereafter created or incurred:
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indebtedness for borrowed money;
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indebtedness evidenced by securities, bonds, notes and
debentures, including any of the same that are subordinated,
issued under credit agreements, indentures or other similar
instruments, and other similar instruments;
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obligations arising from or with respect to guarantees and
direct credit substitutes other than the Parent Guarantors
obligations under the Guarantee;
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obligations arising from or with respect to hedges and
derivative products (including, but not limited to, interest
rate, commodity, and foreign exchange contracts);
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capitalized lease obligations;
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obligations arising from or with respect to any letter of
credit, bankers acceptance, security purchase facility,
cash management arrangement or similar credit transactions;
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operating leases (but only to the extent the terms of such
leases expressly provide that the same constitute Senior
Indebtedness);
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guarantees of any of the foregoing; and
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any modifications, refundings, deferrals, renewals or extensions
of any of the foregoing or any other evidence of indebtedness
issued in exchange therefor,
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but does not include the Parent Guarantors obligations in
respect of:
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trade accounts payable;
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any indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business to
the extent that the same is incurred from, and owed to, the
vendor of such goods or materials or the provider of such
services;
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any indebtedness which by its terms is expressly made equal in
rank and payment with or subordinated to the Parent
Guarantors obligations under the Guarantee;
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indebtedness owed by the Parent Guarantor to its majority-owned
subsidiaries; and
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the Parent Guarantors guarantee of the Subordinated Notes
due 2066.
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The Guarantee will rank pari passu with Enterprise
Parents guarantee of the Subordinated Notes due 2066.
The obligations under the Guarantee will be structurally
subordinated to all indebtedness and other liabilities of the
Parent Guarantors subsidiaries and unconsolidated
affiliates. In the event of an insolvency, liquidation,
bankruptcy proceeding or other reorganization of any such entity
all of the existing and future liabilities of such entity,
including any claims of lessors under capital and operating
leases, trade creditors and holders of preferred stock or units
of that entity have the right to be satisfied prior to receipt
by the Parent Guarantor of any payment on account of its status
as an equity owner of such entity. Moreover, the Guarantee does
not limit the Parent Guarantor or any of its subsidiaries or
unconsolidated affiliates from incurring or issuing other
secured or unsecured debt, including Senior Indebtedness.
Accordingly, claimants under the Guarantee should look only to
the Parent Guarantor and not to any of its subsidiaries or
unconsolidated affiliates for payments under the Guarantee.
Agreement by
purchasers of certain tax treatment
Each registered holder and beneficial owner of the Notes will,
by accepting the Notes or a beneficial interest therein, be
deemed to have agreed that the holder intends that the Notes
constitute debt and will treat the Notes as debt for United
States federal, state and local tax purposes.
S-38
Certain terms of
the replacement capital covenant
We have summarized below certain terms of the Replacement
Capital Covenant. This summary is not a complete description of
the Replacement Capital Covenant and is qualified in its
entirety by the terms and provisions of the full document.
We and Enterprise Parent will covenant in the Replacement
Capital Covenant for the benefit of persons that buy, hold or
sell a specified series of our long-term indebtedness that ranks
senior to the Notes, that neither we nor Enterprise Parent will
redeem or repurchase (or cause any of our subsidiaries to
purchase) or otherwise satisfy, discharge or defease (which we
are together referring to as defease or
defeasance, as applicable), any of the Notes on or
before January 15, 2038 (subject to extension as described
below), unless we, Enterprise Parent or one of our subsidiaries
have received a specified amount of proceeds from the sale
during the 180 days prior to the date of that redemption,
repurchase, defeasance or purchase of qualifying securities that
have equity-like characteristics that are the same as, or more
equity-like than, the applicable characteristics of the Notes at
the time of such redemption, repurchase, defeasance or purchase.
The determination of the equity-like credit of the Notes may
result in the issuance of an amount of new securities that may
be less than the principal amount of the Notes, depending upon,
among other things, the nature of the new securities issued and
the equity-like credit attributed by a rating agency to the
Notes and the new securities.
Our ability to raise proceeds from qualifying securities during
the 180 days prior to a proposed redemption, repurchase,
defeasance or purchase of the Notes will depend on, among other
things, market conditions at that time as well as the
acceptability to prospective investors of the terms of those
qualifying securities.
The initial series of indebtedness benefiting from the
Replacement Capital Covenant is our 6.875% Series B Senior
Notes due March 1, 2033. The Replacement Capital Covenant
includes provisions requiring us to redesignate a new series of
indebtedness if the covered series of indebtedness approaches
maturity or is to be redeemed or purchased such that the
outstanding principal amount is less than $100,000,000, unless
no eligible series of covered indebtedness exists.
The covenants in the Replacement Capital Covenant will run only
to the benefit of holders of the designated series of our
long-term indebtedness or the long-term indebtedness of the
Parent Guarantor, as applicable. The Replacement Capital
Covenant is not intended for the benefit of holders of the Notes
and cannot be enforced by them. The Replacement Capital Covenant
is not a term of the Indenture, the Guarantee or the Notes.
We may amend or supplement the Replacement Capital Covenant from
time to time with the consent of the holders of a majority in
aggregate outstanding principal amount of the designated series
of indebtedness benefiting from the Replacement Capital
Covenant, except that no such consent will be required
(i) for certain specified types of changes to the types of
securities qualifying as replacement capital securities,
(ii) if such amendment or supplement extends the
January 15, 2038 termination date for the Replacement
Capital Covenant, or (iii) if such amendment or supplement
is not adverse to the covered debtholders.
The Replacement Capital Covenant may be terminated if the
holders of a majority of the aggregate principal amount of the
then existing designated covered debt agree to terminate the
Replacement Capital Covenant, or if we no longer have
outstanding any indebtedness that qualifies as covered debt, or
if the Notes have been accelerated as a result of an Event of
Default.
S-39
Certain United
States federal income tax considerations
The following summary describes certain United States federal
income tax considerations associated with the purchase,
ownership and disposition of the Notes by United States Holders
(as defined below) and
non-United
States Holders (as defined below), as of the date of this
prospectus supplement. Except where noted, this summary deals
only with the Notes held as capital assets by holders who
acquired the Notes upon their original issuance at their public
offering price set forth on the cover of this prospectus
supplement. Some holders (including banks, insurance companies,
tax-exempt organizations, financial institutions, regulated
investment companies, mutual funds, persons whose functional
currency is not the U.S. dollar, persons subject to
alternative minimum tax, broker-dealers, persons that hold the
Notes as part of a straddle, hedge, conversion transaction or
other integrated investment, expatriates, controlled foreign
corporations, passive foreign investment companies and
corporations that accumulate earnings to avoid United States
federal income tax) may be subject to special rules not
discussed below. The discussion below does not address the
effect of any state, local or foreign tax law.
Furthermore, the discussion below is based upon the provisions
of the Internal Revenue Code of 1986, as amended (the
Code), the Treasury regulations promulgated
thereunder and administrative and judicial interpretations
thereof, all as of the date of this prospectus supplement.
Because the foregoing are subject to change or differing
interpretations, possibly on a retroactive basis, the United
States federal income tax consequences of an investment in the
Notes may be different from those discussed below.
A United States Holder of the Notes means a holder
that is for United States federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States or any political
subdivision thereof;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
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A
non-United
States holder means a beneficial owner of the Notes that
is for United States federal income tax purposes:
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an individual that is not a citizen or resident of the United
States;
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a corporation (or other entity taxable as a corporation for
United States federal income tax purposes) not created or
organized in or under the laws of the United States or any
political subdivision thereof; or
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an estate or trust other than an estate or trust that is a
United States Holder as defined above.
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If a partnership or other entity treated as a partnership for
United States federal income tax purposes holds the Notes, the
United States federal income tax treatment of a partner will
generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a
partnership holding Notes, you should consult your own tax
advisor on this, as well as other issues.
S-40
There is no clear authority addressing the United States
federal income tax treatment of the Notes. Accordingly, you
should consult your tax advisor in determining the tax
consequences to you of purchasing, holding and disposing of the
Notes, including the application to your particular situation of
the United States federal income tax considerations discussed
below, as well as the application of state, local, or other tax
laws.
Classification of
the Notes
In connection with the issuance of the Notes,
Bracewell & Giuliani LLP, special tax counsel to us,
will render its opinion to us generally to the effect that,
under then current law and assuming full compliance with the
terms of the indenture and other relevant documents, and based
on the facts, assumptions and analysis contained in that
opinion, as well as representations we make, the Notes will be
classified for United States federal income tax purposes upon
issuance as indebtedness of Enterprise (although there is no
clear authority directly on point). That opinion will not be
binding on the IRS or any court. The determination of whether an
instrument is indebtedness for United States federal income tax
purposes is an inherently factual one, dependent on all the
facts and circumstances, with no one factor being conclusive.
The remainder of this discussion assumes that the classification
of the Notes as indebtedness of Enterprise will be respected for
United States federal income tax purposes.
United States
holders
Interest
income and original issue discount
Under applicable Treasury regulations, a remote
contingency that stated interest will not be timely paid will be
ignored in determining whether a debt instrument is issued with
original issue discount, or OID. We believe that the likelihood
of our exercising our option to defer payments is remote within
the meaning of the Treasury regulations. Based on the foregoing,
we believe that the Notes will not be considered to be issued
with OID at the time of their original issuance. Accordingly,
each United States Holder of Notes should include in gross
income that holders allocable share of interest on the
Notes in accordance with that holders method of tax
accounting.
Under applicable Treasury regulations, if the option to defer
any payment of interest was determined not to be
remote, or if we exercised that option, the Notes
would be treated as issued with OID at the time of issuance or
at the time of that exercise, as the case may be. In that case,
all stated interest on the Notes thereafter would be treated as
OID as long as the Notes remained outstanding. Accordingly, all
of a United States Holders taxable interest income
relating to the Notes would constitute OID that would have to be
included in income on an economic accrual basis before the
receipt of the cash attributable to the interest, regardless of
that holders method of tax accounting, and actual
distributions of stated interest would not be reported as
taxable income. Consequently, such a holder of Notes would be
required to include OID in gross income even though we will not
make actual payments on the Notes during a deferral period.
No rulings or other interpretations have been issued by the IRS
which have addressed the meaning of the term remote
as used in the applicable Treasury regulations, and it is
possible that the IRS could take a position contrary to the
interpretation in this prospectus supplement.
We intend to take the position that the Notes are variable
rate debt instruments the interest on which is reportable
as indicated above. However, it is possible that the Notes could
be treated as contingent payment debt instruments.
In that event, you would be required to accrue original issue
discount income based on the comparable yield of the
Notes. In general, the comparable yield of the Notes would be
the rate at which we would issue a fixed rate debt instrument
with terms and conditions similar to the Notes. It is possible
that the comparable yield of the Notes could exceed the stated
interest rate, in which case you may be required to include in
income amounts in excess of the stated interest payments
S-41
on the Notes. In addition, if the Notes are treated as
contingent payment debt instruments, any gain that you would
recognize upon a sale, exchange or other taxable disposition of
the Notes would generally be treated as ordinary interest income.
If the IRS were to challenge successfully the classification of
the Notes as indebtedness, payments on the Notes likely would be
treated as guaranteed payments or distributions with respect to
a preferred partnership interest. In such case, United States
Holders of the Notes that are employee benefit plans, and most
other organizations exempt from United States federal income tax
including individual retirement accounts and other retirement
plans, could be subject to United States federal income tax on
their income with respect to the Notes as unrelated business
taxable income.
Sale,
exchange, redemption or retirement of the notes
Upon sale, exchange, redemption or retirement of the Notes, a
United States Holder will recognize gain or loss equal to the
difference between its adjusted tax basis in the Notes and the
amount realized on the sale, exchange, redemption or retirement
of the Notes. Assuming that we do not exercise our option to
defer payment of interest on the Notes and that the Notes are
not deemed to be issued with OID, a United States Holders
adjusted tax basis in the Notes generally will be that
holders initial purchase price. If the Notes are deemed to
be issued with OID, a United States Holders adjusted tax
basis in the Notes generally will be its initial purchase price,
increased by OID previously includible in that holders
gross income to the date of disposition and decreased by
distributions or other payments received on the Notes since and
including the date that the Notes were deemed to be issued with
OID. That gain or loss generally will be a capital gain or loss,
except to the extent of any accrued interest relating to that
United States Holders ratable share of the Notes required
to be included in income, and generally will be a long-term
capital gain or loss if the Notes have been held for more than
one year. Capital losses generally cannot be applied to offset
ordinary income for United States federal income tax purposes.
Information
reporting and backup withholding
Generally, interest on the Notes will be subject to information
reporting on Internal Revenue Service
Form 1099-INT
or, if interest on the Notes constitutes OID as discussed above
under United States HoldersInterest Income and
Original Issue Discount, on Internal Revenue Service
Form 1099-OID.
In addition, United States Holders may be subject to a backup
withholding tax on those payments if they do not provide their
taxpayer identification numbers to the trustee in the manner
required, fail to certify that they are not subject to backup
withholding tax, or otherwise fail to comply with applicable
backup withholding tax rules. United States Holders also may be
subject to information reporting and backup withholding tax with
respect to the proceeds from a sale, exchange, retirement or
other taxable disposition of the Notes. Any amounts withheld
under the backup withholding rules will be allowed as a credit
against the United States Holders United States federal
income tax liability, so long as the required information is
timely furnished to the IRS.
Non-United
States holders
No withholding of United States federal income tax will apply to
interest paid on Notes to a
non-United
States Holder under the portfolio interest
exemption, so long as:
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the interest is not effectively connected with the
non-United
States Holders conduct of a trade or business in the
United States;
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the
non-United
States Holder does not actually or constructively own 10% or
more of the capital or profits interests in us;
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the
non-United
States Holder is not a controlled foreign corporation that is
related directly or constructively to us through stock ownership;
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S-42
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the
non-United
States Holder is not a bank that acquired the Notes in
consideration for an extension of credit made pursuant to a loan
agreement entered into in the ordinary course of its trade or
business; and
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the
non-United
States Holder provides to the withholding agent, in accordance
with specified procedures, a statement to the effect that such
non-United
States Holder is not a United States person (generally by
providing a properly executed IRS
Form W-8BEN).
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If a
non-United
States Holder cannot satisfy the requirements of the portfolio
interest exemption described above, interest paid on the Notes
(including payments in respect of OID, if any, on the Notes)
made to a
non-United
States Holder should be subject to a 30% United States federal
withholding tax, unless that
non-United
States Holder provides the withholding agent with a properly
executed statement (i) claiming an exemption from or
reduction of withholding under an applicable United States
income tax treaty or (ii) stating that the interest is not
subject to withholding tax because it is effectively connected
with that
non-United
States Holders conduct of a trade or business in the
United States.
If a
non-United
States Holder is engaged in a trade or business in the United
States (or, if an applicable United States income tax treaty
applies, if the
non-United
States Holder maintains a permanent establishment within the
United States) and the interest is effectively connected with
the conduct of that trade or business (or, if an applicable
United States income tax treaty applies, attributable to that
permanent establishment), that
non-United
States Holder will be subject to United States federal income
tax on the interest on a net income basis in the same manner as
if that
non-United
States Holder were a United States Holder. In addition, a
non-United
States Holder that is a foreign corporation engaged in a trade
or business in the United States may be subject to a 30% (or, if
an applicable United States income tax treaty applies, a lower
rate as provided) branch profits tax.
Any gain realized on the sale, exchange, redemption or
retirement of the Notes generally will not be subject to United
States federal income tax unless:
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that gain is effectively connected with the
non-United
States Holders conduct of a trade or business in the
United States (or, if an applicable United States income tax
treaty applies, is attributable to a permanent establishment
maintained by the
non-United
States Holder within the United States); or
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the
non-United
States Holder is an individual who is present in the United
States for 183 days or more in the taxable year of the
disposition and certain other conditions are met.
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In general, backup withholding and information reporting will
not apply to interest paid on the Notes to a
non-United
States Holder, or to proceeds from the sale, exchange,
redemption or retirement of the Notes by a
non-United
States Holder, in each case, if the
non-United
States Holder certifies under penalties of perjury that it is a
non-United
States Holder and neither we nor our paying agent has actual
knowledge (or reason to know) to the contrary. Any amounts
withheld under the backup withholding rules will entitle such
non-United
States Holder to a credit against United States federal income
tax liability and may entitle such
non-United
States Holder to a refund, so long as the required information
is timely and properly furnished to the IRS. In general, if
Notes are not held through a qualified intermediary, the amount
of payments made on such Notes, the name and address of the
beneficial owner and the amount, if any, of tax withheld may be
reported to the IRS.
Non-United
States Holders should consult their tax advisors regarding the
application of backup withholding in their particular situation,
the availability of an exemption from backup withholding and the
procedure for obtaining such an exemption, if available.
If the IRS were to challenge successfully the classification of
the Notes as indebtedness, payments on the Notes likely would be
treated as guaranteed payments or distributions with respect to
a preferred partnership interest. In such case,
non-United
States Holders of the Notes would be treated as engaged in
S-43
a trade or business within the United States, be required to
file a United States federal income tax return and pay taxes on
their share of our income or gain and be subject to withholding.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH
ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDERS PARTICULAR SITUATION.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
S-44
Certain ERISA
considerations
A fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Section 406 of the Employee
Retirement Income Security Act of 1974, as amended
(ERISA), a plan or other arrangement subject to
Section 4975 of the Internal Revenue Code of 1986, as
amended (the Code), or a plan or other arrangement
subject to any other law or other restrictions materially
similar to Section 406 of ERISA or Section 4975 of the
Code (Similar Law) (each, a Plan),
should consider the fiduciary standards of ERISA or Similar Law
in the context of such a Plans particular circumstances
before authorizing an investment in the Notes. Among other
factors, the fiduciary should consider whether such an
investment is in accordance with the documents governing the
Plan and whether the investment is appropriate for the Plan in
view of its overall investment policy and the prudence and
diversification requirements of ERISA or Similar Law.
The Notes may not be sold to any Plan unless either (i) the
purchase and holding of the Notes would not be a transaction
prohibited under Section 406 of ERISA, Section 4975 of
the Code or Similar Law, or (ii) an exemption under ERISA,
the Code or Similar Law or one of the following Prohibited
Transaction Class Exemptions (PTCE) issued by the
U.S. Department of Labor (or a materially similar exemption
or exception under Similar Law) applies to the purchase, holding
and disposition of the Notes:
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PTCE 96-23
for transactions determined by in-house asset managers;
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PTCE 95-60
for transactions involving insurance company general accounts;
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PTCE 91-38
for transactions involving bank collective investment funds;
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PTCE 90-1
for transactions involving insurance company pooled separate
accounts; or
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PTCE 84-14
for transactions determined by independent qualified
professional asset managers.
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Any purchaser of the Notes or any interest therein and any
subsequent transferee will be deemed to have represented and
warranted to us on each day from and including the date of its
purchase of such Notes through and including the date of its
disposition of such Notes that either:
(a) Plan assets under ERISA and the regulations issued
thereunder, or under any Similar Law, are not being used to
acquire the Notes; or
(b) Plan assets as so defined are being used to acquire
such Notes but the purchase, holding and disposition of such
Notes either (1) are not and will not be a prohibited
transaction within the meaning of ERISA, the Code or
Similar Law or (2) are and will be exempt from the
prohibited transaction rules under ERISA, the Code and Similar
Law under a provision of ERISA, the Code or Similar Law or by
one or more of the following prohibited transaction exemptions:
PTCE 96-23,
95-60,
91-38,
90-1 or
84-14, or a
materially similar exemption or exception under Similar Law.
The discussion set forth above is general in nature and is not
intended to be complete. In addition, such discussion assumes
that the Notes will constitute indebtedness as opposed to
equity interests under the U.S. Department of
Labors plan asset regulations or Similar Law. Although
such characterization of the Notes would appear appropriate, we
can offer you no assurance that this will be the case.
Accordingly, it is important that any person considering the
purchase of Notes with Plan assets consult with its counsel
regarding the consequences under ERISA, the Code or other
Similar Law of the acquisition and ownership of the Notes.
Purchasers of the Notes have exclusive responsibility for
ensuring that their purchase and holding of the Notes do not
violate the fiduciary or prohibited transaction rules of ERISA,
the Code or any Similar Law. The sale of the Notes to a Plan is
in no respect a representation by us or the underwriters that
such an investment meets all relevant legal requirements with
respect to investments by Plans generally or any particular
Plan, or that such an investment is appropriate for Plans
generally or any particular Plan.
S-45
Underwriting
We and the underwriters named below have entered into an
underwriting agreement, dated May 21, 2007, with respect to
the Notes. Subject to certain conditions, each underwriter has
severally agreed to purchase the principal amount of Notes set
forth opposite its name in the following table. J.P. Morgan
Securities Inc., Citigroup Global Markets Inc., Lehman Brothers
Inc. and Wachovia Capital Markets, LLC are the representatives
of the underwriters.
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Principal
amount
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Underwriters
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of
notes
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J.P. Morgan Securities
Inc.
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$
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175,000,000
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Citigroup Global Markets Inc.
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112,000,000
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Lehman Brothers Inc.
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112,000,000
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Wachovia Capital Markets, LLC
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112,000,000
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Mizuho Securities USA Inc.
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42,000,000
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Raymond James &
Associates, Inc.
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42,000,000
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BNP Paribas Securities Corp.
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21,000,000
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Daiwa Securities America Inc.
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21,000,000
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HVB Capital Markets, Inc.
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21,000,000
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ING Financial Markets LLC
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21,000,000
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Wells Fargo Securities, LLC
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21,000,000
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Total
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$
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700,000,000
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The underwriters are committed to take and pay for all of the
Notes being offered, if any are taken.
We will pay as compensation to the underwriters discounts and
commissions in the following amounts.
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Paid by
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Enterprise
Products
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Operating
L.P.
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Per Note
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$
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13.75
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Total
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$
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9,625,000
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The Notes sold by the underwriters to the public will initially
be offered at the public offering price set forth on the cover
of this prospectus supplement. Any Notes sold by the
underwriters to securities dealers may be sold at a discount
from the initial public offering price of up to $5.00 per
Note. If all the Notes are not sold at the public offering
price, the underwriters may change the offering price and the
other selling terms.
The Notes are a new issue of securities with no established
trading market. We have been advised by the underwriters that
they presently intend to make a market in the Notes but they are
not obligated to do so and may discontinue market making at any
time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
In connection with this offering, the underwriters may purchase
and sell the Notes in the open market. These transactions may
include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of Notes than
S-46
they are required to purchase in this offering. Stabilizing
transactions consist of certain bids for or purchases of Notes
made by the underwriters in the open market prior to the
completion of this offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased Notes sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of the Notes, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the Notes. As a result, the price of the Notes
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. These transactions
may be effected in
over-the-counter
market or otherwise.
We estimate that our total
out-of-pocket
expenses of this offering, excluding underwriting discounts and
commissions, will be approximately $875,000. The underwriters
have agreed to reimburse us for certain of our expenses incurred
in connection with the offering of the Notes in an amount equal
to approximately $875,000.
We have agreed to indemnify the underwriters against certain
liabilities including liabilities under the Securities Act.
The offering of the Notes will be conducted in accordance with
the provisions of Rule 2810 of the NASD Rules of Fair
Conduct or any successor provision.
In compliance with guidelines of the National Association of
Securities Dealers (which we refer to as the NASD),
the maximum commission or discount to be received by any NASD
member or independent broker dealer may not exceed 8% of the
aggregate principal amount of the securities offered pursuant to
this prospectus supplement. It is anticipated that the maximum
commission or discount to be received in any particular offering
of securities will be significantly less than this amount.
From time to time the underwriters engage in transactions with
us in the ordinary course of business. The underwriters have
performed commercial banking, investment banking and advisory
services for us in the last two years and have received fees for
these services. In addition, affiliates of certain of the
underwriters are lenders under our revolving credit facility
and, accordingly, will receive a substantial portion of the
proceeds of this offering. Because they will be receiving more
than 10% of such proceeds, this offering is being conducted in
accordance with Rule 2710(h) of the NASD. Lehman Brothers
Inc. is serving as a qualified independent underwriter and will
assume the customary responsibilities of acting as a qualified
independent underwriter in pricing the offering and conducting
due diligence. We have agreed to indemnify Lehman Brothers Inc.
against any liabilities arising in connection with its role as a
qualified independent underwriter, including liabilities under
the Securities Act.
Daiwa Securities America Inc. has entered into an agreement with
SMBC Securities, Inc. (SMBC) pursuant to which SMBC
provides certain advisory and/or other services to Daiwa
Securities America Inc., including services with respect to this
offering. In return for this provision of such services by SMBC
to Daiwa Securities America Inc., Daiwa Securities America Inc.
will pay to SMBC a mutually agreed-upon fee.
Raymond James & Associates, Inc. (Raymond
James) has entered into an agreement with Mitsubishi UFJ
Securities (USA), Inc. (MUS(USA)) pursuant to which
MUS(USA) provides certain advisory and/or other services to
Raymond James, including with respect to this offering. In
return for the provision of such services by MUS(USA) to Raymond
James, Raymond James will pay to MUS(USA) a mutually agreed upon
fee.
S-47
Validity of
securities
Bracewell & Giuliani LLP, Houston, Texas, will pass on
the validity of the Notes, the Guarantee and certain federal
income tax matters related to the Notes for Enterprise Parent
and us. Certain legal matters with respect to the Notes and the
Guarantee will be passed upon for the underwriters by
Cadwalader, Wickersham & Taft LLP, New York, New York.
Experts
The (1) consolidated financial statements and the related
consolidated financial statement schedule and managements
report on the effectiveness of internal control over financial
reporting of Enterprise Products Partners L.P. and subsidiaries
incorporated in this prospectus supplement by reference from
Enterprise Products Partners L.P.s Annual Report on
Form 10-K
for the year ended December 31, 2006, and (2) the
balance sheet of Enterprise Products GP, LLC as of
December 31, 2006, incorporated in this prospectus
supplement by reference from Enterprise Products Partners
L.P.s Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
March 21, 2007, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in
accounting and auditing.
Where you can
find more information
Enterprise Parent files annual, quarterly and current reports,
and other information with the Commission under the Exchange Act
(Commission File
No. 1-14323).
You may read and copy any document Enterprise Parent files at
the Commissions public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the Commission at
1-800-732-0330
for further information on the public reference room. Enterprise
Parents filings are also available to the public at the
Commissions web site at
http://www.sec.gov.
In addition, documents filed by Enterprise Parent can be
inspected at the offices of the New York Stock Exchange, Inc.
20 Broad Street, New York, New York 10002. We maintain an
Internet Website at www.eprod.com. On the Investor
Relations page of that site, we provide access to our SEC
filings free of charge as soon as reasonably practicable after
filing with the Commission. The information on our Internet
Website is not incorporated in this prospectus supplement or the
accompanying prospectus by reference and you should not consider
it a part of this prospectus supplement or the accompanying
prospectus.
The Commission allows Enterprise Parent to incorporate by
reference into this prospectus supplement and the accompanying
prospectus the information Enterprise Parent files with it,
which means that Enterprise Parent can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part
of this prospectus supplement, and later information that
Enterprise Parent files with the Commission will automatically
update and supersede this information. Enterprise Parent
incorporates by reference the documents listed below and any
future filings it makes with the Commission under
section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering is completed (other
than information furnished under Items 2.02 or 7.01 of any
Form 8-K,
which is not deemed filed under the Exchange Act):
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Annual Report on
Form 10-K
for the year ended December 31, 2006;
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Quarterly Report on
Form 10-Q
for the period ended March 31, 2007; and
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S-48
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Current Reports on
Form 8-K
filed with the Commission on February 5, 2007,
March 21, 2007, April 16, 2007 and May 10, 2007.
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We will provide without charge to each person, including any
beneficial owner, to whom this prospectus supplement has been
delivered, a copy of any and all of its filings with the
Commission. You may request a copy of these filings by writing
or telephoning us at:
Enterprise Products Partners L.P.
1100 Louisiana,
10th Floor
Houston, Texas 77002
Attention: Investor Relations
Telephone:
(713) 381-6500
Forward-looking
statements
This prospectus supplement and some of the documents we have
incorporated herein by reference contain various forward-looking
statements and information that are based on our beliefs and
those of our general partner, as well as assumptions made by and
information currently available to us. These forward-looking
statements are identified as any statement that does not relate
strictly to historical or current facts. When used in this
prospectus supplement or the documents we have incorporated
herein by reference, words such as anticipate,
project, expect, plan,
goal, forecast, intend,
could, believe, may, and
similar expressions and statements regarding our plans and
objectives for future operations, are intended to identify
forward-looking statements. Although we and our general partner
believe that such expectations reflected in such forward-looking
statements are reasonable, neither we nor our general partner
can give assurances that such expectations will prove to be
correct.
Such statements are subject to a variety of risks, uncertainties
and assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key risk factors
that may have a direct bearing on our results of operations and
financial condition are:
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fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces;
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a reduction in demand for our products by the petrochemical,
refining or heating industries;
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the effects of our debt level on our future financial and
operating flexibility;
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a decline in the volumes of NGLs delivered by our facilities;
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the failure of our credit risk management efforts to adequately
protect us against customer non-payment;
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terrorist attacks aimed at our facilities; and
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our failure to successfully integrate our operations with assets
or companies we acquire.
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You should not put undue reliance on any forward-looking
statements. When considering forward-looking statements, please
review the risk factors described under Risk Factors
in this prospectus supplement and in the accompanying prospectus
and in Enterprise Parents Annual Report on
Form 10-K
for the year ended December 31, 2006, which was filed with
the Securities and Exchange Commission on February 28, 2007.
S-49
PROSPECTUS
Enterprise Products Partners L.P.
Enterprise Products Operating L.P.
COMMON UNITS
DEBT SECURITIES
We may offer up to $4,000,000,000 of the following securities
under this prospectus:
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common units representing limited partner interests in
Enterprise Products Partners L.P.; and |
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debt securities of Enterprise Products Operating L.P., which
will be guaranteed by its parent company, Enterprise Products
Partners L.P. |
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. You should read carefully this prospectus
and any prospectus supplement before you invest. You should also
read the documents we have referred you to in the Where
You Can Find More Information section of this prospectus
for information about us, including our financial statements.
In addition, up to 41,000,000 common units may be offered from
time to time by the selling unitholders named herein. Specific
terms of certain offerings by such selling unitholders may be
specified in a prospectus supplement to this prospectus. We will
not receive proceeds of any sale of common units by any such
selling unitholders unless otherwise indicated in a prospectus
supplement. For a more detailed discussion of selling
unitholders, please read Selling Unitholders.
Our common units are listed on the New York Stock Exchange under
the trading symbol EPD.
Unless otherwise specified in a prospectus supplement, the
senior debt securities, when issued, will be unsecured and will
rank equally with our other unsecured and unsubordinated
indebtedness. The subordinated debt securities, when issued,
will be subordinated in right of payment to our senior debt.
Limited partnerships are inherently different from
corporations. You should review carefully Risk
Factors beginning on page 3 for a discussion of
important risks you should consider before investing on our
securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to consummate sales of
securities by the registrants unless accompanied by a prospectus
supplement.
The date of this prospectus is March 23, 2005.
TABLE OF CONTENTS
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TABLE OF CONTENTS (Continued)
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ii
TABLE OF CONTENTS (Continued)
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You should rely only on the information contained or
incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. You should not assume that the information incorporated by
reference or provided in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the
front of each document.
Our, we, us and
Enterprise as used in this prospectus refer to
Enterprise Products Partners L.P. and Enterprise Products
Operating L.P. and their wholly owned subsidiaries.
GulfTerra as used in this prospectus supplement
refers to Enterprise GTM Holdings L.P. (formerly known as
GulfTerra Energy Partners, L.P.) and its wholly owned
subsidiaries.
iii
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we file
with the Securities and Exchange Commission (the
Commission) using a shelf registration
process. Under this shelf process, we may offer from time to
time up to $4,000,000,000 of our securities and the selling
unitholders may offer from time to time up to 41,000,000 of
their common units. Each time we offer securities, we will
provide you with a prospectus supplement that will describe,
among other things, the specific amounts and prices of the
securities being offered and the terms of the offering. The
selling unitholders may offer common units pursuant to this
prospectus or may provide you with a prospectus supplement that
will describe, among other things, the specific amounts and
prices of the securities being offered and the terms of the
offering. Any prospectus supplement may add, update or change
information contained in this prospectus. Any statement that we
make in this prospectus will be modified or superseded by any
inconsistent statement made by us in a prospectus supplement.
Therefore, you should read this prospectus and any attached
prospectus supplement before you invest in our securities.
iv
OUR COMPANY
We are a publicly traded limited partnership that was formed in
April 1998 to acquire, own, and operate all of the NGL
processing and distribution assets of EPCO, Inc., or EPCO,
formerly known as Enterprise Products Company. We conduct all of
our business through our 100% owned subsidiary, Enterprise
Products Operating L.P. (our Operating Partnership)
and its subsidiaries and joint ventures. Our general partner,
Enterprise Products GP, LLC, owns a 2% interest in us.
We are a leading North American midstream energy company that
provides a wide range of services to producers and consumers of
natural gas, natural gas liquids, or NGLs, and crude oil, and we
are an industry leader in the development of midstream
infrastructure in the deepwater trend of the Gulf of Mexico. We
have the only integrated North American midstream network, which
includes natural gas transportation, gathering, processing and
storage; NGL fractionation (or separation), transportation,
storage and import and export terminalling; and crude oil
transportation and offshore production platform services. Our
midstream network links producers of natural gas, NGLs and crude
oil from the largest supply basins in the United States, Canada
and the Gulf of Mexico with the largest consumers and
international markets. NGLs are used by the petrochemical and
refining industries to produce plastics, motor gasoline and
other industrial and consumer products and also are used as
residential, agricultural and industrial fuels. We provide
integrated services to our customers and generate fee-based cash
flow from multiple sources along our midstream energy
value chain.
Our midstream energy services include:
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gathering and transportation of raw natural gas from both
onshore and offshore Gulf of Mexico developments; |
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gathering and transportation of crude oil from offshore Gulf of
Mexico developments; |
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offshore production platform services; |
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processing of raw natural gas into a marketable product that
meets industry quality specifications by removing mixed NGLs and
impurities; |
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purchase of natural gas for resale to our industrial, utility
and municipal customers; |
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transportation of mixed NGLs to fractionation facilities by
pipeline; |
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fractionation (or separation) of mixed NGLs produced as
by-products of crude oil refining and natural gas production
into component NGL products: ethane, propane, isobutane, normal
butane and natural gasoline; |
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transportation of NGL products to end-users by pipeline, railcar
and truck; |
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import and export of NGL products and petrochemical products
through our dock facilities; |
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fractionation of refinery-sourced propane/propylene mix into
high-purity propylene, propane and mixed butane; |
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transportation of high-purity propylene to end-users by pipeline; |
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storage of natural gas, mixed NGLs, NGL products and
petrochemical products; |
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conversion of normal butane to isobutane through the process of
isomerization; |
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production of high-octane additives for motor gasoline from
isobutane; and |
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sale of NGLs and petrochemical products we produce and/or
purchase for resale. |
In addition to our current strategic position in the Gulf of
Mexico, we have access to major natural gas and NGL supply
basins throughout the United States and Canada, including the
Rocky Mountains, the San Juan and Permian basins, the
Mid-Continent region and, through third-party pipeline
connections, north into Canadas Western Sedimentary basin.
Our system of assets in the Gulf Coast region of the
1
United States, combined with our Mid-America and Seminole
pipeline systems, create the only integrated North American
midstream network.
Certain of our facilities are owned jointly by us and other
industry partners, either through co-ownership arrangements or
joint ventures. Some of our jointly owned facilities are
operated by other owners.
We do not have any employees. All of our management,
administrative and operating functions are performed by
employees of EPCO, our ultimate parent company, pursuant to the
Administrative Services Agreement. For a discussion of the
Administrative Services Agreement, please read Item 13 of
our latest Annual Report on Form 10-K.
Our principal executive offices are located at 2727 North Loop
West, Houston, Texas 77008-1038, and our telephone number is
(713) 880-6500.
2
RISK FACTORS
An investment in our securities involves risks. You should
consider carefully the following risk factors, together with all
of the other information included in, or incorporated by
reference into, this prospectus and any prospectus supplement in
evaluating an investment in our securities. This prospectus also
contains forward-looking statements that involve risks and
uncertainties. Please read Forward-Looking
Statements. Our actual results could differ materially
from those anticipated in the forward-looking statements as a
result of certain factors, including the risks described below
and the other information included in, or incorporated by
reference into, this prospectus. If any of these risks occur,
our business, financial condition or results of operations could
be adversely affected.
Risks Related to Our Business
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Changes in the prices of hydrocarbon products may
materially adversely affect our results of operations, cash
flows and financial condition. |
We operate predominantly in the midstream energy sector which
includes gathering, transporting, processing, fractionating and
storing natural gas, NGLs and crude oil. As such, our results of
operations, cash flows and financial condition may be materially
adversely affected by changes in the prices of these hydrocarbon
products and by changes in the relative price levels among these
hydrocarbon products. In general terms, the prices of natural
gas, NGLs, crude oil and other hydrocarbon products are subject
to fluctuations in response to changes in supply, market
uncertainty and a variety of additional factors that are
impossible to control. These factors include:
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the level of domestic production; |
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the availability of imported oil and natural gas; |
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actions taken by foreign oil and natural gas producing nations; |
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the availability of transportation systems with adequate
capacity; |
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the availability of competitive fuels; |
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fluctuating and seasonal demand for oil, natural gas and
NGLs; and |
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conservation and the extent of governmental regulation of
production and the overall economic environment. |
We are also exposed to natural gas and NGL commodity price risk
under natural gas processing and gathering and NGL fractionation
contracts that provide for our fee to be calculated based on a
regional natural gas or NGL price index or to be paid in-kind by
taking title to natural gas or NGLs. A decrease in natural gas
and NGL prices can result in lower margins from these contracts,
which may materially adversely affect our results of operations,
cash flows and financial position.
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A decline in the volume of natural gas, NGLs and crude oil
delivered to our facilities could adversely affect our results
of operations, cash flows and financial condition. |
Our profitability could be materially impacted by a decline in
the volume of natural gas, NGLs and crude oil transported,
gathered or processed at our facilities. A material decrease in
natural gas or crude oil production or crude oil refining, as a
result of depressed commodity prices, a decrease in exploration
and development activities or otherwise, could result in a
decline in the volume of natural gas, NGLs and crude oil handled
by our facilities.
The crude oil, natural gas and NGLs available to our facilities
will be derived from reserves produced from existing wells,
which reserves naturally decline over time. To offset this
natural decline, our facilities will need access to additional
reserves. Additionally, some of our facilities will be dependent
on reserves that are expected to be produced from newly
discovered properties that are currently being developed.
3
Exploration and development of new oil and natural gas reserves
is capital intensive, particularly offshore in the Gulf of
Mexico. Many economic and business factors are out of our
control and can adversely affect the decision by producers to
explore for and develop new reserves. These factors could
include relatively low oil and natural gas prices, cost and
availability of equipment, regulatory changes, capital budget
limitations or the lack of available capital. For example, a
sustained decline in the price of natural gas and crude oil
could result in a decrease in natural gas and crude oil
exploration and development activities in the regions where our
facilities are located. This could result in a decrease in
volumes to our offshore platforms, natural gas processing
plants, natural gas, crude oil and NGL pipelines, and NGL
fractionators which would have a material adverse affect on our
results of operations, cash flows and financial position.
Additional reserves, if discovered, may not be developed in the
near future or at all.
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A reduction in demand for NGL products by the
petrochemical, refining or heating industries could materially
adversely affect our results of operations, cash flows and
financial position. |
A reduction in demand for NGL products by the petrochemical,
refining or heating industries, whether because of general
economic conditions, reduced demand by consumers for the end
products made with NGL products, increased competition from
petroleum-based products due to pricing differences, adverse
weather conditions, government regulations affecting prices and
production levels of natural gas or the content of motor
gasoline or other reasons, could materially adversely affect our
results of operations, cash flows and financial position. For
example:
Ethane. If natural gas prices increase significantly in
relation to ethane prices, it may be more profitable for natural
gas producers to leave the ethane in the natural gas stream to
be burned as fuel than to extract the ethane from the mixed NGL
stream for sale.
Propane. The demand for propane as a heating fuel is
significantly affected by weather conditions. Unusually warm
winters could cause the demand for propane to decline
significantly and could cause a significant decline in the
volumes of propane that the combined company transports.
Isobutane. Any reduction in demand for motor gasoline
additives may reduce demand for isobutane. During periods in
which the difference in market prices between isobutane and
normal butane is low or inventory values are high relative to
current prices for normal butane or isobutane, our operating
margin from selling isobutane could be reduced.
Propylene. Any downturn in the domestic or international
economy could cause reduced demand for propylene, which could
cause a reduction in the volumes of propylene that we produce
and expose our investment in inventories of propane/ propylene
mix to pricing risk due to requirements for short-term price
discounts in the spot or short-term propylene markets.
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We face competition from third parties in our midstream
businesses. |
Even if reserves exist in the areas accessed by our facilities
and are ultimately produced, we may not be chosen by the
producers in these areas to gather, transport, process,
fractionate, store or otherwise handle the hydrocarbons that are
produced. We compete with others, including producers of oil and
natural gas, for any such production on the basis of many
factors, including:
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geographic proximity to the production; |
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costs of connection; |
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available capacity; |
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rates; and |
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access to markets. |
4
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Our debt level may limit our future financial and
operating flexibility. |
As of December 31, 2004, we had approximately
$4.3 billion of consolidated debt outstanding. The amount
of our debt could have significant effects on our future
operations, including, among other things:
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a significant portion of our cash flow from operations will be
dedicated to the payment of principal and interest on
outstanding debt and will not be available for other purposes,
including payment of distributions on our common units and
capital expenditures; |
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credit rating agencies may view our debt level negatively; |
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covenants contained in our existing debt arrangements will
require us to continue to meet financial tests that may
adversely affect our flexibility in planning for and reacting to
changes in our business; |
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our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general partnership
purposes may be limited; |
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we may be at a competitive disadvantage relative to similar
companies that have less debt; and |
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we may be more vulnerable to adverse economic and industry
conditions as a result of our significant debt level. |
Our public debt indentures currently do not limit the amount of
future indebtedness that we can create, incur, assume or
guarantee. Our revolving credit facilities, however, restrict
our ability to incur additional debt, though any debt we may
incur in compliance with these restrictions may still be
substantial.
Our multi-year revolving credit facility and the indentures
governing our public debt contain conventional financial
covenants and other restrictions. A breach of any of these
restrictions by us could permit the lenders to declare all
amounts outstanding under those debt agreements to be
immediately due and payable and, in the case of the credit
facility, to terminate all commitments to extend further credit.
Our ability to access the capital markets to raise capital on
favorable terms will be affected by our debt level, the amount
of our debt maturing in the next several years and current
maturities, and by adverse market conditions resulting from,
among other things, general economic conditions, contingencies
and uncertainties that are difficult to predict and impossible
to control. Moreover, if the rating agencies were to downgrade
our corporate credit, then we could experience an increase in
our borrowing costs, difficulty assessing capital markets or a
reduction in the market price of our common units. Such a
development could adversely affect our ability to obtain
financing for working capital, capital expenditures or
acquisitions or to refinance existing indebtedness. If we are
unable to access the capital markets on favorable terms in the
future, we might be forced to seek extensions for some of our
short-term securities or to refinance some of our debt
obligations through bank credit, as opposed to long-term public
debt securities or equity securities. The price and terms upon
which we might receive such extensions or additional bank
credit, if at all, could be more onerous than those contained in
existing debt agreements. Any such arrangements could, in turn,
increase the risk that our leverage may adversely affect our
future financial and operating flexibility and our ability to
pay cash distributions at expected rates.
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We may not be able to fully execute our growth strategy if
we encounter illiquid capital markets or increased competition
for qualified assets. |
Our strategy contemplates growth through the development and
acquisition of a wide range of midstream and other energy
infrastructure assets while maintaining a strong balance sheet.
This strategy includes constructing and acquiring additional
assets and businesses to enhance our ability to compete
effectively and diversify our asset portfolio, thereby providing
more stable cash flow. We regularly consider and enter into
discussions regarding, and are currently contemplating,
potential joint ventures, stand alone projects or other
transactions that we believe will present opportunities to
realize synergies, expand our role in the energy infrastructure
business and increase our market position.
5
We may require substantial new capital to finance the future
development and acquisition of assets and businesses.
Limitations on our access to capital will impair our ability to
execute this strategy. Expensive capital will limit our ability
to develop or acquire accretive assets. We may not be able to
raise the necessary funds on satisfactory terms, if at all.
In addition, we are experiencing increased competition for the
assets we purchase or contemplate purchasing. Increased
competition for a limited pool of assets could result in our
losing to other bidders more often or acquiring assets at higher
prices. Either occurrence would limit our ability to fully
execute our growth strategy. Our inability to execute our growth
strategy may materially adversely impact the market price of our
securities.
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Our growth strategy may adversely affect our results of
operations if we do not successfully integrate the businesses
that we acquire, including GulfTerra, or if we substantially
increase our indebtedness and contingent liabilities to make
acquisitions. |
Our growth strategy includes making accretive acquisitions. As a
result, from time to time, we will evaluate and acquire assets
and businesses that we believe complement our existing
operations. Similar to the risks associated with integrating our
operations with GulfTerras operations, we may be unable to
integrate successfully businesses we acquire in the future. We
may incur substantial expenses or encounter delays or other
problems in connection with our growth strategy that could
negatively impact our results of operations, cash flows and
financial condition. Moreover, acquisitions and business
expansions involve numerous risks, including:
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difficulties in the assimilation of the operations,
technologies, services and products of the acquired companies or
business segments; |
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establishing the internal controls and procedures that we are
required to maintain under the Sarbanes-Oxley Act of 2002; |
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managing relationships with new joint venture partners with whom
we have not previously partnered; |
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inefficiencies and complexities that can arise because of
unfamiliarity with new assets and the businesses associated with
them, including with their markets; and |
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diversion of the attention of management and other personnel
from day-to-day business to the development or acquisition of
new businesses and other business opportunities. |
If consummated, any acquisition or investment would also likely
result in the incurrence of indebtedness and contingent
liabilities and an increase in interest expense and
depreciation, depletion and amortization expenses. As a result,
our capitalization and results of operations may change
significantly following an acquisition. A substantial increase
in our indebtedness and contingent liabilities could have a
material adverse effect on our business. In addition, any
anticipated benefits of a material acquisition, such as expected
cost savings, may not be fully realized, if at all.
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Our operating cash flows from our capital projects may not
be immediate. |
We are engaged in several capital expansion projects and
greenfield projects for which significant capital
has been expended, and our operating cash flow from a particular
project may not increase immediately following its completion.
For instance, if we build a new pipeline or platform or expand
an existing facility, the design, construction, development and
installation may occur over an extended period of time, and we
may not receive any material increase in operating cash flow
from that project until after it is placed in service. If we
experience unanticipated or extended delays in generating
operating cash flow from these projects, we may be required to
reduce or reprioritize our capital budget, sell non-core assets,
access the capital markets or decrease distributions to
unitholders in order to meet our capital requirements.
6
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Our actual construction, development and acquisition costs
could exceed forecasted amounts. |
We will have significant expenditures for the development,
construction or other acquisition of energy infrastructure
assets, including some construction and development projects
with significant technological challenges. For example,
underwater operations, especially those in water depths in
excess of 600 feet, are very expensive and involve much
more uncertainty and risk, and if a problem occurs, the
solution, if one exists, may be very expensive and time
consuming. We may not be able to complete our projects, whether
in deepwater or otherwise, at the costs estimated at the time of
initiation.
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We may be unable to cause our joint ventures to take or
not to take certain actions unless some or all of our joint
venture participants agree. |
We participate in several joint ventures. Due to the nature of
some of these joint ventures, each participant in each of these
joint ventures has made substantial investments in the joint
venture and, accordingly, has required that the relevant
organizational documents contain certain features designed to
provide each participant with the opportunity to participate in
the management of the joint venture and to protect its
investment in that joint venture, as well as any other assets
which may be substantially dependent on or otherwise affected by
the activities of that joint venture. These participation and
protective features include a corporate governance structure
that requires at least a majority in interest vote to authorize
many basic activities and requires a greater voting interest
(sometimes up to 100%) to authorize more significant activities.
Examples of these more significant activities are large
expenditures or contractual commitments, the construction or
acquisition of assets, borrowing money or otherwise raising
capital, transactions with affiliates of a joint venture
participant, litigation and transactions not in the ordinary
course of business, among others. Thus, without the concurrence
of joint venture participants with enough voting interests, we
may be unable to cause any of our joint ventures to take or not
to take certain actions, even though those actions may be in the
best interest of us or the particular joint venture.
Moreover, any joint venture owner may sell, transfer or
otherwise modify its ownership interest in a joint venture,
whether in a transaction involving third parties or the other
joint venture owners. Any such transaction could result in our
partnering with different or additional parties.
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The interruption of distributions to us from our
subsidiaries and joint ventures may affect our ability to
satisfy our obligations and to make cash distributions to our
unitholders. |
We are a holding company with no business operations. Our only
significant assets are the equity interests we own in our
subsidiaries and joint ventures. As a result, we depend upon the
earnings and cash flow of our subsidiaries and joint ventures
and the distribution of that cash to us in order to meet our
obligations and to allow us to make distributions to our
unitholders.
In addition, the management committees of the joint ventures in
which we participate typically have sole discretion regarding
the occurrence and amount of distributions. Some of the joint
ventures in which we participate have separate credit
arrangements that contain various restrictive covenants. Among
other things, those covenants may limit or restrict the joint
ventures ability to make distributions to us under certain
circumstances. Accordingly, our joint ventures may be unable to
make distributions to us at current levels or at all.
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A natural disaster, catastrophe or other event could
result in severe personal injury, property damage and
environmental damage, which could curtail our operations and
otherwise materially adversely affect our cash flow. |
Some of our operations involve risks of personal injury,
property damage and environmental damage, which could curtail
our operations and otherwise materially adversely affect our
cash flow. For example, natural gas facilities operate at high
pressures, sometimes in excess of 1,100 pounds per square inch.
We also operate oil and natural gas facilities located
underwater in the Gulf of Mexico, which can involve
complexities, such as extreme water pressure. Virtually all of
our operations are exposed to potential natural disasters,
including hurricanes, tornadoes, storms, floods and/or
earthquakes.
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If one or more facilities that are owned by us or that deliver
oil, natural gas or other products to us are damaged by severe
weather or any other disaster, accident, catastrophe or event,
our operations could be significantly interrupted. Similar
interruptions could result from damage to production or other
facilities that supply our facilities or other stoppages arising
from factors beyond our control. These interruptions might
involve significant damage to people, property or the
environment, and repairs might take from a week or less for a
minor incident to six months or more for a major interruption.
Additionally, some of the storage contracts that we are a party
to obligate us to indemnify our customers for any damage or
injury occurring during the period in which the customers
natural gas is in our possession. Any event that interrupts the
fees generated by our energy infrastructure assets, or which
causes us to make significant expenditures not covered by
insurance, could reduce our cash available for paying our
interest obligations as well as unitholder distributions and,
accordingly, adversely affect the market price of our securities.
We believe that we maintain adequate insurance coverage,
although insurance will not cover many types of interruptions
that might occur. As a result of market conditions, premiums and
deductibles for certain insurance policies can increase
substantially, and in some instances, certain insurance may
become unavailable or available only for reduced amounts of
coverage. As a result, we may not be able to renew our existing
insurance policies or procure other desirable insurance on
commercially reasonable terms, if at all. If we were to incur a
significant liability for which we were not fully insured, it
could have a material adverse effect on our financial position
and results of operations. In addition, the proceeds of any such
insurance may not be paid in a timely manner and may be
insufficient if such an event were to occur.
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An impairment of goodwill could reduce our
earnings. |
We had recorded $445.9 million of goodwill and
$961.9 million of intangible assets on our consolidated
balance sheet as of September 30, 2004. Goodwill is
recorded when the purchase price of a business exceeds the fair
market value of the tangible and separately measurable
intangible net assets. GAAP will require us to test goodwill for
impairment on an annual basis or when events or circumstances
occur indicating that goodwill might be impaired. Long-lived
assets such as intangible assets with finite useful lives are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If we determine that any of our goodwill or
intangible assets were impaired, we would be required to take an
immediate charge to earnings with a correlative effect on
partners equity and balance sheet leverage as measured by
debt to total capitalization.
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Increases in interest rates could adversely affect our
business and may cause the market price of our common units to
decline. |
In addition to our exposure to commodity prices, we have
significant exposure to increases in interest rates. As of
December 31, 2004, we had approximately $4.3 billion
of consolidated debt, of which approximately $2.9 billion
was at fixed interest rates and approximately $1.4 billion
was at variable interest rates, after giving effect to existing
interest swap arrangements. We may from time to time enter into
additional interest rate swap arrangements, which could increase
our exposure to variable interest rates. As a result, our
results of operations, cash flows and financial condition, could
be materially adversely affected by significant increases in
interest rates.
An increase in interest rates may also cause a corresponding
decline in demand for equity investments in general, and in
particular for yield-based equity investments such as our common
units. Any such reduction in demand for our common units
resulting from other more attractive investment opportunities
may cause the trading price of our common units to decline.
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The use of derivative financial instruments could result
in material financial losses by us. |
We historically have sought to limit a portion of the adverse
effects resulting from changes in oil and natural gas commodity
prices and interest rates by using financial derivative
instruments and other hedging mechanisms from time to time. To
the extent that we hedge our commodity price and interest rate
exposures, we will forego the benefits we would otherwise
experience if commodity prices or interest rates
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were to change in our favor. In addition, even though monitored
by management, hedging activities can result in losses. Such
losses could occur under various circumstances, including if a
counterparty does not perform its obligations under the hedge
arrangement, the hedge is imperfect, or hedging policies and
procedures are not followed.
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Our pipeline integrity program may impose significant
costs and liabilities on us. |
In December 2003, the U.S. Department of Transportation
issued a final rule (effective as of February 14, 2004)
requiring pipeline operators to develop integrity management
programs to comprehensively evaluate their pipelines, and take
measures to protect pipeline segments located in what the rule
refers to as high consequence areas. The final rule
resulted from the enactment of the Pipeline Safety Improvement
Act of 2002. At this time, we cannot predict the outcome of this
rule on us. However, we will continue our pipeline integrity
testing programs, which are intended to assess and maintain the
integrity of our pipelines. While the costs associated with the
pipeline integrity testing itself are not large, the results of
these tests could cause us to incur significant and
unanticipated capital and operating expenditures for repairs or
upgrades deemed necessary to ensure the continued safe and
reliable operation of our pipelines.
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Environmental costs and liabilities and changing
environmental regulation could materially affect our cash
flow. |
Our operations are subject to extensive federal, state and local
regulatory requirements relating to environmental affairs,
health and safety, waste management and chemical and petroleum
products. Governmental authorities have the power to enforce
compliance with applicable regulations and permits and to
subject violators to civil and criminal penalties, including
substantial fines, injunctions or both. Third parties may also
have the right to pursue legal actions to enforce compliance.
We will make expenditures in connection with environmental
matters as part of normal capital expenditure programs. However,
future environmental law developments, such as stricter laws,
regulations, permits or enforcement policies, could
significantly increase some costs of our operations, including
the handling, manufacture, use, emission or disposal of
substances and wastes. Moreover, as with other companies engaged
in similar or related businesses, our operations have some risk
of environmental costs and liabilities because we handle
petroleum products.
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Federal, state or local regulatory measures could
materially adversely affect our business. |
The Federal Energy Regulatory Commission, or FERC, regulates our
interstate natural gas pipelines, interstate natural gas storage
facilities and interstate NGL and petrochemical pipelines, while
state regulatory agencies regulate our intrastate natural gas
and NGL pipelines, intrastate storage facilities and gathering
lines. This federal and state regulation extends to such matters
as:
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rate structures; |
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rates of return on equity; |
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recovery of costs; |
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the services that our regulated assets are permitted to perform; |
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the acquisition, construction and disposition of assets; and |
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to an extent, the level of competition in that regulated
industry. |
Our latest Annual Report on Form 10-K, which is
incorporated by reference into this prospectus, contains a
general overview of FERC and state regulation applicable to our
energy infrastructure assets. This regulatory oversight can
affect certain aspects of our business and the market for our
products and could materially adversely affect our cash flow.
Please read Business and Properties Regulation
and Environmental Matters in our latest Annual Report on
Form 10-K.
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Under the Natural Gas Act, FERC has authority to regulate our
natural gas companies that provide natural gas pipeline
transportation services in interstate commerce. Its authority to
regulate those services includes the rates charged for the
services, terms and conditions of service, certification and
construction of new facilities, the acquisition, extension,
disposition or abandonment of facilities, the maintenance of
accounts and records, the initiation and discontinuation of
services, and various other matters. Pursuant to FERCs
jurisdiction over interstate gas pipeline rates, existing
pipeline rates may be challenged by customer complaint or by the
FERC and proposed rate increases may be challenged by protest.
For example, in December 2002, High Island Offshore System,
L.L.C., or HIOS, an interstate natural gas pipeline owned by us,
filed a rate case pursuant to Section 4 of the Natural Gas
Act before FERC to increase its transportation rates. FERC
accepted HIOS tariff sheets implementing the new rates,
subject to refund, and set certain issues for hearing before an
Administrative Law Judge, or ALJ. The ALJ issued an initial
decision on the issues set for hearing on April 22, 2004,
proposing rates lower than the rate initially proposed by HIOS.
In response to the ALJs initial decision, HIOS filed, on
August 5, 2004, a settlement agreement whereby HIOS
proposed to implement its rates in effect prior to this
proceeding for a prospective three-year period.
On January 24, 2005, FERC issued an order rejecting
HIOSs settlement offer and generally affirming the
ALJs initial decision, resulting in rates significantly
lower than the rate proposed in HIOS settlement offer.
FERCs January 24 order may be subject to requests for
rehearing and appeal to federal court. We are not able to
predict the outcome of the HIOS proceeding, but an adverse
outcome in this proceeding or any other rate case proceedings to
which we may be a party in the future could adversely affect our
results of operations, cash flows and financial position.
FERC also has authority under the Interstate Commerce Act, or
ICA, to regulate the rates, terms, and conditions applied to our
interstate pipelines engaged in the transportation of NGLs and
petrochemicals (commonly known as oil pipelines).
Pursuant to the ICA, oil pipeline rates can be challenged at
FERC either by protest, when they are initially filed or
increased, or by complaint at any time they remain on file with
the jurisdictional agency.
We have interests in natural gas pipeline facilities offshore
from Texas and Louisiana. These facilities are subject to
regulation by FERC and other federal agencies, including the
Department of Interior, under the Outer Continental Shelf Lands
Act, and by the Department of Transportations Office of
Pipeline Safety under the Natural Gas Pipeline Safety Act.
Our intrastate NGL and natural gas pipelines are subject to
regulation in Alabama, Colorado, Louisiana, Mississippi, New
Mexico and Texas. We also have natural gas underground storage
facilities in Louisiana, Mississippi and Texas. Some of our
intrastate natural gas pipelines and storage facilities are
subject to regulation by the FERC pursuant to Section 311
of the Natural Gas Policy Act, or NGPA. Although state
regulation is typically less onerous than at FERC, proposed and
existing rates subject to state regulation are also subject to
challenge by protest and complaint, respectively.
On July 20, 2004, the United States Court of Appeals for
the District of Columbia Circuit issued its opinion in BP West
Coast Products, LLC v. FERC, which upheld FERCs
determination that SFPPs rates were grandfathered rates
under the Energy Policy Act and that SFPPs shippers had
not demonstrated substantially changed circumstances that would
justify modification of those rates. The court also stated that
FERC had not provided reasonable decision-making in support of
its Lakehead policy. In Lakehead, the FERC allowed a regulated
entity organized as a master limited partnership to include in
its cost of service an income tax allowance to the extent that
its unitholders were corporations subject to income tax. The
court remanded the issue of the appropriate income tax allowance
for a pipeline owned by a master limited partnership and the
issue of whether SFPPs revised cost of service without the
tax allowance would qualify as a substantially changed
circumstance that would justify modification of SFPPs
rates. Because the court remanded to the FERC and because the
FERCs ruling will focus on the facts and record presented
to it, it is not clear what impact, if any, the opinion will
have on our rates or on the rates of other FERC-jurisdictional
pipelines organized as tax pass-through entities. On
December 2, 2004, the FERC issued a Notice of Inquiry in
Docket No. PL05-5 suggesting that BP West Coast may not be
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limited to the specific facts. Specifically, FERC requested
comments regarding whether the courts opinion should apply
only to the specific facts of that case, or whether it should
apply more broadly, and, if the latter, what effect that ruling
might have on energy infrastructure investments. It is not clear
what action the FERC will take in response to BP West Coast
after considering comments filed, to what extent such action
will be challenged and, if so, whether it will withstand further
FERC or judicial review.
Parties could challenge the rates of our common carrier
interstate liquid pipelines and our interstate natural gas
pipelines and argue that the rationale in the BP West Coast
decision, regarding tax allowances, should be applied. While it
is possible that party might challenge these rates, it is not
possible to predict the likelihood that such a challenge would
succeed at the FERC.
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Terrorist attacks aimed at our facilities could adversely
affect our business. |
Since the September 11, 2001 terrorist attacks on the
United States, the United States government has issued warnings
that energy assets, including our nations pipeline
infrastructure, may be the future target of terrorist
organizations. Any terrorist attack on our facilities, those of
our customers and, in some cases, those of other pipelines,
could have a material adverse effect on our business. An
escalation of political tensions in the Middle East and
elsewhere, such as the recent commencement of United States
military action in Iraq, could result in increased volatility in
the worlds energy markets and result in a material adverse
effect on our business.
Risks Related to Our Common Units as a Result of Our
Partnership Structure
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We may not have sufficient cash from operations to pay
distributions at the current level following establishment of
cash reserves and payments of fees and expenses, including
payments to our general partner. |
Because distributions on our common units are dependent on the
amount of cash we generate, distributions may fluctuate based on
our performance. We cannot guarantee that we will continue to
pay distributions at the current level each quarter. The actual
amount of cash that is available to be distributed each quarter
will depend upon numerous factors, some of which are beyond our
control and the control of our general partner. These factors
include but are not limited to the following:
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the level of our operating costs; |
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the level of competition in our business segments; |
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prevailing economic conditions; |
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the level of capital expenditures we make; |
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the restrictions contained in our debt agreements and our debt
service requirements; |
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fluctuations in our working capital needs; |
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the cost of acquisitions, if any; and |
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the amount, if any, of cash reserves established by our general
partner, in its discretion. |
In addition, you should be aware that our ability to pay the
minimum quarterly distribution each quarter depends primarily on
our cash flow, including cash flow from financial reserves and
working capital borrowings, and not solely on profitability,
which is affected by non-cash items. As a result, we may make
cash distributions during periods when we record losses and we
may not make distributions during periods when we record net
income.
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We do not have the same flexibility as other types of
organizations to accumulate cash and equity to protect against
illiquidity in the future. |
Unlike a corporation, our partnership agreement requires us to
make quarterly distributions to our unitholders of all available
cash reduced by any amounts of reserves for commitments and
contingencies,
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including capital and operating costs and debt service
requirements. The value of our common units may decrease in
direct correlation with decreases in the amount we distribute
per common unit. Accordingly, if we experience a liquidity
problem in the future, we may not be able to issue more equity
to recapitalize.
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Cost reimbursements due our general partner may be
substantial and will reduce our cash available for distribution
to holders of common units. |
Prior to making any distribution on our common units, we will
reimburse our general partner and its affiliates, including
officers and directors of our general partner, for expenses they
incur on our behalf. The reimbursement of expenses could
adversely affect our ability to pay cash distributions to
holders of common units. Our general partner has sole discretion
to determine the amount of these expenses, subject to an annual
limit. In addition, our general partner and its affiliates may
provide us other services for which we will be charged fees as
determined by our general partner.
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Our general partner and its affiliates have limited
fiduciary responsibilities and conflicts of interest with
respect to our partnership. |
The directors and officers of our general partner and its
affiliates have duties to manage the general partner in a manner
that is beneficial to its members. At the same time, our general
partner has duties to manage our partnership in a manner that is
beneficial to us. Therefore, our general partners duties
to us may conflict with the duties of its officers and directors
to its members.
Such conflicts may include, among others, the following:
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decisions of our general partner regarding the amount and timing
of asset purchases and sales, cash expenditures, borrowings,
issuances of additional units and reserves in any quarter may
affect the level of cash available to pay quarterly
distributions to unitholders and the general partner; |
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under our partnership agreement, our general partner determines
which costs incurred by it and its affiliates are reimbursable
by us; |
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our general partner is allowed to take into account the
interests of parties other than us, such as EPCO, in resolving
conflicts of interest, which has the effect of limiting its
fiduciary duty to unitholders; |
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affiliates of our general partner may compete with us in certain
circumstances; |
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our general partner may limit its liability and reduce its
fiduciary duties, while also restricting the remedies available
to unitholders for actions that might, without the limitations,
constitute breaches of fiduciary duty. As a result of purchasing
units, you are deemed to consent to some actions and conflicts
of interest that might otherwise constitute a breach of
fiduciary or other duties under applicable law; |
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we do not have any employees and we rely solely on employees of
the general partner and its affiliates; and |
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in some instances, our general partner may cause us to borrow
funds in order to permit the payment of distributions, even if
the purpose or effect of the borrowing is to make incentive
distributions. |
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Even if unitholders are dissatisfied, they cannot easily
remove our general partner. |
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
did not elect our general partner or the directors of the
general partner and will have no right to elect our general
partner or the directors of our general partner on an annual or
other continuing basis.
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Furthermore, if unitholders are dissatisfied with the
performance of our general partner, they will have little
ability to remove our general partner without its consent. Our
general partner may not be removed except upon the vote of the
holders of at least 64% of the outstanding units voting together
as a single class. Because affiliates of our general partner own
more than 36% of our outstanding units, the general partner
currently cannot be removed without the consent of the general
partner and its affiliates.
Unitholders voting rights are further restricted by the
partnership agreement provision stating that any units held by a
person that owns 20% or more of any class of units then
outstanding, other than our general partner and its affiliates,
cannot be voted on any matter. In addition, the partnership
agreement contains provisions limiting the ability of
unitholders to call meetings or to acquire information about our
operations, as well as other provisions limiting the
unitholders ability to influence the manner or direction
of management.
As a result of these provisions, the price at which the common
units will trade may be lower because of the absence or
reduction of a takeover premium in the trading price.
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We may issue additional common units without the approval
of common unitholders, which would dilute their existing
ownership interests. |
The issuance of additional common units or other equity
securities of equal or senior rank will have the following
effects:
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the proportionate ownership interest of common unitholders in us
will decrease; |
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the amount of cash available for distribution on each unit may
decrease; |
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the relative voting strength of each previously outstanding unit
may be diminished; and |
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the market price of the common units may decline. |
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Our general partner has a limited call right that may
require common unitholders to sell their units at an undesirable
time or price. |
If at any time our general partner and its affiliates own 85%
more of the common units then outstanding, our general partner
will have the right, but not the obligation, which it may assign
to any of its affiliates or to us, to acquire all, but not less
than all, of the remaining common units held by unaffiliated
persons at a price not less than their then current market
price. As a result, common unitholders may be required to sell
their common units at an undesirable time or price and may
therefore not receive any return on their investment. They may
also incur a tax liability upon a sale of their units. Under our
partnership agreement, Shell is not deemed to be an affiliate of
our general partner for purposes of this limited call right.
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Common unitholders may not have limited liability if a
court finds that limited partner actions constitute control of
our business. |
Under Delaware law, common unitholders could be held liable for
our obligations to the same extent as a general partner if a
court determined that the right of limited partners to remove
our general partner or to take other action under the
partnership agreement constituted participation in the
control of our business.
Under Delaware law, the general partner generally has unlimited
liability for the obligations of the partnership, such as its
debts and environmental liabilities, except for those
contractual obligations of the partnership that are expressly
made without recourse to the general partner.
In addition, Section 17-607 of the Delaware Revised Uniform
Limited Partnership Act provides that, under some circumstances,
a limited partner may be liable to us for the amount of a
distribution for a period of three years from the date of the
distribution.
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A large number of our outstanding common units may be sold
in the market, which may depress the market price of our common
units. |
Sales of a substantial number of our common units in the public
market could cause the market price of our common units to
decline. As of March 1, 2005, a total of approximately
381.3 million of our common units were outstanding. Shell
owns 36,572,122 of our common units, representing approximately
9.6% of our outstanding common units at March 1, 2005, and
has publicly announced its intention to reduce its holdings of
our common units on an orderly schedule over a period of years,
taking into account market conditions. Under a registration
rights agreement, we are obligated, subject to certain
limitations and conditions, to register the common units held by
Shell for resale. All of the common units held by Shell are
registered for resale under the registration statement of which
this prospectus is a part. Please read Selling
Unitholders and Plan of Distribution
Distribution by Selling Unitholders.
Sales of a substantial number of these common units in the
trading markets, whether in a single transaction or series of
transactions, or the possibility that these sales may occur,
could reduce the market price of our outstanding common units.
In addition, these sales, or the possibility that these sales
may occur, could make it more difficult for us to sell our
common units in the future.
Tax Risks to Common Unitholders
You are urged to read Material Tax Consequences
beginning on page 41 for a more complete discussion of the
expected material federal income tax consequences of owning and
disposing of common units.
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The IRS could treat us as a corporation for tax purposes,
which would substantially reduce the cash available for
distribution to common unitholders. |
The anticipated after-tax economic benefit of an investment in
the common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the IRS on
this matter.
If we were classified as a corporation for federal income tax
purposes, we would pay federal income tax on our income at the
corporate tax rate, which is currently a maximum of 35%, and we
likely would pay state taxes as well. Distributions to you would
generally be taxed again to you as corporate distributions, and
no income, gains, losses or deductions would flow through to
you. Because a tax would be imposed upon us as a corporation,
the cash available for distribution to you would be
substantially reduced. Therefore, treatment of us as a
corporation would result in a material reduction in the
after-tax return to you, likely causing a substantial reduction
in the value of the common units.
A change in current law or a change in our business could cause
us to be taxed as a corporation for federal income tax purposes
or otherwise subject us to entity-level taxation. Our
partnership agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, then the minimum quarterly distribution and the
target distribution levels will be decreased to reflect that
impact on us.
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A successful IRS contest of the federal income tax
positions we take may adversely impact the market for common
units, and the costs of any contests will be borne by our
unitholders and our general partner. |
We have not requested a ruling from the IRS with respect to any
matter affecting us. The IRS may adopt positions that differ
from the conclusions of our counsel expressed in the
accompanying prospectus or from the positions we take. It may be
necessary to resort to administrative or court proceedings to
sustain some or all of our counsels conclusions or the
positions we take. A court may not agree with some or all of our
counsels conclusions or the positions we take. Any contest
with the IRS may materially and adversely impact the market for
common units and the price at which they trade. In addition, the
costs of
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any contest with the IRS, principally legal, accounting and
related fees, will be borne indirectly by our unitholders and
our general partner.
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Common unitholders may be required to pay taxes even if
they do not receive any cash distributions. |
Common unitholders will be required to pay federal income taxes
and, in some cases, state, local and foreign income taxes on
their share of our taxable income even if they do not receive
any cash distributions from us. They may not receive cash
distributions from us equal to their share of our taxable income
or even equal to the actual tax liability that results from
their share of our taxable income.
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Tax gain or loss on the disposition of common units could
be different than expected. |
If you sell your common units, you will recognize gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Prior distributions to you in
excess of the total net taxable income you were allocated for a
common unit, which decreased your tax basis in that common unit,
will, in effect, become taxable income to you if the common unit
is sold at a price greater than your tax basis in that common
unit, even if the price you receive is less than your original
cost. A substantial portion of the amount realized, whether or
not representing gain, may be ordinary income to you.
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Tax-exempt entities, regulated investment companies and
foreign persons face unique tax issues from owning common units
that may result in adverse tax consequences to them. |
Investment in common units by tax-exempt entities, such as
individual retirement accounts (known as IRAs), regulated
investment companies (known as mutual funds) and foreign persons
raises issues unique to them. For example, virtually all of our
income allocated to unitholders who are organizations exempt
from federal income tax, including individual retirement
accounts and other retirement plans, will be unrelated business
taxable income and will be taxable to them. Recent legislation
treats net income derived from the ownership of certain publicly
traded partnerships (including us) as qualifying income to a
regulated investment company. However, this legislation is only
effective for taxable years beginning after October 22,
2004, the date of enactment. For taxable years beginning prior
to the date of enactment, very little of our income will be
qualifying income to a regulated investment company.
Distributions to non-U.S. persons will be reduced by
withholding taxes at the highest applicable effective tax rate,
and non-U.S. persons will be required to file United States
federal income tax returns and pay tax on their share of our
taxable income.
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We will treat each purchaser of common units as having the
same tax benefits without regard to the units purchased. The IRS
may challenge this treatment, which could adversely affect the
value of our common units. |
Because we cannot match transferors and transferees of common
units, we adopt depreciation and amortization positions that may
not conform with all aspects of applicable Treasury regulations.
A successful IRS challenge to those positions could adversely
affect the amount of tax benefits available to a common
unitholder. It also could affect the timing of these tax
benefits or the amount of gain from a sale of common units and
could have a negative impact on the value of the common units or
result in audit adjustments to the common unitholders tax
returns.
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Common unitholders will likely be subject to state and
local taxes and return filing requirements in states where they
do not live as a result of an investment in our common
units. |
In addition to federal income taxes, common unitholders will
likely be subject to other taxes, including state and local
income taxes, unincorporated business taxes and estate,
inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property and in
which they do not reside. Common unitholders will likely be
required to file state and local income tax returns and pay
state and local income taxes in some or all of the various
jurisdictions in which we do business or own property. Further,
they may be subject to penalties for failure to comply with
those requirements. It is
15
the responsibility of the common unitholder to file all United
States federal, state and local tax returns. Our counsel has not
rendered an opinion on the state or local tax consequences of an
investment in the common units.
USE OF PROCEEDS
We will use the net proceeds from any sale of securities
described in this prospectus for future business acquisitions
and other general corporate purposes, such as working capital,
investments in subsidiaries, the retirement of existing debt
and/or the repurchase of common units or other securities. The
prospectus supplement will describe the actual use of the net
proceeds from the sale of securities. The exact amounts to be
used and when the net proceeds will be applied to corporate
purposes will depend on a number of factors, including our
funding requirements and the availability of alternative funding
sources.
We will not receive any proceeds from any sale of common units
by any selling unitholders unless otherwise indicated in a
prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for Enterprise Products
Partners for each of the periods indicated are as follows:
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Year Ended December 31, |
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Nine Months Ended |
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September 30, |
1999 |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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5.8 |
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6.4 |
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5.1 |
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2.1 |
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2.0 |
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2.5 |
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For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items:
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pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees; |
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plus fixed charges; |
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plus distributed income of equity investees; |
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less capitalized interest; and |
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less minority interest in pre-tax income of subsidiaries that
have not incurred fixed charges. |
The term fixed charges means the sum of the
following:
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interest expense and capitalized , including amortized premiums,
discounts and capitalized expenses related to
indebtedness; and |
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an estimate of the interest within rental expenses. |
DESCRIPTION OF DEBT SECURITIES
In this Description of Debt Securities references to the
Issuer mean only Enterprise Products Operating L.P.
and not its subsidiaries. References to the
Guarantor mean only Enterprise Products Partners
L.P. and not its subsidiaries. References to we and
us mean the Issuer and the Guarantor collectively.
The debt securities will be issued under an Indenture dated as
of October 4, 2004 (the Indenture), among
the Issuer, the Guarantor, and Wells Fargo Bank, National
Association, as trustee (the Trustee). The terms of
the debt securities will include those expressly set forth in
the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the Trust
Indenture
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Act). Capitalized terms used in this Description of Debt
Securities have the meanings specified in the Indenture.
This Description of Debt Securities is intended to be a useful
overview of the material provisions of the debt securities and
the Indenture. Since this Description of Debt Securities is only
a summary, you should refer to the Indenture for a complete
description of our obligations and your rights.
General
The Indenture does not limit the amount of debt securities that
may be issued thereunder. Debt securities may be issued under
the Indenture from time to time in separate series, each up to
the aggregate amount authorized for such series. The debt
securities will be general obligations of the Issuer and the
Guarantor and may be subordinated to Senior Indebtedness of the
Issuer and the Guarantor. See
Subordination.
A prospectus supplement and a supplemental indenture (or a
resolution of our Board of Directors and accompanying
officers certificate) relating to any series of debt
securities being offered will include specific terms relating to
the offering. These terms will include some or all of the
following:
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the form and title of the debt securities; |
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the total principal amount of the debt securities; |
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the portion of the principal amount which will be payable if the
maturity of the debt securities is accelerated; |
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the currency or currency unit in which the debt securities will
be paid, if not U.S. dollars; |
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any right we may have to defer payments of interest by extending
the dates payments are due whether interest on those deferred
amounts will be payable as well; |
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the dates on which the principal of the debt securities will be
payable; |
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the interest rate which the debt securities will bear and the
interest payment dates for the debt securities; |
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any optional redemption provisions; |
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities; |
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any changes to or additional Events of Default or covenants; |
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whether the debt securities are to be issued as Registered
Securities or Bearer Securities or both; and any special
provisions for Bearer Securities; |
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the subordination, if any, of the debt securities and any
changes to the subordination provisions of the
Indenture; and |
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any other terms of the debt securities. |
The prospectus supplement will also describe any material United
States federal income tax consequences or other special
considerations applicable to the applicable series of debt
securities, including those applicable to:
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Bearer Securities; |
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debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index or
formula, including changes in prices of particular securities,
currencies or commodities; |
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debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency; |
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debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that
at the time of issuance is below market rates; and |
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variable rate debt securities that are exchangeable for fixed
rate debt securities. |
At our option, we may make interest payments, by check mailed to
the registered holders thereof or, if so stated in the
applicable prospectus supplement, at the option of a holder by
wire transfer to an account designated by the holder. Except as
otherwise provided in the applicable prospectus supplement, no
payment on a Bearer Security will be made by mail to an address
in the United States or by wire transfer to an account in the
United States.
Registered Securities may be transferred or exchanged, and they
may be presented for payment, at the office of the Trustee or
the Trustees agent in New York City indicated in the
applicable prospectus supplement, subject to the limitations
provided in the Indenture, without the payment of any service
charge, other than any applicable tax or governmental charge.
Bearer Securities will be transferable only by delivery.
Provisions with respect to the exchange of Bearer Securities
will be described in the applicable prospectus supplement.
Any funds we pay to a paying agent for the payment of amounts
due on any debt securities that remain unclaimed for two years
will be returned to us, and the holders of the debt securities
must thereafter look only to us for payment thereof.
Guarantee
The Guarantor will unconditionally guarantee to each holder and
the Trustee the full and prompt payment of principal of,
premium, if any, and interest on the debt securities, when and
as the same become due and payable, whether at maturity, upon
redemption or repurchase, by declaration of acceleration or
otherwise.
Certain Covenants
Except as set forth below or as may be provided in a prospectus
supplement and supplemental indenture, neither the Issuer nor
the Guarantor is restricted by the Indenture from incurring any
type of indebtedness or other obligation, from paying dividends
or making distributions on its partnership interests or capital
stock or purchasing or redeeming its partnership interests or
capital stock. The Indenture does not require the maintenance of
any financial ratios or specified levels of net worth or
liquidity. In addition, the Indenture does not contain any
provisions that would require the Issuer to repurchase or redeem
or otherwise modify the terms of any of the debt securities upon
a change in control or other events involving the Issuer which
may adversely affect the creditworthiness of the debt securities.
Limitations on Liens. The Indenture provides that the
Guarantor will not, nor will it permit any Subsidiary to,
create, assume, incur or suffer to exist any mortgage, lien,
security interest, pledge, charge or other encumbrance
(liens) other than Permitted Liens (as defined
below) upon any Principal Property (as defined below) or upon
any shares of capital stock of any Subsidiary owning or leasing,
either directly or through ownership in another Subsidiary, any
Principal Property (a Restricted Subsidiary),
whether owned or leased on the date of the Indenture or
thereafter acquired, to secure any indebtedness for borrowed
money (debt) of the Guarantor or the Issuer or any
other person (other than the debt securities), without in any
such case making effective provision whereby all of the debt
securities outstanding shall be secured equally and ratably
with, or prior to, such debt so long as such debt shall be so
secured.
In the Indenture, the term Consolidated Net Tangible
Assets means, at any date of determination, the total
amount of assets of the Guarantor and its consolidated
subsidiaries after deducting therefrom:
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(1) all current liabilities (excluding (A) any current
liabilities that by their terms are extendable or renewable at
the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is
being computed, and (B) current maturities of long-term
debt); and |
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(2) the value (net of any applicable reserves) of all
goodwill, trade names, trademarks, patents and other like
intangible assets, all as set forth, or on a pro forma basis
would be set forth, on the consolidated balance sheet of the
Guarantor and its consolidated subsidiaries for the
Guarantors most recently completed fiscal quarter,
prepared in accordance with generally accepted accounting
principles. |
Permitted Liens means:
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(1) liens upon rights-of-way for pipeline purposes; |
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(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics, repairmens,
materialmens, suppliers, carriers,
landlords, warehousemens or similar lien incurred in
the ordinary course of business which is not yet due or which is
being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction,
development, improvement or repair; or any right reserved to, or
vested in, any municipality or public authority by the terms of
any right, power, franchise, grant, license, permit or by any
provision of law, to purchase or recapture or to designate a
purchaser of, any property; |
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(3) liens for taxes and assessments which are (a) for
the then current year, (b) not at the time delinquent, or
(c) delinquent but the validity or amount of which is being
contested at the time by the Guarantor or any Subsidiary in good
faith by appropriate proceedings; |
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(4) liens of, or to secure performance of, leases, other
than capital leases; or any lien securing industrial
development, pollution control or similar revenue bonds; |
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(5) any lien upon property or assets acquired or sold by
the Guarantor or any Subsidiary resulting from the exercise of
any rights arising out of defaults on receivables; |
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(6) any lien in favor of the Guarantor or any Subsidiary;
or any lien upon any property or assets of the Guarantor or any
Subsidiary in existence on the date of the execution and
delivery of the Indenture; |
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(7) any lien in favor of the United States of America or
any state thereof, or any department, agency or instrumentality
or political subdivision of the United States of America or any
state thereof, to secure partial, progress, advance, or other
payments pursuant to any contract or statute, or any debt
incurred by the Issuer or any Subsidiary for the purpose of
financing all or any part of the purchase price of, or the cost
of constructing, developing, repairing or improving, the
property or assets subject to such lien; |
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(8) any lien incurred in the ordinary course of business in
connection with workmens compensation, unemployment
insurance, temporary disability, social security, retiree health
or similar laws or regulations or to secure obligations imposed
by statute or governmental regulations; |
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(9) liens in favor of any person to secure obligations
under provisions of any letters of credit, bank guarantees,
bonds or surety obligations required or requested by any
governmental authority in connection with any contract or
statute; or any lien upon or deposits of any assets to secure
performance of bids, trade contracts, leases or statutory
obligations; |
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(10) any lien upon any property or assets created at the
time of acquisition of such property or assets by the Guarantor
or any Subsidiary or within one year after such time to secure
all or a portion of the purchase price for such property or
assets or debt incurred to finance such purchase price, whether
such debt was incurred prior to, at the time of or within one
year after the date of such acquisition; or any lien upon any
property or assets to secure all or part of the cost of
construction, development, repair or improvements thereon or to
secure debt incurred prior to, at the time of, or within one
year after completion of such construction, development, repair
or improvements or the commencement of full operations thereof
(whichever is later), to provide funds for any such purpose; |
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(11) any lien upon any property or assets existing thereon
at the time of the acquisition thereof by the Guarantor or any
Subsidiary and any lien upon any property or assets of a person
existing |
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thereon at the time such person becomes a Subsidiary by
acquisition, merger or otherwise; provided that, in each case,
such lien only encumbers the property or assets so acquired or
owned by such person at the time such person becomes a
Subsidiary; |
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(12) liens imposed by law or order as a result of any
proceeding before any court or regulatory body that is being
contested in good faith, and liens which secure a judgment or
other court-ordered award or settlement as to which the
Guarantor or the applicable Subsidiary has not exhausted its
appellate rights; |
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(13) any extension, renewal, refinancing, refunding or
replacement (or successive extensions, renewals, refinancing,
refunding or replacements) of liens, in whole or in part,
referred to in clauses (1) through (12) above;
provided, however, that any such extension, renewal,
refinancing, refunding or replacement lien shall be limited to
the property or assets covered by the lien extended, renewed,
refinanced, refunded or replaced and that the obligations
secured by any such extension, renewal, refinancing, refunding
or replacement lien shall be in an amount not greater than the
amount of the obligations secured by the lien extended, renewed,
refinanced, refunded or replaced and any expenses of the
Guarantor and its Subsidiaries (including any premium) incurred
in connection with such extension, renewal, refinancing,
refunding or replacement; or |
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(14) any lien resulting from the deposit of moneys or
evidence of indebtedness in trust for the purpose of defeasing
debt of the Guarantor or any Subsidiary. |
Principal Property means, whether owned or
leased on the date of the Indenture or thereafter acquired:
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(1) any pipeline assets of the Guarantor or any Subsidiary,
including any related facilities employed in the transportation,
distribution, storage or marketing of refined petroleum
products, natural gas liquids, and petrochemicals, that are
located in the United States of America or any territory or
political subdivision thereof; and |
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(2) any processing or manufacturing plant or terminal owned
or leased by the Guarantor or any Subsidiary that is located in
the United States or any territory or political subdivision
thereof, |
except, in the case of either of the foregoing clauses (1)
or (2):
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(a) any such assets consisting of inventories, furniture,
office fixtures and equipment (including data processing
equipment), vehicles and equipment used on, or useful with,
vehicles; and |
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(b) any such assets, plant or terminal which, in the
opinion of the board of directors of the general partner of the
Issuer, is not material in relation to the activities of the
Issuer or of the Guarantor and its Subsidiaries taken as a whole. |
Subsidiary means:
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(1) the Issuer; or |
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(2) any corporation, association or other business entity
of which more than 50% of the total voting power of the equity
interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof or any partnership of which more than 50% of
the partners equity interests (considering all
partners equity interests as a single class) is, in each
case, at the time owned or controlled, directly or indirectly,
by the Guarantor, the Issuer or one or more of the other
Subsidiaries of the Guarantor or the Issuer or combination
thereof. |
Notwithstanding the preceding, under the Indenture, the
Guarantor may, and may permit any Subsidiary to, create, assume,
incur, or suffer to exist any lien (other than a Permitted Lien)
upon any Principal Property or capital stock of a Restricted
Subsidiary to secure debt of the Guarantor, the Issuer or any
other person (other than the debt securities), without securing
the debt securities, provided that the aggregate principal
amount of all debt then outstanding secured by such lien and all
similar liens, together with all Attributable Indebtedness from
Sale-Leaseback Transactions (excluding Sale-Leaseback Transac-
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tions permitted by clauses (1) through (4), inclusive, of
the first paragraph of the restriction on sale-leasebacks
covenant described below) does not exceed 10% of Consolidated
Net Tangible Assets.
Restriction on Sale-Leasebacks. The Indenture provides
that the Guarantor will not, and will not permit any Subsidiary
to, engage in the sale or transfer by the Guarantor or any
Subsidiary of any Principal Property to a person (other than the
Issuer or a Subsidiary) and the taking back by the Guarantor or
any Subsidiary, as the case may be, of a lease of such Principal
Property (a Sale-Leaseback Transaction), unless:
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(1) such Sale-Leaseback Transaction occurs within one year
from the date of completion of the acquisition of the Principal
Property subject thereto or the date of the completion of
construction, development or substantial repair or improvement,
or commencement of full operations on such Principal Property,
whichever is later; |
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(2) the Sale-Leaseback Transaction involves a lease for a
period, including renewals, of not more than three years; |
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(3) the Guarantor or such Subsidiary would be entitled to
incur debt secured by a lien on the Principal Property subject
thereto in a principal amount equal to or exceeding the
Attributable Indebtedness from such Sale-Leaseback Transaction
without equally and ratably securing the debt securities; or |
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(4) the Guarantor or such Subsidiary, within a one-year
period after such Sale-Leaseback Transaction, applies or causes
to be applied an amount not less than the Attributable
Indebtedness from such Sale-Leaseback Transaction to
(a) the prepayment, repayment, redemption, reduction or
retirement of any debt of the Guarantor or any Subsidiary that
is not subordinated to the debt securities, or (b) the
expenditure or expenditures for Principal Property used or to be
used in the ordinary course of business of the Guarantor or its
Subsidiaries. |
Attributable Indebtedness, when used with respect to
any Sale-Leaseback Transaction, means, as at the time of
determination, the present value (discounted at the rate set
forth or implicit in the terms of the lease included in such
transaction) of the total obligations of the lessee for rental
payments (other than amounts required to be paid on account of
property taxes, maintenance, repairs, insurance, assessments,
utilities, operating and labor costs and other items that do not
constitute payments for property rights) during the remaining
term of the lease included in such Sale-Leaseback Transaction
(including any period for which such lease has been extended).
In the case of any lease that is terminable by the lessee upon
the payment of a penalty or other termination payment, such
amount shall be the lesser of the amount determined assuming
termination upon the first date such lease may be terminated (in
which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered
as required to be paid under such lease subsequent to the first
date upon which it may be so terminated) or the amount
determined assuming no such termination.
Notwithstanding the preceding, under the Indenture the Guarantor
may, and may permit any Subsidiary to, effect any Sale-Leaseback
Transaction that is not excepted by clauses (1) through
(4), inclusive, of the first paragraph under
Restrictions on Sale-Leasebacks,
provided that the Attributable Indebtedness from such
Sale-Leaseback Transaction, together with the aggregate
principal amount of all other such Attributable Indebtedness
deemed to be outstanding in respect of all Sale-Leaseback
Transactions and all outstanding debt (other than the debt
securities) secured by liens (other than Permitted Liens) upon
Principal Properties or upon capital stock of any Restricted
Subsidiary, do not exceed 10% of Consolidated Net Tangible
Assets.
Merger, Consolidation or Sale of Assets. The Indenture
provides that each of the Guarantor and the Issuer may, without
the consent of the holders of any of the debt securities,
consolidate with or sell, lease,
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convey all or substantially all of its assets to, or merge with
or into, any partnership, limited liability company or
corporation if:
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(1) the entity surviving any such consolidation or merger
or to which such assets shall have been transferred (the
successor) is either the Guarantor or the Issuer, as
applicable, or the successor is a domestic partnership, limited
liability company or corporation and expressly assumes all the
Guarantors or the Issuers, as the case may be,
obligations and liabilities under the Indenture and the debt
securities (in the case of the Issuer) and the Guarantee (in the
case of the Guarantor); |
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(2) immediately after giving effect to the transaction no
Default or Event of Default has occurred and is
continuing; and |
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(3) the Issuer and the Guarantor have delivered to the
Trustee an officers certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer
complies with the Indenture. |
The successor will be substituted for the Guarantor or the
Issuer, as the case may be, in the Indenture with the same
effect as if it had been an original party to the Indenture.
Thereafter, the successor may exercise the rights and powers of
the Guarantor or the Issuer, as the case may be, under the
Indenture, in its name or in its own name. If the Guarantor or
the Issuer sells or transfers all or substantially all of its
assets, it will be released from all liabilities and obligations
under the Indenture and under the debt securities (in the case
of the Issuer) and the Guarantee (in the case of the Guarantor)
except that no such release will occur in the case of a lease of
all or substantially all of its assets.
Events of Default
Each of the following will be an Event of Default under the
Indenture with respect to a series of debt securities:
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(1) default in any payment of interest on any debt
securities of that series when due, continued for 30 days; |
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(2) default in the payment of principal of or premium, if
any, on any debt securities of that series when due at its
stated maturity, upon optional redemption, upon declaration or
otherwise; |
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(3) failure by the Guarantor or the Issuer to comply for
60 days after notice with its other agreements contained in
the Indenture; |
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(4) certain events of bankruptcy, insolvency or
reorganization of the Issuer or the Guarantor (the
bankruptcy provisions); or |
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(5) the Guarantee ceases to be in full force and effect or
is declared null and void in a judicial proceeding or the
Guarantor denies or disaffirms its obligations under the
Indenture or the Guarantee. |
However, a default under clause (3) of this paragraph will
not constitute an Event of Default until the Trustee or the
holders of at least 25% in principal amount of the outstanding
debt securities of that series notify the Issuer and the
Guarantor of the default such default is not cured within the
time specified in clause (3) of this paragraph after
receipt of such notice.
An Event of Default for a particular series of debt securities
will not necessarily constitute an Event of Default for any
other series of debt securities that may be issued under the
Indenture. If an Event of Default (other than an Event of
Default described in clause (4) above) occurs and is
continuing, the Trustee by notice to the Issuer, or the holders
of at least 25% in principal amount of the outstanding debt
securities of that series by notice to the Issuer and the
Trustee, may, and the Trustee at the request of such holders
shall, declare the principal of, premium, if any, and accrued
and unpaid interest, if any, on all the debt securities of that
series to be due and payable. Upon such a declaration, such
principal, premium and accrued and unpaid interest will be due
and payable immediately. If an Event of Default described in
clause (4) above occurs and is continuing, the principal
of, premium, if any, and accrued and unpaid interest on all the
debt securities will become and be immediately due and payable
without any declaration
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or other act on the part of the Trustee or any holders. However,
the effect of such provision may be limited by applicable law.
The holders of a majority in principal amount of the outstanding
debt securities of a series may rescind any such acceleration
with respect to the debt securities of that series and its
consequences if rescission would not conflict with any judgment
or decree of a court of competent jurisdiction and all existing
Events of Default with respect to that series, other than the
nonpayment of the principal of, premium, if any, and interest on
the debt securities of that series that have become due solely
by such declaration of acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the
duties of the Trustee, if an Event of Default with respect to a
series of debt securities occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of
the holders of debt securities of that series, unless such
holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to
enforce the right to receive payment of principal, premium, if
any, or interest when due, no holder of debt securities of any
series may pursue any remedy with respect to the Indenture or
the debt securities of that series unless:
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(1) such holder has previously given the Trustee notice
that an Event of Default with respect to the debt securities of
that series is continuing; |
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(2) holders of at least 25% in principal amount of the
outstanding debt securities of that series have requested the
Trustee to pursue the remedy; |
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(3) such holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense; |
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(4) the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of
security or indemnity; and |
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(5) the holders of a majority in principal amount of the
outstanding debt securities of that series have not given the
Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. |
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding debt securities of each
series have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the
Trustee with respect to that series of debt securities. The
Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other
holder of debt securities of that series or that would involve
the Trustee in personal liability.
The Indenture provides that if a Default (that is, an event that
is, or after notice or the passage of time would be, an Event of
Default) with respect to the debt securities of a particular
series occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder of debt securities of that
series notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of
principal of, premium, if any, or interest on the debt
securities of that series, the Trustee may withhold notice, but
only if and so long as the Trustee in good faith determines that
withholding notice is in the interests of the holders of debt
securities of that series. In addition, the Issuer is required
to deliver to the Trustee, within 120 days after the end of
each fiscal year, an officers certificate as to compliance
with all covenants in the Indenture and indicating whether the
signers thereof know of any Default or Event of Default that
occurred during the previous year. The Issuer also is required
to deliver to the Trustee, within 30 days after the
occurrence thereof, an officers certificate specifying any
Default or Event of Default, its status and what action the
Issuer is taking or proposes to take in respect thereof.
Amendments and Waivers
Amendments of the Indenture may be made by the Issuer, the
Guarantor and the Trustee with the consent of the holders of a
majority in principal amount of all debt securities of each
series affected thereby then outstanding under the Indenture
(including consents obtained in connection with a tender
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offer or exchange offer for the debt securities). However,
without the consent of each holder of outstanding debt
securities affected thereby, no amendment may, among other
things:
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(1) reduce the percentage in principal amount of debt
securities whose holders must consent to an amendment; |
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(2) reduce the stated rate of or extend the stated time for
payment of interest on any debt securities; |
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(3) reduce the principal of or extend the stated maturity
of any debt securities; |
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(4) reduce the premium payable upon the redemption of any
debt securities or change the time at which any debt securities
may be redeemed; |
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(5) make any debt securities payable in money other than
that stated in the debt securities; |
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(6) impair the right of any holder to receive payment of,
premium, if any, principal of and interest on such holders
debt securities on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with
respect to such holders debt securities; |
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(7) make any change in the amendment provisions which
require each holders consent or in the waiver provisions; |
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(8) release any security that may have been granted in
respect of the debt securities; or |
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(9) release the Guarantor or modify the Guarantee in any
manner adverse to the holders. |
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series affected thereby, may
waive compliance by the Issuer and the Guarantor with certain
restrictive covenants on behalf of all holders of debt
securities of such series, including those described under
Certain Covenants Limitations on
Liens and Certain Covenants
Restriction on Sale-Leasebacks. The holders of a majority
in principal amount of the outstanding debt securities of each
series affected thereby, on behalf of all such holders, may
waive any past Default or Event of Default with respect to that
series (including any such waiver obtained in connection with a
tender offer or exchange offer for the debt securities), except
a Default or Event of Default in the payment of principal,
premium or interest or in respect of a provision that under the
Indenture that cannot be amended without the consent of all
holders of the series of debt securities that is affected.
Without the consent of any holder, the Issuer, the Guarantor and
the Trustee may amend the Indenture to:
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(1) cure any ambiguity, omission, defect or inconsistency; |
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(2) provide for the assumption by a successor of the
obligations of the Guarantor or the Issuer under the Indenture; |
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(3) provide for uncertificated debt securities in addition
to or in place of certificated debt securities (provided that
the uncertificated debt securities are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated debt securities are described in
Section 163(f)(2)(B) of the Code); |
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(4) add or release guarantees by any Subsidiary with
respect to the debt securities, in either case as provided in
the Indenture; |
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(5) secure the debt securities or a guarantee; |
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(6) add to the covenants of the Guarantor or the Issuer for
the benefit of the holders or surrender any right or power
conferred upon the Guarantor or the Issuer; |
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(7) make any change that does not adversely affect the
rights of any holder; |
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(8) comply with any requirement of the Commission in
connection with the qualification of the Indenture under the
Trust Indenture Act; and |
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(9) issue any other series of debt securities under the
Indenture. |
The consent of the holders is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the
proposed amendment. After an amendment requiring consent of the
holders becomes effective, the Issuer is required to mail to the
holders of an affected series a notice briefly describing such
amendment. However, the failure to give such notice to all such
holders, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance and Discharge
The Issuer at any time may terminate all its obligations under
the Indenture as they relate to a series of debt securities
(legal defeasance), except for certain obligations,
including those respecting the defeasance trust and obligations
to register the transfer or exchange of the debt securities of
that series, to replace mutilated, destroyed, lost or stolen
debt securities of that series and to maintain a registrar and
paying agent in respect of such debt securities.
The Issuer at any time may terminate its obligations under
covenants described under Certain
Covenants (other than Merger, Consolidation or Sale
of Assets) and the bankruptcy provisions with respect to
the Guarantor, and the Guarantee provision, described under
Events of Default above with respect to
a series of debt securities (covenant defeasance).
The Issuer may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance
option. If the Issuer exercises its legal defeasance option,
payment of the defeased series of debt securities may not be
accelerated because of an Event of Default with respect thereto.
If the Issuer exercises its covenant defeasance option, payment
of the affected series of debt securities may not be accelerated
because of an Event of Default specified in clause (3),
(4), (with respect only to the Guarantor) or (5) under
Events of Default above. If the Issuer
exercises either its legal defeasance option or its covenant
defeasance option, each guarantee will terminate with respect to
the debt securities of the defeased series and any security that
may have been granted with respect to such debt securities will
be released.
In order to exercise either defeasance option, the Issuer must
irrevocably deposit in trust (the defeasance trust)
with the Trustee money, U.S. Government Obligations (as
defined in the Indenture) or a combination thereof for the
payment of principal, premium, if any, and interest on the
relevant series of debt securities to redemption or maturity, as
the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an opinion of counsel
(subject to customary exceptions and exclusions) to the effect
that holders of that series of debt securities will not
recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject
to federal income tax on the same amounts and in the same manner
and at the same times as would have been the case if such
defeasance had not occurred. In the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal
income tax law.
In the event of any legal defeasance, holders of the debt
securities of the relevant series would be entitled to look only
to the trust fund for payment of principal of and any premium
and interest on their debt securities until maturity.
Although the amount of money and U.S. Government
Obligations on deposit with the Trustee would be intended to be
sufficient to pay amounts due on the debt securities of a
defeased series at the time of their stated maturity, if the
Issuer exercises its covenant defeasance option for the debt
securities of any series and the debt securities are declared
due and payable because of the occurrence of an Event of
Default, such amount may not be sufficient to pay amounts due on
the debt securities of that series at the
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time of the acceleration resulting from such Event of Default.
The Issuer would remain liable for such payments, however.
In addition, the Issuer may discharge all its obligations under
the Indenture with respect to debt securities of any series,
other than its obligation to register the transfer of and
exchange notes of that series, provided that it either:
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delivers all outstanding debt securities of that series to the
Trustee for cancellation; or |
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all such debt securities not so delivered for cancellation have
either become due and payable or will become due and payable at
their stated maturity within one year or are called for
redemption within one year, and in the case of this bullet point
the Issuer has deposited with the Trustee in trust an amount of
cash sufficient to pay the entire indebtedness of such debt
securities, including interest to the stated maturity or
applicable redemption date. |
Subordination
Debt securities of a series may be subordinated to our
Senior Indebtedness, which we define generally to
include all notes or other evidences of indebtedness for money
borrowed by the Issuer, including guarantees, that are not
expressly subordinate or junior in right of payment to any other
indebtedness of the Issuer. Subordinated debt securities and the
Guarantors guarantee thereof will be subordinate in right
of payment, to the extent and in the manner set forth in the
Indenture and the prospectus supplement relating to such series,
to the prior payment of all indebtedness of the Issuer and
Guarantor that is designated as Senior Indebtedness
with respect to the series.
The holders of Senior Indebtedness of the Issuer will receive
payment in full of the Senior Indebtedness before holders of
subordinated debt securities will receive any payment of
principal, premium or interest with respect to the subordinated
debt securities:
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upon any payment of distribution of our assets of the Issuer to
its creditors; |
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upon a total or partial liquidation or dissolution of the
Issuer; or |
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in a bankruptcy, receivership or similar proceeding relating to
the Issuer or its property. |
Until the Senior Indebtedness is paid in full, any distribution
to which holders of subordinated debt securities would otherwise
be entitled will be made to the holders of Senior Indebtedness,
except that such holders may receive units representing limited
partner interests and any debt securities that are subordinated
to Senior Indebtedness to at least the same extent as the
subordinated debt securities.
If the Issuer does not pay any principal, premium or interest
with respect to Senior Indebtedness within any applicable grace
period (including at maturity), or any other default on Senior
Indebtedness occurs and the maturity of the Senior Indebtedness
is accelerated in accordance with its terms, the Issuer may not:
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make any payments of principal, premium, if any, or interest
with respect to subordinated debt securities; |
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make any deposit for the purpose of defeasance of the
subordinated debt securities; or |
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repurchase, redeem or otherwise retire any subordinated debt
securities, except that in the case of subordinated debt
securities that provide for a mandatory sinking fund, we may
deliver subordinated debt securities to the Trustee in
satisfaction of our sinking fund obligation, |
unless, in either case,
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the default has been cured or waived and the declaration of
acceleration has been rescinded; |
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the Senior Indebtedness has been paid in full in cash; or |
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the Issuer and the Trustee receive written notice approving the
payment from the representatives of each issue of
Designated Senior Indebtedness. |
Generally, Designated Senior Indebtedness will
include:
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indebtedness for borrowed money under a bank credit agreement,
called Bank Indebtedness; and |
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any specified issue of Senior Indebtedness of at least
$100 million. |
During the continuance of any default, other than a default
described in the immediately preceding paragraph, that may cause
the maturity of any Senior Indebtedness to be accelerated
immediately without further notice, other than any notice
required to effect such acceleration, or the expiration of any
applicable grace periods, the Issuer may not pay the
subordinated debt securities for a period called the
Payment Blockage Period. A Payment Blockage Period
will commence on the receipt by us and the Trustee of written
notice of the default, called a Blockage Notice,
from the representative of any Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period.
The Payment Blockage Period may be terminated before its
expiration:
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by written notice from the person or persons who gave the
Blockage Notice; |
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by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or |
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if the default giving rise to the Payment Blockage Period is no
longer continuing. |
Unless the holders of Senior Indebtedness shall have accelerated
the maturity of the Senior Indebtedness, we may resume payments
on the subordinated debt securities after the expiration of the
Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any
period of 360 consecutive days unless the first Blockage Notice
within the 360-day period is given by holders of Designated
Senior Indebtedness, other than Bank Indebtedness, in which case
the representative of the Bank Indebtedness may give another
Blockage Notice within the period. The total number of days
during which any one or more Payment Blockage Periods are in
effect, however, may not exceed an aggregate of 179 days
during any period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the
subordinated debt securities are paid in full, holders of the
subordinated debt securities shall be subrogated to the rights
of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness.
By reason of the subordination, in the event of insolvency, our
creditors who are holders of Senior Indebtedness, as well as
certain of our general creditors, may recover more, ratably,
than the holders of the subordinated debt securities.
Book-Entry System
We will issue the debt securities in the form of one or more
global securities in fully registered form initially in the name
of Cede & Co., as nominee of DTC, or such other name as
may be requested by an authorized representative of DTC. The
global securities will be deposited with the Trustee as
custodian for DTC and may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee to a successor
of DTC or a nominee of such successor.
DTC has advised us as follows:
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DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. |
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DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of
securities transactions, such as transfers and pledges, in
deposited securities, through electronic computerized book-entry
changes in direct participants accounts, thereby
eliminating the need for physical movement of securities
certificates. |
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Direct participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations. |
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DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC
and the National Association of Securities Dealers, Inc. |
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Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. |
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The rules applicable to DTC and its direct and indirect
participants are on file with the Commission. |
Purchases of debt securities under the DTC system must be made
by or through direct participants, which will receive a credit
for the debt securities on DTCs records. The ownership
interest of each actual purchaser of debt securities is in turn
to be recorded on the direct and indirect participants
records. Beneficial owners of the debt securities will not
receive written confirmation from DTC of their purchase, but
beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect
participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the debt
securities are to be accomplished by entries made on the books
of direct and indirect participants acting on behalf of
beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the debt
securities, except in the event that use of the book-entry
system for the debt securities is discontinued.
To facilitate subsequent transfers, all debt securities
deposited by direct participants with DTC are registered in the
name of DTCs partnership nominee, Cede & Co., or
such other name as may be requested by an authorized
representative of DTC. The deposit of debt securities with DTC
and their registration in the name of Cede & Co. or
such other nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual beneficial owners
of the debt securities; DTCs records reflect only the
identity of the direct participants to whose accounts such debt
securities are credited, which may or may not be the beneficial
owners. The direct and indirect participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by, direct participants to indirect participants,
and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the global securities.
Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.s consenting or voting
rights to those direct participants to whose accounts the debt
securities are credited on the record date (identified in the
listing attached to the omnibus proxy).
All payments on the global securities will be made to
Cede & Co., as holder of record, or such other nominee
as may be requested by an authorized representative of DTC.
DTCs practice is to credit direct participants
accounts upon DTCs receipt of funds and corresponding
detail information from us or the Trustee on payment dates in
accordance with their respective holdings shown on DTCs
records. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in
bearer form or registered in street name, and will
be the responsibility of such participant and not of DTC, us or
the Trustee, subject to any
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statutory or regulatory requirements as may be in effect from
time to time. Payment of principal, premium, if any, and
interest to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) shall be the
responsibility of us or the Trustee. Disbursement of such
payments to direct participants shall be the responsibility of
DTC, and disbursement of such payments to the beneficial owners
shall be the responsibility of direct and indirect participants.
DTC may discontinue providing its service as securities
depositary with respect to the debt securities at any time by
giving reasonable notice to us or the Trustee. In addition, we
may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary).
Under such circumstances, in the event that a successor
securities depositary is not obtained, note certificates in
fully registered form are required to be printed and delivered
to beneficial owners of the global securities representing such
debt securities.
Neither we nor the Trustee will have any responsibility or
obligation to direct or indirect participants, or the persons
for whom they act as nominees, with respect to the accuracy of
the records of DTC, its nominee or any participant with respect
to any ownership interest in the debt securities, or payments
to, or the providing of notice to participants or beneficial
owners.
So long as the debt securities are in DTCs book-entry
system, secondary market trading activity in the debt securities
will settle in immediately available funds. All payments on the
debt securities issued as global securities will be made by us
in immediately available funds.
Limitations on Issuance of Bearer Securities
The debt securities of a series may be issued as Registered
Securities (which will be registered as to principal and
interest in the register maintained by the registrar for the
debt securities) or Bearer Securities (which will be
transferable only by delivery). If the debt securities are
issuable as Bearer Securities, certain special limitations and
conditions will apply.
In compliance with United States federal income tax laws and
regulations, we and any underwriter, agent or dealer
participating in an offering of Bearer Securities will agree
that, in connection with the original issuance of the Bearer
Securities and during the period ending 40 days after the
issue date, they will not offer, sell or deliver any such Bearer
Securities, directly or indirectly, to a United States Person
(as defined below) or to any person within the United States,
except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect:
Any United States person who holds this obligation will be
subject to limitations under the United States federal income
tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue
Code. The sections referred to in the legend provide that,
with certain exceptions, a United States taxpayer who holds
Bearer Securities will not be allowed to deduct any loss with
respect to, and will not be eligible for capital gain treatment
with respect to any gain realized on the sale, exchange,
redemption or other disposition of, the Bearer Securities.
For this purpose, United States includes the United
States of America and its possessions, and United States
person means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
or under the laws of the United States, or an estate or trust
the income of which is subject to United States federal income
taxation regardless of its source.
Pending the availability of a definitive global security or
individual Bearer Securities, as the case may be, debt
securities that are issuable as Bearer Securities may initially
be represented by a single temporary global security, without
interest coupons, to be deposited with a common depositary for
the Euroclear System as operated by Euroclear Bank S.A./ N.V.
(Euroclear) and Clearstream Banking S.A.
(Clearstream, formerly Cedelbank), for credit to the
accounts designated by or on behalf of the purchasers thereof.
Following the availability of a definitive global security in
bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in
the applicable prospectus supplement, the temporary global
security will be exchangeable for interests in the definitive
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global security or for the individual Bearer Securities,
respectively, only upon receipt of a Certificate of
Non-U.S. Beneficial Ownership, which is a certificate
to the effect that a beneficial interest in a temporary global
security is owned by a person that is not a United States Person
or is owned by or through a financial institution in compliance
with applicable United States Treasury regulations. No Bearer
Security will be delivered in or to the United States. If so
specified in the applicable prospectus supplement, interest on a
temporary global security will be paid to each of Euroclear and
Clearstream with respect to that portion of the temporary global
security held for its account, but only upon receipt as of the
relevant interest payment date of a Certificate of
Non-U.S. Beneficial Ownership.
No Recourse Against General Partner
The Issuers general partner, the Guarantors general
partner and their respective directors, officers, employees and
members, as such, shall have no liability for any obligations of
the Issuer or the Guarantor under the debt securities, the
Indenture or the guarantee or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each
holder by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities
laws, and it is the view of the Commission that such a waiver is
against public policy.
Concerning the Trustee
The Indenture contains certain limitations on the right of the
Trustee, should it become our creditor, to obtain payment of
claims in certain cases, or to realize for its own account on
certain property received in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in
certain other transactions. However, if it acquires any
conflicting interest within the meaning of the Trust Indenture
Act, it must eliminate the conflict or resign as Trustee.
The holders of a majority in principal amount of all outstanding
debt securities (or if more than one series of debt securities
under the Indenture is affected thereby, all series so affected,
voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for
exercising any remedy or power available to the Trustee for the
debt securities or all such series so affected.
If an Event of Default occurs and is not cured under the
Indenture and is known to the Trustee, the Trustee shall
exercise such of the rights and powers vested in it by the
Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such
provisions, the Trustee will not be under any obligation to
exercise any of its rights or powers under the Indenture at the
request of any of the holders of debt securities unless they
shall have offered to such Trustee reasonable security and
indemnity.
Wells Fargo Bank, National Association is the Trustee under the
Indenture and has been appointed by the Issuer as Registrar and
Paying Agent with regard to the debt securities. Wells Fargo
Bank, National Association is a lender under the Issuers
credit facilities.
Governing Law
The Indenture, the debt securities and the guarantee are
governed by, and will be construed in accordance with, the laws
of the State of New York.
DESCRIPTION OF OUR COMMON UNITS
Generally, our common units represent limited partner interests
that entitle the holders to participate in our cash
distributions and to exercise the rights and privileges
available to limited partners under our partnership agreement.
For a description of the relative rights and preferences of
holders of common units
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and our general partner in and to cash distributions, please
read Cash Distribution Policy elsewhere in this
prospectus:
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Our outstanding common units are listed on the NYSE under the
symbol EPD. Any additional common units we issue
will also be listed on the NYSE. |
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The transfer agent and registrar for our common units is Mellon
Investor Services LLC. |
Meetings/ Voting
Each holder of common units is entitled to one vote for each
common unit on all matters submitted to a vote of the
unitholders.
Status as Limited Partner or Assignee
Except as described below under Limited
Liability, the common units will be fully paid, and
unitholders will not be required to make additional capital
contributions to us.
Each purchaser of our common units must execute a transfer
application whereby the purchaser requests admission as a
substituted limited partner and makes representations and agrees
to provisions stated in the transfer application. If this action
is not taken, a purchaser will not be registered as a record
holder of common units on the books of our transfer agent or
issued a common unit certificate. Purchasers may hold common
units in nominee accounts.
An assignee, pending its admission as a substituted limited
partner, is entitled to an interest in us equivalent to that of
a limited partner with respect to the right to share in
allocations and distributions, including liquidating
distributions. Our 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 the assignee. Transferees who do not execute and
deliver transfer applications will be treated neither as
assignees nor as record holders of common units and will not
receive distributions, federal income tax allocations or reports
furnished to record holders of common units. The only right the
transferees will have is the right to admission as a substituted
limited partner in respect of the transferred common units upon
execution of 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 distributions and reports
pertaining to its common units.
Limited Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware
Revised Uniform Limited Partnership Act (the Delaware
Act) and that he otherwise acts in conformity with the
provisions of our partnership agreement, his liability under the
Delaware Act will be limited, subject to some possible
exceptions, generally to the amount of capital he is obligated
to contribute to us in respect of his units plus his share of
any undistributed profits and assets.
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
liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of
the assets of the limited partnership.
For the purposes of determining the fair value of the assets of
a limited partnership, the Delaware Act provides that the fair
value of the property subject to liability of which recourse of
creditors is limited shall be included in the assets of the
limited partnership only to the extent that the fair value of
that property exceeds the nonrecourse liability. The Delaware
Act provides that a limited partner who receives a distribution
and knew at the time of the distribution that the distribution
was in violation of the Delaware Act is liable to the limited
partnership for the amount of the distribution for three years
from the date of the distribution.
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Reports and Records
As soon as practicable, but in no event later than 120 days
after the close of each fiscal year, our general partner will
furnish or make available to each unitholder of record (as of a
record date selected by our general partner) an annual report
containing our audited financial statements for the past fiscal
year. These financial statements will be prepared in accordance
with generally accepted accounting principles. In addition, no
later than 45 days after the close of each quarter (except
the fourth quarter), our general partner will furnish or make
available to each unitholder of record (as of a record date
selected by our general partner) a report containing our
unaudited financial statements and any other information
required by law.
Our general partner will use all reasonable efforts to furnish
each unitholder of record information reasonably required for
tax reporting purposes within 90 days after the close of
each fiscal year. Our general partners ability to furnish
this summary tax information will depend on the cooperation of
unitholders in supplying information to our general partner.
Each unitholder will receive information to assist him in
determining his U.S. federal and state and Canadian federal
and provincial tax liability and filing his U.S. federal
and state and Canadian federal and provincial income tax returns.
A limited partner can, for a purpose reasonably related to the
limited partners interest as a limited partner, upon
reasonable demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each
partner; |
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a copy of our tax returns; |
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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; |
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copies of our partnership agreement, our certificate of limited
partnership, amendments to either of them and powers of attorney
which have been executed under our partnership agreement; |
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information regarding the status of our business and financial
condition; and |
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any other information regarding our affairs as is just and
reasonable. |
Our general partner may, and intends to, keep confidential from
the limited partners trade secrets and other information the
disclosure of which our general partner believes in good faith
is not in our best interest or which we are required by law or
by agreements with third parties to keep confidential.
CASH DISTRIBUTION POLICY
Distributions of Available Cash
General. Within approximately 45 days after the end
of each quarter, we will distribute all of our available cash to
unitholders of record on the applicable record date.
Definition of Available Cash. Available cash is defined
in our partnership agreement and generally means, with respect
to any calendar quarter, all cash on hand at the end of such
quarter:
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less the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of the general partner
to: |
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provide for the proper conduct of our business; |
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comply with applicable law or any debt instrument or other
agreement (including reserves for future capital expenditures
and for our future credit needs); or |
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provide funds for distributions to unitholders and our general
partner in respect of any one or more of the next four quarters; |
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plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter. Working capital borrowings
are generally borrowings that are made under our credit
facilities and in all cases are used solely for working capital
purposes or to pay distributions to partners. |
Operating Surplus and Capital Surplus
General. Cash distributions are characterized as
distributions from either operating surplus or capital surplus.
We distribute available cash from operating surplus differently
than available cash from capital surplus.
Definition of Operating Surplus. Operating surplus is
defined in the partnership agreement and generally means:
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our cash balance on July 31, 1998, the closing date of our
initial public offering of common units (excluding
$46.5 million to fund certain capital commitments existing
at such closing date); plus |
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all of our cash receipts since the closing of our initial public
offering, excluding cash from interim capital transactions such
as borrowings that are not working capital borrowings, sales of
equity and debt securities and sales or other disposition of
assets for cash, other than inventory, accounts receivable and
other assets sold in the ordinary course of business or as part
of normal retirements or replacements of assets; plus |
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up to $60.0 million of cash from interim capital
transactions; plus |
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less |
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all of our operating expenditures since the closing of our
initial public offering, including the repayment of working
capital borrowings, but not the repayment of other borrowings,
and including maintenance capital expenditures; less |
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the amount of cash reserved that we deem necessary or advisable
to provide funds for future operating expenditures. |
Definition of Capital Surplus. Capital surplus is
generally generated only by borrowings (other than borrowings
for working capital purposes), sales of debt and equity
securities and sales or other dispositions of assets for cash
(other than inventory, accounts receivable and other assets
disposed of in the ordinary course of business).
Characterization of Cash Distributions. To avoid the
difficulty of trying to determine whether available cash we
distribute is from operating surplus or from capital surplus,
all available cash we distribute from any source will be treated
as distributed from operating surplus until the sum of all
available cash distributed since July 31, 1998 equals the
operating surplus as of the end of the quarter prior to such
distribution. Any available cash in excess of such amount
(irrespective of its source) will be deemed to be from capital
surplus and distributed accordingly.
If available cash from capital surplus is distributed in respect
of each common unit in an aggregate amount per common unit equal
to the $11.00 initial public offering price of the common units,
the distinction between operating surplus and capital surplus
will cease, and all distributions of available cash will be
treated as if they were from operating surplus. We do not
anticipate that there will be significant distributions from
capital surplus.
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Distributions of Available Cash from Operating Surplus
Commencing with the quarter ending on September 30, 2003,
we will make distributions of available cash from operating
surplus with respect to any quarter in the following manner:
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first, 98% to all common unitholders, pro rata and 2% to
the general partner, until there has been distributed in respect
of each unit an amount equal to the minimum quarterly
distribution of $0.225; and |
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thereafter, in the manner described in Incentive
Distributions below. |
Incentive Distributions
Incentive distributions represent the right to receive an
increasing percentage of quarterly distributions of available
cash from operating surplus after the minimum quarterly
distribution and the target distribution levels have been
achieved. For any quarter for which available cash from
operating surplus is distributed to the common unitholders in an
amount equal to the minimum quarterly distribution of
$0.225 per unit on all units, then any additional available
cash from operating surplus in respect of such quarter will be
distributed among the common unitholders and the general partner
in the following manner:
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first, 98% to all common unitholders, pro rata, and 2% to
the general partner, until the common unitholders have received
a total of $0.253 for such quarter in respect of each
outstanding unit (the First Target Distribution); |
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second, 85% to all common unitholders, pro rata, and 15%
to the general partner, until the unitholders have received a
total of $0.3085 for such quarter in respect of each outstanding
unit (the Second Target Distribution); and |
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thereafter, 75% to all common unitholders, pro rata, and
25% to the general partner. |
Distributions from Capital Surplus
How Distributions from Capital Surplus Will Be Made. We
will make distributions of available cash from capital surplus
in the following manner:
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first, 98% to all common unitholders, pro rata, and 2% to
the general partner, until we have distributed, in respect of
each outstanding common unit issued in our initial public
offering, available cash from capital surplus in an aggregate
amount per common unit equal to the initial unit price of
$11.00; and |
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thereafter, all distributions of available cash from
capital surplus will be distributed as if they were from
operating surplus. |
Effect of a Distribution from Capital Surplus. Our
partnership agreement treats a distribution of capital surplus
on a common unit as the repayment of the common unit price from
its initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital
surplus per common unit is referred to as the unrecovered
initial common unit price. Each time a distribution of capital
surplus is made on a common unit, the minimum quarterly
distribution and the target distribution levels for all units
will be reduced in the same proportion as the corresponding
reduction in the unrecovered initial common unit price. Because
distributions of capital surplus will reduce the minimum
quarterly distribution, after any of these distributions are
made, it may be easier for our general partner to receive
incentive distributions. However, any distribution by us of
capital surplus before the unrecovered initial common unit price
is reduced to zero cannot be applied to the payment of the
minimum quarterly distribution.
Once we distribute capital surplus on a common unit in any
amount equal to the unrecovered initial common unit price, it
will reduce the minimum quarterly distribution and the target
distribution levels to
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zero and it will make all future distributions of available cash
from operating surplus, with 25% being paid to the holders of
units, as applicable, and 75% to our general partner.
Adjustment to the Minimum Quarterly Distribution and Target
Distribution Levels
In addition to reductions of the minimum quarterly distribution
and target distribution levels made upon a distribution of
available cash from capital surplus, if we combine our units
into fewer units or subdivide our units into a greater number of
units, we will proportionately adjust:
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the minimum quarterly distribution; |
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the target distribution levels; and |
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the unrecovered initial common unit price. |
For example, in the event of a two-for-one split of the common
units (assuming no prior adjustments), the minimum quarterly
distribution, each of the target distribution levels and the
unrecovered capital of the common units would each be reduced to
50% of its initial level.
In addition, if legislation is enacted or if existing law is
modified or interpreted in a manner that causes us to become
taxable as a corporation or otherwise subject to taxation as an
entity for federal, state or local income tax purposes, then we
will reduce the minimum quarterly distribution and the target
distribution levels by multiplying the same by one minus the sum
of the highest effective federal corporate income tax rate that
could apply and any increase in the effective overall state and
local income tax rates. For example, if we became subject to a
maximum effective federal, state and local income tax rate of
35%, then the minimum quarterly distribution and the target
distribution levels would each be reduced to 65% of their
previous levels.
Distributions of Cash upon Liquidation
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
a liquidation. We will first apply the proceeds of liquidation
to the payment of our creditors in the order of priority
provided in the partnership agreement and by law and,
thereafter, we will distribute any remaining proceeds to the
common unitholders and our general partner in accordance with
their respective capital account balances as so adjusted.
Manner of Adjustments for Gain. The manner of the
adjustment is set forth in the partnership agreement. Upon our
liquidation, we will allocate any net gain (or unrealized gain
attributable to assets distributed in kind to the partners) as
follows:
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first, to the general partner and the holders of common
units having negative balances in their capital accounts to the
extent of and in proportion to such negative balances: |
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second, 98% to the holders of common units, pro rata, and
2% to the general partner, until the capital account for each
common unit is equal to the sum of |
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the unrecovered capital in respect of such common unit; plus |
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the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs. |
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third, 98% to all common unitholders, pro rata, and 2% to
the general partner, until there has been allocated under this
paragraph third an amount per unit equal to: |
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the sum of the excess of the First Target Distribution per unit
over the minimum quarterly distribution per unit for each
quarter of our existence; less |
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the cumulative amount per unit of any distributions of available
cash from operating surplus in excess of the minimum quarterly
distribution per unit that were distributed 98% to the
unitholders, pro rata, and 2% to the general partner for each
quarter of our existence; |
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fourth, 85% to all common unitholders, pro rata, and 15%
to the general partner, until there has been allocated under
this paragraph fourth an amount per unit equal to: |
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the sum of the excess of the Second Target Distribution per unit
over the First Target Distribution per unit for each quarter of
our existence; less |
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the cumulative amount per unit of any distributions of available
cash from operating surplus in excess of the First Target
Distribution per unit that were distributed 85% to the
unitholders, pro rata, and 15% to the general partner for each
quarter of our existence; and |
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thereafter, 75% to all common unitholders, pro rata, and
25% to the general partner. |
Manner of Adjustments for Losses. Upon our liquidation,
any loss will generally be allocated to the general partner and
the unitholders as follows:
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first, 98% to the holders of common units in proportion
to the positive balances in their respective capital accounts
and 2% to the general partner, until the capital accounts of the
common unitholders have been reduced to zero; and |
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thereafter, 100% to the general partner. |
Adjustments to Capital Accounts. In addition, interim
adjustments to capital accounts will be made at the time we
issue additional partnership interests or make distributions of
property. Such adjustments will be based on the fair market
value of the partnership interests or the property distributed
and any gain or loss resulting therefrom will be allocated to
the common unitholders and the general partner in the same
manner as gain or loss is allocated upon liquidation. In the
event that positive interim adjustments are made to the capital
accounts, any subsequent negative adjustments to the capital
accounts resulting from the issuance of additional partnership
interests in us, distributions of property by us, or upon our
liquidation, will be allocated in a manner which results, to the
extent possible, in the capital account balances of the general
partner equaling the amount that would have been the general
partners capital account balances if no prior positive
adjustments to the capital accounts had been made.
DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. Our amended and restated partnership
agreement has been filed with the Commission. The following
provisions of our partnership agreement are summarized elsewhere
in this prospectus:
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distributions of our available cash are described under
Cash Distribution Policy; |
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rights of holders of common units are described under
Description of Our Common Units; and |
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allocations of taxable income and other matters are described
under Tax Consequences. |
Purpose
Our purpose under our partnership agreement is to serve as a
partner of our operating partnership and to engage in any
business activities that may be engaged in by our operating
partnership or that are approved by our general partner. The
partnership agreement of our operating partnership provides that
it may engage in any activity that was engaged in by our
predecessors at the time of our initial public offering or
reasonably related thereto and any other activity approved by
our general partner.
Power of Attorney
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application,
grants to our general partner and, if appointed, a liquidator, a
power of attorney to, among other things, execute and file
documents required for our qualification, continuance or
dissolution. The power of attorney also grants the authority for
the amendment of, and to make consents and waivers under, our
partnership agreement.
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Voting Rights
Unitholders will not have voting rights except with respect to
the following matters, for which our partnership agreement
requires the approval of the holders of a majority of the units,
unless otherwise indicated:
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the merger of our partnership or a sale, exchange or other
disposition of all or substantially all of our assets; |
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the withdrawal of our general partner prior to December 31,
2008 (requires a majority of the units outstanding, excluding
units held by our general partner and its affiliates); |
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the removal of our general partner (requires 64% of the
outstanding units, including units held by our general partner
and its affiliates); |
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the election of a successor general partner; |
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the dissolution of our partnership or the reconstitution of our
partnership upon dissolution; |
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approval of certain actions of our general partner (including
the transfer by the general partner of its general partner
interest under certain circumstances); and |
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certain amendments to the partnership agreement, including any
amendment that would cause us to be treated as an association
taxable as a corporation. |
Under the partnership agreement, our general partner generally
will be permitted to effect, without the approval of
unitholders, amendments to the partnership agreement that do not
adversely affect unitholders.
Reimbursements of Our General Partner
Our general partner does not receive any compensation for its
services as our general partner. It is, however, entitled to be
reimbursed for all of its costs incurred in managing and
operating our business. Our partnership agreement provides that
our general partner will determine the expenses that are
allocable to us in any reasonable manner determined by our
general partner in its sole discretion.
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional limited partner interests and other equity
securities that are equal in rank with or junior to our common
units on terms and conditions established by our general partner
in its sole discretion without the approval of any limited
partners.
It is possible that we will fund acquisitions through the
issuance of additional common units or other equity securities.
Holders of any additional common units we issue will be entitled
to share equally with the then-existing holders of common units
in our cash distributions. In addition, the issuance of
additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our
net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
interests that, in the sole discretion of our general partner,
may have special voting rights to which common units are not
entitled.
Our general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to
purchase common units or other equity securities whenever, and
on the same terms that, we issue those securities to persons
other than our general partner and its affiliates, to the extent
necessary to maintain their percentage interests in us that
existed immediately prior to the issuance. The holders of common
units will not have preemptive rights to acquire additional
common units or other partnership interests in us.
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Amendments to Our Partnership Agreement
Amendments to our partnership agreement may be proposed only by
our general partner. 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 our general partner interest
will require the approval of at least a majority of the type or
class of limited partner interests or general partner interests
so affected. However, in some circumstances, more particularly
described in our partnership agreement, our general partner may
make amendments to our partnership agreement without the
approval of our limited partners or assignees to reflect:
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a change in our names, the location of our principal place of
business, our registered agent or our registered office; |
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the admission, substitution, withdrawal or removal of partners; |
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a change to qualify or continue our qualification as a limited
partnership or a partnership in which our limited partners have
limited liability under the laws of any state or to ensure that
neither we, our operating partnership, nor any of our
subsidiaries will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes; |
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a change that does not adversely affect our limited partners in
any material respect; |
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a change to (i) satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority
or contained in any federal or state statute or
(ii) facilitate the trading of our limited partner
interests or comply with any rule, regulation, guideline or
requirement of any national securities exchange on which our
limited partner interests are or will be listed for trading; |
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a change in our fiscal year or taxable year and any changes that
are necessary or advisable as a result of a change in our fiscal
year or taxable year; |
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an amendment that is necessary to prevent us, or our general
partner or its directors, officers, trustees or agents from
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended; |
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an amendment that is necessary or advisable in connection with
the authorization or issuance of any class or series of our
securities; |
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone; |
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an amendment effected, necessitated or contemplated by a merger
agreement approved in accordance with our partnership agreement; |
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an amendment that is necessary or advisable to reflect, account
for and deal with appropriately our formation of, or investment
in, any corporation, partnership, joint venture, limited
liability company or other entity other than our operating
partnership, in connection with our conduct of activities
permitted by our partnership agreement; |
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a merger or conveyance to effect a change in our legal
form; or |
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any other amendments substantially similar to the foregoing. |
Withdrawal or Removal of Our General Partner
Our general partner has agreed not to withdraw voluntarily as
our general partner prior to December 31, 2008 without
obtaining the approval of the holders of a majority of our
outstanding common units, excluding those held by our general
partner and its affiliates, and furnishing an opinion of counsel
stating that such withdrawal (following the selection of the
successor general partner) would not result in
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the loss of the limited liability of any of our limited partners
or of a member of our operating partnership or cause us or our
operating partnership to be treated as an association taxable as
a corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not previously treated as
such).
On or after December 31, 2008, our general partner may
withdraw as general partner without first obtaining approval of
any unitholder by giving 90 days written notice, and
that withdrawal will not constitute a violation of our
partnership agreement. In addition, our general partner may
withdraw without unitholder approval upon 90 days
notice to our limited partners if at least 50% of our
outstanding common units are held or controlled by one person
and its affiliates other than our general partner and its
affiliates.
Upon the voluntary withdrawal of our general partner, the
holders of a majority of our outstanding common units, excluding
the common units held by the withdrawing general partner and its
affiliates, may elect a successor to the withdrawing general
partner. If a successor is not elected, or is elected but an
opinion of counsel regarding limited liability and tax matters
cannot be obtained, we will be dissolved, wound up and
liquidated, unless within 90 days after that withdrawal,
the holders of a majority of our outstanding units, excluding
the common units held by the withdrawing general partner and its
affiliates, agree to continue our business and to appoint a
successor general partner.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than two-thirds
of our outstanding units, including units held by our general
partner and its affiliates, and we receive an opinion of counsel
regarding limited liability and tax matters. In addition, if our
general partner is removed as our general partner under
circumstances where cause does not exist and units held by our
general partner and its affiliates are not voted in favor of
such removal, our general partner will have the right to convert
its general partner interest into common units or to receive
cash in exchange for such interests. Cause is narrowly defined
to mean that a court of competent jurisdiction has entered a
final, non-appealable judgment finding the general partner
liable for actual fraud, gross negligence or willful or wanton
misconduct in its capacity as our general partner. Any removal
of this kind is also subject to the approval of a successor
general partner by the vote of the holders of a majority of our
outstanding common units, including those held by our general
partner and its affiliates.
While our partnership agreement limits the ability of our
general partner to withdraw, it allows the general partner
interest to be transferred to an affiliate or to a third party
in conjunction with a merger or sale of all or substantially all
of the assets of our general partner. In addition, our
partnership agreement expressly permits the sale, in whole or in
part, of the ownership of our general partner. Our general
partner may also transfer, in whole or in part, the common units
it owns.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the person authorized to wind up
our affairs (the liquidator) will, acting with all the powers of
our general partner that the liquidator deems necessary or
desirable in its good faith judgment, liquidate our assets. The
proceeds of the liquidation will be applied as follows:
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first, towards the payment of all of our creditors and
the creation of a reserve for contingent liabilities; and |
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then, to all partners in accordance with the positive
balance in the respective capital accounts. |
Under some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of our assets
for a reasonable period of time. If the liquidator determines
that a sale would be impractical or would cause a loss to our
partners, our general partner may distribute assets in kind to
our partners.
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Transfer of Ownership Interests in Our General
Partner
At any time, the owners of our general partner may sell or
transfer all or part of their ownership interests in the general
partner without the approval of the unitholders.
Change of Management Provisions
Our partnership agreement contains the following specific
provisions that are intended to discourage a person or group
from attempting to remove our general partner or otherwise
change management:
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any units held by a person that owns 20% or more of any class of
units then outstanding, other than our general partner and its
affiliates, cannot be voted on any matter; and |
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the partnership agreement contains provisions limiting the
ability of unitholders to call meetings or to acquire
information about our operations, as well as other provisions
limiting the unitholders ability to influence the manner
or direction of management. |
Limited Call Right
If at any time our general partner and its affiliates own 85% or
more of the issued and outstanding limited partner interests of
any class, our general partner will have the right to purchase
all, but not less than all, of the outstanding limited partner
interests of that class that are held by non-affiliated persons.
The record date for determining ownership of the limited partner
interests would be selected by our general partner on at least
10 but not more than 60 days notice. The purchase
price in the event of a purchase under these provisions would be
the greater of (1) the current market price (as defined in
our partnership agreement) of the limited partner interests of
the class as of the date three days prior to the date that
notice is mailed to the limited partners as provided in the
partnership agreement and (2) the highest cash price paid
by our general partner or any of its affiliates for any limited
partner interest of the class purchased within the 90 days
preceding the date our general partner mails notice of its
election to purchase the units.
As of February 15, 2005 our general partner and its
affiliates owned the 2% general partner interest in us and
143,373,314 common units, representing an aggregate 36.8%
limited partner interest in us.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify our general partner, its affiliates and their officers
and directors to the fullest extent permitted by law, from and
against all losses, claims or damages any of them may suffer by
reason of their status as general partner, officer or director,
as long as the person seeking indemnity acted in good faith and
in a manner believed to be in or not opposed to our best
interest. Any indemnification under these provisions will only
be out of our assets. Our general partner shall not be
personally liable for, or have any obligation to contribute or
loan funds or assets to us to enable us to effectuate any
indemnification. We are authorized to purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
Registration Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units or other partnership securities proposed
to be sold by our general partner or any of its affiliates or
their assignees if an exemption from the registration
requirements is not otherwise available. We are obligated to pay
all expenses incidental to the registration, excluding
underwriting discounts and commissions.
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MATERIAL TAX CONSEQUENCES
This section is a summary of the material tax consequences that
may be relevant to prospective unitholders who are individual
citizens or residents of the United States and, unless otherwise
noted in the following discussion, represents the opinion of
Vinson & Elkins L.L.P., special counsel to the general
partner and us, insofar as it relates to matters of United
States federal income tax law matters. This section is based
upon current provisions of the Internal Revenue Code, existing
and proposed regulations and current administrative rulings and
court decisions, all of which are subject to change. Later
changes in these authorities may cause the tax consequences to
vary substantially from the consequences described below.
The following discussion does not comment on all federal income
tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs)or mutual
funds. Accordingly, we recommend that each prospective
unitholder consult, and depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences
particular to him of the ownership or disposition of common
units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions and advice of Vinson & Elkins
L.L.P. Unlike a ruling, an opinion of counsel represents only
that counsels best legal judgment and does not bind the
IRS or the courts. Accordingly, the opinions and statements made
here may not be sustained by a court if contested by the IRS.
Any contest of this sort with the IRS may materially and
adversely impact the market for the common units and the prices
at which common units trade. In addition, the costs of any
contest with the IRS will be borne directly or indirectly by the
unitholders and the general partner. Furthermore, the tax
treatment of us, or of an investment in us, may be significantly
modified by future legislative or administrative changes or
court decisions. Any modifications may or may not be
retroactively applied.
For the reasons described below, Vinson & Elkins L.L.P.
has not rendered an opinion with respect to the following
specific federal income tax issues:
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(1) the treatment of a unitholder whose common units are
loaned to a short seller to cover a short sale of common units
(please read Tax Consequences of Unit
Ownership Treatment of Short Sales); |
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(2) whether our monthly convention for allocating taxable
income and losses is permitted by existing Treasury Regulations
(please read Disposition of Common
Units Allocations Between Transferors and
Transferees); and |
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(3) whether our method for depreciating Section 743
adjustments is sustainable (please read Tax
Consequences of Unit Ownership Section 754
Election). |
Partnership Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his 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 to him by the partnership. Distributions
by a partnership to a partner are generally not taxable unless
the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly-traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income
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Exception, exists with respect to publicly-traded
partnerships of which 90% or more of the gross income for every
taxable year consists of qualifying income.
Qualifying income includes income and gains derived from the
exploration, development, mining or production, processing,
refining, transportation and marketing of any mineral or natural
resource. Other types of qualifying income include interest
other than from a financial business, dividends, gains from the
sale of real property and gains from the sale or other
disposition of assets held for the production of income that
otherwise constitutes qualifying income. We estimate that less
than 2% of our current gross income is not qualifying income;
however, this estimate could change from time to time. Based
upon and subject to this estimate, the factual representations
made by us and the general partner and a review of the
applicable legal authorities, Vinson & Elkins L.L.P. is
of the opinion that at least 90% of our current gross income
constitutes qualifying income.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of the
Operating Partnership as partnerships for federal income tax
purposes. Instead, we will rely on the opinion of
Vinson & Elkins L.L.P. that, based upon the Internal
Revenue Code, its regulations, published revenue rulings and
court decisions and the representations described below, we and
the Operating Partnership will be classified as a partnership
for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and the general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. has relied are:
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(a) Neither we nor the Operating Partnership will elect to
be treated as a corporation; and |
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(b) For each taxable year, more than 90% of our gross
income will be income that Vinson & Elkins L.L.P. has
opined or will opine is qualifying income within the
meaning of Section 7704(d) of the Internal Revenue Code. |
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, we will be
treated as if we had transferred all of our assets, subject to
liabilities, to a newly formed corporation, on the first day of
the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of
their interests in us. This contribution and liquidation should
be tax-free to unitholders and us so long as we, at that time,
do not have liabilities in excess of the tax basis of our
assets. Thereafter, we would be treated as a corporation for
federal income tax purposes.
If we were taxable as a corporation in any taxable year, either
as a result of a failure to meet the Qualifying Income Exception
or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being
passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution
made to a unitholder would be treated as either taxable dividend
income, to the extent of our current or accumulated earnings and
profits, or, in the absence of earnings and profits, a
nontaxable return of capital, to the extent of the
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on the conclusion that we will be
classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners of the Company will
be treated as partners of the Company for federal income tax
purposes. Also:
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(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited
partners, and |
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(b) unitholders whose common units are held in street name
or by a nominee and who have the right to direct the nominee in
the exercise of all substantive rights attendant to the
ownership of their common units, will be treated as partners of
the Company for federal income tax purposes. As there is no
direct authority addressing assignees of common units who are
entitled to execute and deliver transfer applications and
thereby become entitled to direct the exercise of attendant
rights, but who fail to execute and deliver transfer
applications, Vinson & Elkins L.L.P.s opinion
does not extend to these persons. Furthermore, a purchaser or
other transferee of common units who does not execute and
deliver a transfer application may not receive some federal
income tax information or reports furnished to record holders of
common units unless the common units are held in a nominee or
street name account and the nominee or broker has executed and
delivered a transfer application for those common units. |
A beneficial owner of common 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 those
units for federal income tax purposes. Please read
Tax Consequences of Unit Ownership
Treatment of Short Sales.
Income, gains, deductions or losses would not appear to be
reportable by a unitholder who is not a partner for federal
income tax purposes, and any cash distributions received by a
unitholder who is not a partner for federal income tax purposes
would therefore be fully taxable as ordinary income. We strongly
recommend that prospective unitholders consult their own tax
advisors with respect to their status as partners in the Company
for federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-through of Taxable Income. We will not pay any
federal income tax. Instead, each unitholder will be required to
report on his income tax return his share of our income, gains,
losses and deductions without regard to whether corresponding
cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a
cash distribution. Each unitholder will be required to include
in income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by us to a
unitholder generally will not be taxable to the unitholder for
federal income tax purposes to the extent of his tax basis in
his common units immediately before the distribution. Our cash
distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units below. Any reduction in a unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution of cash to that unitholder. To the extent our
distributions cause a unitholders at risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of
Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture, and/or substantially appreciated
inventory items, both as defined in the Internal
Revenue Code, and collectively, Section 751
Assets. To that extent, he will be treated as having been
distributed his proportionate share of the Section 751
Assets and having exchanged those assets with us in return for
the non-pro rata portion of the actual distribution made to him.
This latter deemed exchange will generally result in the
unitholders realization of ordinary income, which will
equal the excess of (1) the non-pro rata portion of that
distribution over (2) the unitholders tax basis for
the share of Section 751 Assets deemed relinquished in the
exchange.
Basis of Common Units. A unitholders initial tax
basis for his common units will be the amount he paid for the
common units plus his share of our nonrecourse liabilities. That
basis will be increased by his
43
share of our income and by any increases in his share of our
nonrecourse liabilities. That basis will be decreased, but not
below zero, by distributions from us, by the unitholders
share of our losses, by any decreases in his share of our
nonrecourse liabilities and by his share of our expenditures
that are not deductible in computing taxable income and are not
required to be capitalized. A unitholder will have no share of
our debt which is recourse to the general partner, but will have
a share, generally based on his share of profits, of our
nonrecourse liabilities. Please read
Disposition of Common Units
Recognition of Gain or Loss.
Limitations on Deductibility of Losses. The deduction by
a unitholder of his share of our losses will be limited to the
tax basis in his units and, in the case of an individual
unitholder or a corporate unitholder, if more than 50% of the
value of the corporate unitholders stock is owned directly
or indirectly by five or fewer individuals or some tax-exempt
organizations, to the amount for which the unitholder is
considered to be at risk with respect to our
activities, if that is less than his tax basis. A unitholder
must recapture losses deducted in previous years to the extent
that distributions cause his at risk amount to be less than zero
at the end of any taxable year. Losses disallowed to a
unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to the extent that his tax
basis or at risk amount, whichever is the limiting factor, is
subsequently increased. Upon the taxable disposition of a unit,
any gain recognized by a 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 that gain previously suspended by the at risk
or basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations can deduct losses from passive activities,
which are generally corporate or partnership activities in which
the taxpayer does not materially participate, only to the extent
of the taxpayers income from those passive activities. The
passive loss limitations are applied separately with respect to
each publicly-traded partnership. Consequently, any passive
losses we generate will be available to offset only our passive
income generated in the future and will not be available to
offset income from other passive activities or investments,
including our investments or investments in other
publicly-traded partnerships, or salary or active business
income. Passive losses that are not deductible because they
exceed a unitholders share of income we generate may be
deducted in full when he disposes of his entire investment in us
in a fully taxable transaction with an unrelated party. The
passive activity loss rules are applied after other applicable
limitations on deductions, including the at risk rules and the
basis limitation.
A unitholders share of our net income may be offset by any
suspended passive losses, but it may not be offset by any other
current or carryover losses from other passive activities,
including those attributable to other publicly-traded
partnerships.
Limitations on Interest Deductions. The deductibility of
a non-corporate taxpayers investment interest
expense is generally limited to the amount of that
taxpayers net investment income. Investment
interest expense includes:
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interest on indebtedness properly allocable to property held for
investment; |
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our interest expense attributed to portfolio income; and |
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income. |
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under 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. The IRS has
indicated that net passive income earned by a publicly-traded
partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-Level Collections. If we are required or
elect under applicable law to pay any federal, state, local or
foreign income tax on behalf of any unitholder or the general
partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as
a distribution of cash to the partner on whose behalf the
payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat
the payment as a distribution to all current unitholders. We are
authorized to amend the partnership agreement in the manner
necessary to maintain uniformity of intrinsic tax
characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority
and characterization of distributions otherwise applicable under
the partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise
to an overpayment of tax on behalf of an individual partner in
which event the partner would be required to file a claim in
order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In
general, if we have a net profit, our items of income, gain,
loss and deduction will be allocated among the general partner
and the unitholders in accordance with their percentage
interests in us. At any time that incentive distributions are
made to the general partner, gross income will be allocated to
the recipients to the extent of these distributions. If we have
a net loss for the entire year, that loss will be allocated
first to the general partner and the unitholders in accordance
with their percentage interests in us to the extent of their
positive capital accounts and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for the difference between the tax basis
and fair market value of property contributed to us by the
general partner and its affiliates, referred to in this
discussion as Contributed Property. The effect of
these allocations to a unitholder purchasing common units in
this offering will be essentially the same as if the tax basis
of our assets were equal to their fair market value at the time
of an offering. In addition, items of recapture income will be
allocated to the extent possible to the partner who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in an amount and manner to eliminate the negative
balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us; |
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the interests of all the partners in profits and losses; |
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the interest of all the partners in cash flow and other
nonliquidating distributions; and |
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the rights of all the partners to distributions of capital upon
liquidation. |
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Vinson & Elkins L.L.P. is of the opinion that, with the
exception of the issues described in Tax
Consequences of Unit Ownership Section 754
Election and Disposition of Common
Units Allocations Between Transferors and
Transferees, allocations under our partnership agreement
will be given effect for federal income tax purposes in
determining a partners share of an item of income, gain,
loss or deduction.
Treatment of Short Sales. A unitholder whose units are
loaned to a short seller to cover a short sale of
units may be considered as having disposed of those units. If
so, he would no longer be a partner for those units during the
period of the loan and may recognize gain or loss from the
disposition. As a result, during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder; |
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any cash distributions received by the unitholder as to those
units would be fully taxable; and |
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all of these distributions would appear to be ordinary income. |
Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units;
therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable 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. Please also read
Disposition of Common Units
Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will be required
to take into account his distributive share of any items of our
income, gain, loss or deduction for purposes of the alternative
minimum tax. The current minimum tax rate for noncorporate
taxpayers 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. We strongly
recommend that prospective unitholders consult with their tax
advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. In general the highest effective United States
federal income tax rate for individuals currently is 35.0% and
the maximum United States federal income tax rate for net
capital gains of an individual is currently 15.0% if the asset
disposed of was held for more than 12 months at the time of
disposition.
Section 754 Election. We have made the election
permitted by Section 754 of the Internal Revenue Code. That
election is irrevocable without the consent of the IRS. The
election generally permits us to adjust a common unit
purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Treasury regulations under Section 743 of the Internal
Revenue Code require that, if the remedial allocation method is
adopted (which we have adopted), a portion of the
Section 743(b) adjustment attributable to recovery property
be depreciated over the remaining cost recovery period for the
Section 704(c) built-in gain. Under Treasury regulation
Section 1.167(c)-l(a)(6), a Section 743(b) adjustment
attributable to property subject to depreciation under
Section 167 of the Internal Revenue Code, rather than cost
recovery deductions under Section 168, is generally
required to be depreciated using either the straight-line method
or the 150% declining balance method. Under our partnership
agreement, our general partner is authorized to take a position
to preserve the uniformity of units even if that position is not
consistent with these Treasury Regulations. Please read
Tax Treatment of Operations
Uniformity of Units.
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Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no clear
authority on this issue, we intend to depreciate the portion of
a Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis
of the property, or treat that portion as non-amortizable to the
extent attributable to property the common basis of which is not
amortizable. This method is consistent with the regulations
under Section 743 of the Internal Revenue Code but is
arguably inconsistent with Treasury regulation
Section 1.167(c)-1(a)(6). To the extent this
Section 743(b) adjustment is attributable to appreciation
in value in excess of the unamortized Book-Tax Disparity, we
will apply the rules described in the Treasury regulations and
legislative history. If we determine that this position cannot
reasonably be taken, we may take a depreciation or amortization
position under which all purchasers acquiring units in the same
month would receive depreciation or amortization, whether
attributable to common basis or a Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our assets. This kind of
aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to
some unitholders. Please read Tax Treatment of
Operations Uniformity of Units.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally amortizable over a longer period of time or under a
less accelerated method than our tangible assets. We cannot
assure you that the determinations we make will not be
successfully challenged by the IRS and that the deductions
resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year. We use the year
ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who
has a taxable year ending on a date other than December 31
and who disposes of all of his units following the close of our
taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees.
Tax Basis, Depreciation and Amortization. The tax basis
of our assets will be used for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain
or loss on the disposition of these assets. The federal income
tax burden associated with the difference between the fair
market value of our assets and their tax basis immediately prior
to an offering will be borne by our general partner, its
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affiliates and our unitholders immediately prior to that
offering. Please read Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. We are not entitled to any amortization
deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be
depreciated using accelerated methods permitted by the Internal
Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a common
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all, of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit Ownership
Allocation of Income, Gain, Loss and Deduction and
Disposition of Common Units
Recognition of Gain or Loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and commissions we incur will be treated
as syndication expenses.
Valuation and Tax Basis of Our Properties. The federal
income tax consequences of the ownership and disposition of
units will depend in part on our estimates of the relative fair
market values, and the tax bases, of our assets. Although we may
from time to time consult with professional appraisers regarding
valuation matters, we will make many of the relative fair market
value estimates ourselves. 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
basis are later 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 and incur interest
and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be
recognized on a sale of units equal to the difference between
the amount realized and the unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, 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 capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than 12 months
will generally be taxed at a maximum rate of 15%. A portion of
this gain or loss, which will likely be substantial, however,
will be separately computed and taxed as ordinary income or loss
under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation
recapture or other unrealized receivables or to
inventory items we own. The term unrealized
receivables includes potential recapture items, including
depreciation recapture. Ordinary income attributable to
unrealized receivables, inventory items and depreciation
recapture may exceed net taxable gain realized upon the sale of
a unit
48
and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize
both ordinary income and a capital loss upon a sale of units.
Net capital losses may offset capital gains and no more than
$3,000 of ordinary income, in the case of individuals, and may
only be used to offset capital gains in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method. Treasury Regulations under
Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an
ascertainable holding period to elect to use the actual holding
period of the common units transferred. Thus, according to the
ruling, a common unitholder will be unable to select high or low
basis common units to sell as would be the case with corporate
stock, but, according to the Treasury regulations, may designate
specific common units sold for purposes of determining the
holding period of units transferred. A unitholder electing to
use the actual holding period of common units transferred must
consistently use that identification method for all subsequent
sales or exchanges of common units. We strongly recommend that a
unitholder considering the purchase of additional units or a
sale of common units purchased in separate transactions consult
his tax advisor as to the possible consequences of this ruling
and application of the final regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some 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 terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale; |
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an offsetting notional principal contract; or |
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a futures or forward contract with respect to the partnership
interest or substantially identical property. |
Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the 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.
Allocations Between Transferors and Transferees. In
general, our taxable income and losses will be determined
annually, will be prorated on a monthly basis and will be
subsequently apportioned among the unitholders in proportion to
the number of units owned by each of them as of the opening of
the applicable exchange on the first business day of the month
(the Allocation Date). However, gain or loss
realized on a sale or other disposition of our assets other than
in the ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that
gain or loss is recognized. As a result, a unitholder
transferring units may be allocated income, gain, loss and
deduction realized after the date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations. Accordingly, Vinson & Elkins
L.L.P. is unable to opine on the validity of this method of
allocating income and deductions between unitholders. If this
method is not allowed under the Treasury Regulations, or only
applies to transfers of less than all of the unitholders
interest, our taxable income or losses might be reallocated
among the unitholders. We are authorized to revise our method of
allocation between unitholders, as well as among unitholders
whose interests vary during a taxable year, to conform to a
method permitted under future Treasury Regulations.
49
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who sells or
exchanges units is required to notify us in writing of that sale
or exchange within 30 days after the sale or exchange. We
are required to notify the IRS of that transaction and to
furnish specified information to the transferor and transferee.
However, these reporting requirements do not apply to a sale by
an individual who is a citizen of the United States and who
effects the sale or exchange through a broker. Failure to
satisfy these reporting obligations may lead to the imposition
of substantial penalties.
Constructive Termination. We will be considered to have
been terminated for tax purposes if there is a sale or exchange
of 50% or more of the total interests in our capital and profits
within a 12-month period. A constructive termination results in
the closing of our 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 our taxable year
may result in more than 12 months of our taxable income or
loss being includable in his taxable income for the year of
termination. We would be required to make new tax elections
after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination.
Uniformity of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6). Any
non-uniformity could have a negative impact on the value of the
units. Please read Tax Consequences of Unit
Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, 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 that property, or treat that
portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury regulation
Section 1.167(c)-1(a)(6). Please read Tax
Consequences of Unit Ownership Section 754
Election. To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may adopt a depreciation and amortization position under
which all purchasers acquiring units in the same month would
receive depreciation and amortization deductions, whether
attributable to a common basis or Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our property. If this position is
adopted, it may result in lower annual depreciation and
amortization deductions than would otherwise be allowable to
some unitholders and risk the loss of depreciation and
amortization deductions not taken in the year that these
deductions are otherwise allowable. This position will not be
adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on
the unitholders. If we choose not to utilize this aggregate
method, we may use any other reasonable depreciation and
amortization method to preserve the uniformity of the intrinsic
tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any
method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained,
the uniformity of units might be affected, and the gain from the
sale of units might be increased without the benefit of
additional deductions. Please read Disposition
of Common Units Recognition of Gain or Loss.
50
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, regulated investment companies, non-resident
aliens, foreign corporations, and other foreign persons raises
issues unique to those investors and, as described below, may
have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
A regulated investment company or mutual fund is
required to derive 90% or more of its gross income from
interest, dividends and gains from the sale of stocks or
securities or foreign currency or specified related sources.
Recent legislation treats net income derived from the ownership
of certain publicly traded partnerships (including us) as
qualifying income to a regulated investment company. However,
this legislation is only effective for taxable years beginning
after October 22, 2004, the date of enactment. For taxable
years beginning prior to the date of enactment, very little of
our income will be qualifying income to a regulated investment
company.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence they will be required to file federal tax returns to
report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective rate on cash distributions made quarterly to foreign
unitholders. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our
transfer agent on a Form W-8 BEN or applicable substitute
form in order to obtain credit for these withholding taxes.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or
otherwise disposes of a unit will be subject to federal income
tax on gain realized on the sale or disposition of that unit to
the extent that this gain is effectively connected with a United
States trade or business of the foreign unitholder. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
Administrative Matters
Information Returns and Audit Procedures. We intend to
furnish to each unitholder, within 90 days after the close
of each calendar year, specific tax information, including a
Schedule K-1, which describes his share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
Vinson & Elkins L.L.P., we will take various accounting
and reporting positions, some of which have been mentioned
earlier, to determine his share of income, gain, loss and
deduction. We cannot assure you that those positions will yield
a result that conforms to the requirements of the Internal
Revenue Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Vinson &
Elkins L.L.P. can assure prospective unitholders that the IRS
will not
51
successfully contend in court that those positions are
impermissible. Any challenge by the IRS could negatively affect
the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his own return. Any audit of
a unitholders return could result in adjustments not
related to our returns as well as those related to our returns.
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 in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. The partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against unitholders for items in our returns.
The Tax Matters Partner may bind a unitholder with less than a
1% profits interest in us to a settlement with the IRS unless
that unitholder elects, by filing a statement with the IRS, not
to give that 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, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee Reporting. Persons who hold an interest in us as a
nominee for another person are required to furnish to us:
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(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee; |
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(b) whether the beneficial owner is |
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(1) a person that is not a United States person, |
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(2) a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing, or |
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(3) a tax-exempt entity; |
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(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and |
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(d) specific 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 specific 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 Internal Revenue Code for failure to report that
information to us. The nominee is required to supply the
beneficial owner of the units with the information furnished to
us.
Accuracy-related Penalties. An additional tax equal to
20% of the amount of any portion of an underpayment of tax that
is attributable to one or more specified causes, including
negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation
misstatements,
52
is imposed by the Internal Revenue Code. No penalty will be
imposed, however, for 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 regarding 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:
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(1) for which there is, or was, substantial
authority, or |
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(2) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return. |
More stringent rules, including additional penalties and
extended statutes of limitations, may apply as a result of our
participation in listed transactions or
reportable transactions with a significant tax-avoidance
purpose. While we do not anticipate participating in such
transactions, if any item of income, gain, loss or deduction
included in the distributive shares of unitholders for a given
year might result in an understatement of income
relating to such a transaction, we will disclose the pertinent
facts on our return. In addition, we will make a reasonable
effort to furnish such information for unitholders to make
adequate disclosure on their returns and to take other actions
as may be appropriate to permit unitholders to avoid liability
for penalties.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a
tax return is 200% or more of the amount determined to be the
correct amount of the valuation or adjusted basis. No penalty is
imposed unless the portion of the underpayment attributable to a
substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400%
or more than the correct valuation, the penalty imposed
increases to 40%.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you will likely be subject
to other taxes, including state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. You
will be required to file state income tax returns and to pay
state income taxes in some or all of the states in which we do
business or own property and may be subject to penalties for
failure to comply with those requirements. In some states, tax
losses may not produce a tax benefit in the year incurred and
also may not be available to offset income in subsequent taxable
years. Some of the states may require us, or we may elect, to
withhold a percentage of income from amounts to be distributed
to a unitholder who is not a resident of the state. Withholding,
the amount of which may be greater or less than a particular
unitholders income tax liability to the state, generally
does not relieve a nonresident unitholder from the obligation to
file an income tax return. Amounts withheld may be treated as if
distributed to unitholders for purposes of determining the
amounts distributed by us. Please read Tax
Consequences of Unit Ownership
Entity-Level Collections. Based on current law and
our estimate of our future operations, our general partner
anticipates that any amounts required to be withheld will not be
material. We may also own property or do business in other
states in the future.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, we strongly
recommend that each prospective unitholder consult, and
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, local, and foreign as well as
United States federal tax returns, that may be required of him.
Vinson & Elkins L.L.P. has not rendered an opinion on
the state, local or foreign tax consequences of an investment in
us.
53
Tax Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of
the acquisition, ownership and disposition of debt securities
will be set forth in the prospectus supplement relating to the
offering of debt securities.
SELLING UNITHOLDERS
In addition to covering our offering of securities, this
prospectus covers the offering for resale of up to 41,000,000
common units by selling unitholders. As used in this prospectus,
selling unitholders includes donees, pledgees,
transferees or other successors-in-interest selling units
received after the date of this prospectus from a named selling
unitholder as a gift, pledge, partnership distribution or other
non-sale related transfer. The selling unitholders may sell all,
some or none of the common units covered by this prospectus. See
Plan of Distribution Distribution by Selling
Unitholders. We will bear all costs, expenses and fees in
connection with the registration of the units offered by this
prospectus. Brokerage commissions and similar selling expenses,
if any, attributable to the sale of the units will be borne by
the selling unitholders. The following table sets forth
information relating to the selling unitholders beneficial
ownership of our common units:
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Number and % |
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Number and % |
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of Outstanding |
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of Outstanding |
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Common Units |
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Common Units |
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Beneficially Owned |
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Number of |
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Owned after |
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Prior to Completion |
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Common Units |
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Completion of |
Name of Selling Unitholder |
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of Offering |
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Offered Hereunder |
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Offering |
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Shell US Gas & Power LLC
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36,572,122 |
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36,572,122 |
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-0- |
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9.6 |
% |
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Kayne Anderson MLP Investment Company
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5,228,093 |
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4,427,878 |
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800,215 |
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1.4 |
% |
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0.2 |
% |
Prior to December 29, 2004, Shell US Gas & Power
LLC, an affiliate of Shell Oil Company, owned 41,000,000 common
units that it had acquired from us in 1999 in connection with
its sale to us of its natural gas processing and related
businesses. In that transaction Shell also acquired a 30%
interest in our general partner, which it subsequently sold to a
subsidiary of EPCO on September 12, 2003. Prior to
Shells sale of its 30% interest in our general partner,
the board of directors of our general partner consisted of ten
members, three of which were designated by Shell, and certain
extraordinary transactions, such as mergers, large acquisitions
or dispositions and other transactions required the approval of
at least one of the Shell designees. The Shell designees
resigned from the board of directors of our general partner on
September 12, 2003.
Shell and its affiliates are one of our largest customers. For
the nine months ended September 30, 2004 and the years
ended December 31, 2003, 2002 and 2001, Shell accounted for
approximately 7.3%, 5.5%, 7.9% and 10.6%, respectively, of our
consolidated revenues. Our revenues from Shell primarily reflect
the sale of NGL and petrochemical products to Shell and the fees
we charge Shell for natural gas processing, pipeline
transportation and NGL fractionation services. Our operating
costs and expenses with Shell primarily reflect the payment of
energy-related expenses related to the Shell natural gas
processing agreement described below and the purchase of NGL
products from Shell. We also lease from Shell its 45.4% interest
in one of our propylene fractionation facilities located in Mont
Belvieu, Texas.
The most significant contract affecting our natural gas
processing business is the Shell margin-band/keepwhole
processing agreement, which grants us the right to process
Shells current and future production within state and
federal waters of the Gulf of Mexico. The Shell processing
agreement includes a life of lease dedication, which may extend
the agreement well beyond its initial 20-year term ending in
54
2019. This contract was amended effective April 1,
2004. In general, the amended contract includes the following
rights and obligations:
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the exclusive right, but not the obligation in all cases, to
process substantially all of Shells Gulf of Mexico natural
gas production; plus |
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the exclusive right, but not the obligation in all cases, to
process all natural gas production from leases dedicated by
Shell for the life of such leases; plus |
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the right to all title, interest and ownership in the mixed NGL
stream extracted by our gas processing plants from Shells
natural gas production from such leases; with |
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the obligation to re-deliver to Shell the natural gas stream
after any mixed NGLs are extracted. |
The amended contract contains a mechanism (termed
Consideration Adjustment Outside of Normal
Operations or CAONO) to adjust the value of
the compensation we pay to Shell for (i) the NGLs we
extract and (ii) the natural gas we consume as fuel. The
CAONO, in effect, protects us from processing Shells
natural gas at an economic loss when the value of the mixed NGLs
we extract is less than the sum of the cost of the compensation,
operating costs of the gas processing facility and other costs
such as NGL fractionation and pipeline fees.
The following table summarizes our various transactions with
Shell for the nine months ended September 30, 2004 and the
years ended December 31, 2003, 2002 and 2001 (dollars in
thousands):
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For the Nine Months |
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For the Year Ended December 31, |
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Ended September 30, |
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2004 |
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2003 |
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2002 |
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2001 |
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Revenues from consolidated operations from Shell
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$ |
397,805 |
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$ |
293,109 |
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$ |
282,820 |
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$ |
333,333 |
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Operating costs and expenses paid to Shell
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$ |
536,284 |
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$ |
607,277 |
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$ |
531,712 |
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$ |
705,440 |
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Kayne Anderson MLP Investment Company has had no material
relationship with us or our affiliates within the last three
years. The 4,427,878 common units that may be offered hereunder
by Kayne Anderson were acquired by Kayne Anderson from Shell on
December 29, 2004 pursuant to a Purchase Agreement dated
December 28, 2004. Under the terms of that Purchase
Agreement, Shell granted Kayne Anderson an option to purchase an
additional number of common units from Shell, which additional
units (if so purchased) may also be offered by Kayne Anderson
hereunder. If Kayne Anderson exercises that purchase option, we
will file a prospectus supplement to this prospectus that
reflects that change in ownership of those common units from
Shell to Kayne Anderson.
PLAN OF DISTRIBUTION
We may sell the common units or debt securities directly,
through agents, or to or through underwriters or dealers. Please
read the prospectus supplement to find the terms of the common
unit or debt securities offering including:
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the names of any underwriters, dealers or agents; |
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the offering price; |
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underwriting discounts; |
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sales agents commissions; |
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other forms of underwriter or agent compensation; |
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discounts, concessions or commissions that underwriters may pass
on to other dealers; and |
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any exchange on which the common units or debt securities are
listed. |
55
We may designate agents who agree to use their reasonable
efforts to solicit purchases for the period of their appointment
or to sell securities on a continuing basis. We may engage
Brinson Patrick Securities Corporation and/or Cantor
Fitzgerald & Co. to act as our agent for one or more
offerings, from time to time, of our common units. If we reach
agreement with Brinson Patrick and/or Cantor with respect to a
specific offering, including the number of common units and any
minimum price below which sales may not be made, then Brinson
Patrick and/or Cantor, as the case may be, would agree to use
its reasonable efforts, consistent with its normal trading and
sales practices, to sell such common units on the agreed terms.
Brinson Patrick and/or Cantor could make sales in privately
negotiated transactions and/or any other method permitted by
law, including sales deemed to be an at the market
offering as defined in Rule 415 promulgated under the
Securities Act of 1933, including sales made on or through the
facilities of the New York Stock Exchange or sales made to or
through a market maker other than on an exchange. Brinson
Patrick and/or Cantor, as the case may be, will be deemed to be
an underwriter within the meaning of the Securities
Act, with respect to any sales effected through an at the
market offering, and the compensation paid to Brinson
Patrick and/or Cantor, as the case may be, with respect to such
sales will be deemed to be underwriting commissions or
discounts. Any commissions so paid will be set forth in a
prospectus supplement relating thereto.
We may change the offering price, underwriter discounts or
concessions, or the price to dealers when necessary. Discounts
or commissions received by underwriters or agents and any
profits on the resale of common units or debt securities by them
may constitute underwriting discounts and commissions under the
Securities Act.
Unless we state otherwise in the prospectus supplement,
underwriters will need to meet certain requirements before
purchasing common units or debt securities. Agents will act on a
best efforts basis during their appointment. We will
also state the net proceeds from the sale in the prospectus
supplement.
Any brokers or dealers that participate in the distribution of
the common units or debt securities may be
underwriters within the meaning of the Securities
Act for such sales. Profits, commissions, discounts or
concessions received by such broker or dealer may be
underwriting discounts and commissions under the securities act.
When necessary, we may fix common unit or debt securities
distribution using changeable, fixed prices, market prices at
the time of sale, prices related to market prices, or negotiated
prices.
We may, through agreements, indemnify underwriters, dealers or
agents who participate in the distribution of the common units
or debt securities against certain liabilities including
liabilities under the Securities Act. We may also provide funds
for payments such underwriters, dealers or agents may be
required to make. Underwriters, dealers and agents, and their
affiliates may transact with us and our affiliates in the
ordinary course of their business.
Distribution by Selling Unitholders
Distributions of the common units by the selling unitholders, or
by their partners, pledgees, donees (including charitable
organizations), transferees or other successors in interest, may
from time to time be offered for sale either directly by such
person or entities, or through underwriters, dealers or agents
or on any exchange on which the common units may from time to
time be traded, in the over-the-counter market, or in
independently negotiated transactions or otherwise. The methods
by which the common units may be sold include:
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a block trade (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent
but may position and resell a portion of the block as principal
to facilitate the transaction; |
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purchases by a broker or dealer as principal and resale by such
broker or dealer for its own account pursuant to this prospectus; |
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exchange distributions and/or secondary distributions; |
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underwritten transactions; |
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ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and |
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direct sales or privately negotiated transactions. |
Such transactions may be effected by the selling unitholder at
market prices prevailing at the time of sale or at negotiated
prices. The selling unitholders may effect such transactions by
selling the common units to underwriters or to or through
broker-dealers, and such underwriters or broker-dealers may
receive compensation in the form of discounts or commissions
from the selling unitholders and may receive commissions from
the purchasers of the common units for whom they may act as
agent.
In connection with sales of the common units under this
prospectus, the selling unitholders may enter into hedging
transactions with broker-dealers, who may in turn engage in
short sales of the common units in the course of hedging the
positions they assume. The selling unitholders also may engage
in short sales, short sales against the box, puts and calls and
other transactions in common units, or derivatives thereof, and
may sell and deliver their common units in connection therewith,
or loan or pledge the common units to broker-dealers that in
turn may sell them. In addition, the selling unitholders may
from time to time sell their common units in transactions
permitted by Rule 144 under the Securities Act.
The selling unitholders may agree to indemnify any underwriter,
broker-dealer or agent that participates in transactions
involving sales of the common units against certain liabilities,
including liabilities arising under the Securities Act. We have
agreed to register the common units for sale under the
Securities Act and to indemnify the selling unitholders against
certain civil liabilities, including certain liabilities under
the Securities Act.
As of the date of this prospectus, neither we nor any selling
unitholder has engaged any underwriter, broker, dealer or agent
in connection with the distribution of common units pursuant to
this prospectus by the selling unitholders. To the extent
required, the number of common units to be sold, the purchase
price, the name of any applicable agent, broker, dealer or
underwriter and any applicable commissions with respect to a
particular offer will be set forth in the applicable prospectus
supplement. The aggregate net proceeds to the selling
unitholders from the sale of their common units offered hereby
will be the sale price of those shares, less any commissions, if
any, and other expenses of issuance and distribution not borne
by us.
The selling unitholders and any brokers, dealers, agents or
underwriters that participate with the selling unitholders in
the distribution of shares may be deemed to be
underwriters within the meaning of the Securities
Act, in which event any discounts, concessions and commissions
received by such brokers, dealers, agents or underwriters and
any profit on the resale of the shares purchased by them may be
deemed to be underwriting discounts and commissions under the
Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, and other
information with the Commission under the Securities Exchange
Act of 1934, as amended (the Securities Exchange
Act). You may read and copy any document we file at the
Commissions public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-732-0330 for further information on the
public reference room. Our filings are also available to the
public at the Commissions web site at http://www.sec.gov.
In addition, documents filed by us can be inspected at the
offices of the New York Stock Exchange, Inc. 20 Broad
Street, New York, New York 10002.
The Commission allows us to incorporate by reference into this
prospectus the information we file with it, which means that we
can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information
that we file with the Commission will automatically update and
supersede this information. Therefore, before you decide to
invest in a particular offering under this shelf registration,
you should always check for reports we may have filed with the
Commission after the date of this prospectus. We
57
incorporate by reference the documents listed below filed by us
and any future filings we make with the Commission under
sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act until our offering is completed (other than information
furnished under Item 9 or Item 12 of any
Form 8-K that is listed below, or under
Item 2.02 or Item 2.02 or Item 7.01 of any
Form 8-K filed after August 23, 2004 that is listed
below or that is filed in the future, which information is not
deemed filed under the Exchange Act).
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Our Annual Report on Form 10-K for the year ended
December 31, 2003 except for Items 1, 2, 7
and 8, which have been superseded by the Current Report on
Form 8-K filed with the Commission on December 6,
2004, Commission File No. 1-14323; |
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Our Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission on
March 15, 2005, Commission File No. 1-14323; |
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Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2004, June 30, 2004 and September 30,
2004, Commission File Nos. 1-14323; |
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Current Reports on Form 8-K filed with the Commission on
December 15, 2003, January 6, 2004, February 10,
2004, March 22, 2004, April 16, 2004, April 20,
2004, April 21, 2004, April 26, 2004, April 27,
2004, May 3, 2004, July 29, 2004, August 2, 2004,
August 5, 2004, August 11, 2004, August 30, 2004,
September 1, 2004, September 7, 2004,
September 8, 2004, September 14, 2004,
September 17, 2004, September 21, 2004,
September 27, 2004, September 28, 2004,
October 1, 2004, October 6, 2004, October 27,
2004, December 6, 2004, December 15, 2004,
January 4, 2005, January 18, 2005, February 11,
2005, February 14, 2005, February 16, 2005,
March 3, 2005 and March 23, 2005, Commission File Nos.
1-14323; |
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Current Report on Form 8-K filed with the Commission on
June 16, 2004, as amended by the Current Report on
Form 8-K/A (Amendment No. 1) filed with the Commission
on August 4, 2004, Commission File Nos. 1-14323; |
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Current Report on Form 8-K filed with the Commission on
August 2, 2004, as amended by the Current Report on
Form 8-K/A (Amendment No. 1) filed with the Commission
on August 5, 2004, Commission File Nos. 1-14323; |
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Current Report on Form 8-K filed with the Commission on
September 30, 2004, as amended by the Current Reports on
Form 8-K/A filed with the Commission on October 5,
2004 (Amendment No. 1), October 18, 2004 (Amendment
No. 2), December 3, 2004 (Amendment No. 3),
December 6, 2004 (Amendment No. 4) and
December 27, 2004 (Amendment No. 5), Commission File
Nos. 1-14323; and |
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Current Report on Form 8-K (containing the description of
our common units, which description amends and restates the
description of our common units contained in the Registration
Statement on Form 8-A, initially filed with the Commission on
July 21, 1998) filed with the Commission on
February 10, 2004, Commission File No. 1-14323. |
We will provide without charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon
written or oral request, a copy of any document incorporated by
reference in this prospectus, other than exhibits to any such
document not specifically described above. Requests for such
documents should be directed to Investor Relations, Enterprise
Products Partners L.P., 2727 North Loop West, Suite 700,
Houston, Texas 77008-1038; telephone number: (713) 880-6812.
We intend to furnish or make available to our unitholders within
75 days (or such shorter period as the Commission may
prescribe) following the close of our fiscal year end annual
reports containing audited financial statements prepared in
accordance with generally accepted accounting principles and
furnish or make available within 40 days (or such shorter
period as the Commission may prescribe) following the close of
each fiscal quarter quarterly reports containing unaudited
interim financial information, including the information
required by Form 10-Q, for the first three fiscal quarters
of each of our fiscal years. Our annual report will include a
description of any transactions with our general partner or its
affiliates, and of fees, commissions, compensation and other
benefits paid, or accrued to our general partner or its
affiliates
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for the fiscal year completed, including the amount paid or
accrued to each recipient and the services performed.
FORWARD-LOOKING STATEMENTS
This prospectus and some of the documents we incorporate by
reference contain various forward-looking statements and
information that are based on our beliefs and those of our
general partner, as well as assumptions made by and information
currently available to us. These forward-looking statements are
identified as any statement that does not relate strictly to
historical or current facts. When used in this prospectus or the
documents we have incorporated herein or therein by reference,
words such as anticipate, project,
expect, plan, goal,
forecast, intend, could,
believe, may, and similar expressions
and statements regarding our plans and objectives for future
operations, are intended to identify forward-looking statements.
Although we and our general partner believe that such
expectations reflected in such forward-looking statements are
reasonable, neither we nor our general partner can give
assurances that such expectations will prove to be correct. Such
statements are subject to a variety of risks, uncertainties and
assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key risk factors
that may have a direct bearing on our results of operations and
financial condition are:
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fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces; |
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a reduction in demand for our products by the petrochemical,
refining or heating industries; |
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the effects of our debt level on our future financial and
operating flexibility; |
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a decline in the volumes of NGLs delivered by our facilities; |
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the failure of our credit risk management efforts to adequately
protect us against customer non-payment; |
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terrorist attacks aimed at our facilities; |
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the failure to successfully integrate our operations with
GulfTerras or any other companies we acquire; and |
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the failure to realize the anticipated cost savings, synergies
and other benefits of our merger with GulfTerra. |
You should not put undue reliance on any forward-looking
statements. When considering forward-looking statements, please
review the risk factors described under Risk Factors
in this prospectus and any prospectus supplement.
LEGAL MATTERS
Vinson & Elkins L.L.P., our counsel, will issue an
opinion for us about the legality of the common units and debt
securities and the material federal income tax considerations
regarding the common units. Any underwriter will be advised
about other issues relating to any offering by their own legal
counsel. Attorneys at Vinson & Elkins L.L.P. who have
participated in the preparation of this prospectus and the
registration statement of which it is a part beneficially own
approximately 3,200 common units of Enterprise.
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EXPERTS
The (1) consolidated financial statements and the related
consolidated financial statement schedule of Enterprise Products
Partners L.P. and subsidiaries as incorporated in this
prospectus, by reference from Enterprise Products Partners
L.P.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 6, 2004, and
(2) the balance sheet of Enterprise Products GP, LLC as of
December 31, 2003, incorporated in this prospectus
supplement by reference from Exhibit 99.1 to Enterprise
Products Partners L.P.s Current Report on Form 8-K
filed with the Securities and Exchange Commission on
March 22, 2004, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their reports, which are incorporated herein by
reference (each such report expresses an unqualified opinion and
the report for Enterprise Products Partners L.P. includes an
explanatory paragraph referring to a change in method of
accounting for goodwill in 2002 and derivative instruments in
2001 as discussed in Notes 8 and 1, respectively, to
Enterprise Products Partners L.P.s consolidated financial
statements), and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in
accounting and auditing.
The (1) consolidated financial statements of GulfTerra
Energy Partners, L.P. (GulfTerra), (2) the
financial statements of Poseidon Oil Pipeline Company, L.L.C.
(Poseidon) and (3) the combined financial
statements of El Paso Hydrocarbons, L.P. and El Paso
NGL Marketing Company, L.P. (the Companies) all
incorporated in this prospectus by reference to Enterprise
Products Partners L.P.s Current Reports on Form 8-K
dated April 20, 2004 for (1) and (2) and
April 16, 2004 for (3), have been so incorporated in
reliance on the reports (which (i) report on the
consolidated financial statements of GulfTerra contains an
explanatory paragraph relating to GulfTerras agreement to
merge with Enterprise Products Partners L.P. as described in
Note 2 to the consolidated financial statements,
(ii) report on the financial statements of Poseidon
contains an explanatory paragraph relating to Poseidons
restatement of its prior year financial statements as described
in Note 1 to the financial statements, and
(iii) report on the combined financial statements of the
Companies contains an explanatory paragraph relating to the
Companies significant transactions and relationships with
affiliated entities as described in Note 5 to the combined
financial statements) of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
Information derived from the report of Netherland,
Sewell & Associates, Inc., independent petroleum
engineers and geologists, with respect to GulfTerras
estimated oil and natural gas reserves incorporated in this
prospectus by reference to our Current Report on Form 8-K
dated April 20, 2004 has been so incorporated in reliance
on the authority of said firm as experts with respect to such
matters contained in their report.
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$700,000,000
Enterprise Products Operating
L.P.
7.034% Fixed/Floating Rate
Junior Subordinated
Notes due 2068
Guaranteed to the extent
described in this prospectus
supplement by
Enterprise Products Partners
L.P.
Joint book-running managers
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JPMorgan |
Citi |
Lehman
Brothers |
Wachovia
Securities |
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Mizuho
Securities USA Inc. |
Raymond
James |
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Daiwa
Securities America Inc.
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Prospectus Supplement dated
May 21, 2007