e424b3
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities, and we are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
|
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-145709
Subject to
Completion, Dated March 31, 2008
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated
August 27, 2007)
Enterprise Products Operating
LLC
$ % Senior
Notes due 2013
$ % Senior
Notes due 2019
Unconditionally Guaranteed by
Enterprise Products Partners L.P.
This prospectus supplement relates to our offering of two series
of senior notes. The senior notes due 2013, which we refer to as
2013 notes, will bear interest at the rate
of % per year and will mature on
,
2013. The senior notes due 2019, which we refer to as
2019 notes, will bear interest at the rate
of % per year and will mature
on ,
2019. We will pay interest on each series of the notes on
and
of each year, beginning
,
2008. We may redeem some or all of the notes at any time at the
applicable redemption price described beginning on
page S-20
of this prospectus supplement, which includes a make-whole
premium.
The notes are unsecured and rank equally with all other senior
indebtedness of Enterprise Products Operating LLC (successor to
Enterprise Products Operating L.P.). The notes will be
guaranteed by our parent, Enterprise Products Partners L.P. and
in certain circumstances may be guaranteed in the future on the
same basis by one or more subsidiary guarantors.
Investing in the notes involves
certain risks. See Risk Factors beginning on
page S-10
of this prospectus supplement and on page 2 of the
accompanying prospectus.
The notes will not be listed on any securities exchange.
Currently, there is no public market for the notes.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Notes
|
|
|
2019 Notes
|
|
|
|
Per Note
|
|
|
Total
|
|
|
Per Note
|
|
|
Total
|
|
|
Public offering price (1)
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Underwriting discount
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Proceeds to Enterprise Products Partners (before expenses)
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
(1)
|
|
Plus accrued interest
from ,
2008, if settlement occurs after that date.
|
The underwriters expect to deliver the notes in book entry form
only, through the facilities of The Depository
Trust Company, against payment
on ,
2008.
Joint Book-Running Managers
|
|
|
|
Lehman
Brothers
|
Citi
|
JPMorgan
|
Scotia Capital
|
The date of this prospectus supplement
is ,
2008.
Table of
Contents
Prospectus
Supplement
|
|
|
|
|
|
|
|
S-1
|
|
|
|
|
S-10
|
|
|
|
|
S-14
|
|
|
|
|
S-15
|
|
|
|
|
S-17
|
|
|
|
|
S-18
|
|
|
|
|
S-23
|
|
|
|
|
S-27
|
|
|
|
|
S-28
|
|
|
|
|
S-30
|
|
|
|
|
S-30
|
|
|
|
|
S-30
|
|
|
|
|
S-31
|
|
Prospectus
|
|
|
|
|
|
|
|
iii
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
16
|
|
|
|
|
18
|
|
|
|
|
22
|
|
|
|
|
26
|
|
|
|
|
39
|
|
|
|
|
41
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
43
|
|
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.
S-i
Summary
This summary highlights information from this prospectus
supplement and the accompanying prospectus to help you
understand our business, the notes and the guarantee. 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-10
of this prospectus supplement and on page 2 of the
accompanying prospectus, as well as Risk Factors
incorporated by reference into this prospectus supplement, for
more information about important risks that you should consider
before making a decision to purchase any 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 LLC (successor to
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 LLC 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 under 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 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,
us, we, our and like terms
refer to Enterprise Products Operating LLC and do not include
any of its subsidiaries or unconsolidated affiliates or
Enterprise Parent. Likewise, in such sections, unless the
context otherwise indicates, including with respect to financial
and operating information that is presented on a consolidated
basis, 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. We are an industry leader in the development of
pipeline and other midstream energy 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 network of
midstream assets within the United States that includes: natural
gas gathering, treating, processing, transportation and storage;
NGL fractionation (or separation), transportation, storage and
import and export terminaling; crude oil transportation;
offshore production platform services and petrochemical
transportation and 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, 2007, Enterprise Parent had
consolidated revenues of $17.0 billion, operating income of
$883.0 million and net income of $533.7 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
S-1
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 13,758 miles and related storage facilities
including our
Mid-America
Pipeline System, (iii) NGL and related product storage
facilities and (iv) 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 17,758 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.
This segment also includes our natural gas marketing activities.
Offshore Pipelines & Services. Our
Offshore Pipelines & Services business segment
includes (i) approximately 1,555 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
914 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 five propylene fractionation
facilities, an isomerization complex and an octane additive
production facility. This segment also includes approximately
683 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.
Recent
Developments
On February 19, 2008, Enterprise Parent announced that its
subsidiary, Petal Gas Storage, LLC, submitted an application to
the Federal Energy Regulatory Commission to further expand its
natural gas storage facility located in Petal, Mississippi. The
project will include construction of two new underground salt
caverns, creating 10 Bcf of working gas capacity, which
could be completed and in service as early as the second quarter
of 2010.
On February 1, 2008, our Pioneer cryogenic natural gas
processing plant in Sublette County, Wyoming, began commercial
operations. Located near the Opal Hub in southwestern Wyoming,
Pioneer is designed to process up to
750 MMcf/d
of natural gas and extract as much as 30,000 BPD of NGLs. We
have maintained, and intend to continue maintaining, the
operational capability of our silica gel natural gas processing
facility, which is adjacent to the Pioneer cryogenic plant, as a
back-up to
provide producers with additional assurance of our processing
capability at Pioneer. NGLs extracted at the Pioneer facility
are transported on Enterprises
Mid-America
Pipeline (MAPL) and ultimately to our NGL
fractionators in Hobbs and Mont Belvieu, Texas.
On March 28, 2008, we announced that operations at our
Pioneer plant in Wyoming had been suspended following a release
of natural gas and subsequent fire that occurred on
March 27, 2008. No injuries resulted from the incident,
which was restricted to a small area within the plant. Based on
preliminary findings, we currently expect the facility to resume
service in approximately two to three weeks. In the meantime,
all natural gas volumes are being diverted to our adjacent
silica gel natural gas processing plant. Prior to the incident,
the Pioneer cryogenic plant was processing about
550 million cubic feet of natural gas per day and
extracting approximately 26,000 barrels per day of natural
gas liquids. We do not expect the service interruption to
materially affect our net income or gross operating margin for
2008.
S-2
Organization
Structure
The following chart depicts our organization structure at
March 24, 2008.
|
|
|
GP = |
|
General Partner Interest |
|
LP = |
|
Limited Partner Interest |
|
(1) |
|
EPCO, Inc. and its private company affiliates own the sole 0.01%
GP interest and an aggregate 77.4% LP interest in Enterprise GP
Holdings L.P., including 16,000,000 Class C units that are
eligible to be converted into units on February 1, 2009 on
a one-to-one basis. The remaining LP interests in Enterprise GP
Holdings L.P. are publicly owned. |
|
(2) |
|
Does not include our general partners interest in
distributions above the minimum quarterly distribution. With
respect to the quarter ended December 31, 2007, our general
partner received 13.6% of the cash we distributed to our
partners. |
S-3
The
Offering
|
|
|
Issuer |
|
Enterprise Products Operating LLC |
|
Guarantee |
|
The notes will be fully and unconditionally guaranteed by the
Parent Guarantor on an unsecured and unsubordinated basis.
Initially, the notes will not be guaranteed by any of our
subsidiaries. In the future, however, if any of our subsidiaries
become guarantors or co-obligors of our funded debt (as defined
in the indenture), then these subsidiaries will jointly and
severally, fully and unconditionally, guarantee our payment
obligations under the notes. Please read Description of
Notes Parent Guarantee. |
|
Securities Offered |
|
$
aggregate principal amount
of % senior notes due 2013.
$
aggregate principal amount
of % senior notes due 2019. |
|
Interest |
|
The 2013 notes will bear interest
at % per annum.
The 2019 notes will bear interest
at % per annum.
All interest on the notes will accrue from the settlement date. |
|
Interest Payment Dates |
|
Interest on each series of the notes will be paid in cash
semi-annually in arrears on
and
of each year, beginning
,
2008. |
|
Maturity |
|
2013 notes
,
2013.
2019
notes ,
2019. |
|
Use of Proceeds |
|
We expect to receive aggregate net proceeds of approximately
$ 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
(1) to temporarily reduce borrowings outstanding under our
multi-year revolving credit facility and (2) for general
company 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. |
|
Ranking |
|
The notes will be our unsecured and unsubordinated obligations
and will rank equally with all of our other existing and future,
unsecured and unsubordinated indebtedness. Please read
Description of Notes Ranking. |
|
Optional Redemption |
|
We may redeem the notes of each series before their maturity in
whole, at any time, or in part, from time to time, prior to
maturity, at a redemption price with respect to the applicable
series of the notes that includes accrued and unpaid interest
and a make-whole premium. For a more complete description of the
redemption provisions of the notes, please read
Description of Notes Optional Redemption. |
|
Certain Covenants |
|
We will issue the notes under an Indenture (as defined below)
with Wells Fargo Bank, N.A., as trustee. The Indenture covenants
include a limitation on liens and a restriction on
sale-leasebacks. Each covenant is subject to a number of
important exceptions, limitations and qualifications that are
described under Description of Debt Securities
Certain Covenants in the accompanying prospectus. |
|
Risk Factors |
|
Investing in the notes involves certain risks. You should
carefully consider the risk factors discussed under the heading
Risk Factors beginning on |
S-4
|
|
|
|
|
page S-10
of this prospectus supplement and on page 2 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. |
|
Book-Entry
Form/Denominations |
|
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. |
|
Trading |
|
We will not list the notes for trading on any securities
exchange. |
|
Trustee |
|
Wells Fargo Bank, National Association. |
|
Governing Law |
|
The notes and the Indenture will be governed by, and construed
in accordance with, the laws of the State of New York. |
S-5
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, 2007 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 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. The financial measures of gross
operating margin and EBITDA are not calculated in accordance
with accounting principles generally accepted in the United
States of America, or GAAP. Explanations of and
reconciliations for these non-GAAP financial measures are
included under Enterprise Parent
Non-GAAP Financial Measures and
Enterprise Parent Non-GAAP
Reconciliations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Historical
|
|
|
|
For Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in millions, except per unit amounts)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,257.0
|
|
|
$
|
13,991.0
|
|
|
$
|
16,950.1
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
11,546.2
|
|
|
|
13,089.1
|
|
|
|
16,009.1
|
|
General and administrative
|
|
|
62.3
|
|
|
|
63.4
|
|
|
|
87.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
11,608.5
|
|
|
|
13,152.5
|
|
|
|
16,096.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
14.5
|
|
|
|
21.6
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
663.0
|
|
|
|
860.1
|
|
|
|
883.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(230.6
|
)
|
|
|
(238.0
|
)
|
|
|
(311.8
|
)
|
Interest income
|
|
|
5.2
|
|
|
|
7.6
|
|
|
|
8.6
|
|
Other, net
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(225.2
|
)
|
|
|
(230.0
|
)
|
|
|
(303.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, minority interest and
the cumulative effect of changes in accounting principles
|
|
|
437.8
|
|
|
|
630.1
|
|
|
|
579.5
|
|
Provision for income taxes
|
|
|
(8.3
|
)
|
|
|
(21.3
|
)
|
|
|
(15.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and the cumulative effect of
changes in accounting principles
|
|
|
429.5
|
|
|
|
608.8
|
|
|
|
564.3
|
|
Minority interest
|
|
|
(5.8
|
)
|
|
|
(9.1
|
)
|
|
|
(30.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before the cumulative effect of changes in accounting
principles
|
|
|
423.7
|
|
|
|
599.7
|
|
|
|
533.7
|
|
Cumulative effect of changes in accounting principles
|
|
|
(4.2
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
419.5
|
|
|
$
|
601.2
|
|
|
$
|
533.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per unit
|
|
$
|
0.91
|
|
|
$
|
1.22
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Historical
|
|
|
|
For Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in millions, except per unit amounts)
|
|
|
Distributions for limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit
|
|
$
|
1.6975
|
|
|
$
|
1.8250
|
|
|
$
|
1.9475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (as of end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,591.0
|
|
|
$
|
13,989.7
|
|
|
$
|
16,608.0
|
|
Total long-term debt
|
|
|
4,833.8
|
|
|
|
5,295.6
|
|
|
|
6,906.1
|
|
Total partners equity
|
|
|
5,679.3
|
|
|
|
6,480.2
|
|
|
|
6,131.6
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
631.7
|
|
|
$
|
1,175.1
|
|
|
$
|
1,590.9
|
|
Cash used in investing activities
|
|
|
1,130.4
|
|
|
|
1,689.3
|
|
|
|
2,553.6
|
|
Cash provided by financing activities
|
|
|
516.2
|
|
|
|
495.0
|
|
|
|
979.4
|
|
Distributions received from unconsolidated affiliates
|
|
|
56.1
|
|
|
|
43.0
|
|
|
|
73.6
|
|
Gross operating margin
|
|
|
1,136.3
|
|
|
|
1,362.5
|
|
|
|
1,492.1
|
|
EBITDA
|
|
|
1,079.0
|
|
|
|
1,307.9
|
|
|
|
1,384.8
|
|
Selected Volumetric Operating Data by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes (MBPD)
|
|
|
1,478
|
|
|
|
1,577
|
|
|
|
1,666
|
|
NGL fractionation volumes (MBPD)
|
|
|
292
|
|
|
|
312
|
|
|
|
394
|
|
Equity NGL production (MBPD)
|
|
|
68
|
|
|
|
63
|
|
|
|
88
|
|
Fee-based natural gas processing
(MMcf/d)
|
|
|
1,767
|
|
|
|
2,218
|
|
|
|
2,565
|
|
Onshore Natural Gas Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
5,916
|
|
|
|
6,012
|
|
|
|
6,632
|
|
Offshore Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
1,780
|
|
|
|
1,520
|
|
|
|
1,641
|
|
Crude oil transportation volumes (MBPD)
|
|
|
127
|
|
|
|
153
|
|
|
|
163
|
|
Platform gas processing (MMcf/d)
|
|
|
252
|
|
|
|
159
|
|
|
|
494
|
|
Platform oil processing (MBPD)
|
|
|
7
|
|
|
|
15
|
|
|
|
24
|
|
Petrochemical Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes (MBPD)
|
|
|
81
|
|
|
|
81
|
|
|
|
90
|
|
Propylene fractionation volumes (MBPD)
|
|
|
55
|
|
|
|
56
|
|
|
|
68
|
|
Octane additive production volumes (MBPD)
|
|
|
6
|
|
|
|
9
|
|
|
|
9
|
|
Petrochemical transportation volumes (MBPD)
|
|
|
64
|
|
|
|
97
|
|
|
|
105
|
|
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
data. The borrowings of Duncan Energy Partners
($200.0 million at December 31, 2007) 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 year ended
December 31, 2007 include eleven months of minority
interest expense ($13.9 million) associated with the
non-affiliated public owners of Duncan Energy Partners.
S-7
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: (i) depreciation, amortization and accretion
expense; (ii) operating lease expenses for which it does
not have a cash payment obligation; (iii) gains and losses
on the sale of assets and (iv) general and administrative
costs. Gross operating margin is exclusive of other income and
expense transactions, provision for income taxes, minority
interest, extraordinary charges and the cumulative effect of
change in accounting principle. 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,
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-8
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 Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Reconciliation of Non-GAAP Gross Operating Margin
to GAAP Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
663.0
|
|
|
$
|
860.1
|
|
|
$
|
883.0
|
|
Adjustments to reconcile Operating Income to Gross Operating
Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
413.4
|
|
|
|
440.3
|
|
|
|
513.9
|
|
Operating lease expense paid by EPCO in operating costs and
expenses
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
2.1
|
|
Loss (gain) on sale of assets in operating costs and expenses
|
|
|
(4.5
|
)
|
|
|
(3.4
|
)
|
|
|
5.4
|
|
General and administrative costs
|
|
|
62.3
|
|
|
|
63.4
|
|
|
|
87.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Operating Margin
|
|
$
|
1,136.3
|
|
|
$
|
1,362.5
|
|
|
$
|
1,492.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP EBITDA to GAAP
Net Income and GAAP Net Cash Provided By
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
419.5
|
|
|
$
|
601.2
|
|
|
$
|
533.7
|
|
Adjustments to derive EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
230.6
|
|
|
|
238.0
|
|
|
|
311.8
|
|
Provision for income taxes
|
|
|
8.3
|
|
|
|
21.3
|
|
|
|
15.2
|
|
Depreciation, amortization and accretion in costs and expenses
|
|
|
420.6
|
|
|
|
447.4
|
|
|
|
524.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
1,079.0
|
|
|
|
1,307.9
|
|
|
|
1,384.8
|
|
Interest expense
|
|
|
(230.6
|
)
|
|
|
(238.0
|
)
|
|
|
(311.8
|
)
|
Provision for income taxes
|
|
|
(8.3
|
)
|
|
|
(21.3
|
)
|
|
|
(15.2
|
)
|
Cumulative effect of changes in accounting principles
|
|
|
4.2
|
|
|
|
(1.5
|
)
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(14.5
|
)
|
|
|
(21.6
|
)
|
|
|
(29.7
|
)
|
Amortization in interest expense
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
(0.3
|
)
|
Deferred income tax expense
|
|
|
8.6
|
|
|
|
14.5
|
|
|
|
8.3
|
|
Provision for non-cash asset impairment charge
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
56.1
|
|
|
|
43.0
|
|
|
|
73.6
|
|
Operating lease expense paid by EPCO
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
2.1
|
|
Minority interest
|
|
|
5.8
|
|
|
|
9.1
|
|
|
|
30.6
|
|
Loss (gain) on sale of assets
|
|
|
(4.5
|
)
|
|
|
(3.4
|
)
|
|
|
5.4
|
|
Changes in fair market value of financial instruments
|
|
|
0.1
|
|
|
|
|
|
|
|
1.0
|
|
Non-cash pension expense
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Loss on the early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Net effect of changes in operating accounts
|
|
|
(266.4
|
)
|
|
|
83.4
|
|
|
|
441.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$
|
631.7
|
|
|
$
|
1,175.1
|
|
|
$
|
1,590.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-9
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 the accompanying prospects and in Enterprise Parents
annual report on
Form 10-K
for the year ended December 31, 2007, 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.
Our
future debt level may limit our flexibility to obtain additional
financing and pursue other business opportunities.
As of December 31, 2007, Enterprise Parent had
approximately $5.6 billion of consolidated total senior
long-term debt outstanding and $1.3 billion of junior
subordinated debt. This amount includes approximately
$200.0 million outstanding under Duncan Energy
Partners credit facility. The amount of our future debt
could have significant effects on our operations, including,
among other things:
|
|
|
|
|
a substantial portion of our cash flow, including that of Duncan
Energy Partners, could be dedicated to the payment of principal
and interest on our future debt and may not be available for
other purposes, including the payment of distributions on the
Enterprise Parent common units and capital expenditures;
|
|
|
|
credit rating agencies may view our debt level negatively;
|
|
|
|
covenants contained in our existing and future credit and 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, including possible
acquisition opportunities;
|
|
|
|
our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
|
|
|
|
we may be at a competitive disadvantage relative to similar
companies that have less debt; and
|
|
|
|
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. Although our multi-year revolving credit facility
restricts our ability to incur additional debt above certain
levels, any debt we may incur in compliance with these
restrictions may still be substantial.
Our multi-year revolving credit facility and each of our
indentures for our public debt contain conventional financial
covenants and other restrictions. For example, we are prohibited
from making distributions to our partners if such distributions
would cause an event of default or otherwise violate a covenant
under our multi-year revolving credit facility. A breach of any
of these restrictions by us could permit our lenders or
noteholders, as applicable, to declare all amounts outstanding
under these debt agreements to be immediately due and payable
and, in the case of our multi-year revolving credit facility, to
terminate all commitments to extend further credit.
Our ability to access 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 prevailing market conditions. Moreover, if
the rating agencies were to downgrade our credit ratings, 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
S-10
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 thereby impact
our ability to pay cash distributions at expected rates.
Substantially
all of the common units in Enterprise Parent that are owned by
EPCO, Inc., or EPCO, and its affiliates are pledged as security
under EPCOs credit facility. Additionally, all of the
member interests in the general partner of Enterprise Parent and
all of the common units in Enterprise Parent that are owned by
Enterprise GP Holdings L.P., or Enterprise GP Holdings, are
pledged under its credit facility. Upon an event of default
under either of these credit facilities, a change in ownership
or control of Enterprise Parent or us could ultimately
result.
An affiliate of EPCO has pledged substantially all of its common
units in Enterprise Parent as security under its credit
facility. EPCOs credit facility contains customary and
other events of default relating to defaults of EPCO and certain
of its subsidiaries, including certain defaults by us and other
affiliates of EPCO. An event of default, followed by a
foreclosure on EPCOs pledged collateral, could ultimately
result in a change in ownership of us. In addition, the 100%
membership interest in our general partner and the common units
of Enterprise Parent that are owned by Enterprise GP Holdings
are pledged under Enterprise GP Holdings credit facility.
Enterprise GP Holdings credit facility contains customary
and other events of default. Upon an event of default, the
lenders under Enterprise GP Holdings credit facility could
foreclose on Enterprise GP Holdings assets, which could
ultimately result in a change in control of our general partner
and a change in the ownership of Enterprise Parent common units
held by Enterprise GP Holdings.
The
credit and risk profile of the general partner of Enterprise
Parent and its owners could adversely affect our credit ratings
and profile.
The credit and business risk profiles of the general partner or
owners of a general partner may be factors in credit evaluations
of a limited partnership. This is because the general partner
can exercise significant influence over the business activities
of the partnership, including its cash distribution and
acquisition strategy and business risk profile. Another factor
that may be considered is the financial condition of the general
partner and its owners, including the degree of their financial
leverage and their dependence on cash flow from the partnership
to service their indebtedness.
Entities controlling the owner of the general partner of
Enterprise Parent have significant indebtedness outstanding and
are dependent principally on the cash distributions from their
equity interests in us, Enterprise Parent, Enterprise GP
Holdings and TEPPCO Partners, L.P., or TEPPCO, to service such
indebtedness. Any distributions by us, Enterprise GP Holdings
and TEPPCO to such entities will be made only after satisfying
our then current obligations to creditors. Although we have
taken certain steps in our organizational structure, financial
reporting and contractual relationships to reflect the
separateness of us and our general partner from the entities
that control our general partner, our credit ratings and
business risk profile could be adversely affected if the ratings
and risk profiles of Dan L. Duncan or the entities that control
the general partner of Enterprise Parent were viewed as
substantially lower or more risky than ours.
The notes
are pari passu to a substantial portion of our other unsecured
senior indebtedness.
Our payment obligations under the notes are unsecured and pari
passu in right of payment to a substantial portion of our
current and future 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.
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 December 31, 2007, the direct indebtedness of
Enterprise that is pari passu with the notes totaled
approximately $1.3 billion. As discussed below, the notes
will also be effectively subordinated to all of our
subsidiaries and unconsolidated
S-11
affiliates existing and future indebtedness and other
obligations. At December 31, 2007, indebtedness of our
subsidiaries and unconsolidated affiliates totaled approximately
$379.2 million.
Enterprise
Parents guarantee of the notes is pari passu to all of its
other senior indebtedness.
Enterprise Parents guarantee of the notes ranks pari passu
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.
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.
We may
elect to cause the redemption of the notes when prevailing
interest rates are relatively low.
As discussed in Description of the Notes
Optional Redemption, we may redeem the notes at any time,
in whole or in part, at a price equal to the greater of
(i) 100% of the principal amount of the notes to be
redeemed or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest (at the
rate in effect on the date of the calculation of the redemption
price) on the notes to be redeemed (exclusive of interest
accrued to the date of redemption) discounted to the
Redemption Date on a semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the applicable Treasury Yield
plus basis points for the 2013
notes and basis points for the 2019
notes; plus, in either case, accrued interest to the
Redemption Date.
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 payment defaults, 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.
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.
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.
S-12
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.
S-13
USE OF
PROCEEDS
We will receive aggregate net proceeds of approximately
$ 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, together with accrued and unpaid
interest thereon, and for general company 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 company purposes. As of March 21, 2008, we
had $1.075 billion 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 3.49% per annum. 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-14
ENTERPRISE
PARENT CAPITALIZATION
The following table sets forth Enterprise Parents
capitalization as of December 31, 2007 (dollars in
millions):
|
|
|
|
|
on a consolidated historical basis; and
|
|
|
|
on an as adjusted basis to give effect to: (i) the sale 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 Enterprises multi-year
revolving credit facility as if such amounts were applied on
December 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 accompanying 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 December 31, 2007.
S-15
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
|
Historical
|
|
|
As Adjusted
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
39.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings:
|
|
|
|
|
|
|
|
|
Multi-Year Revolving Credit Facility, variable rate, due
November 2012 (1)
|
|
$
|
725.0
|
|
|
$
|
|
|
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 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, 4.950% fixed-rate, due May 2010
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes L, 6.30% fixed-rate, due September 2017
|
|
|
800.0
|
|
|
|
800.0
|
|
Senior Notes M, % fixed-rate,
due 2013
|
|
|
|
|
|
|
|
|
Senior Notes N, % fixed-rate,
due 2019
|
|
|
|
|
|
|
|
|
Petal GO Zone Bonds, variable rate, due August 2034
|
|
|
57.5
|
|
|
|
57.5
|
|
Duncan Energy Partners Revolving Credit Facility, variable
rate, due February 2011 (2)
|
|
|
200.0
|
|
|
|
200.0
|
|
Other (3)
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
Total principal amount of senior debt obligations
|
|
|
5,646.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Notes A, due August 2066
|
|
|
550.0
|
|
|
|
550.0
|
|
Junior Subordinated Notes B, due January 2068
|
|
|
700.0
|
|
|
|
700.0
|
|
|
|
|
|
|
|
|
|
|
Total principal amount of senior and junior debt obligations
|
|
|
6,896.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including unamortized discounts and premiums and changes
in fair value (4)
|
|
|
9.6
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt obligations
|
|
$
|
6,906.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
430.4
|
|
|
|
430.4
|
|
Partners equity:
|
|
|
|
|
|
|
|
|
Limited partners
|
|
|
5,992.9
|
|
|
|
5,992.9
|
|
General partner
|
|
|
122.3
|
|
|
|
122.3
|
|
Accumulated other comprehensive income
|
|
|
16.4
|
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
|
Total partners equity
|
|
|
6,131.6
|
|
|
|
6,131.6
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
13,468.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In November 2007, we executed an amended and restated revolving
credit agreement governing our multi-year revolving credit
facility. This new credit agreement increases the capacity from
$1.25 billion to $1.75 billion and extends the
maturity date of amounts borrowed from October 2011 to November
2012. |
|
(2) |
|
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. |
|
(3) |
|
Reflects the debt obligation of Dixie Pipeline Company, a
consolidated subsidiary. |
|
(4) |
|
The December 31, 2007 amount includes an asset of
$14.8 million related to fair value hedges offset by a net
$5.2 million in unamortized discounts. |
S-16
RATIO OF
EARNINGS TO FIXED CHARGES
Enterprise Parents ratio of earnings to fixed charges for
each of the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2.02x
|
|
2.69x
|
|
2.69x
|
|
2.94x
|
|
2.32x
|
For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items:
|
|
|
|
|
pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees;
|
|
|
|
plus fixed charges;
|
|
|
|
plus distributed income of equity investees;
|
|
|
|
less capitalized interest; and
|
|
|
|
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:
|
|
|
|
|
interest expensed and capitalized, including amortized premiums,
discounts and capitalized expenses related to
indebtedness; and
|
|
|
|
an estimate of the interest within rental expenses.
|
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-17
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 Indentures,
all of which are available from us. We urge you to read the Base
Indenture and the Supplemental Indentures 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, as
amended by the Tenth Supplemental Indenture (which we refer to
as the Base Indenture), as supplemented by the
Twelfth Supplemental Indenture and Thirteenth Supplemental
Indenture, each to be dated the date of delivery of the notes
(which we refer to as the Supplemental Indentures
and, together with the Base Indenture, as the
Indenture), among Enterprise Products Operating LLC
(successor to Enterprise Products Operating L.P.), as issuer,
Enterprise Products Partners L.P., as parent guarantor, any
subsidiary guarantors party thereto (which we refer to as the
Subsidiary Guarantors) 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 these new series of notes, as of
December 31, 2007, there were outstanding under the
above-referenced Indenture $700 million in aggregate
principal amount of 7.034% fixed/floating rate junior
subordinated notes due 2068, $550 million in aggregate
principal amount of 8.375% fixed/floating rate junior
subordinated notes due 2066, $500 million in aggregate
principal amount of 4.625% 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, $500 million in aggregate principal amount of
4.950% senior notes K due 2010 and $800 million
in aggregate principal amount of 6.30% senior notes L due
2017.
General
The
Notes. The
notes:
|
|
|
|
|
will be general unsecured, senior obligations of the Issuer;
|
|
|
|
will constitute a new series of debt securities issued under the
Indenture and will be initially limited to
$ million aggregate principal
amount of 2013 notes and
$ million aggregate principal
amount of 2019 notes;
|
|
|
|
with respect to the 2013 notes, will mature
on ,
2013, and with respect to the 2019 notes, will mature
on ,
2019;
|
|
|
|
will be issued in denominations of $1,000 and integral multiples
of $1,000;
|
|
|
|
initially will be issued only in book-entry form represented by
one or more notes in global form registered in the name of
Cede & Co., as nominee of The Depository Trust Company
(DTC), or such other name as may be requested by an
authorized representative of DTC, and deposited with the Trustee
as custodian for DTC, and
|
|
|
|
will be fully and unconditionally guaranteed on an unsecured,
unsubordinated basis by the Parent Guarantor, and in certain
circumstances may be guaranteed in the future on the same basis
by one or more Subsidiary Guarantors.
|
S-18
Interest. Interest
on the notes will:
|
|
|
|
|
with respect to the 2013 notes, accrue
from
at the rate of % per annum, and
with respect to the 2019 notes, accrue
from at
the rate of % per annum;
|
|
|
|
accrue from the date of issuance or the most recent interest
payment date;
|
|
|
|
be payable in cash semi-annually in arrears
on
and
of each year, commencing
on ,
2008;
|
|
|
|
be payable to holders of record on
the
and
immediately preceding the related interest payment
dates; and
|
|
|
|
be computed on the basis of a
360-day year
consisting of twelve
30-day
months.
|
Payment
and Transfer.
Initially, the notes will be issued only in 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 DTC and its participants.
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 10002).
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. If any of the notes
is no longer represented by a global note, 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.
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 note selected for
redemption or for a period of 15 days before mailing a
notice of redemption of notes of the same series.
The registered holder of a note will be treated as the owner of
it for all purposes, and all references in this Description of
Notes to holders mean holders of record, unless
otherwise indicated.
Investors may hold interests in the notes outside the United
States through Euroclear or Clearstream if they are participants
in those systems, or indirectly through organizations which are
participants in those systems. Euroclear and Clearstream will
hold interests on behalf of their participants through
customers securities accounts in Euroclears and
Clearstreams names on the books of their respective
depositaries which in turn will hold such positions in
customers securities accounts in the names of the nominees
of the depositaries on the books of DTC. All securities in
Euroclear or Clearstream are held on a fungible basis without
attribution of specific certificates to specific securities
clearance accounts.
Transfers of notes by persons holding through Euroclear or
Clearstream participants will be effected through DTC, in
accordance with DTCs rules, on behalf of the relevant
European international clearing system by its depositaries;
however, such transactions will require delivery of exercise
instructions to the relevant European international clearing
system by the participant in such system in accordance with its
rules and procedures and within its established deadlines
(European time). The relevant European international clearing
system will, if the exercise meets its requirements, deliver
instructions to its depositaries to take action to effect
exercise of the notes on its behalf by delivering notes through
DTC and receiving payment in accordance with its normal
procedures for
next-day
funds settlement. Payments with respect to the notes held
through Euroclear or Clearstream will be credited to the cash
accounts of Euroclear participants in accordance with the
relevant systems rules and procedures, to the extent
received by its depositaries.
S-19
Replacement
of Notes.
We will replace any mutilated, destroyed, stolen or lost notes
at the expense of the holder upon surrender of the mutilated
notes to the Trustee or evidence of destruction, loss or theft
of a note satisfactory to us and the Trustee.
In the case of a destroyed, lost or stolen note, we may require
an indemnity satisfactory to the Trustee and to us before a
replacement note will be issued.
Further
Issuances
We may from time to time, without notice or the consent of the
holders of the notes, create and issue further notes of the same
series ranking equally and ratably with the original notes in
all respects (or in all respects except for the payment of
interest accruing prior to the issue date of such further notes,
the public offering price and the issue date), so that such
further notes form a single series with the original notes of
that series and have the same terms as to status, redemption or
otherwise as the original notes of that series.
Optional
Redemption
Each series of notes will be redeemable, at our option, at any
time in whole, or from time to time in part, at a price equal to
the greater of:
|
|
|
|
|
100% of the principal amount of the notes to be redeemed; or
|
|
|
|
the sum of the present values of the remaining scheduled
payments of principal and interest (at the rate in effect on the
date of calculation of the redemption price) on the notes to be
redeemed (exclusive of interest accrued to the date of
redemption) discounted to the Redemption Date on a
semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the applicable Treasury Yield
plus basis points for the
2013 notes and basis
points for the 2019 notes;
|
|
|
|
plus, in either case, accrued interest to the date of redemption
(the Redemption Date).
|
The actual redemption price, calculated as provided below, will
be calculated and certified to the Trustee and us by the
Independent Investment Banker.
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 the 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. Unless
we default in payment of the redemption price, interest will
cease to accrue on any notes that have been called for
redemption at the Redemption Date. 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.
For purposes of determining the optional redemption price, the
following definitions are applicable:
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 such
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 such Redemption Date.
Comparable Treasury Issue means the United States
Treasury security selected by the Independent Investment Banker
as having a maturity comparable to the remaining term of the
notes to be redeemed 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 terms of the notes to be redeemed;
provided, however, that if no maturity is within three
months before or after the maturity date for such notes,
S-20
yields for the two published maturities most closely
corresponding to such United States Treasury security will be
determined and the treasury rate will be interpolated or
extrapolated from those yields on a straight line basis rounding
to the nearest month.
Independent Investment Banker means any of Lehman
Brothers Inc., Citigroup Global Markets Inc., J.P. Morgan
Securities Inc., Scotia Capital (USA) Inc. 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 the Issuer.
Comparable Treasury Price means, with respect to any
Redemption Date, (a) the average of four Reference
Treasury Dealer Quotations for the Redemption Date, after
excluding the highest and lowest Reference Treasury Dealer
Quotations, or (b) if the Independent Investment Banker
obtains fewer than four Reference Treasury Dealer Quotations,
the average of all such quotations.
Reference Treasury Dealer means (a) Lehman Brothers
Inc., Citigroup Global Markets Inc., J.P. Morgan Securities
Inc., Scotia Capital (USA) Inc. and their respective successors
and (b) one other primary U.S. government securities
dealer in New York City selected by the Independent Investment
Banker (each, a Primary Treasury Dealer);
provided, however, that if either of the foregoing shall
cease to be a Primary Treasury Dealer, the Issuer will
substitute therefor another Primary Treasury 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
an Independent Investment Banker, of the bid and asked prices
for the Comparable Treasury Issue for the notes (expressed in
each case as a percentage of its principal amount) quoted in
writing to an Independent Investment Banker by such Reference
Treasury Dealer at 5:00 p.m., New York City time, on the
third business day preceding such Redemption Date.
Ranking
The notes will be unsecured, unless we are required to secure
them pursuant to the limitations on liens covenant described in
the accompanying prospectus under Description of Debt
Securities Certain Covenants Limitations
on Liens. The notes will also be the unsubordinated
obligations of the Issuer and will rank equally with all other
existing and future unsubordinated indebtedness of the Issuer.
Each guarantee of the notes will be an unsecured and
unsubordinated obligation of the Guarantor and will rank equally
with all other existing and future unsubordinated indebtedness
of the Guarantor. The notes and each guarantee will effectively
rank junior to any future indebtedness of the Issuer and the
Guarantor that is both secured and unsubordinated to the extent
of the assets securing such indebtedness, and the notes will
effectively rank junior to all indebtedness and other
liabilities of the Issuers subsidiaries that are not
Subsidiary Guarantors.
On an as adjusted basis at December 31, 2007, the Issuer
had approximately $ billion
of consolidated indebtedness, including
$ billion in senior notes
outstanding under the Indenture and a similar indenture, and
including $1.25 billion of junior subordinated notes, and
the Parent Guarantor had no indebtedness (excluding guarantees
totaling $ billion), in each
case excluding intercompany loans. Please read Enterprise
Parent Capitalization.
Parent
Guarantee
The Parent Guarantor will fully and unconditionally guarantee to
each holder and the Trustee, on an unsecured and unsubordinated
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, whether at stated maturity, upon redemption, by
declaration of acceleration or otherwise.
Potential
Guarantee of Notes by Subsidiaries
Initially, the notes will not be guaranteed by any of our
Subsidiaries. In the future, however, if our Subsidiaries become
guarantors or co-obligors of our Funded Debt (as defined below),
then these Subsidiaries will jointly and severally, fully and
unconditionally, guarantee our payment obligations under the
notes. We
S-21
refer to any such Subsidiaries as Subsidiary
Guarantors and sometimes to such guarantees as
Subsidiary Guarantees. Each Subsidiary Guarantor
will execute a supplement to the Indenture to effect its
guarantee.
The obligations of each Guarantor under its guarantee of the
notes will be limited to the maximum amount that will not result
in the obligations of the Guarantor under the guarantee
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law, after giving effect to:
|
|
|
|
|
all other contingent and fixed liabilities of the
Guarantor; and
|
|
|
|
any collection from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other
Guarantor under its guarantee.
|
Funded Debt means all Indebtedness maturing one year
or more from the date of the creation thereof, all Indebtedness
directly or indirectly renewable or extendible, at the option of
the debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the
date of the creation thereof, and all Indebtedness under a
revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of one year or more.
Addition
and Release of Subsidiary Guarantors
The guarantee of any Guarantor may be released under certain
circumstances. If we exercise our legal or covenant defeasance
option with respect to notes of any series as described in the
accompanying prospectus under Description of Debt
Securities Defeasance and Discharge, then any
Guarantee will be released with respect to that series. Further,
if no Default has occurred and is continuing under the
Indenture, a Subsidiary Guarantor will be unconditionally
released and discharged from its guarantee:
|
|
|
|
|
automatically upon any sale, exchange or transfer, whether by
way of merger or otherwise, to any person that is not our
affiliate, of all of the Parent Guarantors direct or
indirect limited partnership or other equity interests in the
Subsidiary Guarantor;
|
|
|
|
automatically upon the merger of the Subsidiary Guarantor into
us or any other Guarantor or the liquidation and dissolution of
the Subsidiary Guarantor; or
|
|
|
|
following delivery of a written notice by us to the Trustee,
upon the release of all guarantees or other obligations of the
Subsidiary Guarantor with respect to any Funded Debt of ours,
except the notes.
|
If at any time following any release of a Subsidiary Guarantor
from its initial guarantee of the notes pursuant to the third
bullet point in the preceding paragraph, the Subsidiary
Guarantor again guarantees or co-issues any of our Funded Debt
(other than our obligations under the Indenture), then the
Parent Guarantor will cause the Subsidiary Guarantor to again
guarantee the notes in accordance with the Indenture.
No
Sinking Fund
We are not required to make mandatory redemption or sinking fund
payments with respect to the notes.
S-22
MATERIAL
U.S. TAX CONSEQUENCES
The following discussion summarizes the material
U.S. federal income tax considerations of purchasing,
owning and disposing of the notes. This discussion applies only
to the initial holders of the notes who acquire the notes for a
price equal to the issue price of the notes and who hold the
notes as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended. The issue
price of the notes is the first price at which a substantial
amount of the notes is sold other than to bond houses, brokers
or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers.
In this discussion, we do not purport to address all tax
considerations that may be important to a particular holder in
light of the holders circumstances, or to certain
categories of investors that may be subject to special rules,
such as:
|
|
|
|
|
dealers in securities or currencies;
|
|
|
|
traders in securities;
|
|
|
|
U.S. holders (as defined below) whose functional currency
is not the U.S. dollar;
|
|
|
|
persons holding notes as part of a hedge, straddle, conversion
or other synthetic security or integrated
transaction;
|
|
|
|
certain U.S. expatriates;
|
|
|
|
financial institutions;
|
|
|
|
insurance companies;
|
|
|
|
entities that are tax-exempt for U.S. federal income tax
purposes; and
|
|
|
|
partnerships and other pass-through entities and holders of
interests therein.
|
This discussion is included for general information only and
does not address all of the aspects of U.S. federal income
taxation that may be relevant to you in light of your particular
investment or other circumstances. In addition, this discussion
does not address any state or local, foreign, or other tax
consequences. This discussion is based on U.S. federal
income tax law, including the provisions of the Internal Revenue
Code, Treasury regulations, administrative rulings and judicial
authority, all as in effect as of the date of this prospectus
supplement. Subsequent developments in U.S. federal income
tax law, including changes in law or differing interpretations,
which may be applied retroactively, could have a material effect
on the U.S. federal income tax consequences of purchasing,
owning and disposing of notes as described below. Before you
purchase notes, you should consult your own tax advisor
regarding the particular U.S. federal income, state and
local, foreign and other tax consequences of acquiring, owning
and disposing of notes that may be applicable to you.
U.S.
Holders
The following summary applies to you only if you are a
U.S. holder (as defined below).
Definition
of a U.S. Holder
A U.S. holder is a beneficial owner of a note
or notes who or which is for U.S. federal income tax
purposes:
|
|
|
|
|
an individual citizen or resident of the United States;
|
|
|
|
a corporation (or other entity classified as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States or of any political
subdivision of the United States, including any state;
|
|
|
|
an estate, the income of which is subject to U.S. federal
income taxation regardless of the source of that income; or
|
S-23
|
|
|
|
|
a trust, if, in general, a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more United States persons (within the meaning of the
Internal Revenue Code) have the authority to control all of the
trusts substantial decisions, or the trust has a valid
election in effect under applicable Treasury regulations to be
treated as a United States person.
|
If a partnership (or other entity classified as a partnership
for U.S. federal income tax purposes) is a beneficial owner
of notes, the treatment of a partner in the partnership will
generally depend upon the status of the partner and upon the
activities of the partnership. Holders of notes that are a
partnership or partners in such partnership are urged to consult
their own tax advisors regarding the U.S. federal income
tax consequences of purchasing, owning and disposing of the
notes.
Payments
of Interest
Interest on your notes will be taxed as ordinary interest
income. In addition:
|
|
|
|
|
if you use the cash method of accounting for U.S. federal
income tax purposes, you will have to include the interest on
your notes in your gross income at the time that you receive the
interest; and
|
|
|
|
if you use the accrual method of accounting for
U.S. federal income tax purposes, you will have to include
the interest on your notes in your gross income at the time that
the interest accrues.
|
Sale
or Other Disposition of Notes
When you sell or otherwise dispose of your notes in a taxable
transaction, you generally will recognize taxable gain or loss
equal to the difference, if any, between:
|
|
|
|
|
the amount realized on the sale or other disposition, less any
amount attributable to accrued interest, which will be taxable
as ordinary income to the extent you have not previously
included the accrued interest in income; and
|
|
|
|
your tax basis in the notes.
|
Your tax basis in your notes generally will equal the amount you
paid for the notes. Your gain or loss generally will be capital
gain or loss and will be long-term capital gain or loss if at
the time of the sale or other taxable disposition you have held
the notes for more than one year. Subject to limited exceptions,
your capital losses cannot be used to offset your ordinary
income. If you are a non-corporate U.S. holder, your
long-term capital gain generally will be subject to a maximum
tax rate of 15% for taxable years beginning on or before
December 31, 2010. For taxable years beginning on or after
January 1, 2011, the long-term capital gain rate is
currently scheduled to increase to 20%.
Information
Reporting and Backup Withholding
Information reporting requirements apply to interest and
principal payments and to the proceeds of sales before maturity.
These amounts generally must be reported to the Internal Revenue
Service and to you. In general, backup withholding
may apply:
|
|
|
|
|
to any payments made to you of interest on your notes, and
|
|
|
|
to payment of the proceeds of a sale or other disposition of
your notes before maturity,
|
if you are a non-corporate U.S. holder and fail to provide
a correct taxpayer identification number, certified under
penalties of perjury, or otherwise fail to comply with
applicable requirements of the backup withholding rules.
The applicable backup-withholding rate will be the fourth lowest
income tax rate applicable to unmarried individuals for the
relevant taxable year. Presently, the backup withholding rate is
28%. The backup withholding tax is not an additional tax and may
be credited against your U.S. federal income tax liability
if the required information is provided to the Internal Revenue
Service.
S-24
Non-U.S.
Holders
The following summary applies to you if you are not a
U.S. holder (as defined above) and are not a partnership
(including an entity treated as a partnership for
U.S. federal income tax purposes). An individual may,
subject to exceptions, be deemed to be a resident alien, as
opposed to a non-resident alien, by, among other ways, being
present in the United States:
|
|
|
|
|
on at least 31 days in the calendar year, and
|
|
|
|
for an aggregate of at least 183 days during a three-year
period ending in the current calendar year, counting for these
purposes all of the days present in the current year, one-third
of the days present in the immediately preceding year and
one-sixth of the days present in the second preceding year.
|
Resident aliens are subject to U.S. federal income tax as
if they were U.S. citizens.
U.S.
Federal Withholding Tax
Under current U.S. federal income tax laws, and subject to
the discussion below, U.S. federal withholding tax will not
apply to payments by us or our paying agent (in its capacity as
such) of interest on your notes under the portfolio
interest exception of the Internal Revenue Code,
provided that interest on the notes is not effectively
connected with your conduct of a trade or business in the United
States and:
|
|
|
|
|
you do not, directly or indirectly, actually or constructively,
own (including through an interest in Enterprise Parent) 10% or
more of the interests in our capital or profits; and
|
|
|
|
you are not a controlled foreign corporation for
U.S. federal income tax purposes that is related, directly
or indirectly, to us through sufficient stock ownership (as
provided in the Internal Revenue Code); and
|
|
|
|
you certify as to your foreign status by providing a properly
executed IRS Form
W-8BEN or
appropriate substitute form to us or our paying agent or a
securities clearing organization, bank or other financial
institution that holds customers securities in the
ordinary course of its trade or business and holds your notes on
your behalf and that certifies to us or our paying agent under
penalties of perjury that it has received from you your signed,
written statement and provides us or our paying agent with a
copy of this statement.
|
If you cannot satisfy the requirements described above, payments
of interest made to you will be subject to the 30%
U.S. federal withholding tax, unless you provide us with a
properly executed IRS
Form W-8BEN
(or successor form) claiming an exemption from (or a reduction
of) withholding under a U.S. income tax treaty, or you
provide us with a properly executed IRS
Form W-8ECI
claiming that the payments of interest are effectively connected
with your conduct of a trade or business in the United States,
in which case you generally will be subject to U.S. income
tax on a net income basis on such payments of interest (see
U.S. Federal Income Tax below).
U.S.
Federal Income Tax
Except for the possible application of U.S. federal
withholding tax (as described immediately above) and backup
withholding tax (see Backup Withholding and Information
Reporting below), you generally will not have to pay
U.S. federal income tax on payments of interest on your
notes, or on any gain or income realized from the sale,
redemption, retirement at maturity or other disposition of your
notes (subject to, in the case of proceeds representing accrued
interest, the conditions described in U.S. Federal
Withholding Tax immediately above) unless:
|
|
|
|
|
in the case of gain, you are an individual who is present in the
United States for 183 days or more during the taxable year
of the sale or other taxable disposition of your notes and
specific other conditions are present; or
|
|
|
|
the income or gain is effectively connected with your conduct of
a U.S. trade or business, and, if a U.S. income tax
treaty applies, is attributable to a U.S. permanent
establishment maintained by you.
|
S-25
If you are engaged in a trade or business in the United States
and interest, gain or any other income attributable to your
notes is effectively connected with the conduct of your trade or
business, and, if a U.S. income tax treaty applies, you
maintain a U.S. permanent establishment to
which the interest, gain or other income is generally
attributable, you generally will be subject to U.S. income
tax on a net income basis on such interest, gain or income. In
this instance, however, the interest on your notes will be
exempt from the 30% U.S. withholding tax discussed
immediately above under U.S. Federal Withholding
Tax if you provide a properly executed IRS
Form W-8ECI
or appropriate substitute form to us or our paying agent on or
before any payment date to claim the exemption.
In addition, if you are a foreign corporation, you may be
subject to a U.S. branch profits tax equal to 30% of your
effectively connected earnings and profits for the taxable year,
as adjusted for certain items, unless a lower rate applies to
you under a U.S. income tax treaty with your country of
residence. For this purpose, you must include interest and gain
on your notes in the earnings and profits subject to the
U.S. branch profits tax if these amounts are effectively
connected with the conduct of your U.S. trade or business.
Backup
Withholding and Information Reporting
Payments of interest on a note, and amounts withheld from such
payments, if any, generally will be required to be reported to
the U.S. Internal Revenue Service and to you. Backup
withholding will not apply to payments made by us or our paying
agent (in its capacity as such) to you if you have provided the
required certification that you are a
non-U.S. holder
as described in U.S. Federal Withholding Tax
above, and if neither we nor our paying agent has actual
knowledge or reason to know that you are a U.S. holder (as
described in U.S. Holders
Definition of a U.S. Holder above).
The gross proceeds from the disposition of your notes may be
subject to information reporting and backup withholding tax. If
you sell your notes outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to you outside the United
States, then the U.S. backup withholding and information
reporting requirements generally will not apply to that payment.
However, U.S. information reporting, but not backup
withholding, will apply to a payment of sales proceeds, even if
that payment is made outside the United States, if you sell your
notes through a
non-U.S. office
of a broker that:
|
|
|
|
|
is a United States person (as defined in the Internal Revenue
Code);
|
|
|
|
derives 50% or more of its gross income in specific periods from
the conduct of a trade or business in the United States;
|
|
|
|
is a controlled foreign corporation for
U.S. federal income tax purposes; or
|
|
|
|
is a foreign partnership that, at any time during its taxable
year, has more than 50% of its income or capital interests owned
by United States persons or is engaged in the conduct of a
U.S. trade or business;
|
unless the broker has documentary evidence in its files that you
are not a United States person and certain other conditions are
met or you otherwise establish an exemption. If you receive
payments of the proceeds of a sale of your notes to or through a
U.S. office of a broker, the payment is subject to both
U.S. backup withholding and information reporting unless
you provide an IRS
Form W-8BEN
certifying that you are not a United States person or you
otherwise establish an exemption.
You should consult your own tax advisor regarding application of
backup withholding in your particular circumstances and the
availability of and procedure for obtaining an exemption from
backup withholding under current Treasury regulations. Any
amounts withheld under the backup withholding rules from a
payment to you will be allowed as a refund or credit against
your U.S. federal income tax liability, provided
that the required information is furnished to the Internal
Revenue Service.
S-26
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:
|
|
|
|
|
PTCE 96-23
for transactions determined by in-house asset managers;
|
|
|
|
PTCE 95-60
for transactions involving insurance company general accounts;
|
|
|
|
PTCE 91-38
for transactions involving bank collective investment funds;
|
|
|
|
PTCE 90-1
for transactions involving insurance company pooled separate
accounts; or
|
|
|
|
PTCE 84-14
for transactions determined by independent qualified
professional asset managers.
|
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. 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-27
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated the date of this prospectus supplement, between
us and the underwriters named below, we have agreed to sell to
each of the underwriters, and the underwriters have agreed,
severally and not jointly, to purchase, the principal amount of
the notes set forth opposite their respective names below:
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
Principal Amount
|
|
Underwriters
|
|
of 2013 Notes
|
|
|
of 2019 Notes
|
|
|
Lehman Brothers Inc.
|
|
$
|
|
|
|
$
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
|
|
|
|
|
J.P. Morgan Securities Inc.
|
|
|
|
|
|
|
|
|
Scotia Capital (USA) Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are
subject to approval of legal matters by counsel and to other
conditions. Under the terms of the underwriting agreement, the
underwriters are committed to purchase all of the notes if any
are purchased.
The underwriters propose initially to offer the notes to the
public at the public offering price set forth on the cover page
of this prospectus supplement and may offer the notes to certain
dealers at such price less a concession not in excess
of % of the principal amount of the
2013 notes and % of the principal
amount of the 2019 notes. The underwriters may allow, and such
dealers may reallow, a discount not in excess
of % of the principal amount of the
2013 notes and % of the principal
amount of the 2019 notes on sales to certain other brokers and
dealers. After this initial public offering, the public offering
price, concession and discount may be changed.
The following table summarizes the compensation to be paid by us
to the underwriters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Notes
|
|
|
2019 Notes
|
|
|
|
Per Note
|
|
|
Total
|
|
|
Per Note
|
|
|
Total
|
|
|
Underwriting discount paid by us
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
We estimate that our share of the total expenses of the
offering, excluding underwriting discounts and commissions, will
be approximately $ .
The notes are a new issue of securities with no established
trading market. We do not intend to apply for listing of the
notes on a national securities exchange. We have been advised by
the underwriters that the underwriters intend to make a market
in the notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be
given as to whether or not a trading market for the notes will
develop or as to the liquidity of any trading market for the
notes which may develop.
In connection with the offering of the notes, the underwriters
may engage in transactions that stabilize, maintain or otherwise
affect the price of the notes. Specifically, the underwriters
may overallot in connection with the offering of the notes,
creating a syndicate short position. In addition, the
underwriters may bid for, and purchase, notes in the open market
to cover syndicate short positions or to stabilize the price of
the notes. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing the notes in the
offering of the notes, if the syndicate repurchases previously
distributed notes in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the notes above
independent market levels. The underwriters are not required to
engage in any of these activities and may end any of them at any
time. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
notes. In addition, neither we nor the underwriters make any
representation that
S-28
the underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without
notice.
We, Enterprise Parent and certain of our affiliates have agreed
to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make because of those liabilities.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory, commercial banking and
investment banking services for us and our affiliates, for which
they received or will receive customary fees and expense
reimbursement. Certain affiliates of Citigroup Global Markets
Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc. and
Scotia Capital (USA) Inc. are lenders under our multi-year
revolving credit facility. These affiliates will receive their
respective share of any repayment by us of amounts outstanding
under the multi-year revolving credit facility from the proceeds
of this offering. Because it is possible that the underwriters
or their affiliates or associated persons could receive more
than 10% of the proceeds of the offering as repayment for such
debt, the offering is made in compliance with the applicable
provisions of Section 2710(h)(1) and Rule 2720 of the
NASD Conduct Rules. Because the notes are investment-grade rated
by one or more nationally recognized statistical rating
agencies, compliance with these rules only requires the
disclosure set forth in this paragraph.
A prospectus in electronic format may be made available by one
or more of the underwriters or their affiliates. The
representatives may agree to allocate notes to underwriters for
sale to their online brokerage account holders. The
representatives will allocate notes to underwriters that may
make Internet distributions on the same basis as other
allocations. In addition, notes may be sold by the underwriters
to securities dealers who resell notes to online brokerage
account holders.
Other than the prospectus in electronic format, the information
on any underwriters web site and any information contained
in any other web site maintained by an underwriter is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved
and/or
endorsed by us or any underwriter in its capacity as an
underwriter and should not be relied upon by investors.
S-29
VALIDITY
OF SECURITIES
Andrews Kurth LLP, Houston, Texas, will pass on the validity of
the notes, the Guarantees 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 Guarantees will be
passed upon for the underwriters by Baker Botts L.L.P., Houston,
Texas. Baker Botts L.L.P. performs legal services for Enterprise
Parent and us from time to time on matters unrelated to this
offering.
EXPERTS
The (i) consolidated financial statements 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, 2007, and (ii) the
balance sheet of Enterprise Products GP, LLC as of
December 31, 2007, 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 14, 2008, 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. Enterprise
Parent maintains an Internet Website at www.eprod.com. On the
Investor Relations page of that site, Enterprise Parent provides
access to its SEC filings free of charge as soon as reasonably
practicable after filing with the Commission. The information on
this 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):
|
|
|
|
|
Annual Report on
Form 10-K
for the year ended December 31, 2007;
|
|
|
|
Current Reports on
Form 8-K
filed with the Commission on February 4, 2008,
February 26, 2008, March 14, 2008 and March 28,
2008;
|
|
|
|
Current Report on
Form 8-K/A
filed with the Commission on January 3, 2008; and
|
|
|
|
The description of our common units contained in our
registration statement on
Form 8-A/A
filed on May 15, 2007, and including any other amendments
or reports filed for the purpose of updating such description.
|
S-30
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. 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:
|
|
|
|
|
fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces;
|
|
|
|
a reduction in demand for our products by the petrochemical,
refining or heating industries;
|
|
|
|
the effects of our debt level on our future financial and
operating flexibility;
|
|
|
|
a decline in the volumes of NGLs delivered by our facilities;
|
|
|
|
the failure of our credit risk management efforts to adequately
protect us against customer non-payment;
|
|
|
|
terrorist attacks aimed at our facilities; and
|
|
|
|
our failure to successfully integrate our operations with assets
or companies we acquire.
|
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, 2007, which was filed with
the Securities and Exchange Commission on February 29, 2008.
S-31
PROSPECTUS
Enterprise Products Partners L.P.
Enterprise Products Operating LLC
COMMON UNITS
DEBT SECURITIES
We may offer an unlimited number and amount of the following
securities under this prospectus:
|
|
|
|
|
common units representing limited partner interests in
Enterprise Products Partners L.P.; and
|
|
|
|
debt securities of Enterprise Products Operating LLC (successor
to 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.
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.
Investing in our common units and debt securities involves
risks. Limited partnerships are inherently different from
corporations. You should review carefully Risk
Factors beginning on page 2 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 August 27, 2007.
TABLE OF
CONTENTS
|
|
|
|
|
|
iii
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|
8
|
|
|
9
|
|
|
11
|
|
|
12
|
|
|
13
|
|
|
15
|
|
|
15
|
|
|
16
|
|
|
16
|
|
|
16
|
|
|
16
|
|
|
16
|
|
|
17
|
|
|
17
|
|
|
18
|
|
|
18
|
|
|
18
|
|
|
19
|
|
|
19
|
|
|
20
|
|
|
20
|
|
|
21
|
|
|
22
|
|
|
22
|
|
|
22
|
|
|
22
|
|
|
23
|
|
|
23
|
|
|
23
|
|
|
24
|
|
|
25
|
|
|
25
|
|
|
25
|
|
|
25
|
|
|
26
|
|
|
26
|
|
|
26
|
|
|
27
|
|
|
|
|
|
|
28
|
|
|
28
|
|
|
33
|
|
|
33
|
|
|
35
|
|
|
36
|
|
|
37
|
|
|
39
|
|
|
39
|
|
|
41
|
|
|
41
|
|
|
42
|
|
|
43
|
|
|
43
|
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.
Unless the context requires otherwise or unless otherwise noted,
our, we, us and
Enterprise as used in this prospectus refer to
Enterprise Products Partners L.P. and Enterprise Products
Operating LLC and its subsidiaries and unconsolidated affiliates.
ii
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 an unlimited number and amount of our securities. Each time
we offer securities, we will provide you with a prospectus
supplement that will describe, among other things, the specific
amounts, types and prices of the securities being offered and
the terms of the offering. Any prospectus supplement may add,
update or change information contained or incorporated by
reference in this prospectus. Any statement that we make in or
incorporate by reference 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 (including any documents incorporated by reference)
and any attached prospectus supplement before you invest in our
securities.
iii
OUR
COMPANY
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 had
consolidated revenues of $14.0 billion, operating income of
$860.1 million and net income of $601.2 million. For
the six months ended June 30, 2007, Enterprise had
consolidated revenues of $7.5 billion, operating income of
$402.5 million and net income of $254.2 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 13,700 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, are
located at 1100 Louisiana Street, 10th Floor, Houston,
Texas 77002, and our and Enterprises telephone number is
(713) 381-6500.
1
Limited partner interests are inherently different from the
capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be
faced by a corporation engaged in a similar business. Before you
invest in our securities, you should carefully consider the risk
factors included in our most-recent annual report on
Form 10-K
and our quarterly reports on
Form 10-Q
that are incorporated herein by reference and those that may be
included in the applicable prospectus supplement, together with
all of the other information included in this prospectus, any
prospectus supplement and the documents we incorporate by
reference in evaluating an investment in our securities.
If any of the risks discussed in the foregoing documents were
actually to occur, our business, financial condition, results of
operations, or cash flow could be materially adversely affected.
In that case, our ability to make distributions to our
unitholders or pay interest on, or the principal of, any debt
securities, may be reduced, the trading price of our securities
could decline and you could lose all or part of your investment.
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.
RATIO
OF EARNINGS TO FIXED CHARGES
Enterprises ratio of earnings to fixed charges for each of
the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
Year Ended December 31,
|
|
June 30,
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2.07x
|
|
|
2.02
|
x
|
|
|
2.69
|
x
|
|
|
2.69
|
x
|
|
|
2.94
|
x
|
|
|
2.42x
|
|
For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items:
|
|
|
|
|
pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees;
|
|
|
|
plus fixed charges;
|
|
|
|
plus distributed income of equity investees;
|
|
|
|
less capitalized interest; and
|
|
|
|
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:
|
|
|
|
|
interest expensed and capitalized, including amortized premiums,
discounts and capitalized expenses related to
indebtedness; and
|
|
|
|
an estimate of the interest within rental expenses.
|
2
DESCRIPTION
OF DEBT SECURITIES
In this Description of Debt Securities references to the
Issuer mean only Enterprise Products Operating LLC
(successor to 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 as amended by supplemental indenture
(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 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:
|
|
|
|
|
the form and title of the debt securities;
|
|
|
|
the total principal amount of the debt securities;
|
|
|
|
the portion of the principal amount which will be payable if the
maturity of the debt securities is accelerated;
|
|
|
|
the currency or currency unit in which the debt securities will
be paid, if not U.S. dollars;
|
|
|
|
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;
|
|
|
|
the dates on which the principal of the debt securities will be
payable;
|
|
|
|
the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
|
|
|
|
any optional redemption provisions;
|
|
|
|
any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
|
|
|
|
any changes to or additional Events of Default or covenants;
|
|
|
|
whether the debt securities are to be issued as Registered
Securities or Bearer Securities or both; and any special
provisions for Bearer Securities;
|
|
|
|
the subordination, if any, of the debt securities and any
changes to the subordination provisions of the
Indenture; and
|
|
|
|
any other terms of the debt securities.
|
3
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:
|
|
|
|
|
Bearer Securities;
|
|
|
|
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;
|
|
|
|
debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency;
|
|
|
|
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
|
|
|
|
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
4
(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:
(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
(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:
(1) liens upon
rights-of-way
for pipeline purposes;
(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics, 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;
(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;
(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;
(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;
(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;
(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 Guarantor 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;
(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;
(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;
(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
5
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;
(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 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;
(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;
(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
(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:
(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
(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):
(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
(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:
(1) the Issuer; or
(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
6
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 Transactions permitted by
clauses (1) through (4), inclusive, of the first paragraph
of the restriction on sale-leasebacks covenant described below)
does not exceed 10% of Consolidated Net Tangible Assets.
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:
(1) such Sale-Leaseback Transaction occurs within one year
from the date of completion of the acquisition of the Principal
Property subject thereto or the date of the completion of
construction, development or substantial repair or improvement,
or commencement of full operations on such Principal Property,
whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a
period, including renewals, of not more than three years;
(3) the 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
(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,
7
convey all or substantially all of its assets to, or merge with
or into, any partnership, limited liability company or
corporation if:
(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);
(2) immediately after giving effect to the transaction no
Default or Event of Default has occurred and is
continuing; and
(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:
(1) default in any payment of interest on any debt
securities of that series when due, continued for 30 days;
(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;
(3) failure by the Guarantor or the Issuer to comply for
60 days after notice with its other agreements contained in
the Indenture;
(4) certain events of bankruptcy, insolvency or
reorganization of the Issuer or the Guarantor (the
bankruptcy provisions); or
(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 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
8
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:
(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;
(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;
(3) such holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense;
(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
(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 offer
or exchange
9
offer for the debt securities). However, without the consent of
each holder of outstanding debt securities affected thereby, no
amendment may, among other things:
(1) reduce the percentage in principal amount of debt
securities whose holders must consent to an amendment;
(2) reduce the stated rate of or extend the stated time for
payment of interest on any debt securities;
(3) reduce the principal of or extend the stated maturity
of any debt securities;
(4) reduce the premium payable upon the redemption of any
debt securities or change the time at which any debt securities
may be redeemed;
(5) make any debt securities payable in money other than
that stated in the debt securities;
(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;
(7) make any change in the amendment provisions which
require each holders consent or in the waiver provisions;
(8) release any security that may have been granted in
respect of the debt securities; or
(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:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor of the
obligations of the Guarantor or the Issuer under the Indenture;
(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);
(4) add or release guarantees by any Subsidiary with
respect to the debt securities, in either case as provided in
the Indenture;
(5) secure the debt securities or a guarantee;
(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;
(7) make any change that does not adversely affect the
rights of any holder;
(8) comply with any requirement of the Commission in
connection with the qualification of the Indenture under the
Trust Indenture Act; and
(9) issue any other series of debt securities under the
Indenture.
10
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 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:
|
|
|
|
|
delivers all outstanding debt securities of that series to the
Trustee for cancellation; or
|
11
|
|
|
|
|
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:
|
|
|
|
|
upon any payment of distribution of our assets of the Issuer to
its creditors;
|
|
|
|
upon a total or partial liquidation or dissolution of the
Issuer; or
|
|
|
|
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:
|
|
|
|
|
make any payments of principal, premium, if any, or interest
with respect to subordinated debt securities;
|
|
|
|
make any deposit for the purpose of defeasance of the
subordinated debt securities; or
|
|
|
|
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,
|
|
|
|
|
the default has been cured or waived and the declaration of
acceleration has been rescinded;
|
|
|
|
the Senior Indebtedness has been paid in full in cash; or
|
|
|
|
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:
|
|
|
|
|
indebtedness for borrowed money under a bank credit agreement,
called Bank Indebtedness; and
|
|
|
|
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
12
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:
|
|
|
|
|
by written notice from the person or persons who gave the
Blockage Notice;
|
|
|
|
by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or
|
|
|
|
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:
|
|
|
|
|
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 Securities Exchange Act of
1934, as amended, or the Exchange Act.
|
|
|
|
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.
|
|
|
|
Direct participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations.
|
|
|
|
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.
|
13
|
|
|
|
|
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.
|
|
|
|
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 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.
14
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
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
15
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 and our general partner in and to cash
distributions, please read Cash Distribution Policy
elsewhere in this prospectus:
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.
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.
16
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.
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
mail or furnish 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 United States generally accepted accounting principles. In
addition, no later than 90 days after the close of each
quarter (except the fourth quarter), our general partner will
mail or furnish 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.
17
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:
|
|
|
|
|
a current list of the name and last known address of each
partner;
|
|
|
|
a copy of our tax returns;
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
information regarding the status of our business and financial
condition; and
|
|
|
|
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:
|
|
|
|
|
less the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of the general partner
to:
|
|
|
|
|
|
provide for the proper conduct of our business;
|
|
|
|
comply with applicable law or any debt instrument or other
agreement (including reserves for future capital expenditures
and for our future credit needs); or
|
|
|
|
provide funds for distributions to unitholders and our general
partner in respect of any one or more of the next four quarters;
|
|
|
|
|
|
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:
|
|
|
|
|
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
|
18
|
|
|
|
|
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
|
|
|
|
up to $60.0 million of cash from interim capital
transactions; plus
|
|
|
|
working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less
|
|
|
|
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
|
|
|
|
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.
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:
|
|
|
|
|
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
|
|
|
|
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:
|
|
|
|
|
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);
|
19
|
|
|
|
|
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
|
|
|
|
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:
|
|
|
|
|
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
|
|
|
|
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 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:
|
|
|
|
|
the minimum quarterly distribution;
|
|
|
|
the target distribution levels; and
|
|
|
|
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.
20
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:
|
|
|
|
|
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:
|
|
|
|
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
|
|
|
|
|
|
the unrecovered capital in respect of such common unit; plus
|
|
|
|
the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs.
|
|
|
|
|
|
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:
|
|
|
|
|
|
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
|
|
|
|
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;
|
|
|
|
|
|
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:
|
|
|
|
|
|
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
|
|
|
|
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
|
|
|
|
|
|
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:
|
|
|
|
|
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
|
|
|
|
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
21
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:
|
|
|
|
|
distributions of our available cash are described under
Cash Distribution Policy;
|
|
|
|
rights of holders of common units are described under
Description of Our Common Units; and
|
|
|
|
allocations of taxable income and other matters are described
under Material 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.
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:
|
|
|
|
|
the merger of our partnership or a sale, exchange or other
disposition of all or substantially all of our assets;
|
|
|
|
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);
|
|
|
|
the removal of our general partner (requires 60% of the
outstanding units, including units held by our general partner
and its affiliates);
|
|
|
|
the election of a successor general partner;
|
|
|
|
the dissolution of our partnership or the reconstitution of our
partnership upon dissolution;
|
|
|
|
approval of certain actions of our general partner (including
the transfer by the general partner of its general partner
interest under certain circumstances); and
|
|
|
|
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.
22
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.
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:
|
|
|
|
|
a change in our names, the location of our principal place of
business, our registered agent or our registered office;
|
|
|
|
the admission, substitution, withdrawal or removal of partners;
|
|
|
|
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;
|
|
|
|
a change that does not adversely affect our limited partners in
any material respect;
|
|
|
|
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;
|
|
|
|
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;
|
23
|
|
|
|
|
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;
|
|
|
|
an amendment that is necessary or advisable in connection with
the authorization or issuance of any class or series of our
securities;
|
|
|
|
any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
|
|
|
|
an amendment effected, necessitated or contemplated by a merger
agreement approved in accordance with our partnership agreement;
|
|
|
|
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;
|
|
|
|
a merger or conveyance to effect a change in our legal
form; or
|
|
|
|
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 by giving 90 days written notice,
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 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 60% 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.
24
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:
|
|
|
|
|
first, towards the payment of all of our creditors and
the creation of a reserve for contingent liabilities; and
|
|
|
|
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.
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:
|
|
|
|
|
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
|
|
|
|
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 August 23, 2007 our general partner and its
affiliates owned the 2% general partner interest in us and
147,735,229 common units, representing an aggregate 34%
limited partner interest in us.
25
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.
MATERIAL
U.S. TAX CONSEQUENCES
This section is a discussion 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 Andrews Kurth LLP, special counsel to our general
partner and us, insofar as it relates to matters of United
States federal income tax law and legal conclusions with respect
to those 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 address all federal income tax
matters affecting us or our 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), employee
benefit plans or mutual funds. Accordingly, we urge each
prospective unitholder to 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 the 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 Andrews Kurth LLP and are
based on the accuracy of the representations made by us and our
general partner.
No ruling has been or will be requested from the IRS regarding
our status as a partnership for federal income tax purposes.
Instead, we will rely on opinions and advice of Andrews Kurth
LLP. 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 in
this discussion 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 the common units trade. In addition, the costs
of any contest with the IRS, principally legal, accounting and
related fees, will result in a reduction in cash available to
pay distributions to our unitholders and our general partner and
thus 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.
26
For the reasons described below, Andrews Kurth LLP has not
rendered an opinion with respect to the following specific
federal income tax issues: 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);
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
whether our method for depreciating Section 743 adjustments
is sustainable in certain cases (please read
Tax Consequences of Unit Ownership
Section 754 Election and Uniformity
of Units.).
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 to the
partner 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 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, storage, processing of
crude oil, natural gas and products thereof 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 capital assets held for the
production of income that otherwise constitutes qualifying
income. We estimate that less than 5% 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,
Andrews Kurth LLP is of the opinion that at least 90% of our
current gross income constitutes qualifying income. The portion
of our income that is qualifying income can change from time to
time.
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
Enterprise Products Operating LLC as partnerships for federal
income tax purposes or whether our operations generate
qualifying income under Section 7704 of the
Internal Revenue Code. Instead, we will rely on the opinion of
Andrews Kurth LLP that, based upon the Internal Revenue Code,
its regulations, published revenue rulings and court decisions
and the representations described below, we and the Enterprise
Products Operating LLC will be classified as partnerships for
federal income tax purposes.
In rendering its opinion, Andrews Kurth LLP has relied on
factual representations made by us and our general partner. The
representations made by us and our general partner upon which
Andrews Kurth LLP has relied include:
(a) Neither we nor the Enterprise Products Operating LLC
will elect to be treated as a corporation; and
(b) For each taxable year, more than 90% of our gross
income will be income that Andrews Kurth LLP 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 deemed 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.
27
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 Andrews Kurth LLPs
opinion that we will be classified as a partnership for federal
income tax purposes.
Limited
Partner Status
Unitholders who have become limited partners of Enterprise
Products Partners L.P. will be treated as partners of Enterprise
Products Partners L.P. for federal income tax purposes. Also,
assignees who have executed and delivered transfer applications,
and are awaiting admission as limited partners, and 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 Enterprise 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, Andrews Kurth LLPs
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. These
unitholders are urged to consult their own tax advisors with
respect to their status as partners in Enterprise Products
Partners L.P. for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-Through of Taxable Income. We do not pay
any federal income tax. Instead, each unitholder is 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 or years 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 in his common units 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 our 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, the
28
unitholder 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 which may
constitute a non-pro rata distribution. 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 Section 751 of 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 then
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 generally will be increased by his share
of our income and by any increases in his share of our
nonrecourse liabilities. That basis generally 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 or for 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 amount 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 as a deduction in a
later year 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 are permitted to 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
only be available to offset 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 a
unitholders 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 the unitholder
29
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
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
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:
|
|
|
|
|
interest on indebtedness properly allocable to property held for
investment;
|
|
|
|
our interest expense attributed to portfolio income; and
|
|
|
|
the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
|
The computation of a 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 unitholder in which event the
unitholder 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 under Section 704(c) of the Internal Revenue Code
to account for the difference between the tax basis and fair
market value of property contributed or deemed contributed to us
by a partner, and to account for the difference between the fair
market value of our assets and their carrying value on our books
at the time of any offering made pursuant to this prospectus,
referred to in this discussion as Contributed
Property. The effect of these allocations to a unitholder
purchasing common units in such an 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 such 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
30
other 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:
|
|
|
|
|
his relative contributions to us;
|
|
|
|
the interests of all the partners in profits and losses;
|
|
|
|
the interest of all the partners in cash flow and other
nonliquidating distributions; and
|
|
|
|
the rights of all the partners to distributions of capital upon
liquidation.
|
Andrews Kurth LLP is of the opinion that, with the exception of
the issues described in Tax Consequences of
Unit Ownership Section 754 Election
Uniformity of Units 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 tax purposes
with respect to those units during the period of the loan and
may recognize gain or loss from the disposition. As a result,
during this period:
|
|
|
|
|
any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
|
|
|
|
any cash distributions received by the unitholder as to those
units would be fully taxable; and
|
|
|
|
all of these distributions would appear to be ordinary income.
|
Andrews Kurth LLP 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 loaning their units. The IRS has
announced that it is 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. Prospective unitholders are urged to 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% and the maximum United States federal income tax rate for
net capital gains of an individual is currently 15% 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
31
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
propertys unamortized Book-Tax Disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the 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.
Although Andrews Kurth LLP 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 unamortized
Book-Tax Disparity of the property, or treat that portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with the Treasury Regulations under
Section 743 of the Internal Revenue Code but is arguably
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. 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
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. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in
loss immediately after the transfer or if we distribute property
and have a substantial basis reduction. Generally a built-in
loss or basis reduction is substantial if it exceeds $250,000.
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 we allocated to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally either
non-amortizable
or 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.
32
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 different than our taxable year 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.
Initial Tax Basis, Depreciation and
Amortization. We use the tax basis of our assets
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 the time we issue units in an
offering will be borne by our general partner, its affiliates
and our unitholders as of that time. 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. 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 we may be able to amortize, and as
syndication expenses, which we may not be able to amortize. 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 unitholders 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 attributable to the common units
sold. 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.
33
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%. However, a
portion of this gain or loss 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 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. A unitholder considering the
purchase of additional units or a sale of common units purchased
in separate transactions is urged to consult his tax advisor as
to the possible consequences of this ruling and application of
the final Treasury 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:
|
|
|
|
|
a short sale;
|
|
|
|
an offsetting notional principal contract; or
|
|
|
|
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 or
loss 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
34
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, Andrews Kurth LLP is unable
to opine on the validity of this method of allocating income and
deductions between unitholders. We use this method because it is
not administratively feasible to make these allocations on a
daily basis. 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.
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 any of his units, other than through a broker, generally
is required to notify us in writing of that sale within
30 days after the sale (or, if earlier, January 15 of the
year following the sale). A purchaser of units who purchases
units from another unitholder is required to notify us in
writing of that purchase within 30 days after the purchase,
unless a broker or nominee will satisfy such requirement. We are
required to notify the IRS of any such transfers of units and to
furnish specified information to the transferor and transferee.
Failure to notify us of a transfer of units may, in some cases,
lead to the imposition of 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 different from our taxable year, 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 unamortized Book-Tax Disparity of that
property, or treat that portion as nonamortizable, to the extent
attributable to property which is not amortizable, consistent
with the Treasury 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
35
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. Our counsel, Andrews Kurth
LLP, is unable to opine on the validity of any of these
positions. 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. We do not believe
these allocations will affect any material items of income,
gain, loss or deduction. Please read
Disposition of Common Units Recognition of Gain or
Loss.
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 certain
permitted sources. The American Jobs Creation Act of 2004
generally treats net income from the ownership of publicly
traded partnerships as derived from such a permitted source. We
anticipate that all of our net income will be treated as derived
from such a permitted source.
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 tax at the highest
applicable effective tax rate from 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. A change in applicable law may require
us to change these procedures.
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,
that is 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. Because a
foreign unitholder is considered to be engaged in business in
the United States by virtue of the ownership of units, under
this ruling, a foreign unitholder who sells or otherwise
disposes of a unit generally will be subject to federal income
tax on gain realized on the sale or disposition of units. 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.
36
Information Returns and Audit Procedures. We
intend to furnish to each unitholder, within 90 days after
the close of each taxable year, specific tax information,
including a
Schedule K-1,
which describes each unitholders share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
counsel, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to
determine each unitholders 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 Andrews Kurth LLP can
assure prospective unitholders that the IRS will not
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 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:
(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee;
(b) a statement regarding whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing, or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and
(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
37
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, 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.
For individuals, 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:
(1) for which there is, or was, substantial
authority, or
(2) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return.
If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns to
avoid liability for this penalty. More stringent rules apply to
tax shelters, but we believe we are not a tax
shelter.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a
tax return is 150% 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. If the
valuation claimed on a return is 200% or more than the correct
valuation, the penalty imposed increases to 40%.
Reportable Transactions. If we were to engage
in a reportable transaction, we (and possibly you
and others) would be required to make a detailed disclosure of
the transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or
that it produces certain kinds of losses in excess of
$2 million in a single year, or $4 million in a
combination of six successive tax years. Our participation in a
reportable transaction could increase the likelihood that our
federal income tax information return (and possibly your tax
return) would be audited by the IRS. Please read
Information Returns and Audit
Procedures above.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
|
|
|
|
|
accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties,
|
|
|
|
for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability, and
|
|
|
|
in the case of a listed transaction, an extended statute of
limitations.
|
We do not expect to engage in any reportable
transactions.
Registration as a Tax Shelter. We registered
as a tax shelter under the law in effect at the time
of our initial public offering and were assigned a tax shelter
registration number. Issuance of a tax shelter registration
number to us does not indicate that investment in us or the
claimed tax benefits have been
38
reviewed, examined or approved by the IRS. The term
tax shelter has a different meaning for this purpose
than under the penalty rules described above at
Accuracy-Related Penalties.
The American Jobs Creation Act of 2004 repealed the tax shelter
registration rules and replaced them with the reporting regime
described above at Reportable
Transactions. However, IRS Form 8271 nevertheless
appears to require a unitholder to report our tax shelter
registration number on the unitholders tax return for any
year in which the unitholder holds our units. The IRS also
appears to take the position that a unitholder who sells or
transfers our units must provide our tax shelter registration
number to the transferee. Unitholders are urged to consult their
tax advisors regarding the application of the tax shelter
registration rules.
State,
Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as 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 income tax returns and to pay income
taxes in some or all of the jurisdictions in which we do
business or own property and may be subject to penalties for
failure to comply with those requirements. In some
jurisdictions, 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 jurisdictions 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 jurisdiction. Withholding, the amount of which may be
greater or less than a particular unitholders income tax
liability to the jurisdiction, generally does not relieve a
nonresident unitholder from the obligation to file an income tax
return. Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by 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, each
prospective unitholder is urged to 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. Andrews Kurth LLP has not
rendered an opinion on the state, local or foreign tax
consequences of an investment in us.
INVESTMENT
IN ENTERPRISE PRODUCTS PARTNERS L.P. BY EMPLOYEE BENEFIT
PLANS
An investment in us by an employee benefit plan is subject to
additional considerations to the extent that the investments by
these plans are subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA, and restrictions
imposed by Section 4975 of the Internal Revenue Code. For
these purposes, the term employee benefit plan
includes, but is not limited to, certain qualified pension,
profit-sharing and stock bonus plans, Keogh plans, simplified
employee pension plans and individual retirement annuities or
accounts (IRAs) established or maintained by an employer or
employee organization. Incident to making an investment in us,
among other things, consideration should be given by an employee
benefit plan to:
|
|
|
|
|
whether the investment is prudent under
Section 404(a)(1)(B) of ERISA;
|
|
|
|
whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(l)(C) of
ERISA; and
|
|
|
|
whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return.
|
39
In addition, the person with investment discretion with respect
to the assets of an employee benefit plan or other arrangement
that is covered by the prohibited transactions restrictions of
the Internal Revenue Code, often called a fiduciary, should
determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for
the plan or arrangement.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit certain employee benefit plans, and
Section 4975 of the Internal Revenue Code prohibits IRAs
and certain other arrangements that are not considered part of
an employee benefit plan, from engaging in specified
transactions involving plan assets with parties that
are parties in interest under ERISA or
disqualified persons under the Internal Revenue Code
with respect to the plan or other arrangement that is covered by
ERISA or the Internal Revenue Code.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary of an employee benefit
plan or other arrangement should consider whether the plan or
arrangement will, by investing in us, be deemed to own an
undivided interest in our assets, with the result that our
general partner also would be considered to be a fiduciary of
the plan and our operations would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction
rules and/or
the prohibited transaction rules of the Internal Revenue Code.
The U.S. Department of Labor regulations provide guidance
with respect to whether the assets of an entity in which
employee benefit plans or other arrangements described above
acquire equity interests would be deemed plan assets
under some circumstances. Under these regulations, an
entitys assets would not be considered to be plan
assets if, among other things:
|
|
|
|
|
the equity interests acquired by employee benefit plans or other
arrangements described above are publicly offered securities;
i.e., the equity interests are widely held by 100 or more
investors independent of the issuer and each other, freely
transferable and registered under some provisions of the federal
securities laws;
|
|
|
|
the entity is an operating company,
i.e., it is primarily engaged in the production or sale of a
product or service other than the investment of capital either
directly or through a majority owned subsidiary or
subsidiaries; or
|
|
|
|
less than 25% of the value of each class of equity interest,
disregarding any such interests held by our general partner, its
affiliates, and some other persons, is held by the employee
benefit plans referred to above, IRAs and other employee benefit
plans or arrangements subject to ERISA or Section 4975 of
the Code.
|
Our assets should not be considered plan assets under these
regulations because it is expected that the investment in our
common units will satisfy the requirements in the first bullet
point above.
Plan fiduciaries contemplating a purchase of common units should
consult with their own counsel regarding the consequences of
such purchase under ERISA and the Internal Revenue Code in light
of possible personal liability for any breach of fiduciary
duties and the imposition of serious penalties on persons who
engage in prohibited transactions under ERISA or the Internal
Revenue Code.
40
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:
|
|
|
|
|
the names of any underwriters, dealers or agents;
|
|
|
|
the offering price;
|
|
|
|
underwriting discounts;
|
|
|
|
sales agents commissions;
|
|
|
|
other forms of underwriter or agent compensation;
|
|
|
|
discounts, concessions or commissions that underwriters may pass
on to other dealers; and
|
|
|
|
any exchange on which the common units or debt securities are
listed.
|
We may change the offering price, underwriter discounts or
concessions, or the price to dealers when necessary. Discounts
or commissions received by underwriters or agents and any
profits on the resale of 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.
WHERE YOU
CAN FIND MORE INFORMATION
We file 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 We file 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. 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. We maintain an Internet
Website at www.eprod.com. On the Investor Relations page of that
site, we provide access to our Commission 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 by reference and you should not
consider it a part of this prospectus.
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. We incorporate by
41
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 Exchange Act 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):
|
|
|
|
|
Annual Report on
Form 10-K
for the year ended December 31, 2006;
|
|
|
|
Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2007 and June 30,
2007;
|
|
|
|
Current Reports on
Form 8-K
filed with the Commission on February 5, 2007,
March 21, 2007, April 16, 2007, May 10, 2007,
May 24, 2007, May 25, 2007, June 5, 2007,
July 26, 2007, and August 22, 2007; and
|
|
|
|
The description of our common units contained in our
registration statement on
Form 8-A/A
filed on May 15, 2007, and including any other amendments
or reports filed for the purpose of updating such description.
|
We will provide without charge to each person, including any
beneficial owner, to whom this prospectus has been delivered, a
copy of any and all of our 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 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:
|
|
|
|
|
fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces;
|
|
|
|
a reduction in demand for our products by the petrochemical,
refining or heating industries;
|
|
|
|
the effects of our debt level on our future financial and
operating flexibility;
|
|
|
|
a decline in the volumes of NGLs delivered by our facilities;
|
|
|
|
the failure of our credit risk management efforts to adequately
protect us against customer non-payment;
|
|
|
|
terrorist attacks aimed at our facilities; and
|
|
|
|
the failure to successfully integrate our operations assets or
companies we acquire or assets we construct.
|
42
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
Andrews Kurth LLP, 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.
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 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 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.
43
Enterprise
Products Operating LLC
$ % Senior
Notes due 2013
$ % Senior
Notes due 2019
Unconditionally Guaranteed
by
Enterprise Products Partners
L.P.
PROSPECTUS SUPPLEMENT
,
2008
Joint
Book-Running Managers
Lehman
Brothers
Citi
JPMorgan
Scotia
Capital