Filed pursuant to Rule 424(b)(3)
REGISTRATION NOS. 333-106613, 333-106613-02, 333-106613-03,
333-106613-04, 333-106613-05, 333-106613-06,
333-106613-07, 333-106613-08, 333-106613-09,
333-106613-10, 333-106613-11, 333-106613-12,
333-106613-13, 333-106613-14, 333-106613-15,
333-106613-16, 333-106613-17, 333-106613-20,
333-106613-21, 333-106613-22, 333-106613-23,
333-106613-27, 333-106613-28, 333-106613-29,
333-106613-31, 333-106613-32, 333-106613-33
$300,000,000
GULF TERRA ENERGY PARTNERS, L.P.
GULF TERRA ENERGY FINANCE CORPORATION
OFFER TO EXCHANGE
8 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2010
FOR ANY AND ALL OUTSTANDING 8 1/2% SERIES A
SENIOR SUBORDINATED NOTES DUE 2010
CUSIP: 28368QAH2 AND U5325MAD7
(GULFTERRA LOGO)
This prospectus, the accompanying letter of transmittal and notice of
guaranteed delivery relate to our proposed exchange offer. We are offering to
exchange up to $300,000,000 aggregate principal amount of new 8 1/2% Series B
senior subordinated notes due 2010, which we call the Series B notes, which will
be freely transferable, for any and all outstanding 8 1/2% Series A senior
subordinated notes due 2010, which we call the Series A notes, issued in a
private offering on March 24, 2003, and which have certain transfer
restrictions.
In this prospectus we sometimes refer to the Series A notes and the Series
B notes collectively as the notes.
- The terms of the Series B notes are substantially identical to the terms
of the Series A notes, except that the Series B notes will be freely
transferable and issued free of any covenants regarding exchange and
registration rights.
- All Series A notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of Series A notes may be withdrawn at any time prior to
expiration of the exchange offer.
- We will not receive any proceeds from the exchange offer.
- The exchange of Series A notes for Series B notes will not be a taxable
event for United States federal income tax purposes.
- Holders of Series A notes do not have any appraisal or dissenters' rights
in connection with the exchange offer.
- Series A notes not exchanged in the exchange offer will remain
outstanding and be entitled to the benefits of the Indenture, but, except
under certain circumstances, will have no further exchange or
registration rights under the registration rights agreement discussed in
this prospectus.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF FACTORS
YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus,
the accompanying letter of transmittal and related documents and any amendments
or supplements to this prospectus carefully before making your investment
decision.
---------------------
The date of this prospectus is July 29, 2003.
TABLE OF CONTENTS
Summary..................................................... 1
The Exchange Offer.......................................... 6
Ratio of Earnings to Fixed Charges.......................... 9
Risk Factors................................................ 10
The market value of your Series A notes may be lower if you
do not exchange your Series A notes or fail to properly
tender your Series A notes for exchange................... 10
An active trading market for the notes may not develop...... 10
Federal and state statutes would allow courts, under
specific circumstances, to subordinate further or void the
notes and the related guarantees and require holders of
notes to return payments received from us................. 11
We may not be able to satisfy our obligation to repurchase
notes upon a change of control............................ 12
Your rights to receive payments will be unsecured and
contractually subordinated to most of our existing
indebtedness and, possibly, any additional indebtedness we
incur. Further, the guarantees of the notes will be junior
to all the guarantors' existing indebtedness and possibly
to all their future borrowings............................ 12
The notes will be effectively subordinated to indebtedness
and liabilities of our subsidiaries that are not
guarantors................................................ 13
The Exchange Offer.......................................... 14
Use of Proceeds............................................. 25
Description of Notes........................................ 26
United States Federal Income and Estate Tax
Considerations............................................ 72
Certain ERISA Considerations................................ 76
Plan of Distribution........................................ 78
---------------------
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission (SEC) under the Securities Exchange Act
of 1934. You may read and copy any documents we file at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. Our filings with the SEC are also available to the public
from commercial document retrieval services and at the SEC's web site at
http://www.sec.gov. You can also obtain information about us at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We "incorporate by reference" information into this prospectus, which means
that we disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus, except for any information
superseded by information contained directly in this prospectus, and the
information we file later with the SEC will automatically supersede this
information. The documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, other than
information furnished under Item 9 of any Current Report on Form 8-K either
listed below or filed in the future that is not deemed filed under the
Securities Exchange Act of 1934 and, therefore, is not incorporated by reference
in this prospectus, are incorporated by reference into this prospectus and
contain important information about us and our financial condition.
- Annual Report on Form 10-K for the year ended December 31, 2002;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2003; and
- Current Reports on Form 8-K and 8-K/A dated January 2, 2003; March 19,
2003; April 7, 2003; April 8, 2003; April 10, 2003; April 11, 2003; May
1, 2003; May 8, 2003; May 14, 2003; May 16, 2003; June 6, 2003; July 1,
2003 and July 14, 2003.
You may request a copy of any document incorporated by reference in this
prospectus and any exhibit specifically incorporated by reference in those
documents, at no cost, by writing or telephoning us at the following address or
phone number:
GulfTerra Energy Partners, L.P.
4 Greenway Plaza
Houston, Texas 77046
(832) 676-4853
Attention: Investor Relations
Our website is http://www.gulfterra.com. We make available, free of charge
on or through our website, our annual, quarterly and current reports, and any
amendments to those reports as soon as is reasonably possible after these
reports are filed with the SEC. Information contained on our website is not part
of this filing.
The information contained in this prospectus was obtained from us and other
sources believed by us to be reliable. This prospectus also incorporates
important business and financial information about us that is not included in or
delivered with this prospectus.
You should rely only on the information contained in this prospectus or any
supplement and any information incorporated by reference in this prospectus or
any supplement. We have not authorized anyone to provide you with any
information that is different.
You should not assume that the information in this prospectus or any
supplement is current as of any date other than the date on the front page of
this prospectus. This prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any state or jurisdiction where the offer or
sale is not permitted.
We include cross references in this prospectus to captions in these
materials where you can find further related discussions. The above table of
contents tells you where to find these captions.
---------------------
FORWARD-LOOKING STATEMENTS
This prospectus and the documents we have incorporated by reference contain
or incorporate by reference forward-looking statements. Where any
forward-looking statement includes a statement of the assumptions or bases
underlying the forward-looking statement, we caution that, while we believe
these assumptions or bases to be reasonable and made in good faith, assumed
facts or bases almost always vary from the actual results, and the differences
between assumed facts or bases and actual results can be material, depending
upon the circumstances. Where, in any forward-looking statement, we express an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis. We cannot
assure you, however, that the statement of expectation or belief will result or
be achieved or accomplished. These statements relate to analyses and other
information which are based on forecasts of future results and estimates of
amounts not yet determinable. These statements also relate to our future
prospects, developments and business strategies. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "will," and similar terms and phrases, including
references to assumptions. These statements are contained in the sections
entitled "Summary," "Risk Factors," and other sections of this prospectus and
the documents we have incorporated by reference. These forward-looking
statements involve risks and uncertainties that may cause our actual future
activities and results of operations to be materially
ii
different from those suggested or described in this prospectus and the documents
we have incorporated by reference. These risks include the risks that are
identified in:
- the "Risk Factors" section of this prospectus;
- the section entitled "Risk Factors and Cautionary Statement" included in
our Annual Report on Form 10-K for the year ended December 31, 2002; and
- the other documents incorporated by reference.
These risks may also be specifically described in our Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and any amendments to these reports and
other documents filed with the Securities and Exchange Commission. We undertake
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information or otherwise. If one or more of these
risks or uncertainties materialize, or if underlying assumptions prove
incorrect, our actual results may vary materially from those expected, estimated
or projected.
iii
SUMMARY
This summary information is to help you understand the notes. It likely
does not contain all the information that is important to you. You should
carefully read this prospectus and the documents incorporated by reference to
understand fully the terms of the notes, as well as other considerations that
are important to you in making your investment decision. You should pay special
attention to the "Risk Factors" section beginning on page 10 of this prospectus,
as well as the section entitled "Risk Factors and Cautionary Statement" included
in our Annual Report on Form 10-K for the year ended December 31, 2002 and the
risk factors contained in the other documents incorporated by reference herein,
to determine whether an investment in the notes is appropriate for you. For
purposes of this prospectus, unless the context otherwise indicates, when we
refer to "us," "we," "our," or "ours," we are describing GulfTerra Energy
Partners, L.P., together with its subsidiaries, including GulfTerra Energy
Finance Corporation.
GULFTERRA ENERGY PARTNERS, L.P.
WHO WE ARE
Formed in 1993, GulfTerra Energy Partners, L.P., formerly known as El Paso
Energy Partners, L.P., is one of the largest publicly-traded master limited
partnerships, or MLPs, in terms of market capitalization. Since El Paso
Corporation's initial acquisition of an interest in us in 1998, we have
diversified our asset base, stabilized our cash flow and decreased our financial
leverage as a percentage of total capital. We have accomplished this through a
series of acquisitions and development projects, as well as seven public
offerings of our common units. We manage a balanced, diversified portfolio of
interests and assets relating to the midstream energy sector, which involves
gathering, transporting, separating, handling, processing, fractionating and
storing natural gas, oil and natural gas liquids, or NGL. This portfolio, which
we consider to be balanced due to its diversity of geographic locations,
business segments, customers and product lines, includes:
- offshore oil and natural gas pipelines, platforms, processing facilities
and other energy infrastructure in the Gulf of Mexico, primarily offshore
Louisiana and Texas;
- onshore natural gas pipelines and processing facilities in Alabama,
Colorado, Louisiana, Mississippi, New Mexico and Texas;
- onshore NGL pipelines and fractionation facilities in Texas; and
- onshore natural gas and NGL storage facilities in Louisiana, Mississippi
and Texas.
We are one of the largest natural gas gatherers, based on miles of
pipeline, in the prolific natural gas supply regions offshore in the Gulf of
Mexico and onshore in Texas and the San Juan Basin, which envelops a significant
portion of the four contiguous corners of Arizona, Colorado, New Mexico and
Utah. These regions, especially the deeper water regions of the Gulf of Mexico,
one of the United States' fastest growing oil and natural gas producing regions,
offer us significant infrastructure growth potential through the acquisition and
construction of pipelines, platforms, processing and storage facilities and
other infrastructure. In 2002, the Gulf of Mexico accounted for approximately 25
percent of all natural gas production in the United States and the supply
regions accessed by our pipelines in Texas and the San Juan Basin accounted for
approximately 33 percent.
OUR OBJECTIVE AND STRATEGY
Our objective is to operate as a growth-oriented MLP with a focus on
increasing cash flow, earnings and return to our unitholders by becoming one of
the industry's leading providers of midstream energy services. Our strategy
entails striving to continually enhance the quality of our cash flow by:
- maintaining a balanced and diversified portfolio of midstream energy
interests and assets;
- maintaining a sound capital structure;
1
- sharing capital costs and risks through joint ventures/strategic
alliances; and
- emphasizing fee-based operations and services for which the fees are not
traditionally linked to commodity prices (like gathering and
transportation) and managing commodity risks by using contractual
arrangements (like fixed-fee contracts and hedging and tolling
arrangements) and de-emphasizing our commodity-based activities
(including exiting the oil and natural gas production business by not
acquiring additional properties).
We intend to execute our business strategy by:
- constructing and acquiring onshore pipelines; gathering systems;
processing and fractionation facilities; and other midstream assets to
provide a broad range of more stable, fee-based services to producers,
marketers and users of energy products;
- expanding our existing offshore asset base, supported by the dedication
of new discoveries and long-term commitments, to capitalize on the
accelerated growth of oil and natural gas supplies from the deeper water
regions of the Gulf of Mexico;
- operating at low cost by achieving economies of scale in select regions
through reinvesting in and expanding our organic growth opportunities, as
well as by acquiring new assets;
- sharing capital costs and risks through joint ventures/strategic
alliances, principally with partners with substantial financial resources
and strategic interests, assets and operations in the Gulf of Mexico,
especially in the deeper water, Flextrend and subsalt regions; and
- continuing to strengthen our solid balance sheet by financing and/or
refinancing our growth, on average, with 50 percent equity so as to
provide the financial flexibility to fund future opportunities.
In addition to our wholly-owned assets and operations, we conduct a
significant portion of our business through joint ventures/strategic alliances,
which we believe are ideally suited for midstream energy operations. We use
joint ventures to reduce our capital requirements and risk exposure to
individual projects, as well as to develop strategic relationships, realize
synergies and results from combining resources, and benefits from the assets,
experience and resources of our partners. Our partners in the Gulf of Mexico
include integrated and large independent energy companies with substantial
offshore interests, operations and assets, such as Shell Oil Products U.S. and
Marathon Pipeline Company. In July 2003 Valero Energy Corporation, one of the
top refining and marketing companies in the United States, became our partner in
our Cameron Highway Oil Pipeline project.
In 2002, our cash outlay for investments of midstream energy infrastructure
assets totaled $1.7 billion. Assets acquired from El Paso Corporation and third
parties totaled $1.5 billion and $19 million, and funds expended for the
construction of assets totaled $228 million.
OUR KEY STRENGTHS
Stable cash flow primarily driven by fee-based revenues. Our cash flow
primarily derives from gathering, transportation, storage and other fee-based
services, the fees for most of which are not directly affected by changes in
energy commodity prices.
Balanced portfolio with proven track record of cash flow diversification
and leverage reduction. Since 1998, we have diversified and balanced our asset
base in terms of services, businesses, customers and geography by making
approximately $2.9 billion in capital expenditures while reducing our financial
leverage and increasing our financial flexibility through, among other things,
seven previous public common unit offerings.
Strategic platform for continued expansion. We own and have interests in
an expansive portfolio of organic development opportunities for onshore and
offshore announced projects totaling over $900 million and the expertise to
continue to execute strategic transactions, as evidenced by the more than $2.5
billion of construction projects and accretive (in terms of cash flow per unit)
acquisitions announced since January 2002.
2
Diversified portfolio of attractive, strategically located assets. We own
a diversified portfolio of strategically located midstream assets well
positioned to capture growth in some of the largest natural gas producing basins
in the United States.
GENERAL PARTNER RELATIONSHIP
GulfTerra Energy Company, L.L.C., a newly-formed Delaware limited liability
company that is wholly-owned by a subsidiary of El Paso Corporation, is our sole
general partner. The business and affairs of our general partner are managed by
a board of directors, comprised of two management directors who are also our
executive officers and four independent directors who meet the independent
director requirements established by the NYSE and the Sarbanes-Oxley Act of
2002. Our general partner recently announced that the size of the board will be
increased by the addition of one more independent director. Through its board of
directors, our general partner manages our day-to-day operations.
OUR CORPORATE GOVERNANCE STRUCTURE AND INDEPENDENCE INITIATIVES
The market is requesting that public companies institute dramatic
governance changes designed to achieve independence, qualitatively and
quantitatively. Some of the more immediate and fundamental proposed changes
establish and require a higher standard for determining director independence
and require a greater percentage of the members of the board to be independent.
For example, under rules recently proposed by the NYSE:
- at least a majority of the members of the board of a listed company must
be "independent directors;"
- each public company board must form several specific committees -- audit,
governance and compensation -- that must be comprised entirely of
independent directors; and
- the chairperson of the audit committee must be a "financial expert."
The Securities and Exchange Commission and the NYSE have developed
definitions and other guidance to help establish minimum qualifications for
"independent directors" and "financial experts." We are in compliance with all
of these rules, regulations and standards that apply to our general partner.
We continually strive to improve our corporate governance model. During the
first quarter of 2003, we identified and evaluated a number of changes that
could be made to our corporate structure to better address potential conflicts
of interest and to better balance the risks and rewards of significant
relationships with our affiliates, which we refer to as Independence
Initiatives. Through July 2003, we have already implemented the following:
- added an additional independent director to our board of directors,
bringing the number of independent directors to four of the six-member
board;
- established a governance and compensation committee of our board of
directors consisting solely of independent directors;
- received a letter of credit from El Paso Merchant Energy North America
totaling $5.1 million regarding our existing customer/contractual
relationships with them;
- changed our name to GulfTerra Energy Partners, L.P. (NYSE: GTM);
- completed a resource support agreement with El Paso Corporation;
- modified our partnership agreement to: (1) eliminate El Paso
Corporation's right to vote its common units with respect to the removal
of the general partner; (2) increase the required third-party common unit
vote to remove the general partner from 55 percent to 67 percent; and (3)
require a unanimous vote of the general partner's board of directors
before the general partner or we can voluntarily initiate bankruptcy
proceedings; and
- reorganized our structure, further reducing our interrelationships with
El Paso Corporation, effectively converting our general partner into a
Delaware limited liability company that is not permitted to have:
3
- material assets other than its interest in us;
- material operations other than those relating to our operations;
- material debt or other obligations other than those owed to us or our
creditors;
- material liens other than those securing obligations owed to us or our
creditors; or
- employees.
We are in the process of implementing the following Independence
Initiatives:
- adding one more independent director to our board of directors;
- negotiating a master netting agreement that could partially mitigate our
risks associated with our ongoing contractual arrangements with El Paso
Corporation or any of its subsidiaries. Approval must be received from
our general partner's board of directors and from El Paso Corporation
prior to executing the master netting agreement.
Under the partnership agreement, our general partner has the responsibility
to, among other things, manage and operate our assets. In addition, our general
partner had agreed not to voluntarily withdraw as general partner on or prior to
December 31, 2002. Now that this obligation of the general partner has expired,
our general partner can withdraw with 90 days notice. We have no employees
today, a condition that is common among MLPs. Although this arrangement has
worked well for us in the past and continues to work well for us, we are
evaluating the direct employment of the personnel who manage the day-to-day
operations of our assets.
OUR RELATIONSHIP WITH EL PASO CORPORATION
El Paso Corporation, a NYSE-listed company, is a leading provider of
natural gas services and the largest pipeline company in North America. Through
its subsidiaries, El Paso Corporation:
- owns 100 percent of our general partner, which means that, historically,
El Paso Corporation and its affiliates have employed the personnel who
operate our businesses. We reimburse our general partner and its
affiliates for the costs they incur on our behalf, and we pay our general
partner its proportionate share of distributions -- relating to its one
percent general partnership interest and the related incentive
distributions -- we make to our partners each calendar quarter.
- is a significant stakeholder in us -- it owns approximately 23.4 percent,
or 11,674,245, of our common units (decreased from 26.5 percent as a
result of our common unit offerings during the second quarter of 2003),
all 10,937,500 of our Series C units, which we issued in November 2002
for $350 million, all 124,014 of our outstanding Series B preference
units after adjustment for the May and June contributions of Series B
preference units associated with the May and June common unit offerings
(with a liquidation value at May 31, 2003 of $162 million), and our one
percent general partner interest. As holders of some of our common units
and all of our Series C units, subsidiaries of El Paso Corporation
receive their proportionate share of distributions we make to our
partners each calendar quarter.
- is a customer of ours. As with other large energy companies, we have
entered into a number of contracts with El Paso Corporation and its
affiliates.
- has in the past publicly announced its intention to use us as its primary
vehicle for growth and development of its midstream energy business;
however, El Paso Corporation is neither contractually nor legally bound
to use us as its primary vehicle for growth and development of midstream
energy assets, and may reconsider its relationship with us at any time,
without notice.
Historically, we have entered into transactions with El Paso Corporation
and its subsidiaries to acquire or sell assets. We have instituted specific
procedures for evaluating and valuing our material transactions with El Paso
Corporation and its subsidiaries. Before we consider entering into a transaction
with El Paso Corporation or any of its subsidiaries, we determine whether the
proposed transaction (i) would comply with
4
the requirements under our indentures and credit agreements, (ii) would comply
with substantive law, and (iii) would be fair to us and our limited partners. In
addition, our general partner's board of directors utilizes an Audit and
Conflicts Committee comprised solely of independent directors. This committee:
- evaluates and, where appropriate, negotiates the proposed transaction;
- engages an independent financial advisor and independent legal counsel to
assist with its evaluation of the proposed transaction; and
- determines whether to reject or approve and recommend the proposed
transaction.
We will only consummate any proposed material acquisition or disposition
with El Paso Corporation if, following our evaluation of the transaction, the
Audit and Conflicts Committee approves and recommends the proposed transaction
and our general partner's full board of directors approves the transaction.
Our relationship with El Paso Corporation has contributed significantly to
our past growth, and we have important ongoing contractual arrangements with El
Paso Corporation and some of its subsidiaries. However, we are a stand-alone
operating company with significant assets and operations. Our assets, operations
and financial condition are separate and independent from those of El Paso
Corporation. Our credit facilities and other financing arrangements do not
contain cross default provisions or other triggers tied to El Paso Corporation's
financial condition or credit ratings. Nonetheless, due to our relationship with
El Paso Corporation, adverse developments concerning El Paso Corporation could
adversely affect us, even if we have not suffered any similar developments.
The outstanding senior unsecured indebtedness of El Paso Corporation has
been downgraded to below investment grade and is currently rated Caa1 by Moody's
Investors Service (Moody's) and B by Standard & Poor's (S&P). These downgrades
are a result, at least in part, of the outlook for the consolidated business of
El Paso Corporation and its need for liquidity. In the event that El Paso
Corporation's liquidity needs are not satisfied, El Paso Corporation could be
forced to seek protection from its creditors in bankruptcy.
We have publicly disclosed our efforts to further distinguish ourselves
from El Paso Corporation. As a result of this announcement, various parties have
expressed an interest in purchasing all or a portion of our general partner. We
have publicly acknowledged that we are meeting with parties interested in
acquiring an equity stake in the general partner but cannot confirm that such
interest will result in firm proposals or, if such firm proposals are received,
that El Paso Corporation will consider such proposals. El Paso Corporation has
the sole responsibility of determining the ultimate ownership status of the
general partner interest. If El Paso Corporation sells 50 percent or more of its
interest in our general partner without obtaining consent from our lenders, we
will experience a "change in control" under our credit agreements and
indentures, which will effectively cause all amounts outstanding under those
debt instruments to become due. To further our Independence Initiatives, El Paso
Corporation has publicly announced its intent to sell up to 10 percent of our
general partner to an unrelated party.
As discussed previously, we have implemented, and are in the process of
implementing, a number of Independence Initiatives that are designed to help us
better manage the rewards and risks relating to our relationship with El Paso
Corporation. However, even in light of these Independence Initiatives or any
other arrangements, we may still be adversely affected if El Paso Corporation
continues to suffer financial stress. For a more detailed discussion of our
corporate structure, our general partner, and our contracts and other
arrangements with El Paso Corporation and its subsidiaries, see the summary of
risk factors included in this prospectus and the risk factors included in the
documents incorporated by reference in this prospectus.
RECENT DEVELOPMENTS
Cameron Highway Oil Pipeline System. On July 14, 2003, we announced the
completion of agreements to form a 50/50 joint venture with Valero Energy
Corporation in the $458 million Cameron Highway Oil Pipeline System project. We
also announced the completion of a $325 million non-recourse financing for the
project. Cameron Highway will be a 390-mile pipeline that will have capacity to
deliver up to 500,000 barrels of oil per day from the southern Green Canyon and
western Gulf of Mexico areas to the major refining areas of
5
Port Arthur and Texas City, Texas. When completed, the pipeline will be one of
the largest crude oil delivery systems in the Gulf of Mexico, sized to handle
oil movement for the major Deepwater Trend discoveries, Holstein, Mad Dog, and
Atlantis, its initial anchor fields, as well as other Deepwater oil discoveries.
We will build and operate the pipeline, which is scheduled for completion during
the third quarter of 2004. Valero paid us approximately $51 million at closing,
representing 50 percent of the capital investment expended through that date for
the pipeline project. In addition, Valero will pay a total of $35 million in
participation fees to us for developing the project, $19 million of which was
paid at closing, $5 million to be paid once the system is completed and the
remaining $11 million by the end of 2006.
Equity Offerings. Our ability to execute our growth strategy and complete
our current projects is dependent upon our access to the capital necessary to
fund our projects and acquisitions. As previously announced, our strategy for
2003 is to raise approximately $300 million through the issuance of common units
and other equity securities. In June 2003, we completed a public offering of
1,150,000 common units for net cash proceeds of approximately $40.3 million,
including the underwriter's overallotment, which we used to temporarily reduce
indebtedness under our $600 million revolving credit facility.
In May 2003, we issued 1,118,881 common units and 80 Series F convertible
units in a registered offering to a large institutional investor for $40
million. We used the net proceeds of approximately $38.3 million, excluding any
proceeds we may receive upon the conversion of any Series F convertible units,
for general partnership purposes.
In April 2003, we completed a public offering of 3,450,000 common units. We
used the net proceeds of approximately $103 million to temporarily reduce
indebtedness under our $600 million credit facility.
In connection with these offerings, our general partner contributed
approximately $1.8 million of our Series B preference units to us in order to
maintain its one percent general partner interest.
OFFICES
Our principal executive offices are located at 4 Greenway Plaza, Houston,
TX 77046, and the phone number at this address is (832) 676-4853.
THE EXCHANGE OFFER
You are entitled to exchange in the exchange offer your outstanding Series
A notes for Series B notes with substantially identical terms. You should read
the discussion under the heading "Description of Notes" for further information
regarding the Series B notes.
We summarize the terms of the exchange offer below. You should read the
discussion under the heading "The Exchange Offer" beginning on page 14 for
further information regarding the exchange offer and resale of the Series B
notes.
Registration rights
agreement..................... We sold $300 million in aggregate principal
amount of Series A notes to J.P. Morgan
Securities Inc., Goldman, Sachs & Co., UBS
Warburg LLC and Wachovia Securities Inc., as
initial purchasers in a transaction exempt from
the registration requirements of the Securities
Act. We entered into a registration rights
agreement dated as of March 24, 2003 with the
initial purchasers which grants the holders of
the Series A notes exchange and registration
rights. This exchange offer satisfies those
exchange rights.
The exchange offer............ $1,000 principal amount of Series B notes in
exchange for each $1,000 principal amount of
Series A notes. As of the date of this
prospectus, $300 million aggregate principal
amount of the Se-
6
ries A notes are outstanding. We will issue
Series B notes to holders on the earliest
practicable date following the Expiration Date.
Resales of the Series B
Notes......................... Based on interpretations by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that, except as
described below, the Series B notes issued
pursuant to the exchange offer may be offered
for resale, resold and otherwise transferred by
holders of the Series B notes (other than a
holder that is an "affiliate" of ours within
the meaning of Rule 405, a person who is a
broker-dealer or a person who intends to
participate in the exchange offer for the
purpose of distributing the Series B notes)
under the Securities Act, without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
the Series B notes are acquired in the ordinary
course of the holder's business and the holder
has no arrangement or understanding with any
person to participate in the distribution of
the Series B notes.
Each broker-dealer that receives Series B notes
pursuant to the exchange offer in exchange for
Series A notes that the broker-dealer acquired
for its own account as a result of
market-making activities or other trading
activities, other than Series A notes acquired
directly from us or our affiliates, must
acknowledge that it will deliver a prospectus
in connection with any resale of the Series B
notes. The letter of transmittal states that by
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act.
If we receive notices in the letter of
transmittal, this prospectus, as it may be
amended or supplemented from time to time, may
be used for the period described below by a
broker-dealer in connection with resales of
Series B notes received in exchange for Series
A notes where the Series A notes were acquired
by the broker-dealer as a result of
market-making activities or other trading
activities and not acquired directly from us.
The letter of transmittal requires
broker-dealers tendering Series A notes in the
exchange offer to indicate whether the
broker-dealer acquired the Series A notes for
its own account as a result of market-making
activities or other trading activities, other
than Series A notes acquired directly from us
or any of our affiliates. If no broker-dealer
indicates that the Series A notes were so
acquired, we have no obligation under the
registration rights agreement to maintain the
effectiveness of the registration statement
past the consummation of the exchange offer or
to allow the use of this prospectus for such
resales. See "The Exchange Offer --
Registration Rights" and "-- Resale of the
Series B Notes; Plan of Distribution."
Expiration date............... The exchange offer expires at 5:00 p.m., New
York City time, on August 28, 2003, unless we
extend the exchange offer in our sole
discretion, in which case the term "Expiration
Date" means the latest date and time to which
the exchange offer is extended.
7
Conditions to the exchange
offer......................... The exchange offer is subject to certain
conditions which we may waive. See "The
Exchange Offer -- Conditions to the Exchange
Offer."
Procedures for tendering the
Series A Notes................ Each holder of Series A notes wishing to accept
the exchange offer must complete, sign and date
the accompanying letter of transmittal in
accordance with the instructions, and mail or
otherwise deliver the letter of transmittal
together with the Series A notes and any other
required documentation to the exchange agent
identified below under "Exchange Agent" at the
address set forth in this prospectus. By
executing the letter of transmittal, a holder
will make certain representations to us. See
"The Exchange Offer -- Registration Rights" and
"-- Procedures for Tendering Series A Notes."
Special procedures for
beneficial owners............. Any beneficial owner whose Series A notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact the
registered holder promptly and instruct the
registered holder to tender on its behalf. See
"The Exchange Offer -- Procedures for Tendering
Series A Notes."
Guaranteed delivery
procedures.................... Holders of Series A notes who wish to tender
their Series A notes when those securities are
not immediately available or who cannot deliver
their Series A notes, the letter of transmittal
or any other documents required by the letter
of transmittal to the exchange agent prior to
the Expiration Date must tender their Series A
notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Procedures for Tendering Series A
Notes -- Guaranteed Delivery."
Withdrawal rights............. Tenders of Series A notes pursuant to the
exchange offer may be withdrawn at any time
prior to the Expiration Date.
Acceptance of Series A Notes
and delivery of Series B
Notes......................... We will accept for exchange any and all Series
A notes that are properly tendered in the
exchange offer, and not withdrawn, prior to the
Expiration Date. The Series B notes issued
pursuant to the exchange offer will be issued
on the earliest practicable date following our
acceptance for exchange of Series A notes. See
"The Exchange Offer -- Terms of the Exchange
Offer."
Exchange agent................ JPMorgan Chase Bank is serving as exchange
agent in connection with the exchange offer.
See "The Exchange Offer -- Exchange Agent."
Federal income tax
considerations................ The exchange of Series A notes for Series B
notes pursuant to the exchange offer will not
be treated as a taxable exchange for federal
income tax purposes. See "Federal Income Tax
Considerations."
8
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED --------------------------------------------
MARCH 31, 2003 2002 2001 2000 1999 1998
- ------------------ ---- ---- ---- ---- ----
1.98 2.00 2.25 1.54 1.81 1.17
These computations include us and our Restricted Subsidiaries. For these
ratios, "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 interest capitalized; 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.
9
RISK FACTORS
An investment in the notes is subject to a number of risks. You should
carefully consider the following risk factors as well as the section entitled
"Risk Factors and Cautionary Statement" included in our Annual Report on Form
10-K for the year ended December 31, 2002 and incorporated herein by reference,
as well as the other documents incorporated herein by reference, in evaluating
this investment. Realization of any of the following risks could have a material
adverse effect on the notes.
RISKS RELATED TO THE EXCHANGE OFFER
THE MARKET VALUE OF YOUR SERIES A NOTES MAY BE LOWER IF YOU DO NOT EXCHANGE
YOUR SERIES A NOTES OR FAIL TO PROPERLY TENDER YOUR SERIES A NOTES FOR
EXCHANGE.
Consequences of Failure to Exchange. To the extent that Series A notes are
tendered and accepted for exchange pursuant to the exchange offer, the trading
market for Series A notes that remain outstanding may be significantly more
limited, which might adversely affect the liquidity of the Series A notes not
tendered for exchange. The extent of the market and the availability of price
quotations for Series A notes would depend upon a number of factors, including
the number of holders of Series A notes remaining at such time and the interest
in maintaining a market in such Series A notes on the part of securities firms.
An issue of securities with a smaller outstanding market value available for
trading, or float, may command a lower price than would a comparable issue of
securities with a greater float. Therefore, the market price for Series A notes
that are not exchanged in the exchange offer may be affected adversely to the
extent that the amount of Series A notes exchanged pursuant to the exchange
offer reduces the float. The reduced float also may tend to make the trading
price of the Series A notes that are not exchanged more volatile.
Consequences of Failure to Properly Tender. Issuance of the Series B notes
in exchange for the Series A notes pursuant to the exchange offer will be made
following the prior satisfaction, or waiver, of the conditions set forth in "The
Exchange Offer -- Conditions to the Exchange Offer" and only after timely
receipt by the exchange agent of the Series A notes, a properly completed and
duly executed letter of transmittal and all other required documents. Therefore,
holders of Series A notes desiring to tender Series A notes in exchange for
Series B notes should allow sufficient time to ensure timely delivery of all
required documentation. Neither we, the exchange agent nor any other person is
under any duty to give notification of defects or irregularities with respect to
the tenders of Series A notes for exchange. Series A notes that may be tendered
in the exchange offer but which are not validly tendered will, following the
consummation of the exchange offer, remain outstanding and will continue to be
subject to the same transfer restrictions currently applicable to the Series A
notes.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT DEVELOP.
The Series A notes have not been registered under the Securities Act, and
may not be resold by purchasers thereof unless the Series A notes are
subsequently registered or an exemption from the registration requirements of
the Securities Act is available. However, even following registration or
exchange of the Series A notes for Series B notes, an active trading market for
the Series A notes or the Series B notes may not exist, and we will have no
obligation to create such a market. At the time of the private placement of the
Series A notes, the initial purchasers advised us that they intended to make a
market in the Series A notes and, if issued, the Series B notes. The initial
purchasers are not obligated, however, to make a market in the Series A notes or
the Series B notes and any market-making may be discontinued at any time at
their sole discretion. No assurance can be given as to the liquidity of or
trading market for the Series A notes or the Series B notes.
The liquidity of any trading market for the notes and the market price
quoted for the notes will depend upon the number of holders of the notes, the
overall market for high yield securities, our financial performance or prospects
or the prospects for companies in our industry generally, the interest of
securities dealers in making a market in the notes and other factors.
10
If the number of outstanding Series A notes is reduced through the exchange
offer, the existing limited market for the Series A notes will become further
constricted, with a probable decrease in the liquidity of the Series A notes.
Further, the Series A notes that are not tendered in the exchange offer will
continue to be subject to the existing restrictions upon their transfer. We will
have no obligation to provide for the registration under the Securities Act of
unexchanged Series A notes.
RISKS RELATED TO THE NOTES
FEDERAL AND STATE STATUTES WOULD ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES,
TO SUBORDINATE FURTHER OR VOID THE NOTES AND THE RELATED GUARANTEES AND
REQUIRE HOLDERS OF NOTES TO RETURN PAYMENTS RECEIVED FROM US.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could further subordinate or void the notes
and the related guarantees if, at the time the notes and the guarantees were
issued, certain facts, circumstances and conditions existed, including that:
- we received less than reasonably equivalent value or fair consideration
for the incurrence of such indebtedness;
- we were insolvent or rendered insolvent by reason of such incurrence;
- we were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or
- we intended to incur, or believed that we would incur, indebtedness we
could not repay at its maturity.
In such a circumstance, a court could require the holders of the notes to
return to us or pay to our other creditors amounts we paid under the notes. This
would entitle other creditors to be paid in full before any payment could be
made under the notes. We may not have sufficient assets to fully pay the notes
after the payment to other creditors. The guarantees of the notes by our
subsidiaries could be challenged on the same grounds as the notes. In addition,
a creditor may avoid a guarantee based on the level of benefits received by a
guarantor compared to the amount of the subsidiary guarantee. The indenture will
contain a savings clause, which generally limits the obligations of each
guarantor to the maximum amount that is not a fraudulent conveyance. If a
subsidiary guarantee is avoided, or limited as a fraudulent conveyance or held
unenforceable for any other reason, you would not have any claim against the
guarantors and would be only creditors of us and GulfTerra Energy Finance
Corporation and any guarantor whose subsidiary guarantee was not avoided or held
unenforceable. In such event, claims of holders of notes against a guarantor
would be subject to the prior payment of all liabilities (including trade
payables) of such guarantor. We cannot assure you that, after providing for all
prior claims, there would be sufficient assets to satisfy claims of holders of
notes relating to any avoided portions of any of the subsidiary guarantees.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, we would be considered
insolvent if:
- the sum of our indebtedness, including contingent liabilities, were
greater than the fair value or fair saleable value of all of our assets;
- if the present fair value or fair saleable value of our assets were less
than the amount that would be required to pay our probable liability on
our existing indebtedness, including contingent liabilities, as it
becomes absolute and mature; or
- we could not pay our indebtedness as it becomes due.
There is a risk of a preferential transfer if:
- a subsidiary guarantor declares bankruptcy or its creditors force it to
declare bankruptcy within 90 days (or in certain cases, one year) after a
payment on the guarantee; or
- a subsidiary guarantee was made in contemplation of insolvency.
11
The subsidiary guarantee could be avoided by a court as a preferential
transfer. In addition, a court could require holders of notes to return any
payments made on the debt securities during the 90-day (or one-year) period.
WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATION TO REPURCHASE NOTES UPON A CHANGE
OF CONTROL.
Upon a change of control (among other things, the acquisition of 50 percent
or more of El Paso Corporation's voting stock, or if El Paso Corporation and its
subsidiaries no longer own more than 50 percent of our general partner, or the
sale of all or substantially all of our assets), unless our creditors otherwise
agree, we would be required to repay the amounts outstanding under our credit
facilities and to offer to repurchase our outstanding senior subordinated notes
and possibly our senior notes at 101 percent of the principal amount, plus
accrued and unpaid interest to the date of repurchase, including any outstanding
notes issued to you. We may not have sufficient funds available or be permitted
by our other debt instruments to fulfill these obligations upon the occurrence
of a change of control. We have publicly disclosed our efforts to further
distinguish ourselves from El Paso Corporation. As a result of this
announcement, various parties have expressed an interest in purchasing all or a
portion of our general partner. El Paso Corporation has publicly announced that
it would consider selling up to 10 percent of its general partner interest. El
Paso Corporation has the sole responsibility for determining the ultimate
ownership status of the general partner interest. We have publicly acknowledged
that we are meeting with parties interested in acquiring an entity stake in the
general partner but cannot confirm that such interest will result in firm
proposals or, if such firm proposals are received, that El Paso Corporation will
pursue such proposals.
YOUR RIGHTS TO RECEIVE PAYMENTS WILL BE UNSECURED AND CONTRACTUALLY
SUBORDINATED TO MOST OF OUR EXISTING INDEBTEDNESS AND, POSSIBLY, ANY
ADDITIONAL INDEBTEDNESS WE INCUR. FURTHER, THE GUARANTEES OF THE NOTES WILL BE
JUNIOR TO ALL THE GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY TO ALL THEIR
FUTURE BORROWINGS.
The notes and the related subsidiary guarantees will rank behind most of
our and the subsidiary guarantors' existing senior indebtedness (other than
trade payables and certain other indebtedness) and possibly all additional
senior indebtedness (other than trade payables) we incur unless, and to the
extent, that additional indebtedness expressly provides that it ranks equal
with, or junior in right of payment to, the notes and the related guarantees.
In addition, all payments on the notes and the related guarantees may be
blocked in the event of a payment default or in the event of certain non-payment
defaults on our senior indebtedness.
In the event of a bankruptcy, liquidation, reorganization or similar
proceeding relating to us, any subsidiary guarantors or our property, our assets
or the assets of the subsidiary guarantors would be available to pay obligors
under the notes only after all payments had been made on our or the guarantors'
senior indebtedness. Our creditors and the subsidiary guarantors' creditors
holding claims which are not subordinated to any applicable senior indebtedness
will in all likelihood be entitled to payments before all of our or the
subsidiary guarantors' senior indebtedness has been paid in full. Therefore,
holders of the notes will participate with trade creditors and all other holders
of our and the guarantors' unsubordinated indebtedness in the assets remaining
after we and the guarantors have paid all of the senior indebtedness. However,
because the notes indenture may require that amounts otherwise payable to
holders of the notes in a bankruptcy, liquidation, reorganization or similar
proceeding be paid to holders of senior indebtedness instead, holders of the
notes may receive less, ratably, than holders of trade payables and other
creditors in any such proceeding. In any of these cases, we and the subsidiary
guarantors may not have sufficient funds to pay all of our creditors and,
therefore, holders of notes would receive less, ratably, than the holders of
senior indebtedness.
12
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO INDEBTEDNESS AND LIABILITIES OF
OUR SUBSIDIARIES THAT ARE NOT GUARANTORS.
The notes will be effectively subordinated to claims of all creditors of
any of our subsidiaries that are not guarantors of the notes, including
GulfTerra Arizona Gas, L.L.C., Arizona Gas Storage, L.L.C. and Matagorda Island
Area Gathering System. If any of GulfTerra Arizona Gas, L.L.C., Arizona Gas
Storage, L.L.C. and Matagorda Island Area Gathering System defaults on its debt,
the holders of the notes would not receive any money from that subsidiary until
its debts are repaid in full. For example, we do not expect that our
unrestricted subsidiaries will guarantee the notes. Most of our existing
subsidiaries other than GulfTerra Energy Finance Corporation, GulfTerra Arizona
Gas, L.L.C., Arizona Gas Storage, L.L.C. and Matagorda Island Area Gathering
System will guarantee the notes. See "Description of Notes."
13
THE EXCHANGE OFFER
For the purposes of this section, "we" means GulfTerra Energy Partners,
L.P., GulfTerra Energy Finance Corporation and the Subsidiary Guarantors.
REGISTRATION RIGHTS
At the closing of the offering of the Series A notes, we entered into a
registration rights agreement with the initial purchasers pursuant to which we
agreed, for the benefit of the holders of the Series A notes, at our cost,
- to file an exchange offer registration statement with the SEC with
respect to the exchange offer for the Series B notes within 95 days after
the date of the original issuance of the Series A notes, and
- to use our best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act within 150
days after the date of original issuance of the Series A notes.
Upon the exchange offer registration statement being declared effective, we
agreed to offer the Series B notes in exchange for surrender of the Series A
notes. We agreed to use our best efforts to cause the exchange offer
registration statement to be effective continuously, to keep the exchange offer
open for a period of not less than 20 business days and to use our best efforts
to cause the exchange offer to be consummated no later than 30 business days
after the exchange offer registration statement is declared effective by the
SEC.
For each Series A note surrendered to us pursuant to the exchange offer,
the holder of such Series A note will receive a Series B note having a principal
amount equal to that of the surrendered Series A note. Interest on each Series B
note will accrue from the last interest payment date on which interest was paid
on the Series A note surrendered in exchange therefor or, if no interest has
been paid on such Series A note, from the date of its original issue. The
registration rights agreement also provides an agreement to include in the
prospectus for the exchange offer certain information necessary to allow a
broker-dealer who holds Series A notes that were acquired for its own account as
a result of market-making activities or other ordinary course trading activities
(other than Series A notes acquired directly from us or one of our affiliates)
to exchange such Series A notes pursuant to the exchange offer and to satisfy
the prospectus delivery requirements in connection with resales of Series B
notes received by such broker-dealer in the exchange offer. We agreed to use our
best efforts to maintain the effectiveness of the exchange offer registration
statement for these purposes for a period of not more than 30 business days plus
one year after the exchange offer registration statement has become effective.
The preceding agreement is needed because any broker-dealer who acquires
Series A notes for its own account as a result of market-making activities or
other trading activities is required to deliver a prospectus meeting the
requirements of the Securities Act. This prospectus covers the offer and sale of
the Series B notes pursuant to the exchange offer made hereby and the resale of
Series B notes received in the exchange offer by any broker-dealer who held
Series A notes of the same series acquired for its own account as a result of
market-making activities or other trading activities other than Series A notes
acquired directly from us or one of our affiliates.
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that the Series B notes issued
pursuant to the exchange offer would in general be freely tradable after the
exchange offer without further registration under the Securities Act. However,
any purchaser of Series A notes who is an "affiliate" of ours, who is a
broker-dealer or who intends to participate in the exchange offer for the
purpose of distributing the related Series B notes
- will not be able to rely on the interpretation of the staff of the SEC,
- will not be able to tender its Series A notes in the exchange offer, and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the Series
A notes unless such sale or transfer is made pursuant to an exemption
from such requirements.
14
Each holder of the Series A notes (other than certain specified holders)
who wishes to exchange Series A notes for Series B notes in the exchange offer
will be required to make certain representations, including
- that it is not an affiliate of GulfTerra Energy Partners,
- that it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B notes, and
- that it is acquiring the Series B notes in the exchange offer in its
ordinary course of business.
We further agreed to file with the SEC a shelf registration statement to
register for public resale the Transfer Restricted Securities held by any such
holder who provides GulfTerra Energy Partners with certain information for
inclusion in the shelf registration statement if:
- the exchange offer is not permitted by applicable law or SEC policy, or
- any holder of notes which are Transfer Restricted Securities notifies
GulfTerra Energy Partners prior to the 20th business day following the
consummation of the exchange offer that:
- it is a broker-dealer and holds notes acquired directly from GulfTerra
Energy Partners or any of the affiliates of GulfTerra Energy Partners,
- it is prohibited by law or SEC policy from participating in the exchange
offer, or
- it may not resell the Series B notes acquired by it in the exchange
offer to the public without delivering a prospectus, and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for such resales by it.
For the purposes of the registration rights agreement, Transfer Restricted
Securities means each Series A note or Series B note until the earliest of the
date of which
- such Series A note or Series B note is exchanged in the exchange offer
and entitled to be resold to the public by the holder thereof without
complying with the prospectus delivery requirements of the Securities
Act,
- such Series A note or Series B note has been disposed of in accordance
with the shelf registration statement,
- such Series A note or Series B note is disposed of by a broker-dealer as
set forth in "Plan of Distribution" (including delivery of the prospectus
contained therein), or
- such Series A note or Series B note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The registration rights agreement provides that:
(1) if we fail to file an exchange offer registration statement with
the SEC on or prior to the 95th day after the closing of the offering of
the Series A notes,
(2) if the exchange offer registration statement is not declared
effective by the SEC on or prior to the 150th day after the closing of the
offering of the Series A notes,
(3) if the exchange offer is not consummated on or before the 30th
business day after the exchange offer registration statement is declared
effective,
(4) if obligated to file the shelf registration statement and we fail
to file the shelf registration statement with the SEC on or prior to the
30th day after such filing obligation arises,
(5) if obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or prior to the 60th
day after the obligation to file a shelf registration statement arises, or
15
(6) subject to certain conditions, if the exchange offer registration
statement or the shelf registration statement, as the case may be, is
declared effective but thereafter ceases to be effective or useable in
connection with resales of the Transfer Restricted Securities, for such
time of non-effectiveness or non-usability (each, a "Registration
Default"),
we agree to pay to each holder of Transfer Restricted Securities affected
thereby liquidated damages in an amount equal to $0.05 per week per $1,000 in
original principal amount of Transfer Restricted Securities held by such holder
for each week or portion thereof that the Registration Default continues for the
first 90 day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$0.05 per week per $1,000 in original principal amount of Transfer Restricted
Securities with respect to each subsequent 90 day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $0.50
per week per $1,000 in principal amount of Transfer Restricted Securities. We
shall not be required to pay liquidated damages for more than one Registration
Default at any given time. Upon curing all Registration Defaults, liquidated
damages will cease to accrue.
A Registration Default will be cured and liquidated damages will cease to
accrue upon:
- filing of the exchange offer registration statement (and/or, if
applicable, the shelf registration statement), in the cases of the
Registration Defaults described in clauses (1) and (4) above,
- the effectiveness of the exchange offer registration statement (and/or,
if applicable, the shelf registration statement), in the cases of the
Registration Defaults described in clauses (2) and (5) above,
- consummation of the exchange offer, in the case of the Registration
Default described in clause (3) above, and
- the filing of a post-effective amendment to the registration statement or
an additional registration statement that causes the exchange offer
registration statement (and/or, if applicable, the shelf registration
statement) to again be declared effective or made usable, in the case of
the Registration Default described in clause (6) above.
All accrued liquidated damages shall be paid by us to holders entitled
thereto by wire transfer to the accounts specified by them or by mailing checks
to their registered address if no such accounts have been specified.
Holders of the notes will be required to make certain representations to us
(as described in the registration rights agreement) in order to participate in
the exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement.
If we effect the registered exchange offer, we will be entitled to close
the registered exchange offer 20 business days after the commencement thereof;
provided that the we have accepted all notes theretofore validly rendered in
accordance with the terms of the exchange offer and no brokers or dealers
continue to hold any notes.
This summary of the material provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is filed as an exhibit to the registration statement
of which this prospectus is a part.
Except as set forth above, after consummation of the exchange offer,
holders of Series A notes which are the subject of the exchange offer have no
registration or exchange rights under the registration rights agreement. See "--
Consequences of failure to exchange," and "-- Resale of the Series B Notes; Plan
of Distribution."
16
CONSEQUENCES OF FAILURE TO EXCHANGE
The Series A notes which are not exchanged for Series B notes pursuant to
the exchange offer and are not included in a resale prospectus which, if
required, will be filed as part of an amendment to the registration statement of
which this prospectus is a part, will remain restricted securities and subject
to restrictions on transfer. Accordingly, such Series A notes may only be resold
(1) to us, upon redemption thereof or otherwise,
(2) so long as the Series A notes are eligible for resale pursuant to
Rule 144A, to a person whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities
Act, purchasing for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or
other transfer is being made in reliance on Rule 144A,
(3) in an offshore transaction in accordance with Regulation S under
the Securities Act,
(4) pursuant to an exemption from registration in accordance with Rule
144, if available, under the Securities Act,
(5) in reliance on another exemption from the registration
requirements of the Securities Act, or
(6) pursuant to an effective registration statement under the
Securities Act.
In all of the situations discussed above, the resale must be in accordance
with any applicable securities laws of any state of the United States and
subject to certain requirements of the registrar or co-registrar being met,
including receipt by the registrar or co-registrar of a certification and, in
the case of (3), (4) and (5) above, an opinion of counsel reasonably acceptable
to us and the registrar.
To the extent Series A notes are tendered and accepted in the exchange
offer, the principal amount of outstanding Series A notes will decrease with a
resulting decrease in the liquidity in the market therefor. Accordingly, the
liquidity of the market of the Series A notes could be adversely affected. See
"Risk Factors -- Risks related to the exchange offer."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, a copy of which is attached to this prospectus
as Annex A, we will accept any and all Series A notes validly tendered and not
withdrawn prior to the Expiration Date. We will issue $1,000 principal amount of
Series B notes in exchange for each $1,000 principal amount of Series A notes
accepted in the exchange offer. Holders may tender some or all of their Series A
notes pursuant to the exchange offer. However, Series A notes may be tendered
only in integral multiples of $1,000 principal amount.
The form and terms of the Series B notes are the same as the form and terms
of the Series A notes, except that
- the Series B notes will have been registered under the Securities Act and
will not bear legends restricting their transfer pursuant to the
Securities Act, and
- except as otherwise described above, holders of the Series B notes will
not be entitled to the rights of holders of Series A notes under the
registration rights agreement.
The Series B notes will evidence the same debt as the Series A notes which
they replace, and will be issued under, and be entitled to the benefits of, the
indenture which governs all of the notes.
Solely for reasons of administration and for no other purpose, we have
fixed the close of business on July 28, 2003 as the record date for the exchange
offer for purposes of determining the persons to whom this prospectus and the
letter of transmittal will be mailed initially. Only a registered holder of
Series A notes or such holder's legal representative or attorney-in-fact as
reflected on the records of the trustee under the indenture may participate in
the exchange offer. There will be no fixed record date for determining
registered holders of the Series A notes entitled to participate in the exchange
offer.
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Holders of the Series A notes do not have any appraisal or dissenters'
rights under Delaware law or the indenture in connection with the exchange
offer. We intend to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder.
We shall be deemed to have accepted validly tendered Series A notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders of the Series A
notes for the purposes of receiving the Series B notes. The Series B notes
delivered pursuant to the exchange offer will be issued on the earliest
practicable date following our acceptance for exchange of Series A notes.
If any tendered Series A notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Series A notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Series A notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of the
Series A notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "-- Fees and expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" with respect to the exchange offer means 5:00
p.m., New York City time, on August 28, 2003 unless we, in our sole discretion,
extend the exchange offer, in which case "Expiration Date" shall mean the latest
date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
We Reserve the Right, in our Sole Discretion,
(1) to delay accepting any Series A notes,
(2) to extend the exchange offer,
(3) if any of the conditions set forth below under "-- Conditions to
the Exchange Offer" have not been satisfied, to terminate the exchange
offer, or
(4) to amend the terms of the exchange offer in any manner.
We may effect any such delay, extension or termination by giving oral or
written notice thereof to the exchange agent.
Except as specified in the second paragraph under this heading, any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by a public announcement thereof. If the exchange offer
is amended in a manner determined by us to constitute a material change, we will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the Series A notes. The exchange
offer will then be extended for a period of five to 10 business days, as
required by law, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the exchange offer would otherwise
expire during such five to 10 business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, termination or amendment of the exchange
offer, we shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
thereof to the Dow Jones News Service.
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PROCEDURES FOR TENDERING SERIES A NOTES
Tenders of Series A Notes. The tender by a holder of Series A notes
pursuant to any of the procedures set forth below will constitute the tendering
holder's acceptance of the terms and conditions of the exchange offer. Our
acceptance for exchange of Series A notes tendered pursuant to any of the
procedures described below will constitute a binding agreement between such
tendering holder and us in accordance with the terms and subject to the
conditions of the exchange offer. Only holders are authorized to tender their
Series A notes. The procedures by which Series A notes may be tendered by
beneficial owners that are not holders will depend upon the manner in which the
Series A notes are held.
DTC has authorized DTC participants that are beneficial owners of Series A
notes through DTC to tender their Series A notes as if they were holders. To
effect a tender, DTC participants should either (1) complete and sign the letter
of transmittal or a facsimile thereof, have the signature thereon guaranteed if
required by Instruction 1 of the letter of transmittal, and mail or deliver the
letter of transmittal or such facsimile pursuant to the procedures for
book-entry transfer set forth below under "-- Book-Entry Delivery Procedures,"
or (2) transmit their acceptance to DTC through the DTC Automated Tender Offer
Program ("ATOP"), for which the transaction will be eligible, and follow the
procedures for book-entry transfer, set forth below under "-- Book-Entry
Delivery Procedures."
Tender of Series A Notes Held in Physical Form. To tender effectively
Series A notes held in physical form pursuant to the exchange offer,
- a properly completed letter of transmittal applicable to such notes (or a
facsimile thereof) duly executed by the holder thereof, and any other
documents required by the letter of transmittal, must be received by the
exchange agent at one of its addresses set forth below, and tendered
Series A notes must be received by the exchange agent at such address (or
delivery effected through the deposit of Series A notes into the exchange
agent's account with DTC and making book-entry delivery as set forth
below) on or prior to the Expiration Date, or
- the tendering holder must comply with the guaranteed delivery procedures
set forth below.
Letters of transmittal or Series A notes should be sent only to the
exchange agent and should not be sent to us.
Tender of Series A Notes Held Through a Custodian. To tender effectively
Series A notes that are held of record by a custodian bank, depository, broker,
trust company or other nominee, the beneficial owner thereof must instruct such
holder to tender the Series A notes on the beneficial owner's behalf. A letter
of instructions from the record owner to the beneficial owner may be included in
the materials provided along with this prospectus which may be used by the
beneficial owner in this process to instruct the registered holder of such
owner's Series A notes to effect the tender.
Tender of Series A Notes Held Through DTC. To tender effectively Series A
notes that are held through DTC, DTC participants should either
- properly complete and duly execute the letter of transmittal (or a
facsimile thereof), and any other documents required by the letter of
transmittal, and mail or deliver the letter of transmittal or such
facsimile pursuant to the procedures for book-entry transfer set forth
below, or
- transmit their acceptance through ATOP, for which the transaction will be
eligible, and DTC will then edit and verify the acceptance and send an
Agent's Message to the exchange agent for its acceptance.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each participant in DTC tendering the Series A notes and that such participant
has received the letter of transmittal and agrees to be bound by the terms of
the letter of transmittal and we may enforce such agreement against such
participant.
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Delivery of tendering Series A notes held through DTC must be made to the
exchange agent pursuant to the book-entry delivery procedures set forth below or
the tendering DTC participant must comply with the guaranteed delivery
procedures set forth below.
The method of delivery of Series A notes and letters of transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance or Agent's Message transmitted through
ATOP, is at the election and risk of the person tendering Series A notes and
delivering letters of transmittal. Except as otherwise provided in the letter of
transmittal, delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, it is suggested that the holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the exchange agent prior to such date.
Except as provided below, unless the Series A notes being tendered are
deposited with the exchange agent on or prior to the Expiration Date
(accompanied by a properly completed and duly executed letter of transmittal or
a properly transmitted Agent's Message), we may, at our option, reject such
tender. Exchange of Series B notes for Series A notes will be made only against
deposit of the tendered Series A notes and delivery of all other required
documents.
Book-Entry Delivery Procedures. The exchange agent will establish accounts
with respect to the Series A notes at DTC for purposes of the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in DTC may make book-entry delivery of the
Series A notes by causing DTC to transfer such Series A notes into the exchange
agent's account in accordance with DTC's procedures for such transfer. However,
although delivery of Series A notes may be effected through book-entry at DTC,
the letter of transmittal (or facsimile thereof), with any required signature
guarantees or an Agent's Message in connection with a book-entry transfer, and
any other required documents, must, in any case, be transmitted to and received
by the exchange agent at one or more of its addresses set forth in this
prospectus on or prior to the Expiration Date, or compliance must be made with
the guaranteed delivery procedures described below. Delivery of documents to DTC
does not constitute delivery to the exchange agent. The confirmation of a
book-entry transfer into the exchange agent's account at DTC as described above
is referred to herein as a "Book-Entry Confirmation."
Signature Guarantees. Signatures on all letters of transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Series A notes tendered thereby are tendered
(1) by a registered holder of Series A notes (or by a participant in DTC whose
name appears on a DTC security position listing as the owner of such Series A
notes) who has not completed either the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the letter of transmittal,
or (2) for the account of an Eligible Institution. See Instruction 1 of the
letter of transmittal. If the Series A notes are registered in the name of a
person other than the signer of the letter of transmittal or if Series A notes
not accepted for exchange or not tendered are to be returned to a person other
than the registered holder, then the signatures on the letter of transmittal
accompanying the tendered Series A notes must be guaranteed by an Eligible
Institution as described above. See Instructions 1 and 5 of the letter of
transmittal.
Guaranteed Delivery. If a holder desires to tender Series A notes pursuant
to the exchange offer and time will not permit the letter of transmittal,
certificates representing such Series A notes and all other required documents
to reach the exchange agent, or the procedures for book-entry transfer cannot be
completed, on or prior to the Expiration Date, such Series A notes may
nevertheless be tendered if all the following conditions are satisfied:
(1) the tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed notice of guaranteed
delivery, substantially in the form provided by us herewith, or an Agent's
Message with respect to guaranteed delivery that is accepted by us, is
received by the exchange agent on or prior to the Expiration Date, as
provided below; and
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(3) the certificates for the tendered Series A notes, in proper form
for transfer (or a Book-Entry Confirmation of the transfer of such Series A
notes into the exchange agent's account at DTC as described above),
together with the letter of transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by the letter of transmittal or a properly
transmitted Agent's Message, are received by the exchange agent within two
business days after the date of execution of the notice of guaranteed
delivery.
The notice of guaranteed delivery may be sent by hand delivery, telegram,
facsimile transmission or mail to the exchange agent and must include a
guarantee by an Eligible Institution in the form set forth in the notice of
guaranteed delivery.
Notwithstanding any other provision hereof, delivery of Series B notes by
the exchange agent for Series A notes tendered and accepted for exchange
pursuant to the exchange offer will, in all cases, be made only after timely
receipt by the exchange agent of such Series A notes (or Book-Entry Confirmation
of the transfer of such Series A notes into the exchange agent's account at DTC
as described above), and the letter of transmittal (or facsimile thereof) with
respect to such Series A notes, properly completed and duly executed, with any
required signature guarantees and any other documents required by the letter of
transmittal, or a properly transmitted Agent's Message.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Series A notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all Series A notes not properly tendered or any Series A notes our
acceptance of which, in the opinion of our counsel, would be unlawful.
We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Series A notes. The interpretation of the
terms and conditions of our exchange offer (including the instructions in the
letter of transmittal) by us will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Series A
notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with
respect to tenders of Series A notes through the exchange agent, neither we, the
exchange agent nor any other person is under any duty to give such notice, nor
shall they incur any liability for failure to give such notification. Tenders of
Series A notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
Any Series A notes received by the exchange agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived, or if Series A notes are submitted in a principal amount greater than
the principal amount of Series A notes being tendered by such tendering holder,
such unaccepted or non-exchanged Series A notes will either be
(1) returned by the exchange agent to the tendering holders, or
(2) in the case of Series A notes tendered by book-entry transfer into
the exchange agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described below, credited to an
account maintained with such Book-Entry Transfer Facility.
By tendering, each registered holder will represent to us that, among other
things,
- the Series B notes to be acquired by the holder and any beneficial
owner(s) of the Series A notes in connection with the exchange offer are
being acquired by the holder and any beneficial owner(s) in the ordinary
course of business of the holder and any beneficial owner(s),
- the holder and each beneficial owner are not participating, do not intend
to participate, and have no arrangement or understanding with any person
to participate, in a distribution of the Series B notes,
- the holder and each beneficial owner acknowledge and agree that (x) any
person participating in the exchange offer for the purpose of
distributing the Series B notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
a secondary resale
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transaction with respect to the Series B notes acquired by such person
and cannot rely on the position of the Staff of the SEC set forth in
no-action letters that are discussed herein under "-- Resale of the
Series B Notes; Plan of Distribution," and (y) any broker-dealer that
receives Series B notes for its own account in exchange for Series A
notes pursuant to the exchange offer must delivery a prospectus in
connection with any resale of such Series B notes, but by so
acknowledging, the holder shall not be deemed to admit that, by
delivering a prospectus, it is an "underwriter" within the meaning of the
Securities Act,
- neither the holder nor any beneficial owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of ours except as otherwise
disclosed to us in writing, and
- the holder and each beneficial owner understands, that a secondary resale
transaction described in clause (3) above should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the SEC.
Each broker-dealer that receives Series B notes for its own account in
exchange for Series A notes, where such Series A notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B notes. See "-- Resale of the Series B Notes;
Plan of Distribution."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A notes pursuant to
the exchange offer may be withdrawn, unless accepted for exchange as provided in
the exchange offer, at any time prior to the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the exchange agent at its address set forth herein prior to
the Expiration Date. Any such notice of withdrawal must
- specify the name of the person having deposited the Series A notes to be
withdrawn,
- identify the Series A notes to be withdrawn, including the certificate
number or numbers of the particular certificates evidencing the Series A
notes (unless such Series A notes were tendered by book-entry transfer),
and aggregate principal amount of such Series A notes, and
- be signed by the holder in the same manner as the original signature on
the letter of transmittal (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the trustee
under the indenture register the transfer of the Series A notes into the
name of the person withdrawing such Series A notes.
If Series A notes have been delivered pursuant to the procedures for
book-entry transfer set forth in "-- Procedures for Tendering Series A Notes --
Book-Entry Delivery Procedures," any notice of withdrawal must specify the name
and number of the account at the appropriate book-entry transfer facility to be
credited with such withdrawn Series A notes and must otherwise comply with such
book-entry transfer facility's procedures.
If the Series A notes to be withdrawn have been delivered or otherwise
identified to the exchange agent, a signed notice of withdrawal meeting the
requirements discussed above is effective immediately upon written or facsimile
notice of withdrawal even if physical release is not yet effected. A withdrawal
of Series A notes can only be accomplished in accordance with these procedures.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us in our sole discretion, which
determination shall be final and binding on all parties. No withdrawal of Series
A notes will be deemed to have been properly made until all defects or
irregularities have been cured or expressly waived. Neither we, the exchange
agent nor any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or revocation, nor shall
we or they incur any liability for failure to give any such notification. Any
Series A notes so withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer and no Series B notes will be issued with
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respect thereto unless the Series A notes so withdrawn are retendered. Properly
withdrawn Series A notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering Series A Notes" at any time
prior to the Expiration Date.
Any Series A notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the prior
termination of the exchange offer, or which have been validly withdrawn, will be
returned to the holder thereof unless otherwise provided in the letter of
transmittal, as soon as practicable following the Expiration Date or, if so
requested in the notice of withdrawal, promptly after receipt by us of notice of
withdrawal without cost to such holder.
CONDITIONS TO THE EXCHANGE OFFER
The exchange offer shall not be subject to any conditions, other than that
(1) the SEC has issued an order or orders declaring the indenture
governing the notes qualified under the Trust Indenture Act of 1939,
(2) the exchange offer, or the making of any exchange by a holder,
does not violate applicable law or any applicable interpretation of the
staff of the SEC,
(3) no action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency with respect to the
exchange offer, which, in our judgment, might impair our ability to proceed
with the exchange offer,
(4) there shall not have been adopted or enacted any law, statute,
rule or regulation which, in our judgment, would materially impair our
ability to proceed with the exchange offer, or
(5) there shall not have occurred any material change in the financial
markets in the United States or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which on the financial
markets of the United States, in our judgment, would materially impair our
ability to proceed with the exchange offer.
If we determine in our sole discretion that any of the conditions to the
exchange offer are not satisfied, we may
(1) refuse to accept any Series A notes and return all tendered Series
A notes to the tendering holders,
(2) extend the exchange offer and retain all Series A notes tendered
prior to the Expiration Date applicable to the exchange offer, subject,
however, to the rights of holders to withdraw such Series A notes (see
"-- Withdrawal of Original Tenders"), or
(3) waive such unsatisfied conditions with respect to the exchange
offer and accept all validly tendered Series A notes which have not been
withdrawn.
If such waiver constitutes a material change to the exchange offer, we will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and will extend the exchange offer for a
period of five to 10 business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the exchange
offer would otherwise expire during such five to 10 business day period.
EXCHANGE AGENT
JPMorgan Chase Bank, the trustee under the indenture governing the notes,
has been appointed as exchange agent for the exchange offer. Questions and
requests for assistance, requests for additional copies of
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this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery and other documents should be directed to the exchange agent
addressed as follows:
By Mail:
JPMorgan Chase Bank
Attn: Mr. Cary Gilliam
700 Lavaca
Fifth Floor
Austin, TX 78701
By Facsimile:
(512) 479-2553
Attention: Mr. Cary Gilliam
Confirm by Telephone:
(512) 479-2575
Attention: Mr. Cary Gilliam
By Hand:
JPMorgan Chase Bank
Attn: Mr. Cary Gilliam
700 Lavaca
Fifth Floor
Austin, TX 78701
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by officers and regular employees of
GulfTerra Energy Partners, L.P., our general partner and their affiliates.
No dealer-manager has been retained in connection with the exchange offer
and no payments will be made to brokers, dealers or others soliciting acceptance
of the exchange offer. However, reasonable and customary fees will be paid to
the exchange agent for its services and it will be reimbursed for its reasonable
out-of-pocket expenses in connection therewith.
Our out of pocket expenses for the exchange offer will include fees and
expenses of the exchange agent and the trustee under the indenture, accounting
and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
Series A notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Series A notes pursuant to
the exchange offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Series B notes will be recorded at the carrying value of the Series A
notes and no gain or loss for accounting purposes will be recognized. The
expenses of the exchange offer will be amortized over the term of the Series B
notes.
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RESALE OF THE SERIES B NOTES; PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of Series B notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Series B notes received in exchange
for Series A notes where such Series A notes were acquired as a result of
market-making activities or other trading activities. In addition, until October
27, 2003 (90 days after the date of this prospectus), all dealers effecting
transactions in the Series B notes, whether or not participating in this
distribution, may be required to deliver a prospectus. This requirement is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
We will not receive any proceeds from any sale of Series B notes by
broker-dealers. Series B notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions
(1) in the over-the-counter market,
(2) in negotiated transactions,
(3) through the writing of options on the Series B notes or a
combination of such methods of resale,
(4) at market prices prevailing at the time of resale,
(5) at prices related to such prevailing market prices, or
(6) at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Series B
notes.
Any broker-dealer that resells Series B notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such Series B notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B notes and any commission on concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver a prospectus and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
We agreed to permit the use of this prospectus by such broker-dealers to
satisfy this prospectus delivery requirement. To the extent necessary to ensure
that the prospectus is available for sales of Series B notes by broker-dealers,
we agreed to use our best efforts to keep the exchange offer registration
statement continuously effective, supplemented, amended and current for a period
of 30 business days plus one year from the closing of the offering of the Series
A notes or such shorter period as will terminate when all Transfer Restricted
Securities covered by such registration statement have been sold. We will
provide sufficient copies of the latest version of this prospectus to such
broker-dealers no later than one day after such request at any time during this
period.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the Series B notes offered by this prospectus. In consideration for
issuing the Series B notes as contemplated in this prospectus, we will receive
in exchange Series A notes in like principal amount, the form and terms of which
are the same as the form and terms of the Series B notes, except as otherwise
described herein under "The exchange offer -- Terms of the Exchange Offer." The
Series A notes surrendered in exchange for the Series B notes will be retired
and canceled and
25
cannot be reissued. Accordingly, issuance of the Series B notes will not result
in any increase in our indebtedness.
DESCRIPTION OF NOTES
You can find the definitions of terms in this description under the
subheading "Definitions." In this description, the word "Issuers" refers only to
GulfTerra Energy Partners and GulfTerra Energy Finance and not to any of their
subsidiaries and any reference to "GulfTerra Energy Partners" or "GulfTerra
Finance" does not include any of their respective subsidiaries. As used in this
section, "GulfTerra Finance" or "GT Finance" means our subsidiary, GulfTerra
Energy Finance Corporation, which is a co-issuer of the notes.
The Issuers issued the Series A notes under the Indenture (the "Indenture")
dated as of March 24, 2003, among the Issuers, the Subsidiary Guarantors and
JPMorgan Chase Bank, as trustee (the "Trustee") in a private transaction that
was not subject to the registration requirements of the Securities Act. The
Series B notes will be issued under the same Indenture. The terms of the notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
a holder of these notes. Copies of the Indenture are available upon request from
GulfTerra Energy Partners. Terms used herein are defined below under
"-- Definitions."
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
GENERAL
The Series A notes and the Series B notes will constitute a single class of
debt securities under the Indenture. If the exchange offer is completed, holders
of Series A notes who do not exchange their Series A notes for Series B notes
will vote together with holders of the Series B notes for all relevant purposes
under the Indenture. In that regard, the Indenture requires that certain actions
by holders, including acceleration following an event of default, must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether the required holders have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Series A notes that remain outstanding after the exchange offer will be
aggregated with the Series B notes, and the holders of the Series A notes and
the Series B notes will vote together as a single series. All references in this
prospectus to specified percentages in aggregate principal amount of the notes
means, at any time after the exchange offer is completed, the percentages in
aggregate principal amount of the Series A notes and the Series B notes
collectively then outstanding.
THE NOTES
The notes are:
- general unsecured obligations of the Issuers;
- subordinated in right of payment to all existing and future Senior Debt
of the Issuers, including borrowings under the Partnership Credit
Facility;
- senior or equal in right of payment to any future subordinated
Indebtedness of the Issuers and equal in right of payment to our existing
senior subordinated notes; and
- unconditionally guaranteed by the Subsidiary Guarantors.
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THE GUARANTEES
As of the date of this prospectus, the notes are guaranteed by the
following subsidiaries of GulfTerra Energy Partners:
- Cameron Highway Pipeline GP, L.L.C.
- Cameron Highway Pipeline I, L.P.
- Crystal Holding, L.L.C.
- GulfTerra Intrastate, L.P. (formerly known as El Paso Energy Intrastate,
L.P.)
- GulfTerra Operating Company, L.L.C. (formerly known as El Paso Energy
Partners Operating Company, L.L.C.)
- GulfTerra South Texas, L.P. (formerly known as El Paso South Texas, L.P.)
- GulfTerra Texas Pipeline, L.P. (formerly known as EPGT Texas Pipeline,
L.P.)
- GulfTerra Alabama Intrastate, L.L.C. (formerly known as EPN Alabama
Intrastate, L.L.C.)
- GulfTerra Field Services, L.L.C. (formerly known as EPN Field Services,
L.L.C.)
- GulfTerra Holding II, L.L.C. (formerly known as EPN GP Holding, L.L.C.)
- GulfTerra Holding I, L.L.C. (formerly known as EPN GP Holding I, L.L.C.)
- GulfTerra GC, L.P. (formerly known as EPN Gulf Coast, L.P.)
- GulfTerra Holding V, L.P. (formerly known as EPN Holding Company, L.P.)
- GulfTerra Holding IV, L.P. (formerly known as EPN Holding Company I,
L.P.)
- GulfTerra NGL Storage, L.L.C. (formerly known as EPN NGL Storage, L.L.C.)
- GulfTerra Holding III, L.L.C. (formerly known as EPN Pipeline GP Holding,
L.L.C.)
- First Reserve Gas, L.L.C.
- Flextrend Development Company, L.L.C.
- GulfTerra Oil Transport, L.L.C. (formerly known as El Paso Energy
Partners Oil Transport, L.L.C.)
- Hattiesburg Gas Storage Company
- Hattiesburg Industrial Gas Sales, L.L.C.
- High Island Offshore System, L.L.C.
- Manta Ray Gathering Company, L.L.C.
- Petal Gas Storage, L.L.C.
- Poseidon Pipeline Company, L.L.C.
Each Guarantee of a Subsidiary Guarantor of these notes:
- is a general unsecured obligation of that Subsidiary Guarantor;
- is subordinated in right of payment to all existing and future Senior
Debt of that Subsidiary Guarantor; and
- is senior or equal in right of payment to any future subordinated
Indebtedness of that Subsidiary Guarantor.
As of May 31, 2003, the Issuers and the Subsidiary Guarantors would have
had total Senior Debt and Guarantor Senior Debt of approximately $747 million,
although the Indenture will allow us to incur at least
27
$1.2 billion of Senior Debt. As indicated above and as discussed in detail below
under the subheading "Subordination," payments on the notes and the Guarantees
will be subordinated to the payment of Senior Debt and Guarantor Senior Debt,
respectively. The Indenture will permit the Issuers and the Subsidiary
Guarantors to incur additional Senior Debt and Guarantor Senior Debt. The
Guarantee of each Subsidiary Guarantor will be subordinated to all Senior Debt
of that Subsidiary Guarantor. In addition, payments on the notes will be
effectively subordinated to claims of creditors (other than GulfTerra Energy
Partners) of our subsidiaries that are not guarantors of the notes. As of May
31, 2003, our non-guarantor subsidiaries had no indebtedness.
As of the date of the Indenture, all of our Subsidiaries (other than
GulfTerra Finance and our Unrestricted Subsidiaries) will be "Restricted
Subsidiaries." Certain Subsidiaries in the future may not be Subsidiary
Guarantors. Also, under the circumstances described below under the subheading
"Covenants -- Designation of restricted and unrestricted subsidiaries," we will
be permitted to designate certain of our Subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the Indenture. Unrestricted Subsidiaries will not
guarantee the notes. As of the date of this prospectus, GulfTerra Arizona Gas,
L.L.C., Arizona Gas Storage, L.L.C. and Matagorda Island Area Gathering System
are the only Unrestricted Subsidiaries. In addition, GulfTerra Energy Partners
has invested, and may invest in the future, in Joint Ventures. The rights of
GulfTerra Energy Partners to receive assets from any Subsidiary that is not a
Subsidiary Guarantor or from any Joint Venture that are attributable to
GulfTerra Energy Partners' Equity Interests therein (and thus the ability of the
holders of the notes to benefit indirectly from such assets) are subject to the
claims of all existing and future third party indebtedness and liabilities
(including trade debt) of such Subsidiary or Joint Venture.
PRINCIPAL, MATURITY AND INTEREST
The Issuers will issue notes offered hereby in an initial aggregate
principal amount of $300 million. Subject to compliance with the covenant
described below under "-- Incurrence of indebtedness and issuance of
disqualified equity," we may issue additional notes from time to time under the
Indenture. The Issuers will issue notes in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on June 1, 2010.
Interest on the notes offered hereby will accrue at the rate of 8 1/2% per
annum and will be payable semi-annually in arrears on June 1 and December 1,
commencing on June 1, 2003. The Issuers will make each interest payment to the
holders of record of these notes on the immediately preceding May 15 and
November 15.
Interest on the notes offered hereby will accrue from March 24, 2003 or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to the Issuers, the
Issuers will make all payments of principal of, premium, if any, and interest
and Liquidated Damages, if any, on the notes in accordance with those
instructions. All other payments on these notes will be made at the office or
agency of the Paying Agent and Registrar within the City and State of New York,
unless the Issuers elect to make interest payments by check mailed to the
holders at their address set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Issuers
may change the Paying Agent or Registrar without prior notice to the holders of
the notes, and the Issuers or any of their Subsidiaries may act as Paying Agent
or Registrar.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any note
selected for redemption or repurchase (except in the case of a note to be
redeemed or repurchased in part, the portion not to be redeemed or repurchased).
Also, the Issuers are not required to transfer or exchange any note for a period
of 15 days before a selection of notes to be redeemed or between a record date
and the next succeeding interest payment date.
The registered holder of a note will be treated as the owner of it for all
purposes.
SUBORDINATION
The payment of principal of, premium, if any, and interest and Liquidated
Damages, if any, and other Obligations on, the notes, including upon the
acceleration or redemption of the notes, will be subordinated to the prior
payment in full in cash of all Senior Debt of the Issuers.
The holders of Senior Debt of the Issuers and the holders of Guarantor
Senior Debt of the Subsidiary Guarantors will be entitled to receive payment in
full in cash of all Obligations due in respect of Senior Debt and Guarantor
Senior Debt (including interest after the commencement of any of the following
specified proceedings at the rate specified in the applicable Senior Debt,
whether or not such interest would be an allowed claim in such proceeding), as
applicable, before the holders of notes will be entitled to receive any payment
or distribution with respect to the notes (except that holders of notes may
receive and retain Permitted Junior Securities and payments made from the trust
described under "-- Legal defeasance and covenant defeasance," provided that the
funding of such trust was permitted), in the event of any payment or
distribution to creditors of an Issuer:
(1) in a liquidation or dissolution of that Issuer;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to that Issuer or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of that Issuer's assets and liabilities.
Neither of the Issuers may make any payment or distribution (whether by
redemption, purchase, defeasance or otherwise) in respect of the notes (except
in Permitted Junior Securities or from the trust described under "-- Legal
defeasance and covenant defeasance") if:
(1) a default in the payment of principal, premium or interest (and
other Obligations in the case of the Credit Facilities) on Designated
Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior
Debt that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Issuers or the holders of any Designated Senior
Debt (or their representative).
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived and 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
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No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 120 days. If the Trustee or
any holder receives payment that violates the above, such payment shall be held
in trust by the Trustee or such holder for the benefit of, and upon written
request shall be paid to, the holder of Designated Senior Debt. Holders of the
notes shall have subrogation rights.
The Issuers must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of GulfTerra Energy Partners or
GulfTerra Finance, holders of these notes may recover less ratably than
creditors of the Issuers who are holders of Senior Debt. See "Risk Factors."
THE GUARANTEES
To the extent that any of our Restricted Subsidiaries guarantees any of our
indebtedness or any indebtedness of any other Restricted Subsidiary, such
Subsidiary will be required to guarantee our obligations under the notes and the
Indenture.
The Subsidiary Guarantors will jointly and severally guarantee the Issuers'
obligations under these notes. Each Guarantee and the related obligations will
be subordinated to the prior payment in full of all Senior Debt of that
Subsidiary Guarantor. The obligations of each Subsidiary Guarantor under its
Guarantee will be limited as necessary to prevent that Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk Factors."
The Obligations of each Subsidiary Guarantor with respect to the notes
under its Guarantee will be subordinated to its Guarantor Senior Debt on the
same basis as the notes are subordinated to Senior Debt.
No Subsidiary Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Guarantor Senior Debt of such Subsidiary Guarantor and
senior in any respect in right of payment to such Subsidiary Guarantor's
Guarantee.
A Subsidiary Guarantor may not consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) the Person (if not otherwise a Subsidiary Guarantor) formed by or
surviving any such consolidation or merger assumes all the obligations of
that Subsidiary Guarantor pursuant to a supplemental indenture satisfactory
to the Trustee, except as provided in the next paragraph.
GulfTerra Energy Partners or any Subsidiary Guarantor, however, may be
merged or consolidated with or into any one or more Subsidiary Guarantors or
GulfTerra Energy Partners.
The Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Subsidiary Guarantor (including by
way of merger or consolidation), if GulfTerra Energy Partners applies the
Net Proceeds of that sale or other disposition in accordance with the
applicable provisions of the Indenture; or
(2) in connection with any sale or other disposition of all of the
Equity Interests of a Subsidiary Guarantor, if GulfTerra Energy Partners
applies the Net Proceeds of that sale in accordance with the applicable
provisions of the Indenture applicable to Asset Sales; or
(3) if GulfTerra Energy Partners designates any Restricted Subsidiary
that is a Subsidiary Guarantor as an Unrestricted Subsidiary; or
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(4) at such time as such Subsidiary Guarantor ceases to guarantee any
other Indebtedness of GulfTerra Energy Partners.
See "Repurchase at the option of holders -- Asset sales."
Any Restricted Subsidiary that guarantees Indebtedness of either of the
Issuers or any other Restricted Subsidiary at a time when it is not a Subsidiary
Guarantor shall execute a Guarantee.
The notes will be non-recourse to GulfTerra Energy Partners' general
partner.
OPTIONAL REDEMPTION
Prior to June 1, 2006, the Issuers may on any one or more occasions redeem
up to 33 percent of the aggregate principal amount of notes originally issued
under the Indenture at a redemption price of 108.500 percent of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
to the redemption date, with the net cash proceeds of one or more Equity
Offerings. However, at least 67 percent of the aggregate principal amount of
notes must remain outstanding immediately after the occurrence of such
redemption (excluding notes held by GulfTerra Energy Partners, GulfTerra Finance
and our Restricted Subsidiaries). Any redemption must occur within 90 days of
the date of the closing of such Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at the Issuers' option prior to June 1, 2007.
On or after June 1, 2007, the Issuers may redeem all or a part of these
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, and Liquidated Damages, if any, to
the applicable redemption date, if redeemed during the 12-month period beginning
on June 1st of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2007........................................................ 104.250%
2008........................................................ 102.125%
2009 and thereafter......................................... 100.0%
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of
the principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed or there are no such requirements,
on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest and
Liquidated Damages, if applicable, cease to accrue on notes or portions of them
called for redemption unless the Issuers default in making such redemption
payment.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right to
require the Issuers to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Issuers will offer a Change
of Control Payment in cash equal to 101 percent of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest thereon, if any,
and Liquidated Damages, if any, to the date of purchase (the "Change of Control
Payment"), subject to the rights of holders in whose name a note is registered
on a record date occurring prior to the Change of Control Payment Date to
receive interest on an interest payment date occurring on or after such Change
of Control Payment Date. Within 30 days following any Change of Control, the
Issuers will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the Change of Control Payment Date specified in such notice, pursuant
to the procedures required by the Indenture and described in such notice. The
Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by GulfTerra
Energy Partners.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof. The Issuers will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Issuers will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of notes required by this covenant.
The provisions described above that require the Issuers to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holder of the notes to require that the
Issuers repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
GulfTerra Energy Partners' outstanding Partnership Credit Facility
currently prohibits GulfTerra Energy Partners from purchasing any notes, and
also provides that certain change of control events with respect to GulfTerra
Energy Partners would constitute a default under the agreements governing such
Senior Debt. Any future credit agreements or other agreements relating to Senior
Debt to which GulfTerra Energy Partners becomes a party may contain similar
restrictions and provisions. Moreover, the exercise by the holders of their
right to require the Issuers to repurchase the notes could cause a default under
such Senior Debt, even if the Change of Control does not, due to the financial
effect of such a repurchase on GulfTerra Energy Partners. If a Change of Control
occurs at a time when GulfTerra Energy Partners is prohibited from purchasing
notes, GulfTerra Energy Partners could seek the consent of its senior lenders to
the purchase of notes or could
32
attempt to refinance the borrowings that contain such prohibition. If GulfTerra
Energy Partners does not obtain such a consent or repay such borrowings,
GulfTerra Energy Partners will remain prohibited from purchasing notes. In such
case, GulfTerra Energy Partners' failure to purchase tendered notes would
constitute an Event of Default under the Indenture which would, in turn, in all
likelihood constitute a default under such Senior Debt. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the holders of notes. Finally, the Issuers' ability to pay cash to the holders
upon a repurchase may be limited by GulfTerra Energy Partners' then existing
financial resources. We cannot assure you that sufficient funds will be
available when necessary to make any required repurchases.
Notwithstanding the preceding paragraphs of this covenant, the Issuers will
not be required to make a Change of Control Offer upon a Change of Control and a
holder will not have the right to require the Issuers to repurchase any notes
pursuant to a Change of Control Offer if a third party makes an offer to
purchase the notes in the manner, at the times and otherwise in substantial
compliance with the requirements set forth in the Indenture applicable to a
Change of Control Offer and purchases all notes validly tendered and not
withdrawn under such purchase offer.
The definition of Change of Control includes a phrase relating to the sale,
transfer, lease, conveyance or other disposition of "all or substantially all"
of the assets of GulfTerra Energy Partners and its Subsidiaries taken as a
whole. Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
GulfTerra Energy Partners to repurchase such notes as a result of a sale,
transfer, lease, conveyance or other disposition of less than all of the assets
of GulfTerra Energy Partners and its Restricted Subsidiaries taken as a whole to
another Person or group may be uncertain.
ASSET SALES
The Issuers will not, and will not permit any of GulfTerra Energy Partners'
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) GulfTerra Energy Partners (or the Restricted Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests issued or
sold or otherwise disposed of;
(2) such fair market value is determined by (a) an executive officer
of GulfTerra Energy Partners if the value is less than $10.0 million, as
evidenced by an Officers' Certificate delivered to the Trustee or (b) the
Board of Directors of the General Partner if the value is $10.0 million or
more, as evidenced by a resolution of such Board of Directors of the
General Partner; and
(3) at least 75 percent of the consideration therefor received by
GulfTerra Energy Partners or such Restricted Subsidiary is in the form of
cash or Cash Equivalents. For purposes of this provision, each of the
following shall be deemed to be cash:
a. any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet) of GulfTerra Energy Partners or
any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any
Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases GulfTerra
Energy Partners or such Restricted Subsidiary from further liability;
and
b. any securities, notes or other obligations received by GulfTerra
Energy Partners or any such Restricted Subsidiary from such transferee
that are within 90 days after the Asset Sale (subject to ordinary
settlement periods) converted by such Issuer or such Restricted
Subsidiary into cash (to the extent of the cash received in that
conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
GulfTerra Energy Partners or a Restricted Subsidiary may apply (or enter into a
definitive agreement for such application within such 360-
33
day period, provided that such capital expenditure or purchase is closed within
90 days after the end of such 360-day period) such Net Proceeds at its option:
(1) to repay Senior Debt of GulfTerra Energy Partners and/or its
Restricted Subsidiaries (or to make an offer to repurchase or redeem Senior
Debt, provided that such repurchase or redemption closes within 45 days
after the end of such 360-day period) with a permanent reduction in
availability for any revolving credit Indebtedness;
(2) to make a capital expenditure in a Permitted Business;
(3) to acquire other long-term tangible assets that are used or useful
in a Permitted Business; or
(4) to invest in any other Permitted Business Investment or any other
Permitted Investments other than Investments in Cash Equivalents, Interest
Swaps or Currency Agreements.
Pending the final application of any such Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers will make
a pro rata offer (an "Asset Sale Offer") to all holders of notes and all holders
of other Indebtedness that is pari passu with the notes containing provisions
similar to those set forth in the Indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum principal
amount of notes and such other pari passu Indebtedness that may be purchased out
of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100 percent of principal amount plus accrued and unpaid interest (including any
Liquidated Damages in the case of the notes), if any, and premium, if any, to
the date of purchase, and will be payable in cash. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, GulfTerra Energy Partners may use
such Excess Proceeds for any purpose not otherwise prohibited by the Indenture,
including, without limitation, the repurchase or redemption of Indebtedness of
the Issuers or any Subsidiary Guarantor that is subordinated to the notes or, in
the case of any Subsidiary Guarantor, the Guarantee of such Subsidiary
Guarantor. If the aggregate principal amount of notes tendered into such Asset
Sale Offer exceeds the amount of Excess Proceeds allocated for repurchases of
notes pursuant to the Asset Sale Offer for notes, the Trustee shall select the
notes to be purchased on a pro rata basis. Upon completion of each Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
The term Asset Sale excludes:
(1) any transaction whereby assets or properties (including (a)
ownership interests in any Subsidiary or Joint Venture and (b) in the case
of an exchange or contribution for tangible assets, up to 25 percent in the
form of cash, Cash Equivalents, accounts receivable or other current
assets), owned by GulfTerra Energy Partners or a Restricted Subsidiary are
exchanged or contributed for the Equity Interests of a Joint Venture or
Unrestricted Subsidiary in a transaction that satisfies the requirements of
a Permitted Business Investment or for other assets (not more than 25
percent of which consists of cash, Cash Equivalents, accounts receivables
or other current assets) or properties (including interests in any
Subsidiary or Joint Venture) so long as (i) the fair market value of the
assets or properties (if other than a Permitted Business Investment)
received are substantially equivalent to the fair market value of the
assets or properties given up, and (ii) any cash received in such exchange
or contribution by GulfTerra Energy Partners or any Restricted Subsidiary
is applied in accordance with the foregoing "-- Asset sales" provision;
(2) any sale, transfer or other disposition of cash or Cash
Equivalents;
(3) any sale, transfer or other disposition of Restricted Investments;
and
(4) any sale, transfer or other disposition of interests in oil and
gas leaseholds (including, without limitation, by abandonment, farm-ins,
farm-outs, leases, swaps and subleases), hydrocarbons and other mineral
products in the ordinary course of business of the oil and gas operations
conducted by GulfTerra
34
Energy Partners or any Restricted Subsidiary, which sale, transfer or other
disposition is made by GulfTerra Energy Partners or any Restricted
Subsidiary.
COVENANTS
RESTRICTED PAYMENTS
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of GulfTerra Energy Partners' or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving
GulfTerra Energy Partners or any of its Restricted Subsidiaries) or to the
direct or indirect holders of GulfTerra Energy Partners' or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such (other
than distributions or dividends payable in Equity Interests of GulfTerra
Energy Partners (other than Disqualified Equity) and other than
distributions or dividends payable to GulfTerra Energy Partners or a
Restricted Subsidiary);
(2) except to the extent permitted in clause (4) below, purchase,
redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving an
Issuer) any Equity Interests of GulfTerra Energy Partners or any of its
Restricted Subsidiaries (other than any such Equity Interests owned by
GulfTerra Energy Partners or any of its Restricted Subsidiaries);
(3) except to the extent permitted in clause (4) below, make any
payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that is pari passu with or
subordinated to the notes or the Guarantees (other than the notes or the
Guarantees), except (a) a payment of interest or principal at the Stated
Maturity thereof, (b) a purchase, redemption, acquisition or retirement
required to be made pursuant to the terms of such Indebtedness (including
pursuant to an asset sale or change of control provision) and (c) any such
Indebtedness of GulfTerra Energy Partners or a Restricted Subsidiary owned
by GulfTerra Energy Partners or a Restricted Subsidiary; or
(4) make any Investment other than a Permitted Investment or a
Permitted Business Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof and either:
(1) if the Fixed Charge Coverage Ratio for GulfTerra Energy Partners'
four most recent fiscal quarters for which internal financial statements
are available is not less than 2.0 to 1.0, such Restricted Payment,
together with the aggregate amount of all other Restricted Payments made by
GulfTerra Energy Partners and its Restricted Subsidiaries during the
quarter in which such Restricted Payment is made, is less than the sum,
without duplication, of:
a. Available Cash constituting Cash from Operations as of the end
of the immediately preceding quarter, plus
b. the aggregate net cash proceeds of any (i) substantially
concurrent capital contribution to GulfTerra Energy Partners from any
Person (other than a Restricted Subsidiary of GulfTerra Energy Partners)
made after the Issue Date, (ii) substantially concurrent issuance and
sale made after the Issue Date of Equity Interests (other than
Disqualified Equity) of GulfTerra Energy Partners or from the issuance
or sale made after the Issue Date of convertible or exchangeable
Disqualified Equity or convertible or exchangeable debt securities of
GulfTerra Energy Partners that have been converted into or exchanged for
such Equity Interests (other than Disqualified Equity), (iii) to the
extent that any Restricted Investment that was made after the Issue Date
is sold for cash or Cash Equivalents or otherwise liquidated or repaid
for cash or Cash Equivalents, the lesser of the refund of capital or
similar payment made in cash or Cash Equivalents with respect to such
35
Restricted Investment (less the cost of such disposition, if any) and
the initial amount of such Restricted Investment (other than to a
Restricted Subsidiary of GulfTerra Energy Partners), plus
c. the net reduction in Investments in Restricted Investments
resulting from dividends, repayments of loans or advances, or other
transfers of assets in each case to GulfTerra Energy Partners or any of
its Restricted Subsidiaries from any Person (including, without
limitation, Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries, to the extent such
amounts have not been included in Available Cash constituting Cash from
Operations for any period commencing on or after the Issue Date (items
(b) and (c) being referred to as "Incremental Funds"), minus
d. the aggregate amount of Incremental Funds previously expended
pursuant to this clause (1) or clause (2) below; or
(2) if the Fixed Charge Coverage Ratio for GulfTerra Energy Partners'
four most recent fiscal quarters for which internal financial statements
are available is less than 2.0 to 1.0, such Restricted Payment, together
with the aggregate amount of all other Restricted Payments made by
GulfTerra Energy Partners and its Restricted Subsidiaries during the
quarter in which such Restricted Payment is made, is less than the sum,
without duplication, of:
a. $60.0 million less the aggregate amount of all Restricted
Payments made by GulfTerra Energy Partners and its Restricted
Subsidiaries pursuant to this clause (2)(a) during the period ending on
the last day of the fiscal quarter of GulfTerra Energy Partners
immediately preceding the date of such Restricted Payment and beginning
on the Issue Date, plus
b. Incremental Funds to the extent not previously expended pursuant
to this clause (2) or clause (1) above.
For purposes of clauses (1) and (2) above, the term "substantially
concurrent" means that either (x) the offering was consummated within 120 days
of the date of determination or (y) the offering was consummated within 24
months of the date of determination and the proceeds therefrom were used for the
purposes expressly stated in the documents related thereto and may be traced to
such use by segregating, separating or otherwise specifically identifying the
movement of such proceeds.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment by GulfTerra Energy Partners or any Restricted
Subsidiary of any distribution or dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness of GulfTerra
Energy Partners or any of its Restricted Subsidiaries or of any Equity
Interests of GulfTerra Energy Partners or any of its Restricted
Subsidiaries in exchange for, or out of the net cash proceeds of, a
substantially concurrent (a) capital contribution to GulfTerra Energy
Partners or such Restricted Subsidiary from any Person (other than
GulfTerra Energy Partners or another Restricted Subsidiary) or (b) sale (a
sale will be deemed substantially concurrent if such redemption,
repurchase, retirement, defeasance or acquisition occurs not more than 120
days after such sale) (other than to a Restricted Subsidiary of GulfTerra
Energy Partners) of (i) Equity Interests (other than Disqualified Equity)
of GulfTerra Energy Partners or such Restricted Subsidiary or (ii)
Indebtedness that is subordinated to the notes or the Guarantees, provided
that such new subordinated Indebtedness with respect to the redemption,
repurchase, retirement, defeasance or other acquisition of pari passu or
subordinated Indebtedness (W) is subordinated to the same extent as such
refinanced subordinated Indebtedness, (X) has a Weighted Average Life to
Maturity of at least the remaining Weighted Average Life to Maturity of the
refinanced subordinated Indebtedness, (Y) is for the same principal amount
as either such refinanced subordinated Indebtedness plus original issue
discount to the extent not reflected therein or the redemption or purchase
price of such Equity Interests
36
(plus reasonable expenses of refinancing and any premiums paid on such
refinanced subordinated Indebtedness) and (Z) is incurred by GulfTerra
Energy Partners or the Restricted Subsidiary that is the obligor on the
Indebtedness so refinanced or the issuer of the Equity Interests so
redeemed, repurchased or retired; provided, however, that the amount of any
net cash proceeds that are utilized for any such redemption, repurchase or
other acquisition or retirement shall be excluded or deducted from the
calculation of Available Cash and Incremental Funds;
(3) the defeasance, redemption, repurchase or other acquisition of
pari passu or subordinated Indebtedness of GulfTerra Energy Partners or any
Restricted Subsidiary with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) the payment of any distribution or dividend by a Restricted
Subsidiary to GulfTerra Energy Partners or to the holders of its Equity
Interests (other than Disqualified Equity) on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of GulfTerra Energy Partners or any
Restricted Subsidiary of GulfTerra Energy Partners held by any member of
the General Partner's or GulfTerra Energy Partners' or any Restricted
Subsidiary's management pursuant to any management equity subscription
agreement or stock option agreement or to satisfy obligations under any
Equity Interests appreciation rights or option plan or similar arrangement;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $5.0 million in any
12-month period; and (6) any payment by GulfTerra Energy Partners pursuant
to section 3.1(b) of the Management Agreement to compensate for certain tax
liabilities resulting from certain allocated income.
In computing the amount of Restricted Payments previously made for purposes
of the immediately preceding paragraph, Restricted Payments made under clauses
(1) (but only if the declaration of such dividend or other distribution has not
been counted in a prior period) and, to the extent of amounts paid to holders
other than GulfTerra Energy Partners or a Restricted Subsidiary, (4) of this
paragraph shall be included, and Restricted Payments made under clauses (2),
(3), (5) and (6) and, except to the extent noted above, (4) of this paragraph
shall not be included. The amount of all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted Payment of the
asset(s) or securities proposed to be transferred or issued by GulfTerra Energy
Partners or such Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. The fair market value of any assets or securities that are
required to be valued by this covenant shall be determined by the Board of
Directors of the General Partner whose resolution with respect thereto shall be
delivered to the Trustee.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED EQUITY
GulfTerra Energy Partners will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and GulfTerra Energy Partners will not
issue any Disqualified Equity and will not permit any of its Restricted
Subsidiaries to issue any Disqualified Equity; provided, however, that GulfTerra
Energy Partners and any Restricted Subsidiary may incur Indebtedness (including
Acquired Debt), and GulfTerra Energy Partners and the Restricted Subsidiaries
may issue Disqualified Equity, if the Fixed Charge Coverage Ratio for GulfTerra
Energy Partners' most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Equity is
issued would have been at least 2.25 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Equity had been
issued, as the case may be, at the beginning of such four-quarter period.
37
So long as no Default shall have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by GulfTerra Energy Partners and any Restricted
Subsidiary of the Indebtedness under Credit Facilities and the guarantees
thereof; provided that the aggregate principal amount of all Indebtedness
of GulfTerra Energy Partners and the Restricted Subsidiaries outstanding
under all Credit Facilities after giving effect to such incurrence does not
exceed $1.2 billion less the aggregate amount of all repayments of
Indebtedness under a Credit Facility that have been made by GulfTerra
Energy Partners or any of its Restricted Subsidiaries in respect of Asset
Sales to the extent such repayments constitute a permanent reduction of
commitments under such Credit Facility;
(2) the incurrence by GulfTerra Energy Partners and its Restricted
Subsidiaries of Existing Indebtedness;
(3) the incurrence by GulfTerra Energy Partners and the Subsidiary
Guarantors of Indebtedness represented by the notes and the Guarantees and
the related Obligations;
(4) the incurrence by GulfTerra Energy Partners or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each
case, incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of GulfTerra Energy Partners or such
Restricted Subsidiary, in an aggregate principal amount not to exceed $20.0
million at any time outstanding;
(5) the incurrence by GulfTerra Energy Partners or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was not incurred
in violation of the Indenture;
(6) the incurrence by GulfTerra Energy Partners or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among
GulfTerra Energy Partners and any of its Restricted Subsidiaries; provided,
however, that:
a. if GulfTerra Energy Partners or any Subsidiary Guarantor is the
obligor on such Indebtedness, such Indebtedness must be expressly
subordinated to the prior payment in full in cash of all Obligations
with respect to the notes, in the case of GulfTerra Energy Partners, or
the Guarantee of such Subsidiary Guarantor, in the case of a Subsidiary
Guarantor, and
b. (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
GulfTerra Energy Partners or a Restricted Subsidiary thereof and (ii)
any sale or other transfer of any such Indebtedness to a Person that is
not either GulfTerra Energy Partners or a Restricted Subsidiary thereof,
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by GulfTerra Energy Partners or such Restricted Subsidiary,
as the case may be, that was not permitted by this clause (6);
(7) the incurrence by GulfTerra Energy Partners or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging foreign currency exchange rate risk of
GulfTerra Energy Partners or any Restricted Subsidiary or interest rate
risk with respect to any floating rate Indebtedness of GulfTerra Energy
Partners or any Restricted Subsidiary that is permitted by the terms of
this Indenture to be outstanding or commodities pricing risks of GulfTerra
Energy Partners or any Restricted Subsidiary in respect of hydrocarbon
production from properties in which GulfTerra Energy Partners or any of its
Restricted Subsidiaries owns an interest;
(8) the guarantee by GulfTerra Energy Partners or any of the
Restricted Subsidiaries of Indebtedness of GulfTerra Energy Partners or a
Restricted Subsidiary that was permitted to be incurred by another
provision of this covenant;
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(9) bid, performance, surety and appeal bonds in the ordinary course
of business, including guarantees and standby letters of credit supporting
such obligations, to the extent not drawn;
(10) the incurrence by GulfTerra Energy Partners or any of its
Restricted Subsidiaries of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (10), not to exceed $20.0 million;
(11) the incurrence by GulfTerra Energy Partners' Unrestricted
Subsidiaries of Non-Recourse Debt; provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of GulfTerra Energy Partners that was not permitted
by this clause (11);
(12) the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Equity, in the form of additional shares of the same class
of Disqualified Equity, provided, in each such case, that the amount
thereof is included in Fixed Charges of GulfTerra Energy Partners as so
accrued, accredited or amortized; and
(13) Indebtedness incurred by GulfTerra Energy Partners or any of its
Restricted Subsidiaries arising from agreements or their respective bylaws
providing for indemnification, adjustment of purchase price or similar
obligations.
For purposes of determining compliance with this "-- Incurrence of
indebtedness and issuance of disqualified equity" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (13) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
GulfTerra Energy Partners will be permitted to classify such item of
Indebtedness in any manner that complies with this covenant. An item of
Indebtedness may be divided and classified in one or more of the types of
Permitted Indebtedness.
LIMITATION ON LAYERING
The Issuers will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of either Issuer and senior in any respect in right
of payment to the notes. No Subsidiary Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of such Subsidiary
Guarantor and senior in any respect in right of payment to such Subsidiary
Guarantor's Guarantee.
LIENS
GulfTerra Energy Partners will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or
trade payables on any asset now owned or hereafter acquired, except Permitted
Liens, without making effective provision whereby all Obligations due under the
notes and Indenture or any Guarantee, as applicable, will be secured by a Lien
equally and ratably with any and all Obligations thereby secured for so long as
any such Obligations shall be so secured.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
GulfTerra Energy Partners will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or permit to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Equity
Interests to GulfTerra Energy Partners or any of GulfTerra Energy Partners'
Restricted Subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any indebtedness owed
to GulfTerra Energy Partners or any of the other Restricted Subsidiaries;
39
(2) make loans or advances to or make other investments in GulfTerra
Energy Partners or any of the other Restricted Subsidiaries; or
(3) transfer any of its properties or assets to GulfTerra Energy
Partners or any of the other Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements as in effect on the Issue Date and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of any such agreements or any Existing
Indebtedness to which such agreement relates, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as
a whole, with respect to such distribution, dividend and other payment
restrictions and loan or investment restrictions than those contained in
such agreement, as in effect on the Issue Date;
(2) the Partnership Credit Facility and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive, taken as a whole, with respect to
such distribution, dividend and other payment restrictions and loan or
investment restrictions than those contained in such Credit Facility as in
effect on the Issue Date;
(3) the Indenture, the notes and the Guarantees;
(4) applicable law;
(5) any instrument governing Indebtedness or Equity Interests of a
Person acquired by GulfTerra Energy Partners or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than such Person, or the property or assets of such Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted
by the terms of the Indenture to be incurred;
(6) customary non-assignment provisions in licenses and leases entered
into in the ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that contains any one or more of the restrictions described in
clauses (1) through (3) of the preceding paragraph by such Restricted
Subsidiary pending its sale or other disposition, provided that such sale
or disposition is consummated, or such restrictions are canceled or
terminated or lapse, within 90 days;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness otherwise permitted to be issued
pursuant to the provisions of the covenant described above under the
caption "-- Liens" that limit the right of GulfTerra Energy Partners or any
of its Restricted Subsidiaries to dispose of the assets subject to such
Lien;
(11) any agreement or instrument relating to any property or assets
acquired after the Issue Date, so long as such encumbrance or restriction
relates only to the property or assets so acquired and is not and was not
created in anticipation of such acquisitions;
(12) any agreement or instrument relating to any Acquired Debt of any
Restricted Subsidiary at the date on which such Restricted Subsidiary was
acquired by GulfTerra Energy Partners or any Restricted
40
Subsidiary (other than Indebtedness incurred in anticipation of such
acquisition and provided such encumbrances or restrictions extend only to
property of such acquired Restricted Subsidiary);
(13) any agreement or instrument governing Indebtedness permitted to
be incurred under the Indenture, provided that the terms and conditions of
any such restrictions and encumbrances, taken as a whole, are not
materially more restrictive than those contained in the Indenture, taken as
a whole;
(14) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar
agreements, including clawback, "make-well" or "keep-well" agreements, to
maintain financial performance or results of operations of a joint venture
entered into in the ordinary course of business; and
(15) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Issuers may, directly or indirectly: (1) consolidate or
merge with or into another Person (whether or not such Issuer is the survivor);
or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) such Issuer is the surviving entity of such
transaction; or (b) the Person formed by or surviving any such
consolidation or merger (if other than such Issuer) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made is an entity organized or existing under the laws of the United
States, any state thereof or the District of Columbia, provided that
GulfTerra Finance may not consolidate or merge with or into any entity
other than a corporation satisfying such requirement for so long as
GulfTerra Energy Partners remains a partnership;
(2) the Person formed by or surviving any such consolidation or merger
(if other than such Issuer) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
expressly assumes all the obligations of such Issuer under the notes and
the Indenture pursuant to agreements reasonably satisfactory to the
Trustee;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) such Issuer or the Person formed by or surviving any such
consolidation or merger (if other than such Issuer):
a. will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of such
Issuer immediately preceding the transaction; and
b. will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "Incurrence of
Indebtedness and Issuance of Disqualified Equity;" provided, however,
that this clause (b) shall be suspended during any period in which we
and our Restricted Subsidiaries are not subject to the Suspended
Covenants; and
(5) such Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and, if a supplemental indenture is required, such supplemental
indenture comply with the Indenture and all conditions precedent therein
relating to such transaction have been satisfied.
41
Notwithstanding the foregoing paragraph, GulfTerra Energy Partners is
permitted to reorganize as any other form of entity in accordance with the
procedures established in the Indenture; provided that:
(1) the reorganization involves the conversion (by merger, sale,
contribution or exchange of assets or otherwise) of GulfTerra Energy
Partners into a form of entity other than a limited partnership formed
under Delaware law;
(2) the entity so formed by or resulting from such reorganization is
an entity organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
(3) the entity so formed by or resulting from such reorganization
assumes all the obligations of GulfTerra Energy Partners under the notes
and the Indenture pursuant to agreements reasonably satisfactory to the
Trustee;
(4) immediately after such reorganization no Default or Event of
Default exists; and
(5) such reorganization is not adverse to the holders of the notes
(for purposes of this clause (5) it is stipulated that such reorganization
shall not be considered adverse to the holders of the notes solely because
the successor or survivor of such reorganization (i) is subject to federal
or state income taxation as an entity or (ii) is considered to be an
"includible corporation" of an affiliated group of corporations within the
meaning of Section 1504(b)(i) of the Code or any similar state or local
law).
The "Merger, consolidation, or sale of assets" covenant described in the
first paragraph of this section will not apply to a merger or consolidation, or
any sale, assignment, transfer, lease, conveyance or other disposition of assets
between or among GulfTerra Energy Partners and any of its Restricted
Subsidiaries.
No Subsidiary Guarantor may consolidate with or merge with or into (whether
or not such Subsidiary Guarantor is the surviving Person) another Person,
whether or not affiliated with such Subsidiary Guarantor, but excluding
GulfTerra Energy Partners or another Subsidiary Guarantor, unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) assumes
all the obligations of such Subsidiary Guarantor pursuant to the Subsidiary
Guarantor's Guarantee of the notes and the Indenture pursuant to a supplemental
indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. Any Subsidiary Guarantor may be merged or
consolidated with or into any one or more Subsidiary Guarantors.
In the event of a sale or other disposition of all or substantially all of
the assets of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all or substantially all of the
Equity Interests of any Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the Equity Interests of such Subsidiary Guarantor) or
the Person acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Guarantee; provided that the
transaction complies with the provisions set forth under "Asset sales."
TRANSACTIONS WITH AFFILIATES
GulfTerra Energy Partners will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to GulfTerra Energy Partners or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by
GulfTerra Energy Partners or such Restricted Subsidiary with an unrelated
Person; and
(2) GulfTerra Energy Partners delivers to the Trustee:
a. with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million but less than or equal to $25.0 million, an Officers'
Certificate certifying that such Affiliate Transaction complies with
this covenant and that such
42
Affiliate Transaction has been approved (either pursuant to specific or
general resolutions) by the Board of Directors of the General Partner or
has been approved by an officer pursuant to a delegation (specific or
general) of authority from the Board of Directors of the General
Partner; and
b. with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$25.0 million, (A) a resolution of the Board of Directors of the General
Partner set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the General Partner
and (B) either (I) an opinion as to the fairness to GulfTerra Energy
Partners of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of
national standing recognized as an expert in rendering fairness opinions
on transactions such as those proposed, (II) with respect to assets
classified, in accordance with GAAP, as property, plant and equipment on
GulfTerra Energy Partners' or such Restricted Subsidiary's balance
sheet, a written appraisal from a nationally recognized appraiser
showing the assets have a fair market value not less than the
consideration to be paid (provided that if the fair market value
determined by such appraiser is a range of values or otherwise inexact,
the Board of Directors of the General Partner shall determine the exact
fair market value, provided that it shall be within the range so
determined by the appraiser), (III) in the case of gathering,
transportation, marketing, hedging, production handling, operating,
construction, storage, platform use, or other operational contracts, any
such contracts are entered into in the ordinary course of business on
terms substantially similar to those contained in similar contracts
entered into by GulfTerra Energy Partners or any Restricted Subsidiary
and third parties or, if none of GulfTerra Energy Partners or any
Restricted Subsidiary has entered into a similar contract with a third
party, that the terms are no less favorable than those available from
third parties on an arm's-length basis, as determined by the Board of
Directors of the General Partner or (IV) in the case of any transaction
between GulfTerra Energy Partners or any of its Restricted Subsidiaries
and any Affiliate thereof in which GulfTerra Energy Partners
beneficially owns 50 percent or less of the Voting Stock and one or more
Persons not Affiliated with GulfTerra Energy Partners beneficially own
(together) a percentage of Voting Stock at least equal to the interest
in Voting Stock of such Affiliate beneficially owned by GulfTerra Energy
Partners, a resolution of the Board of Directors of the General Partner
set forth in the Officers' Certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested members
of the Board of Directors of the General Partner. Even though a
particular Affiliate Transaction or series of Affiliate Transactions may
be covered by two or more of clauses (I) through (IV) above, the
compliance with any one of such applicable clauses shall be
satisfactory.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) transactions pursuant to the Management Agreement as in effect on
the date hereof,
(2) any employment, equity option or equity appreciation agreement or
plan entered into by GulfTerra Energy Partners or any of its Restricted
Subsidiaries in the ordinary course of business and, as applicable,
consistent with the past practice of GulfTerra Energy Partners or such
Restricted Subsidiary;
(3) transactions between or among GulfTerra Energy Partners and/or its
Restricted Subsidiaries;
(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Restricted payments;"
(5) transactions effected in accordance with the terms of agreements
as in effect on the Issue Date;
(6) customary compensation, indemnification and other benefits made
available to officers, directors or employees of GulfTerra Energy Partners
or a Restricted Subsidiary, including reimbursement or advancement of
out-of-pocket expenses and provisions of officers' and directors' liability
insurance; and
43
(7) loans to officers and employees made in the ordinary course of
business in an aggregate amount not to exceed $1.0 million at any one time
outstanding.
ADDITIONAL SUBSIDIARY GUARANTEES
If GulfTerra Energy Partners or any of its Restricted Subsidiaries acquires
or creates another Restricted Subsidiary after the Issue Date that guarantees
any Indebtedness of either of the Issuers, then that newly acquired or created
Restricted Subsidiary must become a Subsidiary Guarantor and execute a
supplemental indenture satisfactory to the Trustee and deliver an Opinion of
Counsel to the Trustee within 10 Business Days of the date on which it was
acquired or created. If a Restricted Subsidiary that is not then a Subsidiary
Guarantor guarantees Indebtedness of either of the Issuers or any other
Restricted Subsidiary, such Restricted Subsidiary shall execute and deliver a
Guarantee. GulfTerra Energy Partners will not permit any of its Restricted
Subsidiaries, directly or indirectly, to guarantee or pledge any assets to
secure the payment of any other Indebtedness of either Issuer unless such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the guarantee of the payment of the notes by such
Restricted Subsidiary, which guarantee shall be senior to or pari passu with
such Restricted Subsidiary's guarantee of or pledge to secure such other
Indebtedness, unless such other Indebtedness is Senior Debt, in which case the
guarantee of the notes may be subordinated to the guarantee of such Senior Debt
to the same extent as the notes are subordinated to such Senior Debt.
Notwithstanding the foregoing, any Guarantee of a Restricted Subsidiary that was
incurred pursuant to this paragraph shall provide by its terms that it shall be
automatically and unconditionally released upon the release or discharge of the
guarantee which resulted in the creation of such Restricted Subsidiary's
Subsidiary Guarantee, except a discharge or release by, or as a result of
payment under, such guarantee.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The General Partner may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default or Event
of Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, all outstanding Investments owned by GulfTerra Energy Partners and
its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be
an Investment made as of the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above under the caption "-- Restricted payments," for Permitted
Investments or for Permitted Business Investments, as applicable. All such
outstanding Investments will be valued at their fair market value at the time of
such designation. That designation will only be permitted if such Restricted
Payment, Permitted Investments or Permitted Business Investments would be
permitted at that time and such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. All Subsidiaries of an Unrestricted
Subsidiary shall be also Unrestricted Subsidiaries. The Board of Directors of
the General Partner may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if a Default or Event of Default is not continuing, the
redesignation would not cause a Default or Event of Default and provided that,
if at the time of such designation such Subsidiary is a Subsidiary Guarantor,
after giving effect to such designation, GulfTerra Energy Partners and its
remaining Restricted Subsidiaries could incur at least $1.00 of additional
Indebtedness under the limitation on indebtedness included in the first
paragraph under the caption "Incurrence of indebtedness and issuance of
disqualified equity" above. A Subsidiary may not be designated as an
Unrestricted Subsidiary unless at the time of such designation, (x) it has no
Indebtedness other than Non-Recourse Debt; (y) no portion of the Indebtedness or
any other obligation of such Subsidiary (whether contingent or otherwise and
whether pursuant to the terms of such Indebtedness or the terms governing the
organization and operation of such Subsidiary or by law) (A) is guaranteed by
GulfTerra Energy Partners or any other Restricted Subsidiary, except as such
Indebtedness is permitted by the covenants under "--Restricted payments" and
"-- Incurrence of indebtedness and issuance of disqualified equity" above, (B)
is recourse to or obligates GulfTerra Energy Partners or any Restricted
Subsidiary in any way (including any "claw-back," "keep-well" or "make-well"
agreements or other agreements, arrangements or understandings to maintain the
financial performance or results of operations of such Subsidiary, except as
such Indebtedness or Investment is permitted by the covenants captioned
"-- Incurrence of indebtedness and issuance of disqualified equity" and
"-- Restricted payments") or (C) subjects any property or assets of GulfTerra
44
Energy Partners or any Restricted Subsidiary, directly or indirectly,
contingently or otherwise, to the satisfaction thereof; and (z) no Equity
Interests of a Restricted Subsidiary are held by such Subsidiary, directly or
indirectly. Upon the designation of a Restricted Subsidiary that is a Subsidiary
Guarantor as an Unrestricted Subsidiary, the Guarantee of such entity shall be
released.
SALE AND LEASE-BACK TRANSACTIONS
GulfTerra Energy Partners will not, and will not permit any of its
Restricted Subsidiaries to, enter into any sale and lease-back transaction;
provided that GulfTerra Energy Partners or any Restricted Subsidiary that is a
Subsidiary Guarantor may enter into a sale and lease-back transaction if:
(1) GulfTerra Energy Partners or that Subsidiary Guarantor, as
applicable, could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and lease-back transaction under
the Fixed Charge Coverage Ratio test in the first paragraph of the covenant
described above under the caption "-- Incurrence of additional indebtedness
and issuance of disqualified equity," and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under the
caption "-- Liens;" provided, however, that clause (a) of this clause (1)
shall be suspended during any period in which we and our Restricted
Subsidiaries are not subject to the Suspended Covenants;
(2) the gross cash proceeds of that sale and lease-back transaction
are at least equal to the fair market value, as determined in good faith by
the Board of Directors of the General Partner, of the property that is the
subject of such sale and lease-back transaction; and
(3) the transfer of assets in that sale and lease-back transaction is
permitted by, and GulfTerra Energy Partners applies the proceeds of such
transaction in compliance with, the covenant described above under the
caption "-- Repurchase at the option of holders -- Asset sales."
BUSINESS ACTIVITIES
GulfTerra Energy Partners will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses.
PAYMENTS FOR CONSENT
GulfTerra Energy Partners will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the notes unless such consideration is offered to be paid
and is paid to all holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
Whether or not required by the SEC, so long as any notes are outstanding,
GulfTerra Energy Partners will file with the SEC (unless the SEC will not accept
such a filing) within the time periods specified in the SEC's rules and
regulations, and upon request, GulfTerra Energy Partners will furnish (without
exhibits) to the Trustee for delivery to the holders of the notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
GulfTerra Energy Partners were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by GulfTerra Energy Partners' certified
independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if GulfTerra Energy Partners were required to file such
reports.
If as of the end of any such quarterly or annual period GulfTerra Energy
Partners has designated any of its Subsidiaries as Unrestricted Subsidiaries,
then GulfTerra Energy Partners shall deliver (promptly after
45
such SEC filing referred to in the preceding paragraph) to the Trustee for
delivery to the holders of the notes quarterly and annual financial information
required by the preceding paragraph as revised to include a reasonably detailed
presentation, either on the face of the financial statements or in the footnotes
thereto, and in Management's Discussion and Analysis of Financial Condition and
Results of Operations, of the financial condition and results of operations of
GulfTerra Energy Partners and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
and the designated Joint Ventures of GulfTerra Energy Partners.
In addition, whether or not required by the SEC, GulfTerra Energy Partners
will make such information available to securities analysts, investors and
prospective investors upon request.
SUSPENDED COVENANTS
During any period when the notes have an Investment Grade Rating from both
Rating Agencies and no Default has occurred and is continuing under the
Indenture, we and our Restricted Subsidiaries will not be subject to the
provisions of the Indenture described above under the following headings under
the caption "-- Covenants":
- "-- Incurrence of indebtedness and issuance of disqualified equity,"
- "-- Restricted payments,"
- "-- Dividend and other payment restrictions affecting subsidiaries,"
- "-- Asset sales,"
- "-- Transactions with affiliates,"
- "-- Sale -- Leaseback transactions" (only to the extent set forth in that
covenant), and
- "-- Merger, consolidation or sale of assets" (only to the extent set
forth in that covenant)
(collectively, the "Suspended Covenants"); provided, however, that the
provisions of the Indenture described above under the caption "-- Change of
control," and described above under the following headings:
- "-- Liens,"
- "-- Additional subsidiary guarantees,"
- "-- Reports,"
- "-- Business activities,"
- "-- Payments for consent," and
- "-- Limitation on layering"
will not be so suspended; and provided further, that if we and our Restricted
Subsidiaries are not subject to the Suspended Covenants for any period of time
as a result of the preceding portion of this sentence and, subsequently, either
of the Rating Agencies withdraws its ratings or downgrades the ratings assigned
to the notes below the Investment Grade Ratings so that the notes do not have an
Investment Grade Rating from both Rating Agencies, or a Default (other than with
respect to the Suspended Covenants) occurs and is continuing, we and our
Restricted Subsidiaries will thereafter again be subject to the Suspended
Covenants, subject to the terms, conditions and obligations set forth in the
Indenture (each such date of reinstatement being the "Reinstatement Date").
Compliance with the Suspended Covenants with respect to Restricted Payments made
after the Reinstatement Date will be calculated in accordance with the terms of
the covenant described under "-- Restricted payments" as though such covenants
had been in effect during the entire period of time from which the notes are
issued. As a result, during any period in which we and our Restricted
Subsidiaries are not subject to the Suspended Covenants, the notes will be
entitled to substantially reduced covenant protection.
46
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes, whether or not prohibited by
the subordination provisions of the Indenture;
(2) default in payment when due of the principal of or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by GulfTerra Energy Partners or any of its Subsidiaries to
comply with the provisions described under the captions "-- Change of
control" or "-- Asset sales";
(4) failure by GulfTerra Energy Partners or any of its Restricted
Subsidiaries for 60 days after notice to comply with any of the other
agreements in the Indenture (provided that notice need not be given, and an
Event of Default shall occur, 60 days after any breach of the covenants
under "-- Covenants -- Restricted payments," "-- Covenants -- Incurrence of
indebtedness and issuance of disqualified equity" and "-- Merger,
consolidation or sale of assets");
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by an Issuer or any of GulfTerra Energy
Partners' Restricted Subsidiaries (or the payment of which is guaranteed by
GulfTerra Energy Partners or any of its Restricted Subsidiaries), whether
such Indebtedness or guarantee now exists or is created after the Issue
Date, if that default:
a. is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
b. results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $20.0 million or
more;
(6) failure by an Issuer or any of GulfTerra Energy Partners'
Restricted Subsidiaries to pay final judgments aggregating in excess of
$10.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days;
(7) except as permitted by the Indenture, any Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in force and effect or any Subsidiary Guarantor, or
any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to
GulfTerra Energy Partners or any of its Restricted Subsidiaries that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuers, all outstanding notes
will become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the holders of
at least 25 percent in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, so long as any Credit Facility shall be in full force and effect, if
an Event of Default pursuant to clause (5) above with regard to such Credit
Facility shall have occurred and be continuing, the notes shall not become due
and payable until the earlier to occur of (x) five business days following
delivery of written notice of such acceleration of the notes to the agent under
such Credit Facility and (y) the acceleration of any Indebtedness under such
Credit Facility.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may
47
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The holder of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest (or Liquidated Damages, if any) on, or the principal of, the notes.
The Issuers and the Subsidiary Guarantors are required to deliver to the
Trustee annually a statement regarding compliance with the Indenture. Upon any
officer of the General Partner or GulfTerra Finance becoming aware of any
Default or Event of Default, the Issuers are required to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, partner, employee,
incorporator, stockholder or member of the Issuers, the General Partner, or any
Subsidiary Guarantor, as such, shall have any liability for any obligations of
the Issuers or the Subsidiary Guarantors under the notes, the Indenture, the
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of the
Issuers' obligations discharged with respect to the outstanding notes and all
obligations of the Subsidiary Guarantors discharged with respect to their
Guarantees ("Legal Defeasance"), except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due (but not the Change of Control Payment or the
payment pursuant to an Asset Sale Offer);
(2) the Issuers' obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Issuers' obligations in connection therewith;
(4) the Legal Defeasance provisions of the Indenture; and
(5) the Issuers' rights of optional redemption.
In addition, GulfTerra Energy Partners may, at its option and at any time,
elect to have the obligations of the Issuers and the Guarantors released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuers must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding notes at the Stated Maturity
thereof or on the applicable redemption date, as the case may be, and
GulfTerra Energy Partners must specify whether the notes are being defeased
to maturity or to a particular redemption date;
48
(2) in the case of Legal Defeasance, GulfTerra Energy Partners shall
have delivered to the Trustee an Opinion of Counsel reasonably acceptable
to the Trustee confirming that (a) GulfTerra Energy Partners has received
from, or there has been published by, the Internal Revenue Service a ruling
or (b) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, GulfTerra Energy Partners
shall have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that the holders of the outstanding
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which shall be applied to such deposit); or (b)
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which GulfTerra
Energy Partners or any of its Restricted Subsidiaries is a party or by
which GulfTerra Energy Partners or any of its Restricted Subsidiaries is
bound;
(6) GulfTerra Energy Partners must have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(7) GulfTerra Energy Partners must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by GulfTerra Energy
Partners with the intent of preferring the holders of notes over the other
creditors of GulfTerra Energy Partners with the intent of defeating,
hindering, delaying or defrauding other creditors of GulfTerra Energy
Partners; and
(8) GulfTerra Energy Partners must deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Generally, the Issuers, the Subsidiary Guarantors and the Trustee may amend
or supplement the Indenture, the Guarantees and the notes with the consent of
the holders of at least a majority in principal amount of the notes then
outstanding. However, without the consent of each holder affected, an amendment
or waiver may not (with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter or waive the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described above
under the caption "-- Repurchase at the option of holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority
49
in aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the option of holders");
(8) except as otherwise permitted in the Indenture, release any
Subsidiary Guarantor from its obligations under its Guarantee or the
Indenture or change any Guarantee in any manner that would adversely affect
the rights of holders; or
(9) make any change in the preceding amendment and waiver provisions
(except to increase any percentage set forth therein).
In addition, any amendment to, or waiver of, the provisions of the
Indenture relating to subordination that adversely affects the rights of the
holders of the notes will require the consent of the holders of at least 75
percent in aggregate principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
the Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement
the Indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of an Issuer's or Subsidiary
Guarantor's obligations to holders of notes in the case of a merger or
consolidation or sale of all or substantially all of such Issuer's assets;
(4) to add or release Subsidiary Guarantors pursuant to the terms of
the Indenture;
(5) to make any change that would provide any additional rights or
benefits to the holders of notes or surrender any right or power conferred
upon the Issuers or the Subsidiary Guarantors by the Indenture that does
not adversely affect the rights under the Indenture of any holder of the
notes;
(6) to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act;
(7) to evidence or provide for the acceptance of appointment under the
Indenture of a successor Trustee;
(8) to add any additional Events of Default; or
(9) to secure the notes and/or the Guarantees.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of an Issuer or any Subsidiary Guarantor,
the Indenture limits its right to obtain payment of claims in certain cases, or
to realize on certain property received in aspect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent person the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of notes, unless such
50
holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to GulfTerra Energy
Partners at 4 Greenway Plaza, Houston, Texas, 77046, Attention: Investor
Relations.
BOOK-ENTRY, DELIVERY AND FORM
The Series A notes were offered and sold to QIBs in reliance on Rule 144A
("Rule 144A notes") and in offshore transactions in reliance on Regulation S
("Regulation S notes"). Notes resold to Institutional Accredited Investors (as
defined in the Indenture) may have been represented by one or more Global notes
in registered, global form without interest coupons (collectively, "IAI Global
notes").
Rule 144A notes initially were represented by one or more notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global notes"). Upon issuance, the Rule 144A Global notes were:
- deposited with the Trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and
- registered in the name of DTC or its nominee,
in each case for credit to an account of a direct or indirect participant as
described below. Initially, Regulation S notes were represented by one or more
Global notes in registered, global form without interest coupons (collectively,
the "Regulation S Global notes"). The Regulation S Global notes were deposited
with the Trustee, as a custodian for DTC, in New York, New York and registered
in the name of a nominee of DTC for credit to the accounts of Indirect
Participants participating in DTC through the Euroclear System ("Euroclear") and
Clearstream Banking, societe anonyme ("Clearstream"). During the 40-day period
commencing on the day after the later of the commencement of the offering of the
original notes and the original Issue Date (as defined) of the notes (the
"Distribution Compliance Period"), beneficial interests in the Regulation S
Global note may be held only through Euroclear or Clearstream, and, pursuant to
DTC's procedures, Indirect Participants that hold a beneficial interest in the
Regulation S Global note will not be able to transfer such interest to a person
that takes delivery thereof in the form of an interest in the Rule 144A Global
notes or the IAI Global notes. After the Distribution Compliance Period, (i)
beneficial interests in the Regulation S Global Notes may be transferred to a
person that takes delivery in the form of an interest in the Rule 144A Global
notes or the IAI Global notes and (ii) beneficial interests in the Rule 144A
Global notes or the IAI Global notes may be transferred to a person that takes
delivery in the form of an interest in the Regulation S Global notes, provided,
in each case, that the certification requirements described below are complied
with. See "-- Transfers of interests in one Global note for interests in another
Global note." All registered global notes are referred to herein collectively as
"Global notes."
Except as set forth below, the Series B notes issued in the exchange offer
will be represented by one or more registered notes in global form (referred to
herein as the "Exchange Global note") and the Series A notes, if any remain
outstanding after the exchange offer, will be represented by one or more
registered notes in global form, in each case without interest coupons
(collectively, the "Global notes"). The Exchange Global note will be deposited
with, or on behalf of, the DTC and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between DTC and the Trustee.
Beneficial interests in Series A notes, if any remain outstanding after the
exchange offer, will be subject to certain restrictions on transfer and will
bear a restrictive legend. In addition, transfer of beneficial interests in any
Global notes will be subject to the applicable rules and procedures of DTC and
its direct or Indirect Participants (including, if applicable, those of
Euroclear and Clearstream), which may change from time to time.
51
The Global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in limited
circumstances. Beneficial interests in the Global notes may be exchanged for
notes in certificated form in limited circumstances. See "-- Transfers of
interests in Global notes for Certificated notes."
Initially, the Trustee will act as Paying Agent and Registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised GulfTerra Energy Partners that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Direct Participants") and to facilitate the clearance and
settlement of transactions in those securities between Direct Participants
through electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and other
organizations, including Euroclear and Clearstream. Access to DTC's system is
also available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"Indirect Participants").
DTC has advised GulfTerra Energy Partners that, pursuant to DTC's
procedures, (i) upon deposit of the Global notes, DTC will credit the accounts
of the Direct Participants designated by the Initial Purchasers with portions of
the principal amount of the Global notes that have been allocated to them by the
Initial Purchasers, and (ii) DTC will maintain records of the ownership
interests of such Direct Participants in the Global notes and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, Indirect Participants or other owners of beneficial interests in
the Global notes. Direct Participants and Indirect Participants must maintain
their own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global notes.
Investors in the Rule 144A Global notes and the IAI Global notes may hold
their interests therein directly through DTC if they are Direct Participants in
DTC or indirectly through organizations that are Direct Participants in DTC.
Investors in the Regulation S Global notes may hold their interests therein
directly through Euroclear or Clearstream or indirectly through organizations
that are participants in Euroclear or Clearstream. After the expiration of the
Distribution Compliance Period (but not earlier), investors may hold interests
in the Regulation S Global notes through organizations other than Euroclear and
Clearstream that are Direct Participants in the DTC system. Morgan Guaranty
Trust Company of New York, Brussels office will act initially as depository for
Euroclear, and Citibank, N.A. will act initially as depository for Clearstream
(each a "Nominee" of Euroclear and Clearstream, respectively). Therefore, they
will each be recorded on DTC's records as the holders of all ownership interests
held by them on behalf of Euroclear and Clearstream, respectively. Euroclear and
Clearstream must maintain on their own records the ownership interests, and
transfers of ownership interests by and between, their own customers' securities
accounts. DTC will not maintain such records. All ownership interests in any
Global notes, including those of customers' securities accounts held through
Euroclear or Clearstream, may be subject to the procedures and requirements of
DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interest in a
Global note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For other restrictions
on the transferability of the notes see "-- Transfers of interests in Global
notes for Certificated notes."
EXCEPT AS DESCRIBED IN "-- TRANSFERS ON INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
52
DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Issuers, the Subsidiary Guarantors
and the Trustee will treat the persons in whose names the notes are registered
(including notes represented by Global notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on Global notes registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee as the registered
holder under the Indenture. Consequently, none of the Issuers, the Trustee nor
any agent of the Issuers or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global note or (ii) any other matter relating to the actions and practices
of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Issuers that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Issuers or the Subsidiary Guarantors. None of the Issuers, the
Subsidiary Guarantors or the Trustee will be liable for any delay by DTC or its
Direct Participants or Indirect Participants in identifying the beneficial
owners of the notes, and the Issuers and the Trustee may conclusively relay on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the notes for all purposes.
The Global notes will trade in DTC's Same-day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the notes through Euroclear or Clearstream) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the notes through Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in the notes
through Euroclear or Clearstream, on the other hand, will be effected by
Euroclear's or Clearstream's respective Nominee through DTC in accordance with
DTC's rules on behalf of Euroclear or Clearstream; however, delivery of
instructions relating to crossmarket transactions must be made directly to
Euroclear or Clearstream and within their established deadlines (Brussels time)
of such systems. Indirect Participants who hold interest in the notes through
Euroclear and Clearstream may not deliver instructions directly to Euroclear's
and Clearstream's Nominee. Euroclear and Clearstream will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or Clearstream's behalf
in the relevant Global note in DTC, and make or receive payment in accordance
with normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or Clearstream
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or Clearstream
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and Clearstream customers will not have
access to the cash amount credited to their accounts as a result of a sale of an
interest
53
in a Regulation S Global Note to a DTC Participant unit the European business
for Euroclear and Clearstream immediately following DTC's settlement date.
DTC has advised GulfTerra Energy Partners that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
Direct Participants to whose account interests in the Global notes are credited
and only in respect of such portion of the aggregate principal amount of the
notes to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global notes (without the direction of one or
more of its Direct Participants) for legend notes in certificated form, and to
distribute such certificated forms of notes to its Direct Participants. See
"-- Transfers of interests in Global notes for Certificated notes."
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Regulation S Global
notes, the Rule 144A Global notes and the IAI Global notes among Direct
Participants, including Euroclear and Clearstream, they are under no obligation
to perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Issuers, the Subsidiary Guarantors, the
Initial Purchasers or the Trustee shall have any responsibility for the
performance by DTC, Euroclear and Clearstream or their respective Direct and
Indirect Participants of their respective obligations under the rules and
procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that the Issuers
believe to be reliable, but the Issuers take no responsibility for the accuracy
thereof.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the Distribution Compliance Period, an Indirect
Participant who holds an interest in the Regulation S Global Note through
Euroclear or Clearstream will not be permitted to transfer its interest to a
U.S. Person who takes delivery in the form of an interest in Rule 144A Global
notes or the IAI Global notes. After the expiration of the Distribution
Compliance Period, an Indirect Participant who holds an interest in Regulation S
Global notes will be permitted to transfer its interest to a U.S. Person who
takes delivery in the form of an interest in Rule 144A Global notes or the IAI
Global notes only upon receipt by the Trustee of a written certification from
the transferor to the effect that such transfer is being made in accordance with
the applicable restrictions on transfer.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settler, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned by "accredited investors" within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts);
provided, however, that the term "U.S. Person" shall not include (A) a branch or
agency of a U.S. Person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(k)(2)(vi) of Regulation S under the Securities Act and any other
similar international organizations, and their agencies, affiliates and pension
plans.
54
Prior to the expiration of the Distribution Compliance Period, a Direct or
Indirect Participant who holds an interest in Rule 144A Global notes or IAI
Global notes will not be permitted to transfer its interests to any person that
takes delivery thereof in the form of an interest in Regulation S Global notes.
After the expiration of the Distribution Compliance Period, a Direct or Indirect
Participant who holds an interest in Rule 144A Global notes or IAI Global notes
may transfer its interests to a person who takes delivery in the form of an
interest in Regulation S Global notes only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made in accordance with Rule 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Regulation S
Global notes for a beneficial interest in Rule 144A Global notes will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. In connection with such
transfer, therefore, appropriate adjustments will be made to reflect a decrease
in the principal amount of the one Global note and a corresponding increase in
the principal amount of the other Global note, as applicable. Any beneficial
interest in the one Global note that is transferred to a person who takes
delivery in the form of the other Global note will, upon transfer, cease to be
an interest in such first Global note and become an interest in such other
Global note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global note for as long as it remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated notes") if (i) DTC (x)
notifies the Issuers that it is unwilling or unable to continue as depositary
for the Global notes and the Issuers thereupon fail to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Issuers, at their option, notify the Trustee in
writing that they elect to cause the issuance of Certificated notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the notes. In any such case, the Issuers will notify the Trustee
in writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related notes.
Beneficial interests in the Global notes held by any Direct or Indirect
Participant may be exchanged for Certificated notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any Global note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
None of the Issuers, the Subsidiary Guarantors or the Trustee will be
liable for any delay by the holder of any Global note or DTC in identifying the
beneficial owners of notes, and the Issuers and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the holder of
the Global note or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
Payments in respect of the notes represented by the Global notes (including
principal, premium, if any, interest and Liquidated Damages, if any) will be
made by wire transfer of immediately available same day funds to the accounts
specified by the holder of interests in such Global Note. With respect to
Certificated notes, the Issuers will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available same day funds to the accounts specified by the holders thereof or, if
no such account is specified, by mailing a check to each such holder's
registered address. The Issuers expect that secondary trading in the
Certificated notes will also be settled in immediately available funds.
55
DEFINITIONS
Set forth below are defined terms used in the Indenture. Reference is made
to the Indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such Person merging with
or becoming a Subsidiary of such specific Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10 percent or more
of the Voting Stock of a specified Person shall be deemed to be control by the
other Person; provided, further, that any third Person which also beneficially
owns 10 percent or more of the Voting Stock of a specified Person shall not be
deemed to be Affiliate of either the specified Person or the other Person merely
because of such common ownership in such specified Person. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings. Notwithstanding the foregoing, the term
"Affiliate" shall not include a Restricted Subsidiary of any specified Person.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of GulfTerra Energy
Partners or GulfTerra Energy Partners and its Restricted Subsidiaries taken
as a whole will be governed by the provisions of the Indenture described
above under the caption "-- Change of control," and/or the provisions
described above under the caption "-- Merger, consolidation or sale of
assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of GulfTerra Energy
Partners' Restricted Subsidiaries or the sale by GulfTerra Energy Partners
or any of its Restricted Subsidiaries of Equity Interests in any of its
Restricted Subsidiaries;
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $5.0 million; or
(b) results in net proceeds to GulfTerra Energy Partners and its Restricted
Subsidiaries of less than $5.0 million;
(2) a transfer of assets between or among GulfTerra Energy Partners
and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
GulfTerra Energy Partners or to another Restricted Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described
above under the caption "-- Restricted payments;" and
(5) a transaction of the type described in the last paragraph of the
covenant entitled "Asset sales."
56
"Attributable Debt" in respect of a sale and lease-back transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and lease-back transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Available Cash" has the meaning assigned to such term in the Partnership
Agreement, as in effect on the Issue Date.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Cash Equivalent" means:
(1) United States dollars or, in an amount up to the amount necessary
or appropriate to fund local operating expenses, other currencies;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than one year from the date
of acquisition;
(3) certificates of deposit, time deposits and Eurodollar deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding 365 days, demand and overnight
bank deposits and other similar types of investments routinely offered by
commercial banks, in each case, with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank Watch
Rating of "B" or better or any commercial bank of any other country that is
a member of the Organization for Economic Cooperation and Development
("OECD") and has total assets in excess of $500.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group and
in each case maturing within six months after the date of acquisition; and
(6) money market funds at least 95 percent of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through
(5) of this definition.
"Cash from Operations" shall have the meaning assigned to such term in the
Partnership Agreement, as in effect on the Issue Date.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, lease, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of GulfTerra Energy
Partners and its Restricted Subsidiaries taken as a whole to any "person"
(as such term is used in Section 13(d)(3) of the Exchange Act) other than
the El Paso Group;
(2) the adoption of a plan relating to the liquidation or dissolution
of GulfTerra Energy Partners or the General Partner; and
(3) such time as the El Paso Group ceases to own, directly or
indirectly, the general partner interests of GulfTerra Energy Partners, or
members of the El Paso Group cease to serve as the only general partners of
GulfTerra Energy Partners.
Notwithstanding the foregoing, a conversion of GulfTerra Energy Partners
from a limited partnership to a corporation, limited liability company or other
form of entity or an exchange of all of the outstanding limited
57
partnership interests for capital stock in a corporation, for member interests
in a limited liability company or for Equity Interests in such other form of
entity shall not constitute a Change of Control, so long as following such
conversion or exchange the El Paso Group beneficially owns, directly or
indirectly, in the aggregate more than 50 percent of the Voting Stock of such
entity, or continues to own a sufficient number of the outstanding shares of
Voting Stock of such entity to elect a majority of its directors, managers,
trustees or other persons serving in a similar capacity for such entity.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to the dividends or distributions paid during such
period in cash or Cash Equivalents to such Person or any of its Restricted
Subsidiaries by a Person that is not a Restricted Subsidiary of such
Person; plus
(2) an amount equal to any extraordinary loss of such Person and its
Restricted Subsidiaries plus any net loss realized by such Person and its
Restricted Subsidiaries in connection with an Asset Sale, to the extent
such losses were deducted in computing such Consolidated Net Income; plus
(3) the provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(4) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with aspect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments, if any, pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net
Income, excluding any such expenses to the extent incurred by a Person that
is not a Restricted Subsidiary of the Person for which the calculation is
being made; plus
(5) depreciation, depletion and amortization (including amortization
of goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income (excluding any such
expenses to the extent incurred by a Person that is neither GulfTerra
Energy Partners, GulfTerra Finance, nor a Restricted Subsidiary;) minus
(6) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of GulfTerra Energy Partners shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of GulfTerra Energy
Partners only to the extent that a corresponding amount would be permitted at
the date of determination to be dividended or distributed to GulfTerra Energy
Partners by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
58
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the aggregate Net Income (but not net loss in excess of such
aggregate Net Income) of all Persons that are Unrestricted Subsidiaries
shall be excluded (without duplication);
(2) the earnings included therein attributable to all entities that
are accounted for by the equity method of accounting and the aggregate Net
Income (but not net loss in excess of such aggregate Net Income) included
therein attributable to all entities constituting Joint Ventures that are
accounted for on a consolidated basis (rather than by the equity method of
accounting) shall be excluded;
(3) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement (other than the Indenture or its
Guarantee), instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(4) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(5) the cumulative effect of a change in accounting principles shall
be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders or members (or
consolidated partners' capital in the case of a partnership) of such Person
and its consolidated Subsidiaries as of such date as determined in
accordance with GAAP; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Equity) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock.
"Credit Facilities" means, with respect to GulfTerra Energy Partners,
GulfTerra Finance or any Restricted Subsidiary, one or more debt facilities or
commercial paper facilities, including the Partnership Credit Facility,
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means any Indebtedness under the Partnership
Credit Facility and any Senior Debt permitted under the Indenture the principal
amount of which is $25.0 million or more and that has been designated by
GulfTerra Energy Partners as "Designated Senior Debt."
"Disqualified Equity" means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date on which the notes mature.
Notwithstanding the preceding sentence, any Equity Interest that would
constitute Disqualified Equity solely because the holders thereof have the right
to require GulfTerra Energy Partners or a Restricted Subsidiary to repurchase
such Equity Interests upon the occurrence of a change of control or an asset
sale shall not constitute Disqualified Equity if the terms of such Equity
Interests provide that GulfTerra Energy Partners or Restricted Subsidiary may
not repurchase or redeem any such Equity Interests pursuant to
59
such provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Covenants -- Restricted payments."
"El Paso" means El Paso Corporation, a Delaware corporation, and its
successors.
"El Paso Group" means, collectively, (1) El Paso, (2) each Person of which
El Paso is a direct or indirect Subsidiary and (3) each Person which is a direct
or indirect Subsidiary of any Person described in (1) or (2) above.
"Equity Interests" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, and any rights (other than debt securities
convertible into capital stock) warrants or options exchangeable for or
convertible into such capital stock; and
(5) all warrants, options or other rights to acquire any of the
interests described in clauses (1) -- (4) above (but excluding any debt
security that is convertible into, or exchangeable for, any of the
interests described in clauses (1) -- (4) above).
"Equity Offering" means any sale for cash of Equity Interests of GulfTerra
Energy Partners (excluding sales made to any Restricted Subsidiary and excluding
sales of Disqualified Equity).
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of GulfTerra Energy Partners and its Restricted Subsidiaries in
existence on the Issue Date.
"Fixed Charges" means, with respect to any Person for any period, without
duplication,
(A) the sum of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries (excluding for purposes of this clause (1)
consolidated interest expense included therein that is attributable to
Indebtedness of a Person that is not a Restricted Subsidiary of the
Person for which the calculation is being made) for such period, whether
paid or accrued, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts, and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net payments, if any,
pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period (excluding for
purposes of this clause (2) any such consolidated interest included
therein that is attributable to Indebtedness of a Person that is not a
Restricted Subsidiary); plus
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such guarantee or Lien is called upon,
provided that this clause (3) excludes interest on "claw-back,"
"make-well" or "keep-well" payments made by GulfTerra Energy Partners or
any Restricted Subsidiary; plus
(4) the product of (a) all dividend payments, whether or not in
cash, on any series of Disqualified Equity of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of GulfTerra Energy
Partners (other
60
than Disqualified Equity) or to GulfTerra Energy Partners or a
Restricted Subsidiary of GulfTerra Energy Partners, times (b) a
fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP; less
(B) to the extent included in (A) above, amortization or write-off of
deferred financing costs of such Person and its Restricted Subsidiaries
during such period and any charge related to, or any premium or penalty
paid in connection with, incurring any such Indebtedness of such Person and
its Restricted Subsidiaries prior to its Stated Maturity.
In the case of both (A) and (B), such amounts will be determined after
elimination of intercompany accounts among such Person and its Restricted
Subsidiaries and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, guarantees, repays or redeems any Indebtedness
(other than revolving credit borrowings not constituting a permanent commitment
reduction) or issues or redeems Disqualified Equity subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence (and the application of the net proceeds thereof), assumption,
guarantee, repayment or redemption of Indebtedness, or such issuance or
redemption of Disqualified Equity, as if the same had occurred at the beginning
of the applicable four-quarter reference period (and if such Indebtedness is
incurred to finance the acquisition of assets (including, without limitation, a
single asset, a division or segment or an entire company) that were conducting
commercial operations prior to such acquisition, there shall be included pro
forma net income for such assets, as if such assets had been acquired on the
first day of such period).
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (4) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date;
(4) interest on outstanding Indebtedness of the specified Person or
any of its Restricted Subsidiaries as of the last day of the four-quarter
reference period shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on such last
day after giving effect to any Hedging Obligation then in effect; and
(5) if interest on any Indebtedness incurred by the specified Person
or any of its Restricted Subsidiaries on such date may optionally be
determined at an interest rate based upon a factor of a prime or similar
rate, a eurocurrency interbank offered rate or other rates, then the
interest rate in effect on the last day of the four-quarter reference
period will be deemed to have been in effect during such period.
61
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets, or through letters of credit or reimbursement, "claw-back," "make-well,"
or "keep-well" agreements in respect thereof, of all or any part of any
Indebtedness.
"Guarantor Senior Debt" of a Subsidiary Guarantor means all Obligations
with respect to any Indebtedness of such Subsidiary Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be on a parity with or subordinated in
right of payment to such Subsidiary Guarantor's Guarantee. Without limiting the
generality of the foregoing, (x) "Guarantor Senior Debt" shall include the
principal of, premium, if any, and interest on all Obligations of every nature
of such Subsidiary Guarantor from time to time owed to the lenders under the
Partnership Credit Facility, including, without limitation, principal of and
interest on, and all fees, indemnities and expenses payable by such Subsidiary
Guarantor under, the Partnership Credit Facility, and (y) in the case of amounts
owing by such Subsidiary Guarantor under the Partnership Credit Facility and
guarantees of Designated Senior Indebtedness, "Guarantor Senior Debt" shall
include interest accruing thereon subsequent to the occurrence of any bankruptcy
Event of Default specified in the Indenture relating to such Subsidiary
Guarantor, whether or not the claim for such interest is allowed under any
applicable Bankruptcy Law. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the notes or the
Guarantees, (ii) Indebtedness that is expressly subordinate or junior in right
of payment to any other Indebtedness of such Subsidiary Guarantor, (iii) any
liability for federal, state, local or other taxes owed or owing by such
Subsidiary Guarantor, (vi) Indebtedness of such Subsidiary Guarantor to
GulfTerra Energy Partners or a Subsidiary of GulfTerra Energy Partners or any
other Affiliate of GulfTerra Energy Partners, (vii) any trade payables of such
Subsidiary Guarantor, and (viii) any Indebtedness which is incurred by such
Subsidiary Guarantor in violation of the Indenture.
"Hedging Obligations" means, with respect to any Person, the net
obligations (not the notional amount) of such Person under interest rate and
commodity price swap agreements, interest rate and commodity price cap
agreements, interest rate and commodity price collar agreements and foreign
currency and commodity price exchange agreements, options or futures contract or
other similar agreements or arrangements or hydrocarbon hedge contracts or
hydrocarbon forward sale contracts, in each case designed to protect such Person
against fluctuations in interest rates, of foreign exchange rates, or commodity
prices.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof), other
than standby letters of credit and performance bonds issued by such Person
in the ordinary course of business, to the extent not drawn;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) all Attributable Debt of such Person in respect of any sale and
lease-back transactions not involving a Capital Lease Obligation;
(6) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable incurred in the ordinary course of business;
62
(7) representing Disqualified Equity; or
(8) representing any Hedging Obligations other than to (in the
ordinary course of business and consistent with prior practice) hedge risk
exposure in the operations, ownership of assets or the management of
liabilities of such Person and its Restricted Subsidiaries;
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person, provided that a
guarantee otherwise permitted by the Indenture to be incurred by GulfTerra
Energy Partners or any of its Restricted Subsidiaries of Indebtedness incurred
by GulfTerra Energy Partners or a Restricted Subsidiary in compliance with the
terms of the Indenture shall not constitute a separate incurrence of
Indebtedness.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
For purposes of clause (7) of the preceding paragraph, Disqualified Equity
shall be valued at the maximum fixed redemption, repayment or repurchase price,
which shall be calculated in accordance with the terms of such Disqualified
Equity as if such Disqualified Equity were repurchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture;
provided, however, that if such Disqualified Equity is not then permitted by its
terms to be redeemed, repaid or repurchased, the redemption, repayment or
repurchase price shall be the book value of such Disqualified Equity. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability of any guarantees at such date; provided that for purposes of
calculating the amount of any non-interest bearing or other discount security,
such Indebtedness shall be deemed to be the principal amount thereof that would
be shown on the balance sheet of the issuer thereof dated such date prepared in
accordance with GAAP, but that such security shall be deemed to have been
incurred only on the date of the original issuance thereof. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's or BBB- (or the equivalent) by Standard & Poor's.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of the lender and
commission, moving, travel and similar advances to officers and employees made
in the ordinary course of business) or capital contributions, purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and the covenant described under the "Limitation on Restricted
Payments" covenant (i) the term "Investment" shall include the portion
(proportionate to GulfTerra Energy Partners' Equity Interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of GulfTerra Energy
Partners or any of its Restricted Subsidiaries at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, GulfTerra Energy
Partners or such Restricted Subsidiary shall be deemed to continue to have a
permanent "Investment" in such Subsidiary at the time immediately before the
effectiveness of such redesignation less the portion (proportionate to
63
GulfTerra Energy Partners' or such Restricted Subsidiary's Equity Interest in
such Subsidiary) of the fair market value of the net assets of such Subsidiary
at the time of such redesignation, and (ii) any property transferred to or from
an Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by the Board of
Directors of the General Partner. If GulfTerra Energy Partners or any Restricted
Subsidiary of GulfTerra Energy Partners sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of GulfTerra
Energy Partners such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of GulfTerra Energy Partners,
GulfTerra Energy Partners shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Restricted payments."
"Issue Date" means March 24, 2003, the date of the first issuance of notes
under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien (statutory or
otherwise), pledge, charge, security interest, hypothecation, assignment for
security, claim, preference, priority or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title retention
agreement or any lease in the nature thereof, any option or other agreement to
grant a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statute) of
any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Income" means, with respect to any Person, the consolidated net income
(loss) of such Person and its Restricted Subsidiaries, determined in accordance
with GAAP and before any reduction in respect of preferred stock dividends,
excluding, however:
(1) the aggregate gain (but not loss in excess of such aggregate
gain), together with any related provision for taxes on such gain, realized
in connection with:
a. any Asset Sale; or
b. the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) the aggregate extraordinary gain (but not loss in excess of such
aggregate extraordinary gain), together with any related provision for
taxes on such aggregate extraordinary gain (but not loss in excess of such
aggregate extraordinary gain).
"Net Proceeds" means, with respect to any Asset Sale or sale of Equity
Interests, the aggregate proceeds received by GulfTerra Energy Partners or any
of its Restricted Subsidiaries in cash or Cash Equivalents in respect of any
Asset Sale or sale of Equity Interests (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any such sale), net of, without duplication, (i) the direct costs
relating to such Asset Sale or sale of Equity Interests, including, without
limitation, brokerage commissions and legal, accounting and investment banking
fees, sales commissions, recording fees, title transfer fees, and any relocation
expenses incurred as a result thereof, (ii) taxes paid or payable as a result
thereof, in each case after taking into account any available tax credits or
deductions and any tax sharing arrangements and amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or Equity
Interests that were the subject of such Asset Sale or sale of Equity Interests,
(iii) all distributions and payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Sale and (iv) any
amounts to be set aside in any reserve established in accordance with GAAP or
any amount placed in escrow, in either case for adjustment in respect of the
sale price of such asset or assets or for liabilities associated with such Asset
Sale or sale of Equity Interests and retained by GulfTerra Energy Partners or
any of its Restricted Subsidiaries until such time as such reserve is reversed
or such escrow arrangement is terminated, in which case Net Proceeds shall
include only the amount of the reserve so
64
reversed or the amount returned to GulfTerra Energy Partners or its Restricted
Subsidiaries from such escrow arrangement, as the case may be.
"Non-Recourse Debt" means Indebtedness as to which:
(1) neither GulfTerra Energy Partners nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender of such Indebtedness;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of GulfTerra Energy Partners
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) the lenders have been notified in writing that they will not have
any recourse to the stock or assets of GulfTerra Energy Partners or any of
its Restricted Subsidiaries;
provided that in no event shall Indebtedness of any Person which is not a
Restricted Subsidiary fail to be Non-Recourse Debt solely as a result of any
default provisions contained in a guarantee thereof by GulfTerra Energy Partners
or any of its Restricted Subsidiaries, provided that GulfTerra Energy Partners
or such Restricted Subsidiary was otherwise permitted to incur such guarantee
pursuant to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Partnership Agreement" means the Second Amended and Restated Agreement of
Limited Partnership of GulfTerra Energy Partners, L.P., amended and restated
effective as of August 31, 2000, as such may be amended, modified or
supplemented from time to time.
"Partnership Credit Facility" means (1) the Sixth Amended and Restated
Credit Agreement among GulfTerra Energy Partners, GulfTerra Finance, the lenders
from time to time party thereto and JPMorgan Chase Bank, as administrative
agent, including any deferrals, renewals, extensions, replacements, refinancings
or refundings thereof, and any amendments, modifications or supplements thereto
and any agreement providing therefor (including any restatement thereof and any
increases in the amount of commitments thereunder), whether by or with the same
or any other lenders, creditors, group of lenders or group of creditors and
including related notes, guarantees, collateral security documents and other
instruments and agreements executed in connection therewith and (2) the Amended
and Restated Credit Agreement among GulfTerra Holding V, L.P., the lenders from
time to time party thereto and JPMorgan Chase Bank, as administrative agent,
including any deferrals, renewals, extensions, replacements, refinancings or
refundings thereof, and any amendments, modifications or supplements thereto and
any agreement providing therefor (including any restatement thereof and any
increases in the amount of commitments thereunder), whether by or with the same
or any other lenders, creditors, group of lenders or group of creditors and
including related notes, guarantees, collateral security documents and other
instruments and agreements executed in connection therewith.
"Permitted Business" means (1) gathering, transporting (by barge, pipeline,
ship, truck or other modes of hydrocarbon transportation), terminalling,
storing, producing, acquiring, developing, exploring for, processing,
dehydrating and otherwise handling hydrocarbons, including, without limitation,
constructing pipeline, platform, dehydration, processing and other
energy-related facilities, and activities or services reasonably related or
ancillary thereto, (2) any business that generates gross income that constitutes
"qualifying income" under Section 7704(d) of the Internal Revenue Code of 1986,
as amended, other than any business that generates any gross income arising from
the refining of a natural resource, and (3) any other business that does not
constitute a reportable segment (as determined in accordance with GAAP) for
GulfTerra Energy Partners' annual audited consolidated financial statements.
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"Permitted Business Investments" means Investments by GulfTerra Energy
Partners or any of its Restricted Subsidiaries in any Unrestricted Subsidiary of
GulfTerra Energy Partners or in any Person that does not constitute a direct or
indirect Subsidiary of GulfTerra Energy Partners (a "Joint Venture"), provided
that:
(1) either (a) at the time of such Investment and immediately
thereafter, GulfTerra Energy Partners could incur $1.00 of additional
Indebtedness under the first paragraph in the limitation of indebtedness
set forth under the caption "-- Incurrence of indebtedness and issuance of
disqualified equity" above or (b) such Investment is made with the proceeds
of Incremental Funds (as defined in the covenant described under
"-- Covenants -- Restricted payments");
(2) if such Unrestricted Subsidiary or Joint Venture has outstanding
Indebtedness at the time of such Investment, either (a) all such
Indebtedness is non-recourse to GulfTerra Energy Partners and its
Restricted Subsidiaries or (b) any such Indebtedness of such Unrestricted
Subsidiary or Joint Venture that is recourse to GulfTerra Energy Partners
or any of its Restricted Subsidiaries (which shall include all Indebtedness
of such Unrestricted Subsidiary or Joint Venture for which GulfTerra Energy
Partners or any of its Restricted Subsidiaries may be directly or
indirectly, contingently or otherwise, obligated to pay, whether pursuant
to the terms of such Indebtedness, by law or pursuant to any guaranty or
"claw-back," "make-well" or "keep-well" arrangement) could, at the time
such Investment is made and, if later, at the time any such Indebtedness is
incurred, be incurred by GulfTerra Energy Partners and its Restricted
Subsidiaries in accordance with the limitation on indebtedness set forth in
the first paragraph under the caption "-- Incurrence of indebtedness and
issuance of disqualified equity" above; and
(3) such Unrestricted Subsidiary's or Joint Venture's activities are
not outside the scope of the Permitted Business.
The term "Joint Venture" shall include Atlantis Offshore, L.L.C., Copper
Eagle Gas Storage, L.L.C., Coyote Gas Treating, LLC, Deepwater Gateway, L.L.C.,
Poseidon Oil Pipeline Company, L.L.C., and Cameron Highway Oil Pipeline Company
and none of Atlantis Offshore, Copper Eagle Gas Storage, Coyote Gas Treating,
Deepwater Gateway, and Poseidon Oil Pipeline Company shall constitute a
Restricted Subsidiary for purposes of the Indenture (even if such Person is then
a Subsidiary of GulfTerra Energy Partners), until such time as the Board of
Directors of the General Partner designates, in a manner consistent with the
designation of an Unrestricted Subsidiary as a Restricted Subsidiary or a
Restricted Subsidiary as an Unrestricted Subsidiary, each as described under
"Covenants -- Designation of restricted and unrestricted subsidiaries," Atlantis
Offshore, Copper Eagle Gas Storage, Coyote Gas Treating, Deepwater Gateway, or
Poseidon Oil Pipeline Company, including one or more of its Subsidiaries, as the
case may be, as a Restricted Subsidiary or an Unrestricted Subsidiary.
"Permitted Investments" means:
(1) any Investment in, or that results in the creation of, any
Restricted Subsidiary of GulfTerra Energy Partners;
(2) any Investment in GulfTerra Energy Partners or in a Restricted
Subsidiary of GulfTerra Energy Partners (excluding redemptions, purchases,
acquisitions or other retirements of Equity Interests in GulfTerra Energy
Partners) at any one time outstanding;
(3) any Investment in cash or Cash Equivalents;
(4) any Investment by GulfTerra Energy Partners or any Restricted
Subsidiary of GulfTerra Energy Partners in a Person if as a result of such
Investment:
a. such Person becomes a Restricted Subsidiary of GulfTerra Energy
Partners; or
b. such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, GulfTerra Energy Partners or a Restricted Subsidiary of
GulfTerra Energy Partners;
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(5) any Investment made as a result of the receipt of consideration
consisting of other than cash or Cash Equivalents from an Asset Sale that
was made pursuant to and in compliance with the covenant described above
under the caption "-- Repurchase at the option of holders -- Asset sales;"
(6) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Equity) of GulfTerra Energy
Partners;
(7) payroll advances in the ordinary course of business and other
advances and loans to officers and employees of GulfTerra Energy Partners
or any of its Restricted Subsidiaries, so long as the aggregate principal
amount of such advances and loans does not exceed $1.0 million at any one
time outstanding;
(8) Investments in stock, obligations or securities received in
settlement of debts owing to GulfTerra Energy Partners or any of its
Restricted Subsidiaries as a result of bankruptcy or insolvency proceedings
or upon the foreclosure, perfection or enforcement of any Lien in favor of
GulfTerra Energy Partners or any such Restricted Subsidiary, in each case
as to debt owing to GulfTerra Energy Partners or any of its Restricted
Subsidiary that arose in the ordinary course of business of GulfTerra
Energy Partners or any such Restricted Subsidiary;
(9) any Investment in Hedging Obligations;
(10) any Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility, workers' compensation and performance
and other similar deposits and prepaid expenses made in the ordinary course
of business;
(11) any Investments required to be made pursuant to any agreement or
obligation of GulfTerra Energy Partners or any Restricted Subsidiary of
GulfTerra Energy Partners in effect on the Issue Date and listed on a
schedule to the Indenture; and
(12) other Investments in any Person engaged in a Permitted Business
(other than an Investment in an Unrestricted Subsidiary) having an
aggregate fair market value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (12) since
the Issue Date and existing at the time the Investment, which is the
subject of the determination, was made, not to exceed $5.0 million.
"Permitted Junior Securities" means: (1) nonmandatorily redeemable Equity
Interests in GulfTerra Energy Partners or any Subsidiary Guarantor, as
reorganized or readjusted; or (2) debt securities of GulfTerra Energy Partners
or any Subsidiary Guarantor as reorganized or readjusted that are subordinated
to all Senior Debt and Guarantor Senior Debt and any debt securities issued in
exchange for Senior Debt and Guarantor Senior Debt to substantially the same
extent as, or to a greater extent than, the notes and the Guarantees are
subordinated to Senior Debt and Guarantor Senior Debt pursuant to the Indenture,
provided that the rights of the holders of Senior Debt and Guarantor Senior Debt
under the Partnership Credit Facility are not altered or impaired by such
reorganization or readjustment.
"Permitted Liens" means:
(1) Liens on the assets of GulfTerra Energy Partners and any
Subsidiary securing Senior Debt and Guarantor Senior Debt;
(2) easements, rights-of-way, restrictions, minor defects and
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of GulfTerra Energy
Partners or its Restricted Subsidiaries;
(3) Liens securing reimbursement obligations of GulfTerra Energy
Partners or a Restricted Subsidiary with respect to letters of credit
encumbering only documents and other property relating to such letters of
credit and the products and proceeds thereof;
(4) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of GulfTerra
Energy Partners and its Restricted Subsidiaries;
(5) Liens in favor of GulfTerra Energy Partners or any of the
Restricted Subsidiaries;
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(6) any interest or title of a lessor in the property subject to a
Capital Lease Obligation;
(7) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with GulfTerra Energy Partners or any
Restricted Subsidiary of GulfTerra Energy Partners, provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with GulfTerra Energy Partners or such
Restricted Subsidiary;
(8) Liens on property existing at the time of acquisition thereof by
GulfTerra Energy Partners or any Restricted Subsidiary of GulfTerra Energy
Partners, provided that such Liens were in existence prior to the
contemplation of such acquisition and relate solely to such property,
accessions thereto and the proceeds thereof;
(9) Liens to secure the performance of tenders, bids, leases,
statutory obligations, surety or appeal bonds, government contracts,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business;
(10) Liens on any property or asset acquired, constructed or improved
by GulfTerra Energy Partners or any Restricted Subsidiary (a "Purchase
Money Lien"), which (A) are in favor of the seller of such property or
assets, in favor of the Person constructing or improving such asset or
property, or in favor of the Person that provided the funding for the
acquisition, construction or improvement of such asset or property, (B) are
created within 360 days after the date of acquisition, construction or
improvement, (C) secure the purchase price or construction or improvement
cost, as the case may be, of such asset or property in an amount up to 100
percent of the fair market value (as determined by the Board of Directors
of the General Partner) of such acquisition, construction or improvement of
such asset or property, and (D) are limited to the asset or property so
acquired, constructed or improved (including proceeds thereof, accessions
thereto and upgrades thereof);
(11) Liens to secure performance of Hedging Obligations of GulfTerra
Energy Partners or a Restricted Subsidiary;
(12) Liens existing on the Issue Date and Liens on any extensions,
refinancing, renewal, replacement or defeasance of any Indebtedness or
other obligation secured thereby;
(13) Liens on and pledges of the Equity Interests of any Unrestricted
Subsidiary or any Joint Venture owned by GulfTerra Energy Partners or any
Restricted Subsidiary to the extent securing Non-Recourse Debt or
Indebtedness (other than Permitted Debt) otherwise permitted by the first
paragraph under "-- Incurrence of indebtedness and issuance of disqualified
equity;"
(14) statutory Liens of landlords and warehousemen, carriers,
mechanics, suppliers, materialmen, repairmen, or other like Liens
(including contractual landlord's liens) arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(15) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other similar types of social security, old age pension or public
liability obligations;
(16) Liens on pipelines or pipeline facilities that arise by operation
of law;
(17) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farmout agreements,
division orders, contracts for sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of
mutual interest agreements and other agreements arising in the ordinary
course of GulfTerra Energy Partners' or any Restricted Subsidiary's
business that are customary in the Permitted Business;
(18) judgment and attachment Liens not giving rise to a Default or
Event of Default;
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(19) Liens securing the Obligations of the Issuers under the notes and
the indenture and of the Subsidiary Guarantors under the Guarantees;
(20) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(21) Liens arising from protective filings made in the appropriate
office(s) for the filing of a financing statement in the applicable
jurisdiction(s) in connection with any lease, consignment or similar
transaction otherwise permitted hereby, which filings are made for the
purpose of perfecting the interest of the secured party in the relevant
items, if the transaction were subsequently classified as a sale and
secured lending arrangement;
(22) Liens arising out of consignment or similar arrangements for sale
of goods;
(23) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(24) Liens securing any Indebtedness which includes a covenant that
limits liens in a manner substantially similar to the covenant entitled
"Liens;"
(25) Liens incurred in the ordinary course of business of GulfTerra
Energy Partners or any Restricted Subsidiary of GulfTerra Energy Partners
with respect to obligations that do not exceed $10.0 million at any one
time outstanding; and
(26) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of GulfTerra Energy Partners or any of its Restricted
Subsidiaries on deposit with or in possession of such bank.
"Permitted Refinancing Indebtedness" means any Indebtedness of GulfTerra
Energy Partners or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of GulfTerra Energy Partners or any of its
Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of necessary fees and expenses incurred in
connection therewith and any premiums paid on the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded);
(2) such Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes or
the Guarantees, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the notes or the Guarantees, as the case may be, on
terms at least as favorable to the holders of notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by GulfTerra Energy Partners
or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
69
"Rating Agency" means each of Standard & Poor's and Moody's, or if Standard
& Poor's or Moody's or both shall not make a rating on the notes publicly
available, a nationally recognized statistical rating agency or agencies, as the
case may be, selected by the Issuer (as certified by a resolution of the Board
of Directors) which shall be substituted for Standard & Poor's or Moody's, or
both, as the case may be.
"Restricted Investment" means an Investment other than a Permitted
Investment or a Permitted Business Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referenced
Person that is not an Unrestricted Subsidiary. Notwithstanding anything in the
Indenture to the contrary, GulfTerra Finance shall be designated as a Restricted
Subsidiary of GulfTerra Energy Partners.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all
Hedging Obligations with respect thereto;
(2) any other Indebtedness permitted to be incurred by GulfTerra
Energy Partners and the Restricted Subsidiaries under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the notes; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any Indebtedness that is expressly subordinate or junior in right
of payment to any Indebtedness of GulfTerra Energy Partners or any
Subsidiary Guarantor;
(2) Indebtedness evidenced by the notes or the Guarantees;
(3) any liability for federal, state, local or other taxes owed or
owing by GulfTerra Energy Partners or any Restricted Subsidiary of
GulfTerra Energy Partners;
(4) any Indebtedness of GulfTerra Energy Partners or any of its
Subsidiaries to any of its Subsidiaries or other Affiliates;
(5) any trade payables; or
(6) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act and the Exchange Act, as such Regulation is in
effect on the date hereof.
"Standard & Poor's" means Standard & Poor's Ratings Group, Inc., or any
successor to the rating agency business thereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50 percent of the Voting Stock is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (whether general or limited), limited liability
company or joint venture (a) the sole general partner or the managing
general partner or managing member of which is such Person or a
70
Subsidiary of such Person, or (b) if there are more than a single general
partner or member, either (i) the only general partners or managing members
of which are such Person and/or one or more Subsidiaries of such Person (or
any combination thereof) or (ii) such Person owns or controls, directly or
indirectly, a majority of the outstanding general partner interests, member
interests or other Voting Stock of such partnership, limited liability
company or joint venture, respectively.
"Subsidiary Guarantors" means each of:
(1) as of the date of this prospectus, Cameron Highway Pipeline GP,
L.L.C.; Cameron Highway Pipeline I, L.P.; Crystal Holding, L.L.C.;
GulfTerra Intrastate, L.P.; GulfTerra Operating Company, L.L.C.; GulfTerra
South Texas, L.P.; GulfTerra Texas Pipeline, L.P.; GulfTerra Alabama
Intrastate, L.L.C.; GulfTerra Field Services, L.L.C.; GulfTerra Holding II,
L.L.C.; GulfTerra Holding I, L.L.C.; GulfTerra GC, L.P.; GulfTerra Holding
V, L.P.; GulfTerra Holding IV, L.P.; GulfTerra NGL Storage, L.L.C.;
GulfTerra Holding III, L.L.C.; First Reserve Gas, L.L.C.; Flextrend
Development Company, L.L.C.; GulfTerra Oil Transport, L.L.C.; Hattiesburg
Gas Storage Company; Hattiesburg Industrial Gas Sales, L.L.C.; High Island
Offshore System, L.L.C.; Manta Ray Gathering Company, L.L.C.; Petal Gas
Storage, L.L.C.; and Poseidon Pipeline Company, L.L.C.; and
(2) any other Subsidiary that executes a Guarantee in accordance with
the provisions of the Indenture; and
(3) their respective successors and assigns.
Notwithstanding anything in the Indenture to the contrary, GulfTerra
Finance shall not be a Subsidiary Guarantor.
"Suspended Covenants" has the meaning given to such term under the caption
"-- Suspended covenants."
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuers thereof: or (iii) depository receipts issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a Depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such Depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation evidenced by such Depository receipt.
"Unrestricted Subsidiary" means any Subsidiary of GulfTerra Energy Partners
(other than GulfTerra Finance) that is designated by the Board of Directors of
the General Partner as an Unrestricted Subsidiary pursuant to a Board
Resolution, provided that, at the time of such designation, (x) no portion of
the Indebtedness or other obligation of such Subsidiary, whether contingent or
otherwise and whether pursuant to the terms of such Indebtedness or the terms
governing the organization of such Subsidiary or by law, (A) is guaranteed by
GulfTerra Energy Partners or any other Restricted Subsidiary, (B) is recourse to
or obligates GulfTerra Energy Partners or any Restricted Subsidiary in any way
(including any "claw-back," "keep-well," "make-well" or other agreements,
arrangements or understandings to maintain the financial performance or results
of operations of such Subsidiary or to otherwise infuse or contribute cash to
such Subsidiary), or (C) subjects any property or assets of GulfTerra Energy
Partners or any Restricted Subsidiary, directly or indirectly, contingently or
otherwise, to the satisfaction of such Indebtedness, unless such Investment or
Indebtedness is permitted by the provisions of the Indenture described above
under the captions "-- Restricted payments" and "-- Incurrence of indebtedness
and issuance of disqualified equity," (y) no Equity Interests of a Restricted
Subsidiary are held by such Subsidiary, directly or indirectly, and (z) the
amount of GulfTerra Energy Partners' Investment, as determined at the time of
such designation, in such Subsidiary since the Issue Date to the date of
designation is treated as of the date of such designation as a Restricted
71
Investment, Permitted Investment or Permitted Business Investment, as
applicable. Currently, GulfTerra Arizona Gas, L.L.C., Arizona Gas Storage,
L.L.C. and Matagorda Island Area Gathering System are designated as Unrestricted
Subsidiaries. Notwithstanding anything in the Indenture to the contrary,
GulfTerra Finance shall not be, and shall not be designated as, an Unrestricted
Subsidiary.
Any designation of a Subsidiary of GulfTerra Energy Partners as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolutions of the Board of Directors of the
General Partner giving effect to such designation and an Officers' Certificate
certifying that such designation compiled with the preceding conditions and was
permitted by the covenant described above under the caption
"-- Covenants -- Restricted payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of GulfTerra Energy Partners as
of such date and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock," GulfTerra Energy Partners shall
be in default of such covenant. The Board of Directors of the General Partner
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of GulfTerra Energy Partners of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (1) such Indebtedness is permitted under the covenant
described under the caption "-- Covenants -- Incurrence of indebtedness and
issuance of disqualified equity," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Equity Interests of
such Person pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers, general partners or trustees of any Person (regardless of
whether, at the time, Equity Interests of any other class or classes shall have,
or might have, voting power by reason of the occurrence of any contingency) or,
with respect to a partnership (whether general or limited), any general partner
interest in such partnership.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
The following is a discussion of material United States federal income tax
considerations applicable to initial investors who purchase the notes pursuant
to this offering at the note's initial offering price and hold the notes as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). This summary is based upon provisions of the
Code, regulations, rulings and decisions currently in effect, all of which are
subject to change, possibly with retroactive effect. The discussion does not
purport to deal with all aspects of the United States federal taxation that may
be relevant to particular investors in light of their particular circumstances
(for example, to persons holding notes as part of a conversion transaction or as
part of a hedge or hedging transaction, or as a position in a straddle for tax
purposes), nor does it discuss the United States federal income tax
considerations applicable to certain types of investors subject to special
treatment under the federal income tax laws (for example, insurance companies,
tax-exempt organizations and financial institutions). In addition, the
discussion does not consider the effect of any foreign, state, local or other
tax laws that may be applicable to a particular investor.
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PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used in this tax discussion, the term "United States holder" means a
beneficial owner of a note that is, for United States federal income tax
purposes,
- 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 of any political subdivision
thereof,
- an estate, the income of which is subject to United States federal income
taxation regardless of its source, or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.
The term also includes certain former citizens and certain former long-term
residents of the United States. If a partnership holds notes, the tax treatment
of a partner will generally depend on the status of the partner and on the
activities of the partnership. Partners of partnerships holding notes should
consult their tax advisors.
Interest on a note. The Series A notes were issued with no more than a de
minimus amount of original issue discount. Accordingly, interest on a note will
generally be taxable to a United States holder as ordinary interest income at
the time it accrues or is received in accordance with the United States holder's
method of accounting for United States federal income tax purposes.
Sale or retirement of a note. Upon the sale or retirement of a note, a
United States holder will recognize a taxable gain or loss equal to the
difference between the amount realized on the sale or retirement and the
holder's adjusted tax basis in the note. A holder's adjusted tax basis in a note
generally will be the cost for the note. This gain or loss generally will be
capital gain or loss and will be long-term capital gain or loss if the notes
have been held for more than one year. To the extent the amount realized
represents accrued but unpaid interest, that amount must be taken into account
as interest income, if it was not previously included in income of the holder.
Exchange offer. The exchange of the notes for exchange notes pursuant to
the Registration Rights Agreement will not result in any United States federal
income tax consequences to the United States holders. When a United States
holder exchanges a note for an exchange note pursuant to the Registration Rights
Agreement, the holder will have the same adjusted tax basis and holding period
in the exchange note as in the note immediately before the exchange.
Payments under registration rights agreement. We may be required to pay
liquidated damages to holders in the event we do not comply with certain
covenants. Although the matter is not free from doubt, we intend to take the
position that a holder should be required to report any liquidated damages as
ordinary income for United States federal income tax purposes at the time it
accrues or is received in accordance with the holder's regular method of
accounting. It is possible, however, that the Internal Revenue Service may take
a different position, in which case the timing and amount of income may be
different.
Backup withholding and information reporting. Information reporting will
apply to payments of principal, premium and interest on, and the proceeds of
disposition of, a note with respect to certain noncorporate United States
holders and backup withholding may also apply. Backup withholding will apply
only if the United States holder (i) fails to furnish its Taxpayer
Identification Number ("TIN") which, for an
73
individual, would be his Social Security number, (ii) furnishes an incorrect
TIN, (iii) is notified by the Internal Revenue Service that it has failed to
properly report payments of interest or dividends or (iv) under certain
circumstances, fails to certify, under penalties of perjury, that it has not
been notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments. The backup withholding rate is currently
28 percent. After December 31, 2010, the backup withholding rate will be
increased to 31 percent. United States holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a United States
holder will be allowed as a credit against the holder's United States federal
income tax liability and may entitle the holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
As used in this tax discussion, a non-United States holder means any
beneficial owner of a note that is not a United States holder. The rules
governing the United States federal income and estate taxation of a non-United
States holder are complex, and no attempt will be made herein to provide more
than a summary of those rules. Special rules may apply to a non-United States
holder if that holder is a controlled foreign corporation, passive foreign
investment company or foreign personal holding company and therefore subject to
special treatment under the Code. NON-UNITED STATES HOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS WITH REGARD TO AN INVESTMENT IN THE NOTES, INCLUDING ANY
REPORTING REQUIREMENTS.
Payment of interest. Generally, payment of interest on a note to a
non-United States holder will qualify for the "portfolio interest" exemption
and, therefore, will not be subject to United States federal income tax or
withholding tax, provided that this interest income is not effectively connected
with a United States trade or business of the non-United States holder and
provided that the non-United States holder:
- does not actually or constructively own 10 percent or more of the capital
or profits interest in any issuer or 10 percent or more of the combined
voting power of all classes of stock of any issuer entitled to vote,
- is not, for United States federal income tax purposes, a controlled
foreign corporation related to the issuer within the meaning of the Code,
- is not a bank receiving interest on a loan entered into in the ordinary
course of its business within the meaning of the Code and
- either:
(a) provides a Form W-8BEN or W-8IMY, as appropriate (or a suitable
substitute form), signed under penalties of perjury that includes its name
and address and certifies as to its non-United States holder status in
compliance with applicable law and regulations or
(b) holds its notes through a securities clearing organization, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business and that provides a statement
signed under penalties of perjury in which it certifies to the issuers or
the issuers' agent that a Form W-8BEN or W-8IMY, as appropriate (or
suitable substitute), has been received by it from the non-United States
holder or qualifying intermediary and furnishes the issuers or the issuers'
agent with a copy thereof.
United States Treasury Regulations provide alternative methods for
satisfying these certification requirements. For example, in the case of notes
held by a foreign partnership, the regulations require that the certification
described above be provided by the partners rather than by the partnership and
that the partnership provide certain information, including a U.S. taxpayer
identification number. A look-through rule applies in the case of tiered
partnerships. Non-United States holders are urged to consult their own tax
advisors regarding these regulations.
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Except to the extent that an applicable treaty otherwise provides, a
non-United States holder generally will be taxed in the same manner as a United
States holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the non-United States
holder. Effectively connected interest received by a corporate non-United States
holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 28 percent rate (or, if applicable, a lower treaty
rate). Even though this effectively connected interest is subject to income tax,
and may be subject to the branch profits tax, it is not subject to withholding
tax, unless derived through a partnership, if the non-United States holder
delivers IRS Form W-8ECI (or successor form) annually to the payor.
Interest income of a non-United States holder that is not effectively
connected with a United States trade or business and that does not qualify for
the portfolio interest exemption described above will generally be subject to a
withholding tax at a 28 percent rate unless that rate is reduced or eliminated
pursuant to an applicable tax treaty.
Sale, exchange or redemption of the notes. A non-United States holder of a
note will generally not be subject to United States federal income tax or
withholding tax on any gain realized on the sale, exchange, redemption or other
disposition of the note unless:
- the gain is effectively connected with a United States trade or business
of the non-United States holder,
- in the case of a non-United States holder who is an individual, the
holder is present in the United States for a period or periods
aggregating 183 days or more during the taxable year of the disposition,
and either the holder has a "tax home" in the United States or the
disposition is attributable to an office or other fixed place of business
maintained by that holder in the United States or
- the non-United States holder is subject to tax pursuant to the provisions
of the Code applicable to certain United States expatriates.
U.S. federal estate tax considerations. A note beneficially owned by an
individual who is not a citizen or resident of the United States at the time of
death will generally not be includable in the decedent's gross estate for United
States federal estate tax purposes, provided that the beneficial owner did not
at the time of death actually or constructively own 10 percent or more of the
capital or profits interests in any issuer or 10 percent or more of the combined
voting power of all classes of stock of any issuer entitled to vote, and
provided that, at the time of the holder's death, payments with respect to that
note would not have been effectively connected with the holder's conduct of a
trade or business within the United States.
Information reporting and backup withholding tax. Information reporting
will generally apply to payments of interest and the amount of tax, if any,
withheld with respect to such payments to a non-United States holder. Copies of
the information returns reporting such interest payments and any withholding may
also be made available to the tax authorities in the country in which the
non-United States holder resides under the provisions of an applicable income
tax treaty. United States backup withholding tax generally will not apply to
payments of interest and principal on a note to a non-United States holder if
the statement described in "-- Payment of interest" is duly provided by the
holder or the holder otherwise establishes an exemption, provided that the
issuers do not have actual knowledge that the holder is a United States person.
In addition, backup withholding tax generally will not apply to any payment
of the proceeds of the sale of a note effected outside the United States by a
foreign office of a "broker" (as defined in applicable United States Treasury
Regulations). However, if the broker:
- is a United States person,
- derives 50 percent or more of its gross income from all sources for
certain periods from the conduct of a United States trade or business,
- is a controlled foreign corporation for United States tax purposes or
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- is a foreign partnership in which one or more United States persons, in
the aggregate, own more than 50 percent of the income or capital
interests in the partnership or a foreign partnership that is engaged in
a trade or business in the United States,
payment of the proceeds will be subject to information reporting requirements
unless the broker has documentary evidence in its records that the beneficial
owner is a non-United States holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any sale of a note to or through the United
States office of a broker, whether foreign or United States, is subject to
information reporting and backup withholding requirements, unless the beneficial
owner of the note provides the statement described in "--Payment of interest" or
otherwise establishes an exemption and the broker does not have actual knowledge
that the payee is a United States person or that the exemption conditions are
not satisfied.
Any amounts withheld from a payment to a non-United States holder under the
backup withholding rules will be allowed as a credit against the holder's United
States federal income tax liability and may entitle the non-United States holder
to a refund, provided that the required information is provided to the IRS.
United States Treasury Regulations provide certain presumptions under which
a non-United States holder is subject to backup withholding and information
reporting unless such holder provides a certification as to its non-United
States status. Non-United States holders should consult their own tax advisors
with respect to the impact of these regulations.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
exchange or purchase of the notes by employee benefit plans that are subject to
Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended
("ERISA"), plans, individual retirement accounts and other arrangements that are
subject to Section 4975 of the Code or provisions under any federal, state,
local, non-U.S. or other laws or regulations that are similar to such provisions
of ERISA or the Code (collectively, "Similar Laws"), and entities whose
underlying assets are considered to include "plan assets" of such plans,
accounts and arrangements (each, a "Plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of
a Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
an ERISA Plan or the management or disposition of the assets of an ERISA Plan,
or who renders investment advice for a fee or other compensation to an ERISA
Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering the exchange offer or an investment in the notes of a
portion of the assets of any Plan, a fiduciary should determine whether the
investment is in accordance with the documents and instruments governing the
plan and the applicable provisions of ERISA, the Code or any Similar Law
relating to a fiduciary's duties to the Plan including, without limitation, the
prudence, diversification, delegation of control and prohibited transaction
provisions of ERISA, the Code and any other applicable Similar Laws.
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Any insurance company proposing to invest assets of its general account in
the notes should consider the extent that such investment would be subject to
the requirements of ERISA in light of the U.S. Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under any
subsequent legislation or other guidance that has or may become available
relating to that decision, including the enactment of Section 401(c) of ERISA by
the Small Business Job Protection Act of 1996 and the regulations promulgated
thereunder.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engages in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code.
The exchange, acquisition and/or holding of notes by an ERISA Plan with
respect to which the Issuers, the Initial Purchasers, the Subsidiary Guarantors,
or any of their respective affiliates is considered a party in interest or a
disqualified person may constitute or result in a direct or indirect prohibited
transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless
the investment is acquired and is held in accordance with an applicable
statutory, class or individual prohibited transaction exemption. In this regard,
the United States Department of Labor (the "DOL") has issued prohibited
transaction class exemptions, or "PTCEs," that may apply to the exchange,
acquisition and holding of the notes. These class exemptions include, without
limitation, PTCE 84-14 respecting transactions determined by independent
qualified professional asset managers, PTCE 90-1 respecting insurance company
pooled separate accounts, PTCE 91-38 respecting bank collective investment
funds, PTCE 95-60 respecting life insurance company general accounts and PTCE
96-23 respecting transactions determined by in-house asset managers, although
there can be no assurance that all of the conditions of any such exemptions will
be satisfied.
Because of the foregoing, the notes should not be purchased or held by any
person investing "plan assets" of any Plan, unless such purchase and holding
will not constitute a non-exempt prohibited transaction under ERISA and the Code
or violation of any applicable Similar Laws.
PLAN ASSET ISSUES
ERISA and the Code do not define "plan assets." However, regulations (the
"Plan Assets Regulations") promulgated under ERISA by the DOL generally provide
that when an ERISA Plan acquires an "equity" interest in an entity that is
neither a "publicly-offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the ERISA Plan's
assets include both the equity interest and an undivided interest in each of the
underlying assets of the entity unless it is established either that equity
participation in the entity by "benefit plan investors" is not "significant"
(i.e., it is significant if 25 percent or more of any class of equity is held by
benefit plan investors) or that the entity is an "operating company," in each
case as defined in the Plan Assets Regulations.
It is not anticipated that (i) the notes will constitute "publicly-offered
securities" for purposes of the Plan Asset Regulations, (ii) the Issuers will be
an investment company registered under the Investment Company Act of 1940, (iii)
the Issuers will be in a position to monitor whether investment in the notes by
benefit plan investors will be "significant" for purposes of the Plan Assets
Regulations or (iv) GulfTerra Energy Finance Corporation will qualify as an
operating company within the meaning of the Plan Assets Regulations. It is
anticipated that GulfTerra Energy Partners, L.P. will qualify as an operating
company within the meaning of the Plan Assets Regulations, although no assurance
can be given in this regard.
The Plan Assets Regulations define an "equity interest" as any interest in
an entity other than an instrument that is treated as indebtedness under
applicable local law and which has no substantial equity features. Although
there is little authority on the subject, we believe that the notes will be debt
rather than
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equity interests, regardless of whether or not the exchange offer is accepted.
However, there can be no assurance that the DOL or others would characterize the
notes as indebtedness on the date of issuance or at any given time thereafter.
PLAN ASSETS CONSEQUENCES
If our assets were deemed to be "plan assets" under ERISA, this would
result, among other things, in (i) the application of the prudence and other
fiduciary responsibility standards of ERISA to investments made by us and (ii)
the possibility that certain transactions in which we might seek to engage could
constitute "prohibited transactions" under ERISA and the Code. (Whether or not
our assets are deemed to be "plan assets" under ERISA, see discussion under
Prohibited Transactions above).
REPRESENTATION
Accordingly, by its acceptance of a note, each purchaser and subsequent
transferee of a note (or any interest therein) will be deemed to have
represented and warranted that either (i) no portion of the assets used by such
purchaser or transferee to acquire and hold the notes (or any interest therein)
constitutes assets of any Plan or (ii) the purchase and holding of the notes (or
any interest therein) by such purchaser or transferee will not constitute a
non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code or violation under any applicable Similar Laws.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering purchasing
the notes on behalf of, or with the assets of, any Plan, consult with their
counsel regarding the potential applicability of ERISA, Section 4975 of the Code
and any Similar Laws to such investment and whether an exemption would be
applicable to the purchase and holding of the notes.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that you may freely transfer Series
B notes issued under the exchange offer in exchange for Series A notes, unless
you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer or an initial purchaser that acquired Series A notes
directly from us; or
- a broker-dealer that acquired Series A notes as a result of market-making
or other trading activities without compliance with the registration and
prospectus delivery provisions of the Securities Act;
provided that you acquire the Series B notes in the ordinary course of your
business and you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of the Series B notes. Broker-dealers receiving Series B notes in the exchange
offer in exchange for Series A notes that were acquired in market-making or
other trading activities will be subject to a prospectus delivery requirement
with respect to resales of the Series B notes.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange offer,
other than a resale of an unsold allotment from the original sale of the Series
A notes, with the prospectus contained in the exchange offer registration
statement. Pursuant to the registration agreement, we have agreed to permit such
participating broker-dealers to use this prospectus in connection with the
resale of Series B notes.
If you wish to exchange your Series A notes for Series B notes in the
exchange offer, you will be required to make certain representations to us as
set forth in "The Exchange Offer -- Registration Rights" and "The Exchange Offer
- -- Procedures for Tendering Series A Notes -- Determination of Validity" of this
prospectus,
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and in the letter of transmittal. In addition, if you are a broker-dealer who
receives Series B notes for your own account in exchange for Series A notes that
were acquired by you as a result of market-making activities or other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale by you of those Series B notes. See
"The Exchange Offer -- Resale of Series B notes; plan of distribution".
We will not receive any proceeds from any sale of Series B notes by
broker-dealers. Broker-dealers who receive Series B notes for their own account
in the exchange offer may sell them from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the Series B notes or a combination of
such methods of resale;
- at market prices prevailing at the time of resale; or
- at prices related to the prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any Series B notes. Any
broker-dealer that resells Series B notes it received for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of Series B notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of Series B notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. Although the letter of
transmittal requires a broker-dealer to deliver a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act as a result of such delivery.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Series A notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act, as set forth in the
registration rights agreement.
VALIDITY OF THE SERIES B NOTES
The validity of the Series B notes being offered hereby will be passed upon
for us by Akin Gump Strauss Hauer & Feld LLP, Houston, Texas.
EXPERTS
The financial statements included in the Annual Report on Form 10-K of
GulfTerra Energy Partners, L.P. (formerly El Paso Energy Partners, L.P.) for the
year ended December 31, 2002 and the financial statements included in the
Current Report on Form 8-K dated April 8, 2003 of GulfTerra Energy Partners,
L.P., all incorporated by reference in this Registration Statement, have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consent of Arthur Andersen LLP to the inclusion of its report regarding
the financial statements of Poseidon Oil Pipeline Company, L.L.C. with respect
to periods prior to 2001, incorporated in this prospectus and registration
statement by reference to GulfTerra Energy Partners' Annual Report on Form 10-K
for the year ended December 31, 2000, is omitted pursuant to Securities Act Rule
437a. We attempted to obtain the appropriate consent from Arthur Andersen LLP,
but the personnel responsible for the audit of Poseidon's financial statements
are no longer employed by Arthur Andersen LLP. Because Arthur Andersen LLP has
not consented to the inclusion of their report in this prospectus, you will not
be able to recover against Arthur Andersen LLP under Section 11 of the
Securities Act of 1933 for any untrue statement of a material fact contained in
the financial statements audited by Arthur Andersen LLP or any omissions to
state a material fact required to be stated therein. We have not obtained a
consent from Arthur Andersen LLP with respect to such financial statements.
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Information derived from the report of Netherland, Sewell & Associates,
Inc., independent petroleum engineers, with respect to GulfTerra Energy
Partners' estimated oil and natural gas reserves incorporated in this prospectus
and registration statement by reference to GulfTerra Energy Partners' Annual
Report on Form 10-K for the year ended December 31, 2002, has been so
incorporated in reliance on the authority of said firm as experts with respect
to such matters contained in their report.
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