As filed with the Securities and Exchange Commission on February 8, 2002
REGISTRATION NO. 333-74286
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------------
TEPPCO PARTNERS, L.P. DELAWARE 76-0291058
TE PRODUCTS PIPELINE COMPANY, DELAWARE 76-0329620
LIMITED PARTNERSHIP
TCTM, L.P. DELAWARE 76-0595522
TEPPCO MIDSTREAM COMPANIES, L.P. DELAWARE 76-0692243
JONAH GAS GATHERING COMPANY WYOMING 83-0317360
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(713) 759-3636
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------------
JAMES C. RUTH
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(713) 759-3636
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------------
COPIES TO:
VINSON & ELKINS L.L.P.
1001 FANNIN STREET, SUITE 3600
HOUSTON, TEXAS 77002
(713) 758-2222
ATTENTION: JAMES M. PRINCE
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this registration statement becomes effective, as determined
by market conditions.
---------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class of securities Proposed Maximum Aggregate Amount of registration
to be registered Offering Price(1) fee(2)(3)
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Limited Partnership Units(4)
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Debt Securities(4)(5)
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Guarantees of Debt Securities(4)(6)
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Total $550,000,000 $4,600
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(1) Rule 457(o) permits the registration fee to be calculated on the basis of
the maximum offering price of all of the securities listed and, therefore,
the table does not specify by each class information as to the amount to
be registered or the proposed maximum offering price per security.
(2) Pursuant to Rule 429 under the Securities Act of 1933, as amended, this
registration statement contains a combined prospectus that also relates to
$600,000,000 of securities of TEPPCO Partners, L.P. previously registered
on Form S-3, Registration No. 333-66102, originally filed on July 27,
2001, of which $411,625,000 remains unissued and unsold and for which a
registration fee in the amount of $37,869 is being carried forward. The
maximum aggregate offering price of securities covered by this combined
prospectus is $550,000,000. Without limitation as to the class of
securities, securities of the classes listed in the above table may be
offered pursuant to this combined prospectus at a maximum aggregate
offering price of $550,000,000. The amount of the fee paid herewith has
been calculated after giving effect to the amount of securities being
carried forward from the prior registration statement or previously paid
on this registration statement.
(3) A total of $13,772 was previously paid in connection with the filing of
this registration statement and, of such amount, $5,641 has been, or will
be, refunded as a result of the recent retroactive reduction in filing fee
rate.
(4) An indeterminate principal amount or number of limited partner units, debt
securities and guarantees of debt securities may be issued from time to
time at indeterminate prices, with an aggregate offering price not to
exceed $550,000,000.
(5) If any debt securities are issued at an original issue discount, then the
offering price of those debt securities shall be in an amount that will
result in an aggregate initial offering price not to exceed $550,000,000,
less the dollar amount of any registered securities previously issued.
(6) TE Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO
Midstream Companies, L.P. and Jonah Gas Gathering Company will fully,
irrevocably and unconditionally guarantee on an unsecured basis the debt
securities of TEPPCO Partners, L.P. Pursuant to Rule 457(n) under the
Securities Act of 1933, as amended, no separate fee is payable with
respect to the guarantees of the debt securities being registered.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT CONTAINS A COMBINED PROSPECTUS THAT ALSO RELATES TO
$600,000,000 OF TEPPCO PARTNERS, L.P. SECURITIES PREVIOUSLY REGISTERED ON
REGISTRATION STATEMENT NO. 333-66102 WHICH WAS DECLARED EFFECTIVE ON AUGUST 9,
2001 (THE "PREVIOUSLY REGISTERED SECURITIES"). UPON EFFECTIVENESS, THIS
REGISTRATION STATEMENT WILL CONSTITUTE POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT NO. 333-66102 PURSUANT TO WHICH THE TOTAL AMOUNT OF
UNSOLD PREVIOUSLY REGISTERED SECURITIES REGISTERED ON REGISTRATION STATEMENT NO.
333-66102 MAY BE OFFERED AND SOLD TOGETHER WITH THE SECURITIES REGISTERED
HEREUNDER THROUGH THE USE OF THE COMBINED PROSPECTUS INCLUDED HEREIN. IN THE
EVENT SUCH PREVIOUSLY REGISTERED SECURITIES ARE OFFERED AND SOLD PRIOR TO THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, THE AMOUNT OF SUCH PREVIOUSLY
REGISTERED SECURITIES SO SOLD WILL NOT BE INCLUDED IN THE PROSPECTUS HEREUNDER.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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The information in this prospectus supplement and the accompanying base
prospectus is not complete and may be changed without notice. This prospectus
supplement and the accompanying base prospectus are not an offer to sell these
securities and we are not soliciting offers to buy these securities in any state
where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUPPLEMENT
(To the prospectus dated February , 2002) Subject to
completion February 8, 2002
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(TEPPCO LOGO)
TEPPCO PARTNERS, L.P.
Unconditionally Guaranteed by
TE Products Pipeline Company, Limited Partnership,
TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and
Jonah Gas Gathering Company
$500,000,000 % SENIOR NOTES DUE , 2012
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PARTNERSHIP
+ We are one of the largest publicly traded pipeline limited partnerships. Our
primary businesses are the transportation of refined petroleum products,
liquefied petroleum gases and petrochemicals, the transportation and marketing
of crude oil, the transportation of natural gas liquids, and the gathering of
natural gas.
NOTES
+ We are offering $500,000,000 aggregate principal amount of our % senior
notes due 2012.
+ We will pay interest on the notes semi-annually in arrears on and
of each year, beginning , 2002.
+ We may redeem some or all of the notes at any time before their maturity date
at our option at a make-whole redemption price, together with accrued and
unpaid interest, if any, to the redemption date.
+ The notes will be unsecured and rank equally with our other current and future
unsecured and unsubordinated indebtedness. If we fail to make payment on the
notes, TE Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO
Midstream Companies, L.P. and Jonah Gas Gathering Company, our significant
subsidiaries and guarantors, must make the payment instead. These guarantees
are the unsecured and unsubordinated obligations of these subsidiaries.
+ We do not intend to list the notes on any securities exchange.
PER NOTE TOTAL
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Price to public (1) % $
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Underwriting discount % $
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Proceeds, before expenses, to TEPPCO Partners, L.P. (1) % $
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(1) Plus accrued interest, if any from , 2002
INVESTING IN THE NOTES INVOLVES RISKS. YOU SHOULD CAREFULLY READ THE ENTIRE BASE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT, INCLUDING THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 2 OF THE BASE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters are offering the notes subject to various conditions. The
underwriters expect to deliver the notes through the book-entry facilities of
The Depository Trust Company on or about , 2002.
UBS WARBURG
SUNTRUST ROBINSON HUMPHREY
WACHOVIA SECURITIES
BANC ONE CAPITAL MARKETS, INC.
BNY CAPITAL MARKETS, INC.
CREDIT LYONNAIS SECURITIES
RBC CAPITAL MARKETS
The date of this prospectus supplement is , 2002
[MAP]
Important notice about information in this prospectus supplement and the
accompanying prospectus
You should rely only on the information contained in this prospectus supplement,
the accompanying base prospectus and the documents we have incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not making an offer of the notes in any state where the
offer or sale is not permitted. You should not assume that the information
provided by this prospectus supplement or the accompanying base prospectus, as
well as the information we have previously filed with the Securities and
Exchange Commission that is incorporated by reference herein, is accurate as of
any date other than its date. For purposes of this prospectus supplement and the
accompanying base prospectus, unless the context otherwise indicates, when we
refer to "us," "we," "our," "ours," "TEPPCO Partners" or the "Partnership," we
are describing ourselves, TEPPCO Partners, L.P., together with our subsidiaries.
I
Prospectus supplement summary
This document is in two parts. The first part is the prospectus supplement,
which describes our business and the specific terms of this offering. The second
part is the base prospectus, which gives more general information, some of which
may not apply to this offering. If information varies between this prospectus
supplement and the base prospectus, you should rely on the information in this
prospectus supplement. You should carefully read the entire prospectus
supplement, the accompanying base prospectus and the other documents
incorporated by reference to understand fully the terms of the notes, as well as
the other considerations that are important to you in making your investment
decision.
TEPPCO PARTNERS, L.P.
WHO WE ARE
We are one of the largest publicly traded pipeline limited partnerships. Our
general partner is wholly-owned by Duke Energy Field Services, or DEFS, which is
owned by Duke Energy Corporation and Phillips Petroleum Company. We engage in
three principal businesses:
+ Transporting refined petroleum products, liquefied petroleum gases and
petrochemicals (Downstream Segment). We own and operate an approximately
4,500-mile refined petroleum products pipeline system, which includes 30
storage facilities and 53 delivery terminals, extending from southeast Texas
through the central and midwest states to the northeast United States. Our
system includes a products pipeline system to the Midwest and is the only
pipeline system that transports liquefied petroleum gas to the northeast
United States from the Texas Gulf Coast. In addition, we recently initiated
new service to the petrochemical industry through the construction, ownership
and operation of three pipelines in southeast Texas between Mont Belvieu and
Port Arthur.
+ Transporting and marketing crude oil and transporting natural gas liquids
(Upstream Segment). We own and operate approximately 3,000 miles of crude oil
trunk line and gathering pipelines and approximately 700 miles of natural gas
liquids pipelines, primarily in Texas and Oklahoma. We also own an interest in
Seaway Crude Pipeline Company, or Seaway, which owns an approximately 500-
mile, large diameter crude oil pipeline that transports imported crude oil
from the Texas Gulf Coast to the mid-continent and midwest refining sectors.
In addition, we own undivided interests in two crude oil pipelines operating
in New Mexico, Oklahoma and Texas.
+ Gathering natural gas (Midstream Segment). Since our acquisition of Jonah Gas
Gathering Company on September 30, 2001, we gather natural gas in the Green
River Basin in southwestern Wyoming, one of the most prolific and active
natural gas producing basins in the United States. Our gathering system
consists of approximately 300 miles of pipelines ranging in size from four to
20 inches in diameter, four compressor stations with an aggregate of
approximately 21,200 horsepower and related metering facilities. Gas gathered
on the Jonah gas gathering system is primarily processed by others and
delivered to several interstate pipeline systems that provide access to a
number of West Coast, Rocky Mountain and midwest markets.
S- 1
PROSPECTUS SUPPLEMENT SUMMARY
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OUR STRATEGY
Our business strategy is to:
+ Pursue a growth strategy that is balanced between internal projects and
targeted acquisitions;
+ Improve service in our current markets; and
+ Maintain the integrity of our pipeline systems.
To execute our business strategy, we intend to leverage the advantages inherent
in our pipeline systems to maintain our status as the incremental provider of
choice in the markets we serve. We also intend to grow by acquiring, from both
third parties and affiliates, assets that complement our existing businesses or
allow us to establish new core businesses.
OUR STRUCTURE AND MANAGEMENT
We are a Delaware limited partnership formed in March 1990. We operate through
four significant subsidiary partnerships, TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas
Gathering Company. We own a 99.999% interest in each of TE Products, TCTM and
TEPPCO Midstream. TEPPCO GP, Inc., our wholly-owned subsidiary, owns a 0.001%
interest in, and serves as general partner of, each of these three subsidiary
partnerships. TEPPCO Midstream owns a 99.999% general partner interest in Jonah
and TEPPCO GP owns a 0.001% general partner interest in Jonah and serves as its
managing general partner. Our general partner is Texas Eastern Products Pipeline
Company, LLC, or TEPPCO LLC, which is an indirect wholly-owned subsidiary of
DEFS. DEFS is a joint venture between Duke Energy Corporation and Phillips
Petroleum Company. Our general partner owns a 2% interest in us. In addition,
our general partner performs all our management and operating functions and
TEPPCO GP performs all the management and operating functions required for our
four significant subsidiary partnerships.
S- 2
PROSPECTUS SUPPLEMENT SUMMARY
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The following chart summarizes our organization and ownership structure as of
the date of this prospectus supplement.
(ORGANIZATIONAL CHART)
S- 3
PROSPECTUS SUPPLEMENT SUMMARY
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RECENT DEVELOPMENTS
FOURTH QUARTER AND 2001 OPERATING RESULTS
On January 22, 2002, we reported fourth quarter 2001 net income of $21.2
million, or $0.40 per unit. This compares with 2000 fourth quarter net income of
$22.8 million, or $0.53 per unit.
Operating income for the Upstream Segment was $4.3 million for the fourth
quarter 2001 compared with $7.4 million for the fourth quarter 2000. The
decrease was due primarily to a charge of $4.3 million for a doubtful receivable
due under a transportation agreement with a subsidiary of Enron Corp.
Equity earnings from the investment in Seaway were $2.6 million and EBITDA was
$4.6 million for fourth quarter 2001, compared with $2.9 million and $4.6
million, respectively, for the fourth quarter 2000.
Upstream gross margin was $21.4 million for fourth quarter 2001, compared with
$16.7 million in the 2000 quarter. Volumes shipped for an Upstream Segment
affiliate on Seaway accounted for $2.6 million of the margin increase between
fourth quarter 2001 and fourth quarter 2000.
Costs and expenses, including fuel and power, for the Upstream Segment were
$16.6 million in fourth quarter 2001, compared with $9.6 million for the fourth
quarter 2000.
Downstream operating income was $27.1 million, compared with $27.8 million in
fourth quarter 2000.
Downstream fourth quarter 2001 revenues were $66.7 million, compared with $65.5
million in fourth quarter 2000.
Costs and expenses, including fuel and power, for the Downstream Segment were
$32.4 million in fourth quarter 2001, compared with $30.6 million for the fourth
quarter 2000.
Operating income for the Midstream Segment was $3.1 million for fourth quarter
and year 2001. Midstream Segment revenues were $9.1 million, costs and expenses
were $1.5 million, and depreciation was $4.5 million. The pipeline component of
the previously announced Jonah system expansion was completed on December 10,
2001. Compression facilities are expected to be completed by March 2002, which
will bring the Jonah system capacity to a level of 730 million cubic feet per
day or MMcf/day.
Fourth quarter 2001 interest expense was $18.7 million, offset by capitalized
interest of $1.9 million and other income (net) of $1.4 million. Interest
expense was $16.0 million for fourth quarter 2000, offset by capitalized
interest of $0.7 million.
Operating income for the Upstream Segment was $25.7 million for year 2001
compared with $18.0 million for the 2000 period. The year-over-year increase was
due to increased margin and revenue from a full-year contribution from 2000
acquisitions and acquisitions made in 2001, offset by increases in ad valorem
taxes, depreciation, environmental expenses and the charge for the doubtful
receivable.
Equity earnings from the investment in Seaway were $18.5 million and EBITDA was
$26.7 million, compared with $12.2 million and $15.4 million, respectively, for
2000. The increase in equity earnings was due to a full year of volumes in 2001
compared with approximately six months in 2000, increased activity at the Texas
City, Texas, terminal and lower expenses. Long-haul volumes on Seaway averaged
190,000 barrels per day in 2001, compared with 171,000 barrels per day for full-
year 2000.
S- 4
PROSPECTUS SUPPLEMENT SUMMARY
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Upstream gross margin for 2001 was $90.8 million, compared with $51.9 million
for 2000. An increase of $28.8 million was due primarily to strong location and
quality differentials for crude, increased activity at the Cushing, Oklahoma
terminal, and from assets acquired in the Red River area early in first quarter
2001. Volumes shipped for an Upstream Segment affiliate on Seaway accounted for
$10.1 million of the margin increase in 2001.
Cost and expenses, including fuel and power, for the Upstream Segment were $63.7
million for year 2001, compared with $31.2 million for year 2000. The increase
was due to expenses associated with assets acquired in mid-year and end of 2000,
the charge for a doubtful receivable from Enron Corp. and environmental
expenses.
Downstream Segment operating income for year 2001 was $122.2 million, compared
with $90.0 million for year 2000. The increase was due to higher revenues and
reduced ad valorem taxes, offset somewhat by slightly higher operating, general
and administrative costs, increased depreciation and amortization.
Downstream Segment revenues for year 2001 were $271.6 million, compared with
$236.7 million for year 2000. The increase was due to increased transportation
of LPGs, pipeline transportation of petrochemicals, and the settlement of a
canceled transportation agreement with Pennzoil-Quaker State Company related to
the sale of their refinery in Shreveport, Louisiana.
Costs and expenses, including fuel and power, for the Downstream Segment were
$120.7 million for year 2001, compared with $119.0 million for year 2000. The
increase was due to higher costs for rentals, information systems and
compensation.
Interest expense for year 2001 was $66.1 million, compared with $49.0 million
for 2000. Increased interest expense was due to acquisitions during the year,
plus borrowing to support the Centennial Pipeline project, offset somewhat by
lower interest rates. The combination of interest capitalized and other income
(net) was $6.8 million for 2001, compared with $6.2 million for 2000.
CHAPARRAL AND QUANAH ACQUISITION
On January 9, 2002, we announced a definitive agreement to acquire the Chaparral
and Quanah pipelines from Diamond-Koch II, L.P. and Diamond-Koch III, L.P. for
approximately $130.0 million. These pipelines are owned by affiliates of Valero
Energy Corp. and Koch Industries, Inc. The transaction is expected to close by
March 2002. The purchase will initially be funded under our bank credit
facilities and we are evaluating permanent financing alternatives.
The Chaparral system is an approximately 800-mile pipeline that extends from
West Texas and New Mexico to Mont Belvieu, Texas. The pipeline delivers natural
gas liquids to fractionators and our existing storage assets in Mont Belvieu.
The approximately 170-mile Quanah Pipeline is a natural gas liquids gathering
system located in West Texas. The Quanah Pipeline begins in Sutton County,
Texas, and connects to the Chaparral Pipeline near Midland, Texas. The pipelines
are connected to 27 gas plants in West Texas and have approximately 28,000
horsepower of pumping capacity at 14 stations. The transaction also includes the
San Andres facility in Andrews County, Texas -- two underground natural gas
liquids storage wells with 220,000 barrels of combined capacity. The assets will
be operated and commercially managed by DEFS under agreements with us.
EQUITY OFFERING
On November 20, 2001, we issued 5,500,000 units in an underwritten public
offering. The net proceeds from this offering, including our general partner's
capital contribution, were approximately $183.5 million. We used net proceeds of
$160.0 million from this offering to reduce indebtedness
S- 5
PROSPECTUS SUPPLEMENT SUMMARY
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incurred in connection with the Jonah acquisition and the remainder of the net
proceeds were applied to reduce borrowings outstanding under our bank revolving
credit facility.
JONAH ACQUISITION
On September 30, 2001, we completed the acquisition of the Jonah system from
Alberta Energy Company for $360.0 million. This acquisition marked our entry
into the business of gathering natural gas from the wellhead and delivering it
to processing facilities for ultimate transportation to end-users. The Jonah
system serves the Green River Basin in southwestern Wyoming, one of the most
prolific natural gas basins in the United States. We have multiple long-term
contracts with producers operating in the Green River Basin and earn revenues
from gathering fees based on the volume and pressure of natural gas they gather
on our system. Major producers utilizing our system include Alberta Energy
Company, BP p.l.c. and The Williams Companies, Inc. We do not take title to the
natural gas gathered on our system, and the results of the Jonah system are not
directly affected by changes in the prices of natural gas or other commodities.
The Jonah system consists of approximately 300 miles of pipelines, four
compressor stations totaling approximately 21,200 horsepower and related
metering facilities. In connection with the acquisition, we assumed
responsibility for the completion of an ongoing expansion of the Jonah system
and other associated costs of approximately $25.0 million. The expansion is
expected to be completed in the first quarter of 2002 and to increase the
capacity of the Jonah system by 62%, from approximately 450 MMcf/day to
approximately 730 MMcf/day. We expect to immediately utilize substantially all
of the increased capacity of our system once it becomes operational in the first
quarter of 2002. As results for the Jonah system are primarily driven by volumes
gathered, we expect our Midstream Segment revenues and cash flow to increase
from historical levels as a result of the system capacity expansion.
We initially financed the acquisition with borrowings under a $400.0 million
term loan facility with a nine month maturity. Approximately $160.0 million of
the net proceeds of the November equity offering were used to reduce the
indebtedness outstanding under the term loan facility and the remaining $200.0
million in outstanding indebtedness under this facility will be paid off with
the net proceeds of this offering.
Recently, a producer on the Jonah system claimed it has a right to match all
offers to acquire all or a portion of the assets comprising the Jonah system. We
believe we have adequate legal defenses to the producer's claim and that no
right of first refusal on any of the underlying Jonah system assets has been
triggered. Subsidiaries of Alberta Energy have agreed to indemnify us against
certain losses resulting from claims of preferential rights with respect to our
acquisition of Jonah Gas Gathering Company, the owner of the Jonah system. For
further information, see "Risk Factors -- Risk Factors Related to Our
Business -- The Partnership could be adversely affected if third parties are
successful in asserting rights to acquire the Jonah gas gathering system from
the Partnership" in the base prospectus.
S- 6
PROSPECTUS SUPPLEMENT SUMMARY
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THE OFFERING
Issuer.......................... TEPPCO Partners, L.P.
Offered securities.............. $500,000,000 principal amount of % senior
notes due 2012.
Guarantees...................... The notes will be unconditionally guaranteed
initially by TE Products, TCTM, TEPPCO
Midstream and Jonah, our significant
subsidiaries. These guarantees will be the
unsecured and unsubordinated obligations of
these subsidiaries. If any of our other
subsidiaries guarantee any of our Funded Debt
in the future, it will also guarantee the
notes.
Ranking......................... The notes will be our senior unsecured
obligations and will rank on a parity with
all our other existing indebtedness and
future unsecured and unsubordinated
indebtedness, including indebtedness under
our bank credit facilities. The guarantee of
the notes by our subsidiary TE Products will
rank on a parity with TE Products' $179.8
million outstanding principal amount of 6.45%
Senior Notes due 2008 and its $210.0 million
outstanding principal amount of 7.51% Senior
Notes due 2028. The other three subsidiary
guarantors have no outstanding indebtedness
for borrowed money other than their
guarantees of our bank credit facilities.
Maturity date................... , 2012.
Use of proceeds................. The net proceeds from this offering of
approximately $496.0 million will be used:
+ to repay the remaining $200.0 million
outstanding under the Jonah acquisition
term loan;
+ to repay borrowings in excess of $250.0
million outstanding under our revolving
credit facilities ($500.7 million
outstanding as of December 31, 2001); and
+ to provide cash for general operating
purposes.
See "Use of proceeds" on page S-11 of this
prospectus supplement.
Interest rate................... The notes will bear interest at the rate of
% per annum from their date of issuance to,
but excluding, , 2012.
Interest payment dates.......... Interest on the notes will be payable on
and of each year beginning on
, 2002.
S- 7
PROSPECTUS SUPPLEMENT SUMMARY
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Optional redemption............. We may redeem some or all of the notes at any
time at a make-whole redemption price, plus
accrued and unpaid interest, if any, to the
redemption date, as described in "Description
of the notes" beginning on page S-13 of this
prospectus supplement.
Certain covenants............... The indenture relating to the notes will
contain limitations on, among other things,
our ability to incur indebtedness secured by
certain liens and to engage in certain sale-
leaseback transactions.
S- 8
PROSPECTUS SUPPLEMENT SUMMARY
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SUMMARY FINANCIAL DATA
Presented below is our consolidated historical data as of and for each of the
periods indicated. The annual consolidated financial data set forth below for
each of the three fiscal years in the period ended December 31, 2000 was derived
from our audited consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2000, which is incorporated in this
prospectus supplement by reference. The data as of and for the period ended
September 30, 2001 was derived from our unaudited quarterly financial statements
included in our Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2001, which is incorporated in this prospectus supplement by
reference. For a more detailed discussion of the consolidated financial data,
see also "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2000 and in our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001.
The pro forma statement of income data for the year ended December 31, 2000 and
for the nine months ended September 30, 2001 was derived from our unaudited pro
forma condensed combined statements of income included in our Current Report on
Form 8-K/A filed November 9, 2001, which is incorporated in this prospectus
supplement by reference. The pro forma data gives effect to the purchase of
certain assets of ARCO Pipe Line Company, which was completed on July 21, 2000,
and the purchase of the Jonah system, which was completed on September 30, 2001,
in each case as if the acquisitions were consummated on January 1, 2000. The pro
forma data is presented for illustration purposes only and is not necessarily
indicative of the results of operations which would have occurred had the
purchases been consummated on January 1, 2000, nor is it necessarily indicative
of future results of operations. Specifically, the pro forma data does not give
effect to expected revenue growth attributable to the ongoing expansion of the
Jonah system or cost savings related to the Jonah system expected to result from
improved operating efficiencies.
The summary data set forth below includes EBITDA and EBITDA from Seaway. EBITDA
from Seaway represents our proportional interest in the EBITDA of Seaway. We
define EBITDA as operating income plus depreciation, depletion and amortization.
EBITDA is used as a supplemental financial measurement in the evaluation of our
business and should not be considered as an alternative to net income as an
indicator of our operating performance or as an alternative to cash flows from
operating activities or other cash flow data calculated in accordance with
accounting principles generally accepted in the United States of America or as a
measure of liquidity.
S- 9
PROSPECTUS SUPPLEMENT SUMMARY
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 2001
----------------------------------------------- ------------------------
(in thousands) PRO FORMA
INCOME STATEMENT DATA 1998 1999 2000 2000 ACTUAL PRO FORMA
- -------------------------------------------------------------------------------------------------------------------
Operating revenues..................... $429,638 $1,934,883 $3,087,941 $3,128,612 $2,849,733 $2,873,004
Costs and expenses..................... 349,672 1,834,793 2,979,916 3,020,696 2,733,237 2,758,786
-------- ---------- ---------- ---------- ---------- ----------
Operating income..................... 79,966 100,090 108,025 107,916 116,496 114,218
Interest expense....................... (29,784) (31,563) (48,982) (79,722) (47,365) (57,166)
Interest capitalized................... 795 2,133 4,559 4,559 2,040 2,040
Equity earnings........................ -- -- 12,214 25,178 15,270 15,270
Other income, net...................... 2,908 2,196 2,349 3,949 2,224 3,429
-------- ---------- ---------- ---------- ---------- ----------
Income before minority interest and
extraordinary item................. 53,885 72,856 78,165 61,880 88,665 77,791
Minority interest...................... (544) (736) (789) (625) (800) (715)
-------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary item..... 53,341 72,120 77,376 61,255 87,865 77,076
Extraordinary item (1), net of minority
interest............................. (72,767) -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $(19,426) $ 72,120 $ 77,376 $ 61,255 $ 87,865 $ 77,076
======== ========== ========== ========== ========== ==========
OTHER FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and
amortization......................... $ 26,938 $ 32,656 $ 35,163 $ 56,558 $ 31,175 $ 50,338
EBITDA................................. 106,904 132,746 143,188 164,474 147,671 164,556
EBITDA from Seaway..................... -- -- 15,373 32,112 21,981 21,981
Ratio of EBITDA to fixed charges (2)... 3.46x 3.87x 2.57x 1.90x 2.92x 2.73x
Ratio of earnings to fixed charges
(3).................................. 2.72x 3.06x 2.10x 1.37x 2.97x 2.47x
BALANCE SHEET DATA (AT END OF PERIOD)
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (net).... $671,611 $ 720,919 $ 949,705 $1,143,196
Total assets........................... 916,919 1,041,373 1,622,810 2,073,550
Long-term debt......................... 427,722 455,753 835,784 861,807
Redeemable Class B units (4)........... 105,036 105,859 105,411 106,270
Partners' capital...................... 227,186 229,767 315,057 360,246
(1) Extraordinary item reflects the loss related to the early extinguishment of
the First Mortgage Notes on January 27, 1998.
(2) For the purposes of computing the ratios of EBITDA to fixed charges, fixed
charges consist of interest expense plus capitalized interest, amortization
of debt costs and the estimated interest component of rent expense.
(3) For the purposes of computing the ratios of earnings to fixed charges,
earnings consist of income from continuing operations (before minority
interest, extraordinary loss and equity earnings) plus fixed charges
(excluding capitalized interest) and distributed income from equity
investments. Fixed charges consist of interest expense plus capitalized
interest, amortization of debt costs and the estimated interest component of
rent expense.
(4) All Class B units were issued to Duke Energy Corporation in 1998 in
connection with an acquisition of assets. The Class B units are
substantially identical to the limited partner units but are not traded on
the New York Stock Exchange.
S- 10
- --------------------------------------------------------------------------------
Risk factors
You should read carefully the discussion of the material risks relating to our
business under the caption "Risk Factors" beginning on page 2 of the
accompanying base prospectus.
Use of proceeds
We intend to use the approximately $496.0 million of net proceeds from this
offering to:
+ repay the remaining $200.0 million outstanding bank term loan indebtedness
incurred in connection with the Jonah acquisition;
+ to repay borrowings in excess of $250.0 million outstanding under our bank
revolving credit facilities; and
+ to provide cash for general operating purposes.
The Jonah acquisition term loan matures on June 28, 2002 and, as of December 31,
2001, bears interest at an annual interest rate of 3.2%. As of December 31,
2001, we had $500.7 million outstanding under our bank revolving credit
facilities, which mature on April 6, 2004. Indebtedness under our bank revolving
credit facilities was incurred in connection with the ARCO Pipe Line Company
acquisition, to fund ongoing development projects and for working capital. As of
December 31, 2001, the weighted average annual interest rates under our bank
revolving credit facilities was 2.9%.
- --------------------------------------------------------------------------------
S- 11
- --------------------------------------------------------------------------------
Capitalization
The following table sets forth as of December 31, 2001:
+ our unaudited consolidated historical capitalization; and
+ our unaudited consolidated capitalization as adjusted to give effect to this
offering and the application of the net proceeds herefrom as described under
"Use of proceeds."
This table should be read in conjunction with our consolidated financial
statements and the notes to those financial statements that are incorporated by
reference in this prospectus supplement and the accompanying base prospectus.
AS OF DECEMBER 31, 2001
---------------------------
(IN THOUSANDS) ACTUAL AS ADJUSTED
- -----------------------------------------------------------------------------------------
Cash and cash equivalents................................... $ 25,479 $ 70,821
========== ==========
Short-term debt:
Jonah acquisition term loan............................... 200,000 --
Bank revolving credit facility............................ 160,000 --
---------- ----------
Total short-term debt................................... 360,000 --
Long-term debt:
6.45% Senior Notes due 2008 of TE Products................ 179,814 179,814
7.51% Senior Notes due 2028 of TE Products................ 210,000 210,000
% Senior Notes due 2012 of TEPPCO Partners............ -- 500,000
Bank revolving credit facility............................ 340,658 250,000
---------- ----------
Total long-term debt.................................... 730,472 1,139,814
Redeemable Class B units held by related party.............. 105,630 105,630
Partners' capital........................................... 543,181 543,181
---------- ----------
Total capitalization.................................... $1,739,283 $1,788,625
========== ==========
- --------------------------------------------------------------------------------
S- 12
- --------------------------------------------------------------------------------
Description of the notes
The following description of the particular terms of the notes (which represent
a new series of, and are referred to in the accompanying base prospectus as, the
"senior debt securities") supplements and, to the extent inconsistent therewith,
replaces the description of the general terms and provisions of the senior debt
securities set forth in the accompanying base prospectus.
We will issue the notes under an indenture among us, the subsidiary guarantors
and First Union National Bank, as trustee, to be dated as of , 2002.
The terms of the notes include those set forth in the indenture and those made a
part of the indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the notes
and the indenture. It does not restate the indenture in its entirety. We urge
you to read the indenture because it, and not this description, defines your
rights as a holder of notes. Copies of the indenture are available upon request
from us or the trustee. Capitalized terms used herein are defined below under
"-- Definitions" beginning on page S-18. References to "us," "we," "ours,"
"TEPPCO Partners" or the "Partnership" in this section of the prospectus
supplement are to TEPPCO Partners, L.P. and not our subsidiaries.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
The Notes. The notes:
+ are our general unsecured obligations;
+ are unconditionally guaranteed by our subsidiary guarantors;
+ rank equally in right of payment with all our other existing and future
unsubordinated debt;
+ effectively rank junior to any of our secured debt, to the extent of the
security for that debt;
+ rank senior in right of payment to all of our future subordinated debt; and
+ are non-recourse to our general partner. See "Description of Debt
Securities -- No Personal Liability of General Partner" in the accompanying
base prospectus.
Subject to the exceptions, and subject to compliance with the applicable
requirements, set forth in the indenture, we may discharge our obligations under
the indenture with respect to the notes as described under "Description of Debt
Securities -- Defeasance" in the accompanying base prospectus.
The Guarantees. The notes are guaranteed by our significant subsidiary
partnerships, TE Products, TCTM, TEPPCO Midstream and Jonah as described under
"-- Subsidiary Guarantors." These are our only subsidiaries that presently
guarantee any of our long-term indebtedness.
Each guarantee by a subsidiary guarantor of these notes:
+ is a general unsecured obligation of that subsidiary guarantor;
+ ranks equally in right of payment with all other existing and future
unsubordinated debt of that subsidiary guarantor;
+ effectively ranks junior to any secured debt of such subsidiary guarantor, to
the extent of the security for that debt; and
+ ranks senior in right of payment to any future subordinated indebtedness of
that subsidiary guarantor.
- --------------------------------------------------------------------------------
S- 13
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
PRINCIPAL, MATURITY AND INTEREST
We will issue notes initially in an aggregate principal amount of $500 million.
The notes will be in denominations of $1,000 and integral multiples of $1,000.
The notes will mature on , 2012. We may issue additional notes of this
series from time to time, without the consent of the holders of the notes, in
compliance with the terms of the indenture.
Interest on the notes will:
+ accrue at the rate of % per annum;
+ accrue from the date of issuance or the most recent interest payment date;
+ be payable in cash semi-annually in arrears on each and ,
commencing on , 2002;
+ be payable to the holders of record on the and immediately
preceding the related interest payment dates;
+ be computed on the basis of a 360-day year comprised of twelve 30-day months;
and
+ be payable, to the extent lawful, on overdue interest to the extent permitted
by law at the same rate as interest is payable on principal.
If any interest payment date, maturity date or redemption date falls on a day
that is not a business day, the payment will be made on the next business day
with the same force and effect as if made on the relevant interest payment date,
maturity date or redemption date. Unless we default on a payment, no interest
will accrue for the period from and after the applicable interest payment date,
maturity date or redemption date.
PAYMENT AND TRANSFER
Initially, the notes will be issued only in global form. Beneficial interests in
notes in global form will be shown on, and transfers of interest in notes in
global form will be made only through, records maintained by the depositary and
its participants. Notes in definitive form, if any, may be registered, exchanged
or transferred at the office or agency maintained by us for such purpose (which
initially will be the corporate trust office of the trustee located at 1525 West
W. T. Harris Blvd., Charlotte, North Carolina 28288-1153). Payment of principal,
of premium, if any, and interest on notes in global form registered in the name
of or held by the depositary or its nominee will be made in immediately
available funds to the depositary or its nominee, as the case may be, as the
registered holder of such global note. If any of the notes are no longer
represented by global notes, all payments on such notes will be made at the
corporate trust office of the trustee in New York City, located at 50 Broad
Street, Suite 550, New York, New York 10004; however, any payment of interest on
such notes may, at our option, be made by check mailed directly to registered
holders at their registered addresses or by wire transfer to an account
designated in writing by a registered holder.
No service charge will be made for any registration of transfer or exchange of
notes, but we may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection therewith. We are not
required to transfer or exchange any note selected for redemption or any other
note for a period of 15 days before any mailing of notice of notes to be
redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
- --------------------------------------------------------------------------------
S- 14
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
OPTIONAL REDEMPTION
The notes will be redeemable by us, in whole or in part, at any time at a
redemption price equal to the greater of:
+ 100% of the principal amount of the notes then outstanding to be redeemed; or
+ the sum of the present values of the remaining scheduled payments of principal
and interest thereon (exclusive of interest accrued to the date of redemption)
from the redemption date to the maturity date computed by discounting such
payments to the redemption date on a semiannual basis, assuming a 360-day year
consisting of twelve 30-day months, at a rate equal to the sum of
basis points plus the adjusted Treasury rate, as that term is
generally used in the industry, on the third business day prior to the
redemption date.
The redemption price will be calculated by UBS Warburg LLC. If UBS Warburg LLC
is unwilling or unable to make the calculation, we will appoint an independent
investment banking institution of national standing to make the calculation.
We will mail notice of redemption at least 30 days but not more than 60 days
before the application redemption date to each holder of the notes to be
redeemed. Any notice to holders of notes of such redemption will include the
appropriate calculation of the redemption price, but need not include the
redemption price itself. The actual redemption price, calculated as provided
above, will be set forth in an officers' certificate delivered to the trustee no
later than two business days prior to the redemption date.
Upon the payment of the redemption price, plus accrued and unpaid interest, if
any, to the date of redemption, interest will cease to accrue on and after the
applicable redemption date on the notes or portions thereof called for
redemption.
In the case of any partial redemption, selection of the notes for redemption
will be made by the trustee on a pro rata basis, by lot or by such other method
as the trustee in its sole discretion shall deem to be fair and appropriate.
Notes will only be redeemed in multiples of $1,000 in principal amount. If any
note is to be redeemed in part only, the notice of redemption will state the
portion of the principal amount to be redeemed. A new note in principal amount
equal to the unredeemed portion of the original note will be issued upon the
cancellation of the original note.
NO SINKING FUND
We are not required to make mandatory redemption or sinking fund payments with
respect to the notes.
COVENANTS
Except to the extent described below, the indenture does not limit the amount of
indebtedness or other obligations that we may incur and does not give you the
right to require us to repurchase your notes upon a change of control. The
indenture contains two principal material financial covenants:
+ Limitation on Liens. This covenant limits our ability, and that of our
Subsidiaries, to permit liens to exist on our principal assets; and
+ Limitation of Sale-Leaseback Transactions. This covenant limits our ability
to sell or transfer our principal assets and then lease back those assets.
Capitalized terms used within this "Covenants" subsection are defined in the
"Definitions" subsection.
- --------------------------------------------------------------------------------
S- 15
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
Limitation on Liens. We will not, and will not permit any of our Subsidiaries
to, incur, issue, create, assume or guarantee any lien on any Principal Property
or on any shares of stock or indebtedness of any Subsidiary that owns or leases
any Principal Property to secure any Debt (whether such Principal Property,
shares of stock or indebtedness is now existing or owned or subsequently created
or acquired) without effectively providing that the notes will be secured
equally and ratably with or prior to such secured Debt until such time as such
Debt is no longer secured by a lien.
The foregoing restriction does not require us to secure the notes if the liens
consist of Permitted Liens or if the Debt secured by these liens is exempted as
described under "-- Exempted Indebtedness" below.
Limitation on Sale-Leaseback Transactions. We will not, and will not permit any
of our Subsidiaries to, enter into any Sale-Leaseback Transaction with respect
to any Principal Property unless:
+ such Sale-Leaseback Transaction occurs within 12 months after the completion
of the acquisition of the Principal Property subject thereto or the date of
the completion of construction, or development of, or substantial repair or
improvement on, or commencement of full commercial operations of, such
Principal Property, whichever is later;
+ we or our Subsidiary, as the case may be, would be permitted, pursuant to the
provisions of the indenture, to incur Debt secured by a lien on the Principal
Property involved in such transaction at least equal in amount to the
Attributable Indebtedness with respect to that Sale-Leaseback Transaction
without equally and ratably securing the notes pursuant to the covenant
described above in "-- Limitation on Liens"; or
+ within 12 months after the effective date of such transaction, we or our
Subsidiary, as the case may be, apply an amount equal to not less than the
Attributable Indebtedness of such Sale-Leaseback Transaction either to:
(1) the voluntary defeasance or the prepayment, repayment, redemption or
retirement of the notes or other senior Funded Debt of ours or any of
our Subsidiaries;
(2) the acquisition, construction, development or improvement of any
Principal Property used or useful in our businesses (including the
businesses of our Subsidiaries); or
(3) any combination of applications referred to in (1) or (2) above.
Exempted Indebtedness. Notwithstanding the foregoing limitations on liens and
Sale-Leaseback Transactions, we and our Subsidiaries may issue, incur, create,
assume, or guarantee Debt secured by a lien (other than a Permitted Lien) on any
property referred to in the covenant described under "-- Limitation on Liens"
without securing the notes, or may enter into Sale-Leaseback Transactions
without complying with the preceding paragraph, or enter into a combination of
such transactions, if the sum of the aggregate principal amount of all such Debt
then outstanding and the Attributable Indebtedness of all Sale-Leaseback
Transactions then in existence not otherwise permitted in the preceding three
bullet points (other than the second bullet point above), does not at the time
exceed 10% of our Consolidated Net Tangible Assets.
MERGER, AMALGAMATION, CONSOLIDATION AND SALE OF ASSETS
We will not merge, amalgamate or consolidate with or into any other entity or
sell, convey, lease, transfer or otherwise dispose of all or substantially all
of our property or assets to any person, whether
- --------------------------------------------------------------------------------
S- 16
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
in a single transaction or series of related transactions, except in accordance
with the provisions of our partnership agreement, and unless:
+ we are the surviving entity, or the surviving entity:
+ is a partnership, limited liability company or corporation organized under
the laws of the United States, a state thereof or the District of
Columbia; and
+ expressly assumes by supplemental indenture satisfactory to the trustee,
the due and punctual payment of the principal of, premium, if any, and
interest on all of the notes, and the due and punctual performance or
observance of all the other obligations under the indenture to be
performed or observed by us;
+ immediately before and immediately after giving effect to the transaction or
series of transactions, no default or event of default has occurred and is
continuing;
+ each subsidiary guarantor, unless such subsidiary guarantor is the person with
which we have consummated a transaction under this provision, shall have
confirmed that its guarantee of the notes shall continue to apply to the
obligations under the notes and the indenture; and
+ we have delivered to the trustee an officers' certificate and opinion of
counsel, each stating that the merger, amalgamation, consolidation, sale,
conveyance, transfer, lease or other disposition, and if a supplemental
indenture is required, the supplemental indenture, comply with the conditions
set forth above and all other conditions precedent to the transaction have
been complied with.
Thereafter, the surviving entity may exercise our rights and powers under the
indenture, in our name or in its own name. Any act or proceeding required or
permitted to be done by our general partner's board of directors or any of our
general partner's officers or employees may be done by the board of directors,
officers or employees of the successor. If we sell or otherwise dispose of
(except by lease) all or substantially all of our assets and the above stated
requirements are satisfied, we will be released from all our liabilities and
obligations under the indenture. If we lease all or substantially all of our
assets, we will not be so released from our obligations under the indenture.
EVENTS OF DEFAULT
In addition to the "Events of Default" described in the base prospectus under
the heading "Description of Debt Securities -- Events of Default," the following
constitutes an "Event of Default" under the indenture in respect of the notes:
+ default in the payment at the stated final maturity, after the expiration of
any applicable grace period, of any principal of, premium, if any, or interest
on, any indebtedness for money borrowed of ours (other than the notes) or any
of our Subsidiaries outstanding in an aggregate principal amount in excess of
$50.0 million, or the occurrence of any other default the effect of which is
to cause the stated final maturity of such indebtedness to be accelerated and
such acceleration is not rescinded within 60 days after notice to us in
accordance with the indenture.
- --------------------------------------------------------------------------------
S- 17
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
DEFINITIONS
As used in the description of certain provisions of the indenture, the following
terms have the following meanings:
"Attributable Indebtedness" means with respect to a Sale-Leaseback Transaction,
at the time of determination, the lesser of:
+ the fair market value (as determined in good faith by the board of
directors of our general partner) of the assets involved in the
Sale-Leaseback Transaction;
+ the present value of the total net amount of rent required to be paid under
the lease involved in such Sale-Leaseback Transaction during the remaining
term thereof (including any renewal term exercisable at the lessee's option
or period for which such lease has been extended), discounted at the rate
of interest set forth or implicit in the terms of such lease or, if not
practicable to determine such rate, the weighted average interest rate per
annum borne by the notes compounded semiannually; and
+ if the obligation with respect to the Sale-Leaseback Transaction
constitutes an obligation that is required to be classified and accounted
for as a capital lease obligation (as defined in the indenture) for
financial reporting purposes in accordance with generally accepted
accounting principles, the amount equal to the capitalized amount of such
obligation determined in accordance with generally accepted accounting
principles and included in the financial statements of the lessee.
For purposes of the foregoing definition, rent will not include amounts required
to be paid by the lessee, whether or not designated as rent or additional rent,
on account of or contingent upon maintenance and repairs, insurance, taxes,
assessments, utilities, water rates, operating charges, labor costs and similar
charges. In the case of any lease that is terminable by the lessee upon the
payment of a penalty, such net amount shall be the lesser of the net amount
determined assuming termination upon the first date such lease may be terminated
(in which case the net amount shall also include the amount of the penalty, but
no rent shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated) or the net amount
determined assuming no such termination.
"Consolidated Net Tangible Assets" means, at any date of determination, the
aggregate amount of total assets included in our most recent consolidated
quarterly or annual balance sheet prepared in accordance with generally accepted
accounting principles, less applicable reserves reflected in such balance sheet,
after deducting the following amounts:
+ all current liabilities reflected in such balance sheet (excluding any
current maturities of long-term debt or any current liabilities that by
their terms are extendable or renewable at the option of the obligor to a
time more than 12 months after the time as of which the amount is being
computed); and
+ all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other like intangibles reflected in such balance sheet.
"Debt" means any obligation created or assumed by any person for the repayment
of borrowed money and any guarantee thereof.
"Funded Debt" means all Debt maturing one year or more from the date of the
incurrence, creation, assumption or guarantee thereof, all Debt directly or
indirectly renewable or extendable, at the option of the debtor, by its terms or
by the terms of any instrument or agreement relating thereto, to a date one year
or more from the date of the incurrence, creation, assumption or guarantee
thereof, and all
- --------------------------------------------------------------------------------
S- 18
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
Debt under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of one year or more.
"Permitted Liens" include:
+ liens existing at, or provided for under the terms of an "after-acquired
property" clause or similar term of any agreement existing on the date of,
the initial issuance of the notes or the terms of any mortgage, pledge
agreement or similar agreement existing on such date of initial issuance;
+ liens on property, shares of stock, indebtedness or other assets of any
person (which is not a Subsidiary) existing at the time such person becomes
a Subsidiary or is merged into or consolidated with or into us or any of
our Subsidiaries (whether or not the obligations secured thereby are
assumed by us or any of our Subsidiaries), provided that such liens are not
incurred in anticipation of such person becoming a Subsidiary, or liens
existing at the time of a sale, lease or other disposition of the
properties of a person as an entirety or substantially as an entirety to us
or any of our Subsidiaries;
+ liens on property, shares of stock, Debt or other assets existing at the
time of acquisition thereof by us or any of our Subsidiaries (whether or
not the obligations secured thereby are assumed by us or any of our
Subsidiaries), or liens thereon to secure the payment of all or any part of
the purchase price thereof;
+ any lien on property, shares of capital stock, Debt or other assets created
at the time of the acquisition of same by us or any of our Subsidiaries or
within 12 months after such acquisition to secure all or a portion of the
purchase price of such property, capital stock, indebtedness or other
assets or indebtedness incurred to finance such purchase price, whether
such indebtedness is incurred prior to, at the time of or within one year
after the date of such acquisition;
+ liens on property, shares of stock, Debt or other assets to secure any
indebtedness for borrowed money incurred to pay the costs of construction,
development, repair or improvements thereon, or incurred prior to, at the
time of, or within 12 months after, the latest of the completion of
construction, the completion of development, repair or improvements or the
commencement of full commercial operation of such property for the purpose
of financing all or any part of, such construction or the making of such
development, repair or improvements;
+ liens to secure indebtedness owing to us or our Subsidiaries;
+ liens on any current assets that secure current liabilities or indebtedness
incurred by us or our Subsidiaries;
+ liens in favor of the United States of America or any state, territory or
possession thereof (or the District of Columbia), or any department,
agency, instrumentality or political subdivision of the United States of
America or any state, territory or possession thereof (or the District of
Columbia), to secure partial, progress, advance or other payments pursuant
to any contract or statute or to secure any indebtedness incurred for the
purpose of financing all or any part of the purchase price or the cost of
constructing, developing, repairing or improving the property subject to
such liens;
+ liens arising or imposed by reason of any attachment, judgment, decree or
order of any regulatory, governmental or court authority or proceeding, so
long as any proceeding initiated to review same shall not have been
terminated or the period within which such proceeding may be initiated
shall not have expired, or such attachment, judgment, decree or order shall
otherwise be effectively stayed;
- --------------------------------------------------------------------------------
S- 19
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
+ liens on any capital stock of any Subsidiary of ours that owns an equity
interest in a joint venture to secure indebtedness, provided that the
proceeds of such indebtedness received by such Subsidiary are contributed
or advanced to such joint venture;
+ the assumption by us or any of our Subsidiaries of obligations secured by
any lien on property, shares of stock, Debt or other assets, which lien
exists at the time of the acquisition by us or any of our Subsidiaries of
such property, shares, indebtedness or other assets or at the time of the
acquisition of the person that owns such property or assets;
+ liens on any property to secure bonds for the construction, installation or
financing of pollution control or abatement facilities, or other forms of
industrial revenue bond financing, or indebtedness issued or guaranteed by
the United States, any state or any department, agency or instrumentality
thereof;
+ liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) of any lien referred to in the bullet points above;
provided, however, that any liens permitted by the terms set forth under
any of such bullet points shall not extend to or cover any property of ours
or of any of our Subsidiaries, as the case may be, other than the property
specified in such clauses and improvements thereto or proceeds therefrom;
+ liens deemed to exist by reason of negative pledges in respect of
indebtedness;
+ liens upon rights-of-way for pipeline purposes;
+ any statutory or governmental lien or a lien arising by operation of law,
or any mechanics', repairmen's, materialmen's, supplier's, carrier's,
landlord's, warehousemen's or similar lien incurred in the ordinary course
of business which is not yet due or is being contested in good faith by
appropriate proceedings and any undetermined lien which is incidental to
construction, development, improvement or repair;
+ the right reserved to, or vested in, any municipality or public authority
by the terms of any right, power, franchise, license, permit or by any
provision of law, to purchase or to recapture or to designate a purchaser
of, any property;
+ liens of taxes and assessments which are for the current year, and are not
at the time delinquent or are delinquent but the validity of which are
being contested at the time by us or any of our Subsidiaries in good faith;
+ liens of, or to secure the performance of, leases;
+ liens upon, or deposits of, any assets in favor of any surety company or
clerk of court for the purpose of obtaining indemnity or stay of judicial
proceedings;
+ liens upon property or assets acquired or sold by us or any of our
Subsidiaries resulting from the exercise of any rights arising out of
defaults on receivables;
+ liens incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance, temporary disability,
social security, retiree health or similar laws or regulations or to secure
obligations imposed by statute or governmental regulations;
+ liens securing our indebtedness or indebtedness of any of our Subsidiaries,
all or a portion of the net proceeds of which are used, substantially
concurrently with the funding thereof (and for purposes of determining
"substantial concurrence," taking into consideration, among other things,
required notices to be given to holders of outstanding securities under the
indenture (including the notes) in connection with such refunding,
refinancing, repurchase, and the required
- --------------------------------------------------------------------------------
S- 20
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
durations thereof), to refund, refinance, or repurchase all outstanding
securities under the indenture (including the notes) including all accrued
interest thereon and reasonable fees and expenses and any premium incurred
by us or our Subsidiaries in connection therewith; and
+ any lien upon any property, shares of capital stock, indebtedness for
borrowed money or other assets to secure indebtedness incurred by us or any
of our Subsidiaries, the proceeds of which, in whole or in part, are used
to defease, in a legal or a covenant defeasance, our obligations on the
notes or any other series of our senior debt securities.
"Principal Property" means, whether owned or leased on the date of the initial
issuance of notes or acquired later:
+ pipeline assets of ours or our Subsidiaries, including any related
facilities employed in the gathering, transportation, distribution, storage
or marketing of natural gas, refined petroleum products, liquefied
petroleum gases, crude oil or petrochemicals, that are located in the
United States of America or any territory or political subdivision thereof;
and
+ any processing or manufacturing plant or terminal owned or leased by us or
any of our Subsidiaries that is located in the United States of America or
any territory or political subdivision thereof;
except, in the case of either of the foregoing clauses, any such assets
consisting of inventories, furniture, office fixtures and equipment (including
data processing equipment), vehicles and equipment used on, or useful with,
vehicles, and any such assets, plant or terminal which, in the opinion of the
board of directors of our general partner, is not material in relation to our
activities or of us and our Subsidiaries, taken as a whole.
"Sale-Leaseback Transaction" means any arrangement with any person providing for
the leasing by us or any of our Subsidiaries of any Principal Property, which
Principal Property has been or is to be sold or transferred by us or such
Subsidiary to such person, other than:
+ any such transaction involving a lease for a term (including renewals or
extensions exercisable by us or any of our Subsidiaries) of not more than
three years; or
+ any such transaction between us and any of our Subsidiaries or between any
of our Subsidiaries.
"Subsidiary" of any person means:
+ any person of which more than 50% of the total voting power of equity
interests entitled (without regard to any contingency) to vote in the
election of directors, managers, trustees, or equivalent persons, at the
time of such determination, is owned or controlled, directly or indirectly,
by any person or one or more of the Subsidiaries of that person or a
combination thereof; or
+ in the case of a partnership, any person of which more than 50% of the
partners' capital interests (considering all partners' equity interests as
a single class), at the time of such determination, is owned or controlled,
directly or indirectly, by any person or one or more of the Subsidiaries of
that person.
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S- 21
DESCRIPTION OF THE NOTES
- --------------------------------------------------------------------------------
SUBSIDIARY GUARANTORS
Our payment obligations under the notes will be jointly and severally guaranteed
by the subsidiary guarantors, our four significant subsidiary partnerships. The
obligations of each subsidiary guarantor under its guarantee will be limited to
the maximum amount that will, after giving effect to all other contingent and
fixed liabilities of the subsidiary guarantor and to any collections from or
payments made by or on behalf of any other subsidiary guarantor in respect of
the obligations of the other subsidiary guarantor under its guarantee, result in
the obligations of the subsidiary guarantor under the guarantee not constituting
a fraudulent conveyance or fraudulent transfer under Federal or state law.
Provided that no default shall have occurred and shall be continuing under the
indenture, a subsidiary guarantor will be unconditionally released and
discharged from the guarantee:
+ automatically upon any sale, exchange or transfer, to any person that is not
our affiliate, of all of our direct or indirect limited partnership or other
equity interests in the subsidiary guarantor (provided such sale, exchange or
transfer is not prohibited by the indenture);
+ automatically upon the merger of the subsidiary guarantor into us or any other
subsidiary guarantor or the liquidation and dissolution of the subsidiary
guarantor (in each case to the extent not prohibited by the indenture); or
+ following delivery of a written notice of the release from the guarantee by us
to the trustee, upon the release of all guarantees by the subsidiary guarantor
of any Debt for borrowed money of ours, except Debt under the indenture.
If at any time after the issuance of the notes, including following any release
of a subsidiary guarantor from its guarantee under the indenture, a Subsidiary
(including any future Subsidiary) guarantees any of our Funded Debt, we will
cause such Subsidiary to guarantee the notes in accordance with the indenture by
simultaneously executing and delivering a supplemental indenture.
CONCERNING THE TRUSTEE
First Union National Bank is the trustee under the indenture and has been
appointed by us as registrar and paying agent with regard to the notes. First
Union National Bank is an affiliate of First Union Securities, Inc., an
underwriter of the notes.
- --------------------------------------------------------------------------------
S- 22
- --------------------------------------------------------------------------------
Underwriting
We are selling the notes to the underwriters named in the table below pursuant
to an underwriting agreement dated the date of this prospectus supplement. We
have agreed to sell to each of the underwriters, and each of the underwriters
has severally agreed to purchase, the principal amount of notes set forth
opposite that underwriter's name in the table below:
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ------------------------------------------------------------------------------
UBS Warburg LLC............................................. $
SunTrust Capital Markets, Inc. .............................
First Union Securities, Inc. ...............................
Banc One Capital Market Securities, Inc. ...................
BNY Capital Markets, Inc. ..................................
Credit Lyonnais Securities "USA" Inc. ......................
RBC Dominion Securities Corporation.........................
------------
Total.............................................. $500,000,000
============
Under the terms and conditions of the underwriting agreement, the underwriters
must buy all of the notes if they buy any of them. The underwriting agreement
provides that the obligations of the underwriters pursuant thereto are subject
to certain conditions. In the event of a default by an underwriter, the
underwriting agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting underwriters may be increased or the
underwriting agreement may be terminated. The underwriters will sell the notes
to the public when and if the underwriters buy the notes from us.
The notes are a new issue of securities with no established trading market. We
do not intend to apply for listing of the notes on any national securities
exchange. We have been advised by the underwriters that the underwriters intend
to make a market in the notes but are not obligated to do so and may stop their
market-making at any time without providing any notice. Liquidity of the trading
market for the notes cannot be assured.
The notes sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to % of the
principal amount of notes. Any such securities dealers may resell any notes
purchased from the underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to % of the principal
amount of notes. If all of the notes are not sold at the initial offering price,
the underwriters may change the offering price and other selling terms.
In order to facilitate the offering of the notes, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the underwriters may over-allot in connection with the
offering, creating a short position in the notes for their own accounts. In
addition, to cover short positions or to stabilize the price of the notes, the
underwriters may bid for, and purchase, the notes in the open market. Finally,
the underwriters may reclaim selling concessions allowed to a particular
underwriter or dealer for distributing the notes in the offering if the
underwriter or dealer repurchases previously distributed notes in transactions
to cover short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the notes above
independent market levels. The underwriters are not required to engage in
- --------------------------------------------------------------------------------
S- 23
UNDERWRITING
- --------------------------------------------------------------------------------
these activities and may end any of these activities at any time. These
transactions may be effected in the over-the-counter market or otherwise.
We estimate that our expenses in connection with the sale of the notes, other
than underwriting discounts, will be $500,000. This estimate includes expenses
relating to filing fee for the registration statement, printing, rating agency
fees, trustee's fees, legal fees and other expenses.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
In the ordinary course of its business, the underwriters and their affiliates
have from time to time provided, and may in the future provide, investment
banking, financial advisory and other services to us and our affiliates for
which they have received, or expect to receive, customary fees. Affiliates of
each of the underwriters are lenders under our existing credit facilities and
will receive a proportionate share of any repayment by us of amounts outstanding
under such facilities from the proceeds of the offering. In addition, The Bank
of New York, which is an affiliate of BNY Capital Markets, Inc., serves as the
trustee under the indenture relating to TE Products' 6.45% senior notes due 2008
and its 7.51% senior notes due 2028, and First Union National Bank, an affiliate
of First Union Securities, Inc., will serve as trustee under the indenture
related to this offering. UBS AG, an affiliate of UBS Warburg LLC, SunTrust
Bank, an affiliate of SunTrust Capital Markets, Inc., First Union National Bank,
an affiliate of First Union Securities, Inc., Bank One, NA, an affiliate of Banc
One Capital Market Securities, Inc., The Bank of New York, an affiliate of BNY
Capital Market Securities, Inc., Credit Lyonnais, New York branch, an affiliate
of Credit Lyonnais Securities "USA" Inc. and the Royal Bank of Canada, an
affiliate of RBC Dominion Securities Corporation are, among other things,
lenders to us under our bank revolving credit facilities. UBS AG, SunTrust Bank,
First Union National Bank, Bank One, NA, The Bank of New York, Credit Lyonnais,
New York branch, and the Royal Bank of Canada will receive their respective
share of the repayments by us of amounts outstanding under our bank credit
facilities from the proceeds of this offering. Because we intend to use more
than 10% of the net proceeds from the sale of the notes to repay indebtedness
owed by us to such affiliates under our revolving credit facilities, the
offering is being made in compliance with the requirements of Rule 2710(c)(8) of
the Conduct Rules of the National Association of Securities Dealers, Inc.
First Union Securities, Inc., a subsidiary of Wachovia Corporation, conducts its
investment banking, institutional, and capital markets businesses under the
trade name of Wachovia Securities. Any references to "Wachovia Securities" in
this prospectus supplement, however, do not include Wachovia Securities, Inc., a
separate broker-dealer subsidiary of Wachovia Corporation and sister affiliate
of First Union Securities, Inc., which may or may not be participating as a
separate selling dealer in the distribution of the notes.
The decision of the underwriters to distribute the notes was made independently
of their respective affiliates that are lenders under our credit facilities and
such lenders had no involvement in determining whether or when to distribute the
notes under this offering or the terms of this offering. The underwriters will
not receive any benefit from this offering other than the discount they will
receive from the initial offering price.
Legal matters
The validity of the notes will be passed upon for us by Vinson & Elkins L.L.P.,
Houston, Texas. Andrews & Kurth Mayor, Day, Caldwell & Keeton L.L.P., Houston,
Texas will pass on certain legal matters on behalf of the underwriters.
- --------------------------------------------------------------------------------
S- 24
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT THAT CONTAINS THIS
PROSPECTUS AND THAT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THOSE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THOSE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2002
PROSPECTUS
TEPPCO PARTNERS, L.P.
LIMITED PARTNERSHIP UNITS
DEBT SECURITIES
------------
GUARANTEES OF DEBT SECURITIES OF TEPPCO PARTNERS, L.P. BY:
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
TCTM, L.P.
TEPPCO MIDSTREAM COMPANIES, L.P.
JONAH GAS GATHERING COMPANY
------------
We, TEPPCO Partners, L.P., may from time to time offer and sell limited
partnership units and debt securities which may be fully and unconditionally
guaranteed by our subsidiaries, TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas
Gathering Company. This prospectus describes the general terms of these
securities and the general manner in which we will offer the securities. The
specific terms of any securities we offer will be included in a supplement to
this prospectus. The prospectus supplement will also describe the specific
manner in which we will offer the securities.
The New York Stock Exchange has listed our limited partnership units
under the symbol "TPP."
Our address is 2929 Allen Parkway, P.O. Box 2521, Houston, Texas
77252-2521, and our telephone number is (713) 759-3636.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 2 OF
THIS PROSPECTUS BEFORE YOU MAKE AN INVESTMENT IN OUR SECURITIES.
------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2001
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS.........................................................1
ABOUT TEPPCO PARTNERS.........................................................1
THE SUBSIDIARY GUARANTORS.....................................................1
RISK FACTORS..................................................................2
Risks Relating to our Business.............................................2
Risks Relating to our Partnership Structure................................6
Tax Risks to Unitholders...................................................7
WHERE YOU CAN FIND MORE INFORMATION...........................................9
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS..............................12
TEPPCO PARTNERS..............................................................13
USE OF PROCEEDS..............................................................14
RATIO OF EARNINGS TO FIXED CHARGES...........................................14
DESCRIPTION OF DEBT SECURITIES...............................................14
General...................................................................14
Covenants.................................................................17
Events of Default, Remedies and Notice....................................17
Amendments and Waivers....................................................19
Defeasance................................................................21
No Personal Liability of General Partner..................................22
Subordination.............................................................22
Book Entry, Delivery and Form.............................................24
The Trustee...............................................................25
Governing Law.............................................................25
CASH DISTRIBUTIONS...........................................................25
General...................................................................25
Quarterly Distributions of Available Cash.................................26
Adjustment of the Target Distributions....................................27
Distributions of Cash Upon Liquidation....................................28
Defined Terms.............................................................29
TAX CONSIDERATIONS...........................................................32
Partnership Status........................................................32
Limited Partner Status....................................................34
Tax Consequences of Unit Ownership........................................35
Treatment of Operations...................................................39
Disposition of Limited Partnership Units..................................40
Uniformity of Units.......................................................41
Tax-Exempt Organizations and Other Investors..............................42
Administrative Matters....................................................43
State, Local and Other Tax Considerations.................................45
Tax Consequences of Ownership of Debt Securities..........................45
INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS...................................45
PLAN OF DISTRIBUTION.........................................................46
LEGAL........................................................................47
EXPERTS......................................................................47
---------------
You should rely only on the information contained in this prospectus,
any prospectus supplement and the documents we have incorporated by reference.
We have not authorized anyone else to give you different information. We are not
offering these securities in any state where they do not permit the offer. We
will disclose any material changes in our affairs in an amendment to this
prospectus, a prospectus supplement or a future filing with the SEC incorporated
by reference in this prospectus.
(i)
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed
with the Securities and Exchange Commission using a "shelf" registration
process. Under this shelf registration process, we may sell up to $550 million
in principal amount of the limited partnership units or debt securities
described in this prospectus in one or more offerings. This prospectus generally
describes us and the limited partnership units and debt securities. Each time we
sell limited partnership units or debt securities with this prospectus, we will
provide a prospectus supplement that will contain specific information about the
terms of that offering. The prospectus supplement may also add to, update or
change information in this prospectus. The information in this prospectus is
accurate as of February 8, 2002. You should carefully read both this prospectus
and any prospectus supplement and the additional information described under the
heading "Where You Can Find More Information."
ABOUT TEPPCO PARTNERS
We are one of the largest publicly traded limited partnerships engaged
in the transportation of refined products, liquefied petroleum gases and
petrochemicals, the transportation and marketing of crude oil and natural gas
liquids and the gathering of natural gas. Texas Eastern Products Pipeline
Company, LLC (formerly Texas Eastern Products Pipeline Company and referred to
in this prospectus as TEPPCO LLC) serves as our general partner and is an
indirect wholly owned subsidiary of Duke Energy Field Services, LLC, which is
owned 70% by Duke Energy Corporation and 30% by Phillips Petroleum Company.
Please see the organization chart on page 12 for a more detailed description of
our organizational structure.
As used in this prospectus, "we," "us," "our" and "TEPPCO Partners"
mean TEPPCO Partners, L.P. and, where the context requires, include our
subsidiary operating partnerships.
THE SUBSIDIARY GUARANTORS
TE Products Pipeline Company, Limited Partnership, TCTM L.P., TEPPCO
Midstream Companies, L.P. and Jonah Gas Gathering Company are our only
"significant subsidiaries" as defined by the rules and regulations of the SEC,
as of the date of this prospectus. The general partner of TE Products, TCTM and
TEPPCO Midstream is TEPPCO GP, Inc., which is wholly owned by us. TEPPCO GP owns
a .001% general partner interest in each of TE Products, TCTM and TEPPCO
Midstream. Jonah is a Wyoming general partnership. TEPPCO Midstream owns a
99.999% general partner interest in Jonah and TEPPCO GP owns a 0.001% general
partner interest and serves as its managing general partner. We sometimes refer
to TE Products, TCTM, TEPPCO Midstream and Jonah in this prospectus as the
"Subsidiary Guarantors." The Subsidiary Guarantors may jointly and severally and
unconditionally guarantee our payment obligations under any series of debt
securities offered by this prospectus, as set forth in a related prospectus
supplement.
1
RISK FACTORS
Before you invest in our securities, you should be aware that there are
risks associated with such an investment. You should consider carefully these
risk factors together with all of the other information included in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference into this document before purchasing our securities.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
that event, we may be unable to make distributions to our unitholders or pay
interest on, or the principal of, any debt securities, the trading price of our
limited partnership units could decline, or you may lose all of your investment.
RISKS RELATING TO OUR BUSINESS
Potential future acquisitions and expansions, if any, may affect our business by
substantially increasing the level of our indebtedness and contingent
liabilities and increasing our risks of being unable to effectively integrate
these new operations.
From time to time, we evaluate and acquire assets and businesses that
we believe complement our existing assets and businesses. Acquisitions may
require substantial capital or the incurrence of substantial indebtedness. If we
consummate any future acquisitions, our capitalization and results of operations
may change significantly, and you will not have the opportunity to evaluate the
economic, financial and other relevant information that we will consider in
determining the application of these funds and other resources.
Acquisitions and business expansions involve numerous risks, including
difficulties in the assimilation of the assets and operations of the acquired
businesses, inefficiencies and difficulties that arise because of unfamiliarity
with new assets and the businesses associated with them and new geographic areas
and the diversion of management's attention from other business concerns.
Further, unexpected costs and challenges may arise whenever businesses with
different operations or management are combined, and we may experience
unanticipated delays in realizing the benefits of an acquisition. Following an
acquisition, we may discover previously unknown liabilities associated with the
acquired business for which we have no recourse under applicable indemnification
provisions.
Expanding our natural gas gathering business by constructing new pipelines and
compression facilities subjects us to construction risks and risks that natural
gas supplies will not be available upon completion of the new pipelines.
We may expand the capacity of our existing natural gas gathering system
through the construction of additional facilities. The construction of gathering
facilities requires the expenditure of significant amounts of capital, which may
exceed our estimates. Generally, we may have only limited natural gas supplies
committed to these facilities prior to their construction. Moreover, we may
construct facilities to capture anticipated future growth in production in a
region in which anticipated production growth does not materialize. As a result,
there is the risk that new facilities may not be able to attract enough natural
gas to achieve our expected investment return, which could adversely affect our
financial position or results of operations.
Our tariff rates are subject to review and possible adjustment by federal
regulators.
The Federal Energy Regulatory Commission, pursuant to the Interstate
Commerce Act, regulates the tariff rates for our interstate common carrier
pipeline operations. To be lawful under that Act, tariff rates must be just and
reasonable and not unduly discriminatory. Shippers may protest, and the FERC may
investigate, the lawfulness of new or changed tariff rates. The FERC can suspend
those tariff rates for up to seven months. It can also require refunds of
amounts collected under rates ultimately found unlawful. The FERC may also
challenge tariff rates that have become final and effective. Because of the
complexity of rate making, the lawfulness of any rate is never assured.
The FERC uses prescribed rate methodologies for approving regulated
tariff rates for transporting crude oil and refined products. These
methodologies may limit our ability to set rates based on our actual costs or
may delay the use of rates reflecting increased costs. Changes in the FERC's
approved methodology for approving rates could
2
adversely affect us. Adverse decisions by the FERC in approving our regulated
rates could adversely affect our cash flow. Additional challenges to our tariff
rates could be filed with the FERC.
While the FERC does not directly regulate our natural gas gathering
operations, federal regulation, directly or indirectly, influences the parties
that gather natural gas on our recently acquired Jonah gas gathering system. As
an intrastate natural gas gathering system and not an interstate transmission
pipeline, the Jonah system generally is exempt from FERC regulation under the
Natural Gas Act of 1938, but FERC regulation still significantly affects our
natural gas gathering business. In recent years, FERC has pursued pro-
competition policies in its regulation of interstate natural gas pipelines.
However, if the FERC does not continue this approach as it considers proposals
by natural gas pipelines to allow negotiated rates not limited by rate ceilings,
pipeline rate case proposals and revisions to rules and policies that may affect
our shippers' rights of access to interstate natural gas transportation
capacity, it could have an adverse effect on the rates we are able to charge in
the future.
Our partnership status may be a disadvantage to us in calculating cost of
service for rate-making purposes.
In a 1995 decision involving an unrelated oil pipeline limited
partnership, the FERC partially disallowed the inclusion of income taxes in that
partnership's cost of service. In another FERC proceeding involving a different
oil pipeline limited partnership, the FERC held that the oil pipeline limited
partnership may not claim an income tax allowance for income attributable to
non-corporate limited partners, both individuals and other entities. Because
corporations are taxpaying entities, income taxes are generally allowed to be
included as a corporate cost-of-service. While we presently do not use the
cost-of-service methodology to support our rates, these decisions might
adversely affect us should we elect in the future to use the cost-of-service
methodology or should we be required to use that methodology to defend our rates
if challenged by our customers. This could put the Partnership at a competitive
disadvantage.
Competition could adversely affect our operating results.
Our refined products and LPGs transportation business competes with
other pipelines in the areas where we deliver products. We also compete with
trucks, barges and railroads in some of the areas we serve. Competitive
pressures may adversely affect our tariff rates or volumes shipped. The crude
oil gathering and marketing business is characterized by thin margins and
intense competition for supplies of lease crude oil. A decline in domestic crude
oil production has intensified competition among gatherers and marketers. Our
crude oil transportation business competes with common carriers and proprietary
pipelines owned and operated by major oil companies, large independent pipeline
companies and other companies in the areas where our pipeline systems deliver
crude oil and natural gas liquids.
New supplies of natural gas are necessary to offset natural declines in
production from wells connected to our gathering system and to increase
throughput volume, and we encounter competition in obtaining contracts to gather
natural gas supplies. Competition in natural gas gathering is based in large
part on reputation, efficiency, reliability, gathering system capacity and price
arrangements. Our key competitors in the gas gathering segment include
independent gas gatherers and major integrated energy companies. Alternate
gathering facilities are available to producers we serve, and those producers
may also elect to construct proprietary gas gathering systems. If the production
delivered to our gathering system declines, our revenues from such operations
will decline.
Our crude oil marketing business requires extensive credit risk management which
may not be adequate to protect against customer nonpayment like that experienced
as a result of the recent bankruptcy by Enron Corp.
Risks of nonpayment and nonperformance by customers are a major
consideration in our businesses. Our credit procedures and policies may not be
adequate to eliminate customer credit risk. The recent bankruptcy of Enron Corp.
and certain of its subsidiaries has made collection by the Partnership of
transportation fees of approximately $4.3 million, or approximately $0.09 per
limited partner and Class B Units, doubtful.
Our crude oil marketing business involves risks relating to product prices.
Our crude oil operations subject us to pricing risks as we buy and sell
crude oil for delivery on our crude oil pipelines or enter into future delivery
obligations with respect to futures contracts on the New York Mercantile
3
Exchange. These pricing and basis risks cannot be completely hedged or
eliminated. These are the risks that price relationships between delivery
points, classes of products or delivery periods will change from time to time.
Reduced demand could affect shipments on the pipelines.
Our products pipeline business depends in large part on the demand for
refined petroleum products in the markets served by our pipelines. Reductions in
that demand adversely affect our pipeline business. Market demand varies based
upon the different end uses of the refined products we ship. Demand for
gasoline, which has in recent years accounted for approximately one-half of our
refined products transportation revenues, depends upon price, prevailing
economic conditions and demographic changes in the markets we serve. Weather
conditions, government policy and crop prices affect the demand for refined
products used in agricultural operations. Demand for jet fuel, which has in
recent years accounted for almost one-quarter of our refined products revenues,
depends on prevailing economic conditions and military usage. Propane deliveries
are generally sensitive to the weather and meaningful year-to-year variances
have occurred and will likely continue to occur.
Our gathering system profits and cash flow depend on the volumes of natural gas
produced from the fields served by our gathering systems and are subject to
factors beyond our control.
Regional production levels drive the volume of natural gas gathered on
our system. We cannot influence or control the operation or development of the
gas fields we serve. Production levels may be affected by:
o the absolute price of, volatility in the price of, and market
demand for natural gas;
o changes in laws and regulations, particularly with regard to
taxes, denial of reduced well density spacing, safety and
protection of the environment;
o the depletion rates of existing wells;
o adverse weather and other natural phenomena;
o the availability of drilling and service rigs; and
o industry changes, including the effect of consolidations or
divestitures.
Any declines in the volumes of natural gas delivered for gathering on our system
will adversely affect our revenues and could, if sustained or pronounced,
materially adversely affect our financial position or results of operation.
Our operations are subject to governmental laws and regulations relating to the
protection of the environment which may expose us to significant costs and
liabilities.
The risk of substantial environmental costs and liabilities is inherent
in pipeline and terminaling operations and we may incur substantial
environmental costs and liabilities. Our operations are subject to federal,
state and local laws and regulations relating to protection of the environment.
We currently own or lease, and have owned or leased, many properties that have
been used for many years to terminal or store crude oil, petroleum products or
other chemicals. Owners, tenants or users of these properties have disposed of
or released hydrocarbons or solid wastes on or under them. Additionally, some
sites we operate are located near current or former refining and terminaling
operations. There is a risk that contamination has migrated from those sites to
ours. Increasingly strict environmental laws, regulations and enforcement
policies and claims for damages and other similar developments could result in
substantial costs and liabilities.
Many of our operations and activities are subject to significant
federal and state environmental laws and regulations. These include, for
example, the federal Clean Air Act and analogous state laws, which impose
obligations related to air emissions and the Federal Water Pollution Control
Act, commonly referred to as the Clean Water Act, and analogous state laws,
which regulate discharge of wastewaters from our facilities to state and federal
waters. In addition, our operations are also subject to the federal
Comprehensive Environmental Response,
4
Compensation, and liability Act, also known as CERCLA or the Superfund law, the
Resource Conservation and Recovery Act, also known as RCRA, and analogous state
laws in connection with the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated by us or
locations to which we have sent wastes for disposal. Various governmental
authorities including the U.S. Environmental Protection Agency have the power to
enforce compliance with these regulations and the permits issued under them, and
violators are subject to administrative, civil and criminal penalties, including
civil fines, injunctions or both. Liability may be incurred without regard to
fault under CERCLA, RCRA, and analogous state laws for the remediation of
contaminated areas. Private parties, including the owners of properties through
which our pipeline systems pass, may also have the right to pursue legal actions
to enforce compliance as well as to seek damages for non-compliance with
environmental laws and regulations or for personal injury or property damage.
There is inherent risk of the incurrence of environmental costs and liabilities
in our business due to our handling of the products we gather or transport, air
emissions related to our operations, historical industry operations, waste
disposal practices and the prior use of flow meters containing mercury, some of
which may be material. In addition, the possibility exists that stricter laws,
regulations or enforcement policies could significantly increase our compliance
costs and the cost of any remediation that may become necessary, some of which
may be material. Our insurance may not cover all environmental risks and costs
or may not provide sufficient coverage in the event an environmental claim is
made against us. Our business may be adversely affected by increased costs due
to stricter pollution control requirements or liabilities resulting from
non-compliance with required operating or other regulatory permits. New
environmental regulations might adversely affect our products and activities,
including processing, storage and transportation, as well as waste management
and air emissions. Federal and state agencies also could impose additional
safety requirements, any of which could affect our profitability.
Terrorist attacks aimed at our facilities could adversely affect our business.
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scale. Since the September 11 attacks, the United
States government has issued warnings that energy assets, specifically our
nation's pipeline infrastructure, may be the future target of terrorist
organizations. These developments have subjected our operations to increased
risks. Any future terrorist attack on our facilities, those of our customers
and, in some cases, those of other pipelines, could have a material adverse
effect on our business.
Our business involves many hazards and operational risks, some of which may not
be covered by insurance.
Our operations are subject to the many hazards inherent in the
transportation of refined petroleum products, liquefied petroleum gases and
petrochemicals, the transportation of crude oil and the gathering, compressing,
treating and processing of natural gas and natural gas liquids and in the
storage of residue gas, including ruptures, leaks and fires. These risks could
result in substantial losses due to personal injury or loss of life, severe
damage to and destruction of property and equipment and pollution or other
environmental damage and may result in curtailment or suspension of our related
operations. We are not fully insured against all risks incident to our business.
Most significantly, we are not insured against the loss of revenues caused by
interruption of business in the event of a loss of, or damage to, our
facilities. If a significant accident or event occurs that is not fully insured,
it could adversely affect our financial position or results of operations.
The Partnership could be adversely affected if third parties are successful in
asserting rights to acquire the Jonah gas gathering system from the Partnership.
A producer on the Jonah gas gathering system has notified Alberta
Energy Company, Ltd. that it has a right to acquire all or a portion of the
assets comprising the Jonah gas gathering system. The producer asserts that it
is entitled to match any offers to acquire the assets comprising all or a
portion of the Jonah gas gathering system and that it is entitled to full
details of the sale of the system to our partnership. It is not clear whether
this asserted right covers all or a portion of the Jonah system. On September
30, 2001, subsidiaries of our partnership paid subsidiaries of Alberta Energy
approximately $360 million for the outstanding partnership interests in Jonah
Gas Gathering Company, which owns and operates the Jonah gas gathering system.
We spent an additional $19 million for expansion of the Jonah system. If the
producer is successful in asserting this alleged right, we could be adversely
affected by the divestiture of the Jonah gas gathering system and resultant loss
of expected incremental cash flow from our investment or as a result of making
payments in excess of any indemnity payments from Alberta Energy to the producer
in settlement of these claims.
5
RISKS RELATING TO OUR PARTNERSHIP STRUCTURE
We are a holding company and depend entirely on our operating subsidiaries'
distributions to service our debt obligations.
We are a holding company with no material operations. If we cannot
receive cash distributions from our operating subsidiaries, we will not be able
to meet our debt service obligations. Our operating subsidiaries may from time
to time incur additional indebtedness under agreements that contain restrictions
which could further limit each operating subsidiary's ability to make
distributions to us.
The debt securities issued by the parent partnership and the guarantees
issued by the subsidiary guarantors will be structurally subordinated to the
claims of the creditors of our operating subsidiaries who are not guarantors of
the debt securities. Holders of the debt securities will not be creditors of our
operating partnerships who have not guaranteed the debt securities. The claims
to the assets of such non-guarantor operating subsidiaries derive from our own
partnership interests in those operating subsidiaries. Claims of our
non-guarantor operating subsidiaries' creditors will generally have priority as
to the assets of such operating subsidiaries over our own partnership interest
claims and will therefore have priority over the holders of our debt, including
the debt securities. Our non-guarantor operating subsidiaries' creditors may
include:
o general creditors,
o trade creditors,
o secured creditors,
o taxing authorities, and
o creditors holding guarantees.
While our non-guarantor operating subsidiaries currently have no
indebtedness for borrowed money, such subsidiaries are not restricted from
incurring indebtedness and may do so in the future. Any debt securities will be
structurally subordinated to any such indebtedness.
We may sell additional limited partnership interests, diluting existing
interests of unitholders.
Our partnership agreement allows us to issue additional limited
partnership units and other equity securities without unitholder approval. These
may be issued to raise cash or acquire additional assets or for other
partnership purposes. There is no limit on the total number of limited
partnership units and other equity securities we may issue. When we issue
additional limited partnership units or other equity securities, the
proportionate partnership interest of our existing unitholders will decrease.
The issuance could negatively affect the amount of cash distributed to
unitholders and the market price of limited partnership units. Issuance of
additional limited partnership units will also diminish the relative voting
strength of the previously outstanding limited partnership units.
Our general partner and its affiliates may have conflicts with our partnership.
The directors and officers of our general partner and its affiliates
have duties to manage the general partner in a manner that is beneficial to its
stockholders. At the same time, the general partner has duties to manage us in a
manner that is beneficial to us. Therefore, the general partner's duties to us
may conflict with the duties of its officers and directors to its stockholders.
Such conflicts may include, among others, the following:
o decisions of our general partner regarding the amount and
timing of cash expenditures, borrowings and issuances of
additional limited partnership units or other securities can
affect the amount of incentive compensation payments we make
to our general partner;
6
o under our partnership agreement we reimburse the general
partner for the costs of managing and operating us; and
o under our partnership agreement, it is not a breach of our
general partner's fiduciary duties for affiliates of our
general partner to engage in activities that compete with us.
We may acquire additional businesses or properties directly or
indirectly for the issuance of additional units. At our current level of cash
distributions, our general partner receives as incentive distributions
approximately 50% of any incremental increase in our distributions. As a result,
acquisitions funded though the issuance of units have in the past and may in the
future benefit our general partner more than our unitholders.
Unitholders have limited voting rights and control of management.
Our general partner manages and controls our activities and the
activities of our operating partnerships. Unitholders have no right to elect the
general partner or the directors of the general partner on an annual or other
ongoing basis. However, if the general partner resigns or is removed, its
successor may be elected by holders of a majority of the limited partnership
units. Unitholders may remove the general partner only by a vote of the holders
of at least 66 2/3% of the limited partnership units and only after receiving
state regulatory approvals required for the transfer of control of a public
utility. As a result, unitholders will have limited influence on matters
affecting our operations, and third parties may find it difficult to gain
control of us or influence our actions.
Our partnership agreement limits the liability of our general partner.
Our general partner owes duties of loyalty and care to the unitholders.
Provisions of our partnership agreement and the partnership agreements for each
of the operating partnerships, however, contain language limiting the liability
of the general partner to the unitholders for actions or omissions taken in good
faith. In addition, the partnership agreements grant broad rights of
indemnification to the general partner and its directors, officers, employees
and affiliates for acts taken in good faith in a manner believed to be in or not
opposed to our best interests.
Unitholders may not have limited liability if a court finds that we have not
complied with the applicable statutes or that unitholder action constitutes
control of our business.
The limitations on the liability of holders of limited partner
interests for the obligations of a limited partnership have not been clearly
established in some states. A unitholder could be held liable in some
circumstances for our obligations to the same extent as a general partner if a
court determined that:
o we had been conducting business in any state without
compliance with the applicable limited partnership statute; or
o the right or the exercise of the right by our unitholders as a
group to remove or replace our general partner, to approve
some amendments to the partnership agreement, or to take other
action under our partnership agreement constituted
participation in the "control" of our business.
Our general partner generally has unlimited liability for the
obligations of the partnership, such as its debts and environmental liabilities,
except for those contractual obligations of the partnership that are expressly
made without recourse to our general partner.
TAX RISKS TO UNITHOLDERS
You should read "Tax Considerations" for a more complete discussion of
the following federal income tax risks related to owning and disposing of
limited partnership units.
The IRS could treat us as a corporation for tax purposes, which would
substantially reduce the cash available for distribution to you.
7
The anticipated after-tax benefit of an investment in the limited
partnership units depends largely on our being treated as a partnership for
federal income tax purposes. Our partnership agreement provides that, if a law
is enacted or existing law is modified or interpreted in a manner that subjects
us to taxation as a corporation or otherwise subjects us to entity-level
taxation for federal, state or local income tax purposes, then the minimum
quarterly distribution and the target distribution levels will be decreased to
reflect that impact on us. We have not requested, and do not plan to request, a
ruling from the IRS on this or any other matter affecting us.
If we were classified as a corporation for federal income tax purposes,
we would pay federal income tax on our income at the corporate tax rate, which
is currently a maximum of 35%. Distributions to you would generally be taxed
again to you as corporate distributions, and no income, gains, losses or
deductions would flow through to you. Because a tax would be imposed upon us as
a corporation, the cash available for distribution to you would be substantially
reduced. Treatment of us as a corporation would result in a material reduction
in the after-tax return to the unitholders, likely causing a substantial
reduction in the value of the limited partnership units. Current law may change
so as to cause us to be taxed as a corporation for federal income tax purposes
or otherwise subject us to entity-level taxation.
A successful IRS contest of the federal income tax positions we take may
adversely impact the market for limited partnership units.
We have not requested a ruling from the IRS with respect to any matter
affecting us. The IRS may adopt positions that differ from the conclusions of
our counsel expressed in this prospectus or from the positions we take. It may
be necessary to resort to administrative or court proceedings to sustain our
counsel's conclusions or the positions we take. A court may not concur with our
counsel's conclusions or the positions we take. Any contest with the IRS may
materially and adversely impact the market for limited partnership units and the
price at which they trade. In addition, the costs of any contest with the IRS,
principally legal, accounting and related fees, will be borne by us and directly
or indirectly by the unitholders and the general partner.
You may be required to pay taxes even if you do not receive any cash
distributions.
You will be required to pay federal income taxes and, in some cases,
state and local income taxes on your share of our taxable income even if you do
not receive any cash distributions from us. You may not receive cash
distributions from us equal to your share of our taxable income or even equal to
the actual tax liability that results from your share of our taxable income.
Tax gain or loss on disposition of limited partnership units could be different
than expected.
If you sell your limited partnership units, you will recognize gain or
loss equal to the difference between the amount realized and your tax basis in
those limited partnership units. Prior distributions in excess of the total net
taxable income you were allocated for a limited partnership unit, which
decreased your tax basis in that limited partnership unit, will, in effect,
become taxable income to you if the limited partnership unit is sold at a price
greater than your tax basis in that limited partnership unit, even if the price
you receive is less than your original cost. A substantial portion of the amount
realized, whether or not representing gain, may be ordinary income to you.
Should the IRS successfully contest some positions we take, you could recognize
more gain on the sale of units than would be the case under those positions,
without the benefit of decreased income in prior years. Also, if you sell your
units, you may incur a tax liability in excess of the amount of cash you receive
from the sale.
If you are a tax-exempt entity, regulated investment company or mutual fund or
you are not an individual residing in the United States, you may have adverse
tax consequences from owning limited partnership units.
Investment in limited partnership units by tax-exempt entities,
regulated investment companies or mutual funds and foreign persons raises issues
unique to them. For example, virtually all of our income allocated to
organizations exempt from federal income tax, including individual retirement
accounts and other retirement plans, will be unrelated business taxable income
and will be taxable to them. Very little of our income will be qualifying income
to a regulated investment company or mutual fund. Distributions to foreign
persons will be reduced by
8
withholding taxes, currently at the rate of 38.6%, and foreign persons will be
required to file federal income tax returns and pay tax on their share of our
taxable income.
We have registered as a tax shelter. This may increase the risk of an IRS audit
of us or a unitholder.
We have registered with the IRS as a "tax shelter." The IRS requires
that some types of entities, including some partnerships, register as "tax
shelters" in response to the perception that they claim tax benefits that the
IRS may believe to be unwarranted. As a result, we may be audited by the IRS and
tax adjustments could be made. Any unitholder owning less than a 1% profits
interest in us has very limited rights to participate in the income tax audit
process. Further, any adjustments in our tax returns will lead to adjustments in
our unitholders' tax returns and may lead to audits of unitholders' tax returns
and adjustments of items unrelated to us. You will bear the cost of any expense
incurred in connection with an examination of your personal tax return.
We will treat each purchaser of units after the initial sale of any units
pursuant to this prospectus as having the same tax benefits without regard to
the units purchased. The IRS may challenge this treatment, which could adversely
affect the value of the units.
Because we cannot match transferors and transferees of limited
partnership units, we will adopt depreciation and amortization positions that do
not conform with all aspects of final Treasury regulations. A successful IRS
challenge to those positions could adversely affect the amount of tax benefits
available to you. It also could affect the timing of these tax benefits or the
amount of gain from your sale of limited partnership units and could have a
negative impact on the value of the limited partnership units or result in audit
adjustments to your tax returns. Please read "Tax Considerations -- Uniformity
of Units" for a further discussion of the effect of the depreciation and
amortization positions we adopt.
You will likely be subject to state and local taxes in states where you do not
live as a result of an investment in the units.
In addition to federal income taxes, you will likely be subject to
other taxes, including state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property and in which you do not
reside. You may be required to file state and local income tax returns and pay
state and local income taxes in many or all of the jurisdictions in which we do
business. Please read "Tax Considerations - State, Local and Other Tax
Considerations" for a discussion of the jurisdictions in which we do business or
own property and the jurisdictions in which you will likely be required to file
tax returns. Further, you may be subject to penalties for failure to comply with
those requirements. It is your responsibility to file all United States federal,
state and local tax returns. Our counsel has not rendered an opinion on the
state or local tax consequences of an investment in the limited partnership
units.
WHERE YOU CAN FIND MORE INFORMATION
TEPPCO Partners, L.P. and TE Products Pipeline Company, Limited
Partnership file annual, quarterly and other reports and other information with
the SEC. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-732-0330 for further information on their public reference
room. Our SEC filings are also available 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.
The SEC allows TEPPCO Partners and TE Products to "incorporate by
reference" the information they have filed with the SEC. This means that TEPPCO
Partners and TE Products can disclose important information to you without
actually including the specific information in this prospectus by referring you
to those documents. The information incorporated by reference is an important
part of this prospectus. Information that TEPPCO Partners and TE Products file
later with the SEC will automatically update and may replace information in this
prospectus and information previously filed with the SEC. The documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934 are incorporated by reference in
this prospectus until the termination of this offering.
9
TEPPCO Partners, L.P. (File No. 1-10403)
o Annual Report on Form 10-K for the fiscal year ended December
31, 2000.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2001.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2001.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2001.
o Current Report on Form 8-K filed January 24, 2001.
o Current Report on Form 8-K filed February 5, 2001.
o Current Report on Form 8-K filed April 23, 2001.
o Current Report on Form 8-K filed May 9, 2001.
o Current Report on Form 8-K filed July 27, 2001.
o Current Report on Form 8-K filed October 15, 2001.
o Amended Current Report on Form 8-K/A filed November 9, 2001.
o Amended Current Report on Form 8-K/A filed November 13, 2001.
o Current Report on Form 8-K filed November 19, 2001.
o Current Report on Form 8-K filed November 30, 2001.
o Current Report on Form 8-K filed January 14, 2002.
o Current Report on Form 8-K filed January 28, 2002.
o Current Report on Form 8-K filed February 8, 2002.
o The description of the limited partnership units contained in
the Registration Statement on Form 8-A (Registration No. 001
10403), initially filed December 6, 1989, and any subsequent
amendment thereto filed for the purpose of updating such
description.
o The combined financial statements of ARCO Pipe Line Company's
APL Business and the financial statements of Seaway Crude
Pipeline Company included in TEPPCO Partners, L.P.'s Amended
Current Report on Form 8-K/A filed on October 3, 2000.
TE Products Pipeline Company, Limited Partnership (File No. 1-13603)
o Annual Report on Form 10-K for the fiscal year ended December
31, 2000.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2001.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2001.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2001.
10
o Current Report on Form 8-K filed July 27, 2001.
You may request a copy of any document incorporated by reference in
this prospectus, at no cost, by writing or calling us at the following address:
Investor Relations Department
TEPPCO Partners, L.P.
TE Products Pipeline Company, Limited Partnership
2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(713) 759-3636
11
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus, any accompanying prospectus supplement and the
documents we have incorporated by reference contain forward-looking statements.
The words "believe," "expect," "estimate" and "anticipate" and similar
expressions identify forward-looking statements. Forward-looking statements
include those that address activities, events or developments that we expect or
anticipate will or may occur in the future. These include the following:
o the amount and nature of future capital expenditures,
o business strategy and measures to carry out strategy,
o competitive strengths,
o goals and plans,
o expansion and growth of our business and operations,
o references to intentions as to future matters and
o other similar matters.
A forward-looking statement may include a statement of the assumptions
or bases underlying the forward-looking statement. We believe we have chosen
these assumptions or bases in good faith and that they are reasonable. However,
we caution you that assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending on the circumstances. When considering
forward-looking statements, you should keep in mind the risk factors set forth
under the caption "Risk Factors" and other cautionary statements in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference. We will not update these statements unless the securities laws
require us to do so.
12
TEPPCO PARTNERS
We are a publicly traded Delaware limited partnership engaged in the
transportation of refined products, liquefied petroleum gases and
petrochemicals, the transportation and marketing of crude oil and natural gas
liquids and the gathering of natural gas. The following chart shows our
organization and ownership structure as of the date of this prospectus before
giving effect to this offering. Except in the following chart, the ownership
percentages referred to in this prospectus reflect the approximate effective
ownership interest in us and our subsidiary companies on a combined basis.
Please read "The Subsidiary Guarantors" on page 1 for a more detailed
description of our ownership of the Subsidiary Guarantors.
------------------------- ----------------------------
Duke Energy Corporation Phillips Petroleum Company
------------------------- ----------------------------
| | |
| | |
| | |
| | ------------------------ |
| |--- 69.7% --- Duke Energy Field --- 30.3% ---|
| Services, LLC
| ------------------------
| | 100.0%
| |
| |
| ------------------------
| Texas Eastern Products
| Pipeline
| Company, LLC
| ------------------------
14.2% LP | | 2.0% GP
| |
| |
| ------------------------ --------------------- GP = General Partner Interest
|-------------------- TEPPCO Partners, L.P. --- 83.8% LP --- Public Unit Holders LP = Limited Partner Interest
------------------------ ---------------------
| |
|--------- 100% ---------| |
| |
------------------------- |
TEPPCO GP, Inc. | 99.999% LP
------------------------- |
| |
|------- 0.001% GP ------| |
| |
------------------------
Operating Partnerships
------------------------
13
USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus supplement,
we will use the net proceeds we receive from the sale of the securities to pay
all or a portion of indebtedness outstanding at the time and to acquire
properties as suitable opportunities arise.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods
indicated is as follows:
NINE
MONTHS
ENDED
TWELVE MONTHS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ------------------
1996 1997 1998 1999 2000 2001
-------- -------- ------- ------- -------- ------------------
Ratio of Earnings to Fixed Charges..... 2.59x 2.70x 2.72x 3.06x 2.10x 2.97x
For purposes of calculating the ratio of earnings to fixed charges:
o "fixed charges" represent interest expense (including amounts
capitalized), amortization of debt costs and the portion of
rental expense representing the interest factor; and
o "earnings" represent the aggregate of income from continuing
operations (before adjustment for minority interest,
extraordinary loss and equity earnings), fixed charges and
distributions from equity investment, less capitalized
interest.
DESCRIPTION OF DEBT SECURITIES
We will issue our debt securities under an Indenture, among us, as
issuer, First Union National Bank, as Trustee, and the Subsidiary Guarantors.
The debt securities will be governed by the provisions of the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended. We, the Trustee and the Subsidiary Guarantors may enter into
supplements to the Indenture from time to time. If we decide to issue
subordinated debt securities, we will issue them under a separate Indenture
containing subordination provisions.
This description is a summary of the material provisions of the debt
securities and the Indentures. We urge you to read the forms of Senior Indenture
and Subordinated Indenture filed as exhibits to the registration statement of
which this prospectus is a part because those Indentures, and not this
description, govern your rights as a holder of debt securities. References in
this prospectus to an "Indenture" refer to the particular Indenture under which
we issue a series of debt securities.
GENERAL
THE DEBT SECURITIES
Any series of debt securities that we issue:
o will be our general obligations;
o will be general obligations of the Subsidiary Guarantors if
they are guaranteed by the Subsidiary Guarantors; and
o may be subordinated to our Senior Indebtedness and that of the
Subsidiary Guarantors.
14
The Indenture does not limit the total amount of debt securities that
we may issue. We may issue debt securities under the Indenture from time to time
in separate series, up to the aggregate amount authorized for each such series.
We will prepare a prospectus supplement and either an indenture
supplement or a resolution of our Board of Directors and accompanying officers'
certificate relating to any series of debt securities that we offer, which will
include specific terms relating to some or all of the following:
o the form and title of the debt securities;
o the total principal amount of the debt securities;
o the date or dates on which the debt securities may be issued;
o the portion of the principal amount which will be payable if
the maturity of the debt securities is accelerated;
o any right we may have to defer payments of interest by
extending the dates payments are due and whether interest on
those deferred amounts will be payable;
o the dates on which the principal and premium, if any, of the
debt securities will be payable;
o the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o whether the debt securities are entitled to the benefits of
any guarantees by the Subsidiary Guarantors;
o whether the debt securities may be issued in amounts other
than $1,000 each or multiples thereof;
o any changes to or additional Events of Default or covenants;
o the subordination, if any, of the debt securities and any
changes to the subordination provisions of the Indenture; and
o any other terms of the debt securities.
This description of debt securities will be deemed modified, amended or
supplemented by any description of any series of debt securities set forth in a
prospectus supplement related to that series.
The prospectus supplement will also describe any material United States
federal income tax consequences or other special considerations regarding the
applicable series of debt securities, including those relating to:
o debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index
or formula, including changes in prices of particular
securities, currencies or commodities;
o debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency;
15
o debt securities that are issued at a discount below their
stated principal amount, bearing no interest or interest at a
rate that at the time of issuance is below market rates; and
o variable rate debt securities that are exchangeable for fixed
rate debt securities.
At our option, we may make interest payments by check mailed to the
registered holders of debt securities or, if so stated in the applicable
prospectus supplement, at the option of a holder by wire transfer to an account
designated by the holder.
Unless otherwise provided in the applicable prospectus supplement,
fully registered securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States, subject to the limitations provided in the Indenture, without the
payment of any service charge, other than any applicable tax or governmental
charge.
Any funds we pay to a paying agent for the payment of amounts due on
any debt securities that remain unclaimed for two years will be returned to us,
and the holders of the debt securities must look only to us for payment after
that time.
The Subsidiary Guarantees
Our payment obligations under any series of debt securities may be
jointly and severally, fully and unconditionally guaranteed by the Subsidiary
Guarantors. If a series of debt securities are so guaranteed, the Subsidiary
Guarantors will execute a notation of guarantee as further evidence of their
guarantee. The applicable prospectus supplement will describe the terms of any
guarantee by the Subsidiary Guarantors.
The obligations of each Subsidiary Guarantor under its Guarantee will
be limited to the maximum amount that will not result in the obligations of the
Subsidiary Guarantor under the Guarantee constituting a fraudulent conveyance or
fraudulent transfer under Federal or state law, after giving effect to:
o all other contingent and fixed liabilities of the Subsidiary
Guarantor; and
o any collections from or payments made by or on behalf of any
other Subsidiary Guarantors in respect of the obligations of
the Subsidiary Guarantor under its guarantee.
The guarantee of any Subsidiary Guarantor may be released under certain
circumstances. If no default has occurred and is continuing under the Indenture,
and to the extent not otherwise prohibited by the Indenture, a Subsidiary
Guarantor will be unconditionally released and discharged from the guarantee:
o automatically upon any sale, exchange or transfer, to any
person that is not our affiliate, of all of our direct or
indirect limited partnership or other equity interests in the
Subsidiary Guarantor;
o automatically upon the merger of the Subsidiary Guarantor into
us or any other Subsidiary Guarantor or the liquidation and
dissolution of the Subsidiary Guarantor; or
o following delivery of a written notice by us to the Trustee,
upon the release of all guarantees by the Subsidiary Guarantor
of any debt of ours for borrowed money (or a guarantee of such
debt), except for any series of debt securities.
If a series of debt securities is guaranteed by the Subsidiary
Guarantors and is designated as subordinate to our Senior Indebtedness, then the
guarantees by the Subsidiary Guarantors will be subordinated to the Senior
16
Indebtedness of the Subsidiary Guarantors to substantially the same extent as
the series is subordinated to our Senior Indebtedness. See "--Subordination."
COVENANTS
Reports
The Indenture contains the following covenant for the benefit of the
holders of all series of debt securities:
So long as any debt securities are outstanding, we will:
o for as long as we are required to file information with the SEC
pursuant to the Exchange Act, file with the trustee, within 15 days
after we are required to file with the SEC, copies of the annual
report and of the information, documents and other reports which we
are required to file with the SEC pursuant to the Exchange Act;
o if we are not required to file information with the SEC pursuant to
the Exchange Act, file with the trustee, within 15 days after we
would have been required to file with the SEC, financial statements
and a Management's Discussion and Analysis of Financial Condition
and Results of Operations, both comparable to what we would have
been required to file with the SEC had we been subject to the
reporting requirements of the Exchange Act; and
o if we are required to furnish annual or quarterly reports to our
unitholders pursuant to the Exchange Act, file with the trustee any
annual report or other reports sent to our unitholders generally.
A series of debt securities may contain additional financial and other
covenants applicable to us and our subsidiaries. The applicable prospectus
supplement will contain a description of any such covenants that are added to
the Indenture specifically for the benefit of holders of a particular series.
EVENTS OF DEFAULT, REMEDIES AND NOTICE
EVENTS OF DEFAULT
Each of the following events will be an "Event of Default" under the
Indenture with respect to a series of debt securities:
o default in any payment of interest on any debt securities of
that series when due that continues for 30 days;
o default in the payment of principal of or premium, if any, on
any debt securities of that series when due at its stated
maturity, upon redemption, upon required repurchase or
otherwise;
o default in the payment of any sinking fund payment on any debt
securities of that series when due;
o failure by us or, if the series of debt securities is
guaranteed by the Subsidiary Guarantors, by a Subsidiary
Guarantor, to comply for 60 days after notice with the other
agreements contained in the Indenture, any supplement to the
Indenture or any board resolution authorizing the issuance of
that series;
o certain events of bankruptcy, insolvency or reorganization of
us or, if the series of debt securities is guaranteed by the
Subsidiary Guarantors, of the Subsidiary Guarantors; or
o if the series of debt securities is guaranteed by the
Subsidiary Guarantors:
o any of the guarantees by the Subsidiary Guarantors
ceases to be in full force and effect, except as
otherwise provided in the Indenture;
17
o any of the guarantees by the Subsidiary Guarantors is
declared null and void in a judicial proceeding; or
o any Subsidiary Guarantor denies or disaffirms its
obligations under the Indenture or its guarantee.
EXERCISE OF REMEDIES
If an Event of Default, other than an Event of Default described in the
fifth bullet point above, occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding debt securities of that
series may declare the entire principal of, premium, if any, and accrued and
unpaid interest, if any, on all the debt securities of that series to be due and
payable immediately.
A default under the fourth bullet point above will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding debt securities of that series notify us and, if the series of
debt securities is guaranteed by the Subsidiary Guarantors, the Subsidiary
Guarantors, of the default and such default is not cured within 60 days after
receipt of notice.
If an Event of Default described in the fifth bullet point above occurs
and is continuing, the principal of, premium, if any, and accrued and unpaid
interest on all outstanding debt securities of all series will become
immediately due and payable without any declaration of acceleration or other act
on the part of the Trustee or any holders.
The holders of a majority in principal amount of the outstanding debt
securities of a series may:
o waive all past defaults, except with respect to nonpayment of
principal, premium or interest; and
o rescind any declaration of acceleration by the Trustee or the
holders with respect to the debt securities of that series,
but only if:
o rescinding the declaration of acceleration would not conflict
with any judgment or decree of a court of competent
jurisdiction; and
o all existing Events of Default have been cured or waived,
other than the nonpayment of principal, premium or interest on
the debt securities of that series that have become due solely
by the declaration of acceleration.
If an Event of Default occurs and is continuing, the Trustee will be
under no obligation, except as otherwise provided in the Indenture, to exercise
any of the rights or powers under the Indenture at the request or direction of
any of the holders unless such holders have offered to the Trustee reasonable
indemnity or security against any costs, liability or expense. No holder may
pursue any remedy with respect to the Indenture or the debt securities of any
series, except to enforce the right to receive payment of principal, premium or
interest when due, unless:
o such holder has previously given the Trustee notice that an
Event of Default with respect to that series is continuing;
o holders of at least 25% in principal amount of the outstanding
debt securities of that series have requested that the Trustee
pursue the remedy;
o such holders have offered the Trustee reasonable indemnity
or security against any cost, liability or expense;
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o the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of indemnity
or security; and
o the holders of a majority in principal amount of the
outstanding debt securities of that series have not given the
Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period.
The holders of a majority in principal amount of the outstanding debt
securities of a series have the right, subject to certain restrictions, to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any right or power conferred on the
Trustee with respect to that series of debt securities. The Trustee, however,
may refuse to follow any direction that:
o conflicts with law;
o is inconsistent with any provision of the Indenture;
o the Trustee determines is unduly prejudicial to the rights of
any other holder;
o would involve the Trustee in personal liability.
NOTICE OF EVENT OF DEFAULT
Within 30 days after the occurrence of an Event of Default, we are
required to give written notice to the Trustee and indicate the status of the
default and what action we are taking or propose to take to cure the default. In
addition, we are required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a compliance certificate indicating that we have
complied with all covenants contained in the Indenture or whether any default or
Event of Default has occurred during the previous year.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee must mail to each holder a notice of the Event of Default
by the later of 90 days after the Event of Default occurs or 30 days after the
Trustee knows of the Event of Default. Except in the case of a default in the
payment of principal, premium or interest with respect to any debt securities,
the Trustee may withhold such notice, but only if and so long as the board of
directors, the executive committee or a committee of directors or responsible
officers of the Trustee in good faith determines that withholding such notice is
in the interests of the holders.
AMENDMENTS AND WAIVERS
We may amend the Indenture without the consent of any holder of debt
securities to:
o cure any ambiguity, omission, defect or inconsistency;
o convey, transfer, assign, mortgage or pledge any property to
or with the Trustee;
o the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of indemnity
or security; and
o provide for the assumption by a successor of our obligations
under the Indenture;
o add Subsidiary Guarantors with respect to the debt securities;
o change or eliminate any restriction on the payment of
principal of, or premium, if any, on, any debt securities;
o secure the debt securities;
o add covenants for the benefit of the holders or surrender any
right or power conferred upon us or any Subsidiary Guarantor;
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o make any change that does not adversely affect the rights of
any holder;
o add or appoint a successor or separate Trustee; or
o comply with any requirement of the Securities and Exchange
Commission in connection with the qualification of the
Indenture under the Trust Indenture Act.
In addition, we may amend the Indenture if the holders of a majority in
principal amount of all debt securities of each series that would be affected
then outstanding under the Indenture consent to it. We may not, however, without
the consent of each holder of outstanding debt securities of each series that
would be affected, amend the Indenture to:
o reduce the percentage in principal amount of debt securities
of any series whose holders must consent to an amendment;
o reduce the rate of or extend the time for payment of interest
on any debt securities;
o reduce the principal of or extend the stated maturity of any
debt securities;
o reduce the premium payable upon the redemption of any debt
securities or change the time at which any debt securities may
or shall be redeemed;
o make any debt securities payable in other than U.S. dollars;
o impair the right of any holder to receive payment of premium,
principal or interest with respect to such holder's debt
securities on or after the applicable due date;
o impair the right of any holder to institute suit for the
enforcement of any payment with respect to such holder's debt
securities;
o release any security that has been granted in respect of the
debt securities;
o make any change in the amendment provisions which require each
holder's consent;
o make any change in the waiver provisions; or
o release a Subsidiary Guarantor or modify such Subsidiary
Guarantor's guarantee in any manner adverse to the holders.
The consent of the holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the Indenture becomes effective, we are required to mail to all holders a
notice briefly describing the amendment. The failure to give, or any defect in,
such notice, however, will not impair or affect the validity of the amendment.
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each affected series, on behalf of all such
holders, and subject to certain rights of the Trustee, may waive:
o compliance by us or a Subsidiary Guarantor with certain
restrictive provisions of the Indenture; and
o any past default under the Indenture, subject to certain
rights of the Trustee under the Indenture;
except that such majority of holders may not waive a default:
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o in the payment of principal, premium or interest; or
o in respect of a provision that under the Indenture cannot be
amended without the consent of all holders of the series of
debt securities that is affected.
DEFEASANCE
At any time, we may terminate, with respect to debt securities of a
particular series all our obligations under such series of debt securities and
the Indenture, which we call a "legal defeasance." If we decide to make a legal
defeasance, however, we may not terminate our obligations:
o relating to the defeasance trust;
o to register the transfer or exchange of the debt securities;
o to replace mutilated, destroyed, lost or stolen debt
securities; or
o to maintain a registrar and paying agent in respect of the
debt securities.
If we exercise our legal defeasance option, any subsidiary guarantee will
terminate with respect to that series of debt securities.
At any time we may also effect a "covenant defeasance," which means we
have elected terminate our obligations under:
o covenants applicable to a series of debt securities and
described in the prospectus supplement applicable to such
series, other than as described in such prospectus supplement;
o the bankruptcy provisions with respect to the Subsidiary
Guarantors, if any; and
o the guarantee provision described under "Events of Default"
above with respect to a series of debt securities.
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the affected series of debt securities may not be accelerated
because of an Event of Default with respect to that series. If we exercise our
covenant defeasance option, payment of the affected series of debt securities
may not be accelerated because of an Event of Default specified in the fourth,
fifth (with respect only to a Subsidiary Guarantor (if any)) or sixth bullet
points under "-- Events of Default" above or an Event of Default that is added
specifically for such series and described in a prospectus supplement.
In order to exercise either defeasance option, we must:
o irrevocably deposit in trust with the Trustee money or certain
U.S. government obligations for the payment of principal,
premium, if any, and interest on the series of debt securities
to redemption or maturity, as the case may be;
o comply with certain other conditions, including that no
default has occurred and is continuing after the deposit in
trust; and
o deliver to the Trustee of an opinion of counsel to the effect
that holders of the series of debt securities will not
recognize income, gain or loss for Federal income tax purposes
as a result of such defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and
defeasance had not
21
occurred. In the case of legal defeasance only, such opinion
of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law.
NO PERSONAL LIABILITY OF GENERAL PARTNER
Texas Eastern Products Pipeline Company, LLC, our general partner, and
its directors, officers, employees, incorporators and stockholders, as such,
will not be liable for:
o any of our obligations or the obligations of the Subsidiary
Guarantors under the debt securities, the Indentures or the
guarantees; or
o any claim based on, in respect of, or by reason of, such
obligations or their creation.
By accepting a debt security, each holder will be deemed to have waived
and released all such liability. This waiver and release are part of the
consideration for our issuance of the debt securities. This waiver may not be
effective, however, to waive liabilities under the federal securities laws and
it is the view of the Securities and Exchange Commission that such a waiver is
against public policy.
SUBORDINATION
Debt securities of a series may be subordinated to our "Senior
Indebtedness," which we define generally to include all notes or other evidences
of indebtedness for money, including guarantees, borrowed by us or, if
applicable to any series of outstanding debt securities, the Subsidiary
Guarantors, that are not expressly subordinate or junior in right of payment to
any of our or any Subsidiary Guarantor's other indebtedness. Subordinated debt
securities will be subordinate in right of payment, to the extent and in the
manner set forth in the Indenture and the prospectus supplement relating to such
series, to the prior payment of all of our indebtedness and that of any
Subsidiary Guarantor that is designated as "Senior Indebtedness" with respect to
the series.
The holders of Senior Indebtedness of ours or, if applicable, a
Subsidiary Guarantor, will receive payment in full of the Senior Indebtedness
before holders of subordinated debt securities will receive any payment of
principal, premium or interest with respect to the subordinated debt securities:
o upon any payment or distribution of our assets or, if
applicable to any series of outstanding debt securities, the
Subsidiary Guarantors' assets, to creditors;
o upon a total or partial liquidation or dissolution of us or,
if applicable to any series of outstanding debt securities,
the Subsidiary Guarantors; or
o in a bankruptcy, receivership or similar proceeding relating
to us or, if applicable to any series of outstanding debt
securities, to the Subsidiary Guarantors.
Until the Senior Indebtedness is paid in full, any distribution to
which holders of subordinated debt securities would otherwise be entitled will
be made to the holders of Senior Indebtedness, except that such holders may
receive units representing limited partner interests and any debt securities
that are subordinated to Senior Indebtedness to at least the same extent as the
subordinated debt securities.
If we do not pay any principal, premium or interest with respect to
Senior Indebtedness within any applicable grace period (including at maturity),
or any other default on Senior Indebtedness occurs and the maturity of the
Senior Indebtedness is accelerated in accordance with its terms, we may not:
o make any payments of principal, premium, if any, or interest
with respect to subordinated debt securities;
o make any deposit for the purpose of defeasance of the
subordinated debt securities; or
22
o repurchase, redeem or otherwise retire any subordinated debt
securities, except that in the case of subordinated debt
securities that provide for a mandatory sinking fund, we may
deliver subordinated debt securities to the Trustee in
satisfaction of our sinking fund obligation,
unless, in either case,
o the default has been cured or waived and the declaration of
acceleration has been rescinded;
o the Senior Indebtedness has been paid in full in cash; or
o we and the Trustee receive written notice approving the
payment from the representatives of each issue of "Designated
Senior Indebtedness."
Generally, "Designated Senior Indebtedness" will include:
o indebtedness for borrowed money under a bank credit agreement,
called "Bank Indebtedness";
o any specified issue of Senior Indebtedness of at least $100
million; and
o any other indebtedness for borrowed money that we may
designate.
During the continuance of any default, other than a default described
in the immediately preceding paragraph, that may cause the maturity of any
Senior Indebtedness to be accelerated immediately without further notice, other
than any notice required to effect such acceleration, or the expiration of any
applicable grace periods, we may not pay the subordinated debt securities for a
period called the "Payment Blockage Period." A Payment Blockage Period will
commence on the receipt by us and the Trustee of written notice of the default,
called a "Blockage Notice," from the representative of any Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period.
The Payment Blockage Period may be terminated before its expiration:
o by written notice from the person or persons who gave the
Blockage Notice;
o by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or
o if the default giving rise to the Payment Blockage Period is
no longer continuing.
Unless the holders of Senior Indebtedness shall have accelerated the maturity of
the Senior Indebtedness, we may resume payments on the subordinated debt
securities after the expiration of the Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any period
of 360 consecutive days unless the first Blockage Notice within the 360-day
period is given by holders of Designated Senior Indebtedness, other than Bank
Indebtedness, in which case the representative of the Bank Indebtedness may give
another Blockage Notice within the period. The total number of days during which
any one or more Payment Blockage Periods are in effect, however, may not exceed
an aggregate of 179 days during any period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the
subordinated debt securities are paid in full, holders of the subordinated debt
securities shall be subrogated to the rights of holders of Senior Indebtedness
to receive distributions applicable to Senior Indebtedness.
As a result of the subordination provisions described above, in the
event of insolvency, the holders of Senior Indebtedness, as well as certain of
our general creditors, may recover more, ratably, than the holders of the
subordinated debt securities.
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BOOK ENTRY, DELIVERY AND FORM
We may issue debt securities of a series in the form of one or more
global certificates deposited with a depositary. We expect that The Depository
Trust Company, New York, New York, or "DTC," will act as depositary. If we issue
debt securities of a series in book-entry form, we will issue one or more global
certificates that will be deposited with DTC and will not issue physical
certificates to each holder. A global security may not be transferred unless it
is exchanged in whole or in part for a certificated security, except that DTC,
its nominees and their successors may transfer a global security as a whole to
one another.
DTC will keep a computerized record of its participants, such as a
broker, whose clients have purchased the debt securities. The participants will
then keep records of their clients who purchased the debt securities. Beneficial
interests in global securities will be shown on, and transfers of beneficial
interests in global securities will be made only through, records maintained by
DTC and its participants.
DTC advises us that it is:
o a limited-purpose trust company organized under the New York
Banking Law;
o a "banking organization" within the meaning of the New York
Banking Law;
o a member of the United States Federal Reserve System;
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
o a "clearing agency" registered under the provisions of Section
17A of the Securities Exchange Act of 1934.
DTC is owned by a number of its participants and by the New York Stock Exchange,
Inc., The American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. The rules that apply to DTC and its participants are on
file with the Securities and Exchange Commission.
DTC holds securities that its participants deposit with DTC. DTC also
records the settlement among participants of securities transactions, such as
transfers and pledges, in deposited securities through computerized records for
participants' accounts. This eliminates the need to exchange certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations.
We will wire principal, premium, if any, and interest payments due on
the global securities to DTC's nominee. We, the Trustee and any paying agent
will treat DTC's nominee as the owner of the global securities for all purposes.
Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global securities to
owners of beneficial interests in the global securities.
It is DTC's current practice, upon receipt of any payment of principal,
premium, if any, or interest, to credit participants' accounts on the payment
date according to their respective holdings of beneficial interests in the
global securities as shown on DTC's records. In addition, it is DTC's current
practice to assign any consenting or voting rights to participants, whose
accounts are credited with debt securities on a record date, by using an omnibus
proxy.
Payments by participants to owners of beneficial interests in the
global securities, as well as voting by participants, will be governed by the
customary practices between the participants and the owners of beneficial
interests, as is the case with debt securities held for the account of customers
registered in "street name." Payments to holders of beneficial interests are the
responsibility of the participants and not of DTC, the Trustee or us.
Beneficial interests in global securities will be exchangeable for
certificated securities with the same terms in authorized denominations only if:
24
o DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under applicable law and a successor depositary is not
appointed by us within 90 days; or
o we determine not to require all of the debt securities of a
series to be represented by a global security and notify the
Trustee of our decision.
THE TRUSTEE
We may appoint a separate trustee for any series of debt securities. We
use the term "Trustee" to refer to the trustee appointed with respect to any
such series of debt securities. We may maintain banking and other commercial
relationships with the Trustee and its affiliates in the ordinary course of
business, and the Trustee may own debt securities.
GOVERNING LAW
The Indenture and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York.
CASH DISTRIBUTIONS
GENERAL
We hold all of our assets and conduct all of our operations through our
subsidiaries. Our subsidiaries will generate all of our Cash from Operations.
The distribution of that cash from our subsidiaries to us is expected to be our
principal source of Available Cash, as described below, from which we will make
distributions. Available Cash means generally, with respect to any calendar
quarter, the sum of all of our cash receipts plus net reductions to cash
reserves less the sum of all of our cash disbursements and net additions to cash
reserves. Cash from Operations, which is determined on a cumulative basis,
generally means all cash generated by our operations, after deducting related
cash expenditures, reserves and other items specified in our partnership
agreement. It also includes the $20 million cash balance we had on the date of
our initial public offering in 1990. The full definitions of Available Cash and
Cash from Operations are set forth in "--Defined Terms."
Our subsidiary partnerships must, under their partnership agreements,
distribute 100% of their available cash. Available cash is defined in the
subsidiary partnership agreements in substantially the same manner as it is in
our partnership agreement. Our limited liability company subsidiaries have
adopted a dividend policy under which all available cash is to be distributed.
Accordingly, the following paragraphs describing distributions to unitholders
and the general partner, and the percentage interests in our distributions, are
stated on the basis of cash available for distribution by us and our
subsidiaries on a combined basis.
We will make distributions to unitholders and the general partner with
respect to each calendar quarter in an amount equal to 100% of our Available
Cash for the quarter, except in connection with our dissolution and liquidation.
Distributions of our Available Cash will be made 98% to unitholders and 2% to
the general partner, subject to the payment of incentive distributions to the
general partner, if specified target levels of cash distributions to the
unitholders are achieved. The general partner's incentive distributions are
described below under "--Quarterly Distributions of Available
Cash--Distributions of Cash from Operations."
The following table sets forth the amount of distributions of Available
Cash constituting Cash from Operations effected with respect to the units for
the quarters in the periods shown.
AMOUNT
RECORD DATE PAYMENT DATE PER UNIT
----------- ------------ --------
October 30, 1998 November 6, 1998 $ 0.450
January 29, 1999 February 5, 1999 0.450
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AMOUNT
RECORD DATE PAYMENT DATE PER UNIT
----------- ------------ --------
April 30, 1999 May 7, 1999 0.450
July 30, 1999 August 6, 1999 0.475
October 29, 1999 November 5, 1999 0.475
January 31, 2000 February 4, 2000 0.475
April 28, 2000 May 5, 2000 0.500
July 31, 2000 August 4, 2000 0.500
October 31, 2000 November 3, 2000 0.525
January 31, 2001 February 2, 2001 0.525
April 30, 2001 May 4, 2001 0.525
July 31, 2001 August 6, 2001 0.525
October 31, 2001 November 5, 2001 0.575
January 31, 2002 February 8, 2002 0.575
Cash distributions are characterized as either distributions of Cash
from Operations or Cash from Interim Capital Transactions. This distinction is
important because it affects the amount of cash that is distributed to the
unitholders relative to the general partner. See "--Quarterly Distributions of
Available Cash--Distributions of Cash from Operations" and "--Quarterly
Distributions of Available Cash--Distributions of Cash from Interim Capital
Transactions" below. We will ordinarily generate Cash from Interim Capital
Transactions from:
o borrowings and sales of debt securities other than for working
capital purposes;
o sales of equity interests; and
o sales or other dispositions of our assets.
All Available Cash that we distribute on any date from any source will
be treated as if it were a distribution of Cash from Operations until the sum of
all Available Cash distributed as Cash from Operations to the unitholders and to
the general partner equals the aggregate amount of all Cash from Operations that
we generated since we commenced operations through the end of the prior calendar
quarter.
Any remaining Available Cash distributed on that date will be treated
as if it were a distribution of Cash from Interim Capital Transactions, except
as otherwise set forth below under the caption "--Quarterly Distributions of
Available Cash--Distributions of Cash from Interim Capital Transactions."
A more complete description of how we will distribute cash before we
commence to dissolve or liquidate is set forth below under "--Quarterly
Distributions of Available Cash." Distributions of cash in connection with our
dissolution and liquidation will be made as described below under
"--Distributions of Cash Upon Liquidation."
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
Distributions of Cash from Operations
Our distributions of Available Cash that constitutes Cash from
Operations in respect of any calendar quarter will be made in the following
priorities:
first, 98% to all unitholders pro rata and 2% to the general
partner until all unitholders have received distributions of $0.275 per
unit for such calendar quarter (the "First Target Distribution");
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second, 85% to all unitholders pro rata and 15% to the general
partner until all unitholders have received distributions of $0.325 per
unit for such calendar quarter (the "Second Target Distribution");
third, 75% to all unitholders pro rata and 25% to the general
partner until all unitholders have received distributions of $0.450 per
unit for such calendar quarter (the "Third Target Distribution" and,
together with the First Target Distribution and Second Target
Distribution, the "Target Distributions"); and
thereafter, 50% to all unitholders pro rata and 50% to the
general partner.
The following table illustrates the percentage allocation of
distributions of Available Cash that constitute Cash from Operations among the
unitholders and the general partner up to the various target distribution
levels.
MARGINAL PERCENTAGE INTEREST IN DISTRIBUTIONS
---------------------------------------------------
GENERAL
QUARTERLY AMOUNT: UNITHOLDERS PARTNER
- --------------------------- --------------------------- --------------------
up to $0.275 98% 2%
$0.276 to $0.325 85% 15%
$0.326 to $0.450 75% 25%
Thereafter 50% 50%
The Target Distributions are each subject to adjustment as described
below under "--Adjustment of the Target Distributions."
Distributions of Cash from Interim Capital Transactions
Distributions of Available Cash that constitutes Cash from Interim
Capital Transactions will be distributed 99% to all unitholders pro rata and 1%
to the general partner until a hypothetical holder of a unit acquired in our
initial public offering has received, with respect to that unit, distributions
of Available Cash constituting Cash from Interim Capital Transactions in an
amount per unit equal to $20.00. Thereafter, all Available Cash will be
distributed as if it were Cash from Operations. We have not distributed any
Available Cash that constitutes Cash from Interim Capital Transactions.
ADJUSTMENT OF THE TARGET DISTRIBUTIONS
The Target Distributions will be proportionately adjusted in the event
of any combination or subdivision of units. In addition, if a distribution is
made of Available Cash constituting Cash from Interim Capital Transactions, the
Target Distributions will also be adjusted proportionately downward to equal the
product resulting from multiplying each of them by a fraction, of which the
numerator shall be the Unrecovered Capital immediately after giving effect to
such distribution and the denominator shall be the Unrecovered Capital
immediately before such distribution. For these purposes, "Unrecovered Capital"
means, at any time, an amount equal to the excess of (1) $10.00 over (2) the sum
of all distributions theretofore made in respect of a hypothetical unit offered
in our initial public offering out of Available Cash constituting Cash from
Interim Capital Transactions and all distributions in connection with our
liquidation.
The Target Distributions also may be adjusted if legislation is enacted
that causes us to be taxable as a corporation or to be treated as an association
taxable as a corporation for federal income tax purposes. In that event, the
Target Distributions for each quarter thereafter would be reduced to an amount
equal to the product of each of the Target Distributions multiplied by 1 minus
the sum of:
o the maximum marginal federal corporate income tax rate, plus
o any increase that results from such legislation in the
effective overall state and local income tax rate applicable
to us for the taxable year in which such quarter occurs after
taking into account the benefit of any deduction allowable for
federal income tax purposes with respect to the payment of
state and local income taxes.
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DISTRIBUTIONS OF CASH UPON LIQUIDATION
We will dissolve on December 31, 2084, unless we are dissolved at an
earlier date pursuant to the terms of our partnership agreement. The proceeds of
our liquidation shall be applied first in accordance with the provisions of our
partnership agreement and applicable law to pay our creditors in the order of
priority provided by law. Thereafter, any remaining proceeds will be distributed
to unitholders and the general partner as set forth below. Upon our liquidation,
unitholders are entitled to share with the general partner in the remainder of
our assets. Their sharing will be in proportion to their capital account
balances, after giving effect to the following allocations of any gain or loss
realized from sales or other dispositions of assets following commencement of
our liquidation. Gain or loss will include any unrealized gain or loss
attributable to assets distributed in kind. Any such gain will be allocated as
follows:
first, to each partner having a deficit balance in his capital
account in the proportion that the deficit balance bears to the total
deficit balances in the capital accounts of all partners until each
partner has been allocated gain equal to that deficit balance;
second, 100% to the partners in accordance with their
percentage interests until the capital account in respect of each unit
then outstanding is equal to the Unrecovered Capital attributable to
that unit.
third, 100% to the partners in accordance with their
percentage interests until the per-unit capital account in respect of
each unit is equal to the sum of
o the Unrecovered Capital attributable to that unit,
plus
o any cumulative arrearages in the payment of the
Minimum Quarterly Distribution in respect of that
unit for any quarter after December 31, 1994;
fourth, 85% to all unitholders pro rata and 15% to the general
partner until the capital account of each outstanding unit is equal to
the sum of
o the Unrecovered Capital with respect to that unit,
plus
o any cumulative arrearages in the payment of the
Minimum Quarterly Distribution in respect of that
unit for any quarter after December 31, 1994, plus
o the excess of:
(a) the First Target Distribution over the
Minimum Quarterly Distribution for each
quarter of our existence, less
(b) the amount of any distributions of Cash from
Operations in excess of the Minimum
Quarterly Distribution which were
distributed 85% to the unitholders pro rata
and 15% to the general partner for each
quarter of our existence ((a) less (b) being
the "Target Amount");
fifth, 75% to all unitholders pro rata and 25% to the general
partner, until the capital account of each outstanding unit is equal to
the sum of
o the Unrecovered Capital with respect to that unit,
plus
o the Target Amount, plus
o the excess of:
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(a) the Second Target Distribution over the
First Target Distribution for each quarter
of our existence, less
(b) the amount of any distributions of Cash from
Operations in excess of the First Target
Distribution which were distributed 75% to
the unitholders pro rata and 25% to the
general partner for each quarter of our
existence ((a) less (b) being the "Second
Target Amount");
thereafter, any then-remaining gain would be allocated 50% to
all unitholders pro rata and 50% to the general partner.
For these purposes, "Unrecovered Capital" means, at any time with
respect to any units,
o $10, less
o the sum of:
(a) any distributions of Available Cash constituting Cash
from Interim Capital Transactions, and
(b) any distributions of cash and the fair value of any
assets distributed in kind in connection with our
dissolution and liquidation theretofore made in
respect of a unit that was sold in the initial
offering of the units.
Any loss realized from sales or other dispositions of assets following
commencement of our dissolution and liquidation, including any unrealized gain
or loss attributable to assets distributed in kind, will be allocated to the
general partner and the unitholders: first, in proportion to the positive
balances in the partners' capital accounts until all balances are reduced to
zero; and second, to the general partner.
DEFINED TERMS
"Available Cash" means, with respect to any calendar quarter, the sum
of:
o all our cash receipts during that quarter from all sources,
including distributions of cash received from subsidiaries,
plus
o any reduction in reserves established in prior quarters,
o less the sum of:
o all our cash disbursements during that quarter,
including, disbursements for taxes on us as an
entity, debt service and capital expenditures,
o any reserves established in that quarter in such
amounts as the general partner shall determine to be
necessary or appropriate in its reasonable discretion
o to provide for the proper conduct of our
business, including reserves for future rate
refunds or capital expenditures, or
o to provide funds for distributions with
respect to any of the next four calendar
quarters, and
o any other reserves established in that quarter in
such amounts as the general partner determines in its
reasonable discretion to be necessary because the
distribution of such
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amounts would be prohibited by applicable law or by
any loan agreement, security agreement, mortgage,
debt instrument or other agreement or obligation to
which we are a party or by which we are bound or our
assets are subject.
Taxes that we pay on behalf of, or amounts withheld with respect to,
less than all of the unitholders shall not be considered cash disbursements by
us that reduce "Available Cash" but will be deemed a distribution of Available
Cash to those partners. Alternatively, in the discretion of our general partner,
those taxes that pertain to all partners may be considered to be cash
disbursements which reduce Available Cash and which will not be deemed to be a
distribution of Available Cash to the partners. Notwithstanding the foregoing,
"Available Cash" will not include any cash receipts or reductions in reserves or
take into account any disbursements made or reserves established after
commencement of our dissolution and liquidation.
"Cash from Interim Capital Transactions" means all cash distributed
other than Cash from Operations.
"Cash from Operations" means, at any date but before the commencement
of our dissolution and liquidation, on a cumulative basis,
o $20 million plus
o all our cash receipts during the period since the commencement
of our operations through that date, excluding any cash
proceeds from any Interim Capital Transactions or Termination
Capital Transactions,
less the sum of:
(a) all our cash operating expenditures during that period
including, without limitation, taxes imposed on us as an
entity,
(b) all our cash debt service payments during that period other
than:
o payments or prepayments of principal and premium
required by reason of loan agreements or by lenders
in connection with sales or other dispositions of
assets all cash distributed other than Cash from
Operations, and
o payments or prepayments of principal and premium made
in connection with refinancings or refundings of
indebtedness, provided that any payment or prepayment
or principal, whether or not then due, shall be
determined at the election and in the discretion of
the general partner, to be refunded or refinanced by
any indebtedness incurred or to be incurred by us
simultaneously with or within 180 days before or
after that payment or prepayment to the extent of the
principal amount of such indebtedness so incurred,
(c) all our cash capital expenditures during that period other
than:
o cash capital expenditures made to increase the
throughput or deliverable capacity or terminaling
capacity of our assets, taken as a whole, from the
throughput or deliverable capacity or terminaling
capacity existing immediately before those capital
expenditures and
o cash expenditures made in payment of transaction
expenses relating to Interim Capital Transactions,
(d) an amount equal to the incremental revenues collected pursuant
to a rate increase that are subject to possible refund,
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(e) any reserves outstanding as of that date that the general
partner determines in its reasonable discretion to be
necessary or appropriate to provide for the future cash
payment of items of the type referred to in (a) through (c)
above, and
(f) any reserves that the general partner determines to be
necessary or appropriate in its reasonable discretion to
provide funds for distributions with respect to any one or
more of the next four calendar quarters, all as determined on
a consolidated basis and after elimination of intercompany
items and the general partner's interest in our subsidiaries.
"Interim Capital Transactions" means our
o borrowings and sales of debt securities other than for working
capital purposes and other than for items purchased on open
account in the ordinary course of business,
o sales of partnership interests, and
o sales or other voluntary or involuntary dispositions of any
assets other than:
o sales or other dispositions of inventory in the
ordinary course of business,
o sales or other dispositions of other current assets
including receivables and accounts or
o sales or other dispositions of assets as a part of
normal retirements or replacements,
in each case before the commencement of our dissolution and
liquidation.
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TAX CONSIDERATIONS
This section is a summary of all the material tax considerations that
may be relevant to prospective unitholders who are individual citizens or
residents of the United States and, unless otherwise noted in the following
discussion, is the opinion of Vinson & Elkins L.L.P., special counsel to the
general partner and us, insofar as it relates to matters of United States
federal income tax law and legal conclusions with respect to those matters. This
section is based upon current provisions of the Internal Revenue Code, existing
and proposed regulations and current administrative rulings and court decisions,
all of which are subject to change. Later changes in these authorities may cause
the tax consequences to vary substantially from the consequences described
below. Unless the context otherwise requires, references in this section to "us"
or "we" are references to TEPPCO Partners, L.P. and our operating partnerships.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, nonresident aliens or other unitholders subject to specialized tax
treatment, such as tax-exempt institutions, foreign persons, individual
retirement accounts (IRAs), real estate investment trusts (REITs) or mutual
funds. Accordingly, we recommend that each prospective unitholder consult, and
depend on, his own tax advisor in analyzing the federal, state, local and
foreign tax consequences particular to him of the ownership or disposition of
limited partnership units.
All statements as to matters of law and legal conclusions, but not as
to factual matters, contained in this section, unless otherwise noted, are the
opinion of counsel and are based on the accuracy of the representations made by
us.
No ruling has been or will be requested from the IRS regarding any
matter affecting us or prospective unitholders. An opinion of counsel represents
only that counsel's best legal judgment and does not bind the IRS or the courts.
Accordingly, the opinions and statements made here may not be sustained by a
court if contested by the IRS. Any contest of this sort with the IRS may
materially and adversely impact the market for the limited partnership units and
the prices at which limited partnership units trade. In addition, the costs of
any contest with the IRS will be borne directly or indirectly by the unitholders
and the general partner. Furthermore, the tax treatment of us, or of an
investment in us, may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may or may not be
retroactively applied.
For the reasons described below, counsel has not rendered an opinion
with respect to the following specific federal income tax issues:
(1) the treatment of a unitholder whose limited partnership units are
loaned to a short seller to cover a short sale of limited partnership units
(please read "-- Tax Consequences of Unit Ownership -- Treatment of Short
Sales");
(2) whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (please read "--
Disposition of Limited Partnership Units -- Allocations Between Transferors and
Transferees"); and
(3) whether our method for depreciating Section 743 adjustments is
sustainable (please read "-- Tax Consequences of Unit Ownership -- Section 754
Election").
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his share of items of income, gain, loss and deduction of the
partnership in computing his federal income tax liability, regardless of whether
cash distributions are made to him by the partnership. Distributions by a
partnership to a partner generally are not taxable unless the amount of cash
distributed is in excess of the partner's adjusted basis in his partnership
interest.
32
No ruling has been or will be sought from the IRS and the IRS has made
no determination as to our status or the status of our operating subsidiaries as
partnerships for federal income tax purposes or whether our operations generate
"qualifying income" under Section 7704 of the Internal Revenue Code. Instead, we
will rely on the opinion of counsel that, based upon the Internal Revenue Code,
its regulations, published revenue rulings and court decisions and the
representations described below, we and our operating subsidiaries have been and
will be classified as partnerships for federal income tax purposes.
Treasury Regulations pertaining to the classification of entities such
as us as partnerships or corporations for federal income tax purposes were
significantly revised effective January 1, 1997. Pursuant to these revised
Treasury Regulations, known as the "check-the-box" regulations, entities
organized as limited partnerships under domestic partnership statutes are
treated as partnerships for federal income tax purposes unless they elect to be
treated as corporations. Domestic limited partnerships in existence prior to
1997 and classified as partnerships as of December 31, 1996, under the prior
Treasury Regulations would continue to be classified as partnerships after 1996
unless they formally elected another form of classification under the check the
box regulations. Neither we nor our operating partnerships have filed an
election to be treated as a corporation under the check-the-box regulations, and
counsel has rendered its opinion that we and our operating partnerships were
treated as partnerships on December 31, 1996, under the prior Treasury
Regulations and continue to be so treated.
Section 7704 of the Internal Revenue Code provides that publicly traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "qualifying income exception," exists with respect
to publicly traded partnerships of which 90% or more of the gross income for
every taxable year consists of "qualifying income." Qualifying income includes
income and gains derived from the exploration, development, mining or
production, processing, refining, transportation and marketing of any mineral or
natural resource. Other types of qualifying income include interest other than
from a financial business, dividends, gains from the sale of real property and
gains from the sale or other disposition of assets held for the production of
income that otherwise constitutes qualifying income. We estimate that less than
5% of our current gross income is not qualifying income; however, this estimate
could change from time to time. Based upon and subject to this estimate, the
factual representations made by us and the general partner and a review of the
applicable legal authorities, counsel is of the opinion that at least 90% of our
current gross income constitutes qualifying income.
In rendering its opinion that we and our operating partnerships were
treated as partnerships for federal income tax purposes as of December 31, 1996,
our tax counsel has relied on the following factual representations that the
general partner made about us and our operating partnerships with respect to
periods prior to 1997:
o As to us and each of our operating partnerships, the general
partner at all times while acting as general partner had a net
worth of at least $5.0 million computed by excluding any net
worth attributable to its interest in, and accounts and notes
receivable from, or payable to, us or any limited partnership
in which it is a general partner.
o Each such partnership operated and will continue to operate in
accordance with applicable state partnership statutes, the
partnership agreements and the statements and representations
made in this prospectus.
o Except as otherwise required by Section 704(c) of the Internal
Revenue Code, the general partner of each partnership had at
least a 1% interest in each material item of income, gain,
loss, deduction and credit of its respective partnership.
o For each taxable year, more than 90% our gross income was from
sources that, in our counsel's opinion, generated "qualifying
income" within the meaning of Section 7704 of the Internal
Revenue Code.
o Our general partner and the general partner of each of our
operating partnerships acted independently of the limited
partners of such partnerships.
33
In rendering its opinion that we and our operating partnerships have
been and will continue to be treated as partnerships for federal income tax
purposes after 1996, our tax counsel has relied on the following factual
representations that the general partner made about us and our operating
partnerships with respect to periods after 1996:
o Neither we nor our operating subsidiaries will elect to be
treated as a corporation; and
o For each taxable year, more than 90% of our gross income will
be income that, in our counsel's opinion, is "qualifying
income" within the meaning of Section 7704(d) of the Internal
Revenue Code.
If we fail to meet the qualifying income exception, other than a
failure which is determined by the IRS to be inadvertent and which is cured
within a reasonable time after discovery, we will be treated as if we had
transferred all of our assets, subject to liabilities, to a newly formed
corporation, on the first day of the year in which we fail to meet the
qualifying income exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of their interests in
us. This contribution and liquidation should be tax-free to unitholders and us
so long as we, at that time, do not have liabilities in excess of the tax basis
of our assets. Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we were taxable as a corporation in any taxable year, either as a
result of a failure to meet the qualifying income exception or otherwise, our
items of income, gain, loss and deduction would be reflected only on our tax
return rather than being passed through to the unitholders, and our net income
would be taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income, to the extent of
our current or accumulated earnings and profits, or, in the absence of earnings
and profits, a nontaxable return of capital, to the extent of the unitholder's
tax basis in his limited partnership units, or taxable capital gain, after the
unitholder's tax basis in his limited partnership units is reduced to zero.
Accordingly, taxation as a corporation would result in a material reduction in a
unitholder's cash flow and after-tax return and thus would likely result in a
substantial reduction of the value of the units.
The discussion below is based on the conclusion that we will be
classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of TEPPCO Partners will be
treated as partners of TEPPCO Partners for federal income tax purposes. Also:
o assignees who have executed and delivered transfer
applications, and are awaiting admission as limited partners,
and
o unitholders whose limited partnership units are held in street
name or by a nominee and who have the right to direct the
nominee in the exercise of all substantive rights attendant to
the ownership of their limited partnership units,
will be treated as partners of TEPPCO Partners for federal income tax
purposes. As there is no direct authority addressing assignees of limited
partnership units who are entitled to execute and deliver transfer applications
and become entitled to direct the exercise of attendant rights, but who fail to
execute and deliver transfer applications, counsel's opinion does not extend to
these persons. Furthermore, a purchaser or other transferee of limited
partnership units who does not execute and deliver a transfer application may
not receive some federal income tax information or reports furnished to record
holders of limited partnership units unless the limited partnership units are
held in a nominee or street name account and the nominee or broker has executed
and delivered a transfer application for those limited partnership units.
34
A beneficial owner of limited partnership units whose units have been
transferred to a short seller to complete a short sale would appear to lose his
status as a partner with respect to those units for federal income tax purposes.
Please read "-- Tax Consequences of Unit Ownership -- Treatment of Short Sales."
Income, gain, deductions or losses would not appear to be reportable by
a unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for federal income
tax purposes would therefore be fully taxable as ordinary income. We urge
holders to consult their own tax advisors with respect to their status as
partners in TEPPCO Partners for federal income tax purposes.
TAX CONSEQUENCES OF UNIT OWNERSHIP
Flow-through of Taxable Income. We do not pay any federal income tax.
Instead, each unitholder is required to report on his income tax return his
share of our income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a cash distribution.
Each unitholder will be required to include in income his allocable share of our
income, gains, losses and deductions for our taxable year ending with or within
his taxable year.
Treatment of Distributions. Distributions by us to a unitholder
generally will not be taxable to the unitholder for federal income tax purposes
to the extent of his tax basis in his limited partnership units immediately
before the distribution. Our cash distributions in excess of a unitholder's tax
basis generally will be considered to be gain from the sale or exchange of the
limited partnership units, taxable in accordance with the rules described under
"-- Disposition of Limited Partnership Units" below. To the extent our
distributions cause a unitholder's "at risk" amount to be less than zero at the
end of any taxable year, he must recapture any losses deducted in previous
years. Please read "-- Limitations on Deductibility of Losses."
Any reduction in a unitholder's share of our liabilities for which no
partner, including the general partner, bears the economic risk of loss, known
as "nonrecourse liabilities," will be treated as a distribution of cash to that
unitholder. A decrease in a unitholder's percentage interest in us because of
our issuance of additional limited partnership units will decrease his share of
our nonrecourse liabilities, and thus will result in a corresponding deemed
distribution of cash. A non-pro rata distribution of money or property may
result in ordinary income to a unitholder, regardless of his tax basis in his
limited partnership units, if the distribution reduces the unitholder's share of
our "unrealized receivables," including depreciation recapture, and/or
substantially appreciated "inventory items," both as defined in the Internal
Revenue Code, and collectively, "Section 751 assets." To that extent, he will be
treated as having been distributed his proportionate share of the Section 751
assets and having exchanged those assets with us in return for the non-pro rata
portion of the actual distribution made to him. This latter deemed exchange will
generally result in the unitholder's realization of ordinary income. That income
will equal the excess of (1) the non-pro rata portion of that distribution over
(2) the unitholder's tax basis for the share of Section 751 assets deemed
relinquished in the exchange.
Basis of Limited Partnership Units. A unitholder's initial tax basis
for his limited partnership units will be the amount he paid for the limited
partnership units plus his share of our nonrecourse liabilities. That basis will
be increased by his share of our income and by any increases in his share of our
nonrecourse liabilities. That basis will be decreased, but not below zero, by
distributions from us, by the unitholder's share of our losses, by any decreases
in his share of our nonrecourse liabilities and by his share of our expenditures
that are not deductible in computing taxable income and are not required to be
capitalized. A limited partner will have no share of our debt which is recourse
to the general partner, but will have a share, generally based on his share of
profits, of our nonrecourse liabilities. Please read "-- Disposition of Limited
Partnership Units -- Recognition of Gain or Loss."
Limitations on Deductibility of Losses. The deduction by a unitholder
of his share of our losses will be limited to the tax basis in his units and, in
the case of an individual unitholder or a corporate unitholder, if more than 50%
of the value of the corporate unitholder's stock is owned directly or indirectly
by five or fewer individuals or some tax-exempt organizations, to the amount for
which the unitholder is considered to be "at risk" with respect to our
activities, if that is less than his tax basis. A unitholder must recapture
losses deducted in previous years to the extent that distributions cause his at
risk amount to be less than zero at the end of any taxable year. Losses
disallowed to a unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to
35
the extent that his tax basis or at risk amount, whichever is the limiting
factor, is subsequently increased. Upon the taxable disposition of a unit, any
gain recognized by a unitholder can be offset by losses that were previously
suspended by the at risk limitation but may not be offset by losses suspended by
the basis limitation. Any excess loss above that gain previously suspended by
the at risk or basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the tax basis
of his units, excluding any portion of that basis attributable to his share of
our nonrecourse liabilities, reduced by any amount of money he borrows to
acquire or hold his units, if the lender of those borrowed funds owns an
interest in us, is related to the unitholder or can look only to the units for
repayment. A unitholder's at risk amount will increase or decrease as the tax
basis of the unitholder's units increases or decreases, other than tax basis
increases or decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely held corporations and personal service
corporations can deduct losses from passive activities, which are generally
activities in which the taxpayer does not materially participate, only to the
extent of the taxpayer's income from those passive activities. The passive loss
limitations are applied separately with respect to each publicly traded
partnership. Consequently, any passive losses we generate will only be available
to offset our passive income generated in the future and will not be available
to offset income from other passive activities or investments, including our
investments or investments in other publicly traded partnerships, or salary or
active business income. Passive losses that are not deductible because they
exceed a unitholder's share of income we generate may be deducted in full when
he disposes of his entire investment in us in a fully taxable transaction with
an unrelated party. The passive activity loss rules are applied after other
applicable limitations on deductions, including the at risk rules and the basis
limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses, but it may not be offset by any other current or carryover
losses from other passive activities, including those attributable to other
publicly traded partnerships.
Limitations on Interest Deductions. The deductibility of a
non-corporate taxpayer's "investment interest expense" is generally limited to
the amount of that taxpayer's "net investment income." The IRS has indicated
that net passive income earned by a publicly traded partnership will be treated
as investment income for purposes of the limitations on the deductibility of
investment interest. In addition, the unitholder's share of our portfolio income
will be treated as investment income. Investment interest expense includes:
o interest on indebtedness properly allocable to property held
for investment;
o our interest expense attributed to portfolio income; and
o the portion of interest expense incurred to purchase or carry
an interest in a passive activity to the extent attributable
to portfolio income.
The computation of a unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit.
Net investment income includes gross income from property held for
investment and amounts treated as portfolio income under the passive loss rules,
less deductible expenses, other than interest, directly connected with the
production of investment income, but generally does not include gains
attributable to the disposition of property held for investment.
Entity-Level Collections. If we are required or elect under applicable
law to pay any federal, state or local income tax on behalf of any unitholder or
the general partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as a distribution
of cash to the partner on whose behalf the payment was made. If the payment is
made on behalf of a person whose identity cannot be determined, we are
authorized to treat the payment as a distribution to all current unitholders. We
are authorized to amend the partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units and to
36
adjust later distributions, so that after giving effect to these distributions,
the priority and characterization of distributions otherwise applicable under
the partnership agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner would be required to file a claim
in order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In general, if we have
a net profit, our items of income, gain, loss and deduction will be allocated
among the general partner and the unitholders in accordance with their
percentage interests in us. If we have a net loss for the entire year, that loss
will be allocated first to the general partner and the unitholders in accordance
with their percentage interests in us to the extent of their positive capital
accounts and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for the difference between the tax basis and fair market
value of property contributed to us by our partners, referred to in this
discussion as "contributed property." The effect of these allocations to a
unitholder purchasing limited partnership units in any offering will be
essentially the same as if the tax basis of our assets were equal to their fair
market value at the time of the offering. In addition, items of recapture income
will be allocated to the extent possible to the partner who was allocated the
deduction giving rise to the treatment of that gain as recapture income in order
to minimize the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts nevertheless result,
items of our income and gain will be allocated in an amount and manner to
eliminate the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction, other
than an allocation required by Section 704(c) of the Internal Revenue Code to
eliminate the difference between a partner's "book" capital account, credited
with the fair market value of contributed property, and "tax" capital account,
credited with the tax basis of contributed property, referred to in this
discussion as the "book-tax disparity," generally will be given effect for
federal income tax purposes in determining a partner's share of an item of
income, gain, loss or deduction only if the allocation has substantial economic
effect. In any other case, a partner's share of an item will be determined on
the basis of his interest in us, which will be determined by taking into account
all the facts and circumstances, including his relative contributions to us, the
interests of all the partners in profits and losses, the interest of all the
partners in cash flow and other nonliquidating distributions and rights of all
the partners to distributions of capital upon liquidation.
Under our method of making Section 704(c) allocations, unitholders
cannot be allocated more depreciation, gain or loss than the total amount of any
such item recognized by us in a particular taxable period (the "ceiling
limitation"). To the extent the ceiling limitation is or becomes applicable, our
partnership agreement will require that items of income and deduction be
allocated in a way designed to effectively "cure" this problem and eliminate the
impact of the ceiling limitation. Treasury Regulations under Section 704(c) of
the Internal Revenue Code permit a partnership to make reasonable curative
allocations to reduce or eliminate disparities between the tax basis and value
attributable to property contributed to us.
Counsel is of the opinion that, with the exception of the issues
described in "-- Tax Consequences of Unit Ownership -- Section 754 Election" and
"-- Disposition of Limited Partnership Units -- Allocations Between Transferors
and Transferees," allocations under our partnership agreement will be given
effect for federal income tax purposes in determining a partner's share of an
item of income, gain, loss or deduction.
Treatment of Short Sales. A unitholder whose units are loaned to a
"short seller" to cover a short sale of units may be considered as having
disposed of those units. If so, he would no longer be a partner for those units
during the period of the loan and may recognize gain or loss from the
disposition. As a result, during this period:
o any of our income, gain, loss or deduction with respect to
those units would not be reportable by the unitholder;
o any cash distributions received by the unitholder as to those
units would be fully taxable; and
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o all of these distributions would appear to be ordinary income.
Counsel has not rendered an opinion regarding the treatment of a
unitholder where limited partnership units are loaned to a short seller to cover
a short sale of limited partnership units; therefore, unitholders desiring to
assure their status as partners and avoid the risk of gain recognition from a
loan to a short seller should modify any applicable brokerage account agreements
to prohibit their brokers from borrowing their units. The IRS has announced that
it is actively studying issues relating to the tax treatment of short sales of
partnership interests. Please also read "-- Disposition of Limited Partnership
Units -- Recognition of Gain or Loss."
Alternative Minimum Tax. Each unitholder will be required to take into
account his distributive share of any items of our income, gain, loss or
deduction for purposes of the alternative minimum tax. The current minimum tax
rate for noncorporate taxpayers is 26% on the first $175,000 of alternative
minimum taxable income in excess of the exemption amount and 28% on any
additional alternative minimum taxable income. Prospective unitholders should
consult with their tax advisors as to the impact of an investment in units on
their liability for the alternative minimum tax.
Tax Rates. In general the highest effective United States federal
income tax rate for individuals for 2001 is 38.6% and the maximum United States
federal income tax rate for net capital gains of an individual for 2001 is 20%
if the asset disposed of was held for more than one year at the time of
disposition.
Section 754 Election. We and our operating partnerships have made the
election permitted by Section 754 of the Internal Revenue Code. That election is
irrevocable without the consent of the IRS. The election will generally permit
us to adjust a limited partnership unit purchaser's tax basis in our assets
("inside basis") under Section 743(b) of the Internal Revenue Code to reflect
his purchase price. This election does not apply to a person who purchases
limited partnership units directly from us. The Section 743(b) adjustment
belongs to the purchaser and not to other partners. For purposes of this
discussion, a partner's inside basis in our assets will be considered to have
two components: (1) his share of our tax basis in our assets ("common basis")
and (2) his Section 743(b) adjustment to that basis.
Treasury Regulations under Sections 743 and 197 of the Internal Revenue
Code generally require, unless the remedial allocation method is adopted, the
Section 743(b) adjustment attributable to recovery property to be depreciated as
if the total amount of such adjustment were attributable to newly-purchased
recovery property placed in service when the unit transfer occurs. The remedial
allocation method can be adopted only with respect to property contributed to a
partnership on or after December 21, 1993, and a significant part of our assets
were acquired by contribution to us before that date. Under Treasury Regulation
Section 1.167(c)-1(a)(6), a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal Revenue Code rather
than cost-recovery deductions under Section 168 generally is required to be
depreciated using either the straight-line method or the 150 percent
declining-balance method. We utilize the 150 percent declining method on such
property. The depreciation and amortization methods and useful lives associated
with the Section 743(b) adjustment, therefore, may differ from the methods and
useful lives generally used to depreciate the common basis in such properties.
This difference could adversely affect the continued uniformity of the tax
characteristics of our units. To avoid such a lack of uniformity, the general
partner has adopted an accounting convention under Section 743(b) to preserve
the uniformity of units despite its inconsistency with these Treasury
Regulations. Please read "--Tax Treatment of Operations--Uniformity of Units."
Although counsel is unable to opine as to the validity of such an
approach because there is no clear authority on this issue, we depreciate the
portion of a Section 743(b) adjustment attributable to unrealized appreciation
in the value of contributed recovery property, to the extent of any unamortized
book-tax disparity, using a rate of depreciation or amortization derived from
the depreciation or amortization method and useful life applied to the common
basis of such property, despite its inconsistency with the Treasury Regulations
described above. To the extent a Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized book-tax disparity, we will
apply the rules described in the Treasury Regulations. If we determine that this
position cannot reasonably be taken, we may take a depreciation or amortization
position under which all purchasers acquiring units in the same month would
receive depreciation or amortization, whether attributable to common basis or a
Section 743(b) adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our assets. This kind of aggregate approach may
result in lower annual depreciation or amortization
38
deductions than would otherwise be allowable to some unitholders. Please read
"-- Tax Treatment of Operations -- Uniformity of Units."
A Section 754 election is advantageous if the transferee's tax basis in
his units is higher than the units' share of the aggregate tax basis of our
assets immediately prior to the transfer. In that case, as a result of the
election, the transferee would have, among other items, a greater amount of
depreciation and depletion deductions and his share of any gain or loss on a
sale of our assets would be less. Conversely, a Section 754 election is
disadvantageous if the transferee's tax basis in his units is lower than those
units' share of the aggregate tax basis of our assets immediately prior to the
transfer. Thus, the fair market value of the units may be affected either
favorably or unfavorably by the election.
The calculations involved in the Section 754 election are complex and
will be made on the basis of assumptions as to the value of our assets and other
matters. For example, the allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue Code. The IRS could
seek to reallocate some or all of any Section 743(b) adjustment allocated by us
to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is
generally amortizable over a longer period of time or under a less accelerated
method than our tangible assets. We cannot assure you that the determinations we
make will not be successfully challenged by the IRS and that the deductions
resulting from them will not be reduced or disallowed altogether. Should the IRS
require a different basis adjustment to be made, and should, in our opinion, the
expense of compliance exceed the benefit of the election, we may seek permission
from the IRS to revoke our Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than he would have
been allocated had the election not been revoked.
TREATMENT OF OPERATIONS
Accounting Method and Taxable Year. We use the year ending December 31
as our taxable year and the accrual method of accounting for federal income tax
purposes. Each unitholder will be required to include in income his share of our
income, gain, loss and deduction for our taxable year ending within or with his
taxable year. In addition, a unitholder who has a taxable year ending on a date
other than December 31 and who disposes of all of his units following the close
of our taxable year but before the close of his taxable year must include his
share of our income, gain, loss and deduction in income for his taxable year,
with the result that he will be required to include in income for his taxable
year his share of more than one year of our income, gain, loss and deduction.
Please read "-- Disposition of Limited Partnership Units -- Allocations Between
Transferors and Transferees."
Initial Tax Basis, Depreciation and Amortization. The tax basis of our
assets will be used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets. The
federal income tax burden associated with the difference between the fair market
value of our assets and their tax basis immediately prior to an offering of
units will be borne by the general partner, its affiliates and our other
unitholders as of that time. Please read "-- Allocation of Income, Gain, Loss
and Deduction."
To the extent allowable, we may elect to use the depreciation and cost
recovery methods that will result in the largest deductions being taken in the
early years after assets are placed in service. We are not entitled to any
amortization deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be depreciated
using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or
otherwise, all or a portion of any gain, determined by reference to the amount
of depreciation previously deducted and the nature of the property, may be
subject to the recapture rules and taxed as ordinary income rather than capital
gain. Similarly, a partner who has taken cost recovery or depreciation
deductions with respect to property we own will likely be required to recapture
some or all, of those deductions as ordinary income upon a sale of his interest
in us. Please read "-- Tax Consequences of Unit Ownership -- Allocation of
Income, Gain, Loss and Deduction" and "-- Disposition of Limited Partnership
Units -- Recognition of Gain or Loss."
The costs incurred in selling our units (called "syndication expenses")
must be capitalized and cannot be deducted currently, ratably or upon our
termination. There are uncertainties regarding the classification of costs as
39
organization expenses, which may be amortized by us, and as syndication
expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as a syndication cost.
Valuation and Tax Basis of Our Properties. The federal income tax
consequences of the ownership and disposition of units will depend in part on
our estimates of the relative fair market values, and the initial tax bases, of
our assets. Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the relative fair
market value estimates ourselves. These estimates of basis are subject to
challenge and will not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the character and
amount of items of income, gain, loss or deductions previously reported by
unitholders might change, and unitholders might be required to adjust their tax
liability for prior years and incur interest and penalties with respect to those
adjustments.
DISPOSITION OF LIMITED PARTNERSHIP UNITS
Recognition of Gain or Loss. Gain or loss will be recognized on a sale
of units equal to the difference between the amount realized and the
unitholder's tax basis for the units sold. A unitholder's amount realized will
be measured by the sum of the cash or the fair market value of other property
received by him plus his share of our nonrecourse liabilities. Because the
amount realized includes a unitholder's share of our nonrecourse liabilities,
the gain recognized on the sale of units could result in a tax liability in
excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable income
for a limited partnership unit that decreased a unitholder's tax basis in that
limited partnership unit will, in effect, become taxable income if the limited
partnership unit is sold at a price greater than the unitholder's tax basis in
that limited partnership unit, even if the price received is less than his
original cost.
Except as noted below, gain or loss recognized by a unitholder, other
than a "dealer" in units, on the sale or exchange of a unit held for more than
one year will generally be taxable as capital gain or loss. Capital gain
recognized by an individual on the sale of units held more than 12 months will
generally be taxed at a maximum rate of 20%. A portion of this gain or loss,
which will likely be substantial, however, will be separately computed and taxed
as ordinary income or loss under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" we own. The term "unrealized
receivables" includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory
items and depreciation recapture may exceed net taxable gain realized upon the
sale of a unit and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize both ordinary
income and a capital loss upon a sale of units. Net capital loss may offset
capital gains and no more than $3,000 of ordinary income, in the case of
individuals, and may only be used to offset capital gain in the case of
corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those interests and maintain a
single adjusted tax basis for all those interests. Upon a sale or other
disposition of less than all of those interests, a portion of that tax basis
must be allocated to the interests sold using an "equitable apportionment"
method. Treasury regulations allow a selling unitholder who can identify limited
partnership units transferred with an ascertainable holding period to elect to
use the actual holding period of the limited partnership units transferred.
Thus, according to the ruling, a limited partnership unitholder will be unable
to select high or low basis limited partnership units to sell as would be the
case with corporate stock, but, according to the regulations, may designate
specific limited partnership units sold for purposes of determining the holding
period of units transferred. A unitholder electing to use the actual holding
period of limited partnership units transferred must consistently use that
identification method for all subsequent sales or exchanges of limited
partnership units. A unitholder considering the purchase of additional units or
a sale of limited partnership units purchased in separate transactions should
consult his tax advisor as to the possible consequences of this ruling and
application of the final regulations.
Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests, by
treating a taxpayer as having sold an "appreciated" partnership interest, one in
which gain would be recognized if it were sold, assigned or terminated at its
fair market value, if the taxpayer or related persons enter(s) into:
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o a short sale;
o an offsetting notional principal contract; or
o a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having sold
that position if the taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of Treasury is also
authorized to issue regulations that treat a taxpayer that enters into
transactions or positions that have substantially the same effect as the
preceding transactions as having constructively sold the financial position.
Allocations Between Transferors and Transferees. In general, our
taxable income and losses will be determined annually, will be prorated on a
monthly basis and will be subsequently apportioned among the unitholders in
proportion to the number of units owned by each of them as of the opening of the
applicable exchange on the first business day of the month (the "Allocation
Date"). However, gain or loss realized on a sale or other disposition of our
assets other than in the ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be allocated
income, gain, loss and deduction realized after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, counsel is unable to opine on the validity of this
method of allocating income and deductions between unitholders. If this method
is not allowed under the Treasury Regulations, or only applies to transfers of
less than all of the unitholder's interest, our taxable income or losses might
be reallocated among the unitholders. We are authorized to revise our method of
allocation between unitholders to conform to a method permitted under future
Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash distribution for that
quarter will be allocated items of our income, gain, loss and deductions
attributable to that quarter but will not be entitled to receive that cash
distribution.
Notification Requirements. A unitholder who purchases units from
another unitholder is required to notify us in writing of that sale or exchange
within 30 days after the sale or exchange. We are required to notify the IRS of
that transaction and to furnish specified information to the transferor and
transferee. However, these reporting requirements do not apply to a sale by an
individual who is a citizen of the United States and who effects the sale or
exchange through a broker. Failure to satisfy these reporting obligations may
lead to the imposition of substantial penalties.
Constructive Termination. We will be considered to have been terminated
for tax purposes if there is a sale or exchange of 50% or more of the total
interests in our capital and profits within a 12-month period. A constructive
termination results in the closing of our taxable year for all unitholders. In
the case of a unitholder reporting on a taxable year other than a fiscal year
ending December 31, the closing of our taxable year may result in more than 12
months of our taxable income or loss being includable in his taxable income for
the year of termination. We would be required to make new tax elections after a
termination, including a new election under Section 754 of the Internal Revenue
Code, and a termination would result in a deferral of our deductions for
depreciation. A termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted before the termination.
UNIFORMITY OF UNITS
Because we cannot match transferors and transferees of units, we must
maintain uniformity of the economic and tax characteristics of the units to a
purchaser of these units. In the absence of uniformity, we may be unable to
completely comply with a number of federal income tax requirements, both
statutory and regulatory. A lack of uniformity can result from the application
of Treasury Regulations under Sections 167, 197 and 743 to our
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Section 743(b) adjustments or the determination that our Section 704(c) curative
allocations to prevent the application of "ceiling" limitations on our ability
to make allocations to eliminate book-tax disparities are unreasonable.
We depreciate the portion of a Section 743(b) adjustment attributable
to unrealized appreciation in the value of contributed recovery property, to the
extent of any unamortized book-tax disparity, using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the common basis of such property, despite its inconsistency
with Treasury Regulations. To the extent a Section 743(b) adjustment is
attributable to appreciation in value in excess of the unamortized book-tax
disparity, we will apply the rules described in the Treasury Regulations. Please
read "--Tax Consequences of Unit Ownership - Section 754 Election." If we
determine that this position cannot reasonably be taken, we may adopt a
depreciation and amortization position under which all purchasers acquiring
units in the same month would receive depreciation and amortization deductions,
whether attributable to a common basis or Section 743(b) adjustment, based upon
the same applicable rate as if they had purchased a direct interest in our
property. If this position is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be allowable to
some unitholders and risk the loss of depreciation and amortization deductions
not taken in the year that these deductions are otherwise allowable. This
position will not be adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on the unitholders.
If we choose not to utilize this aggregate method, we may use any other
reasonable depreciation and amortization method to preserve the uniformity of
the intrinsic tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any method of
depreciating the Section 743(b) adjustment described in this paragraph. If this
challenge were sustained, the uniformity of units might be affected, and the
gain from the sale of units might be increased without the benefit of additional
deductions. Please read "-- Disposition of Limited Partnership Units --
Recognition of Gain or Loss."
In the event our method of making Section 704(c) allocations is
disallowed, some or all of the adverse consequences described in the preceding
paragraph could result. See "-- Allocation of Partnership Income, Gain, Loss and
Deduction."
TAX-EXEMPT ORGANIZATIONS AND OTHER INVESTORS
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to those investors and,
as described below, may have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from federal
income tax, including individual retirement accounts and other retirement plans,
are subject to federal income tax on unrelated business taxable income.
Virtually all of our income allocated to a unitholder which is a tax-exempt
organization will be unrelated business taxable income and will be taxable to
them.
A regulated investment company or "mutual fund" is required to derive
90% or more of its gross income from interest, dividends and gains from the sale
of stocks or securities or foreign currency or specified related sources. It is
not anticipated that any significant amount of our gross income will include
that type of income.
Non-resident aliens and foreign corporations, trusts or estates that
own units will be considered to be engaged in business in the United States
because of the ownership of units. As a consequence they will be required to
file federal tax returns to report their share of our income, gain, loss or
deduction and pay federal income tax at regular rates on their share of our net
income or gain. And, under rules applicable to publicly traded partnerships, we
will withhold tax at the highest effective federal income tax rate applicable to
individuals from cash distributions made quarterly to foreign unitholders. Each
foreign unitholder must obtain a taxpayer identification number from the IRS and
submit that number to our transfer agent on a Form W-8 or applicable substitute
form in order to obtain credit for these withholding taxes.
In addition, because a foreign corporation that owns units will be
treated as engaged in a United States trade or business, that corporation may be
subject to the United States branch profits tax at a rate of 30%, in addition to
regular federal income tax, on its share of our income and gain, as adjusted for
changes in the foreign
42
corporation's "U.S. net equity," which are effectively connected with the
conduct of a United States trade or business. That tax may be reduced or
eliminated by an income tax treaty between the United States and the country in
which the foreign corporate unitholder is a "qualified resident." In addition,
this type of unitholder is subject to special information reporting requirements
under Section 6038C of the Internal Revenue Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on the
sale or disposition of that unit to the extent that this gain is effectively
connected with a United States trade or business of the foreign unitholder.
Apart from the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has owned less than 5%
in value of the units during the five-year period ending on the date of the
disposition and if the units are regularly traded on an established securities
market at the time of the sale or disposition.
ADMINISTRATIVE MATTERS
Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 75 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes his share of our income,
gain, loss and deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take various
accounting and reporting positions, some of which have been mentioned earlier,
to determine his share of income, gain, loss and deduction. We cannot assure you
that those positions will yield a result that conforms to the requirements of
the Internal Revenue Code, regulations or administrative interpretations of the
IRS. Neither we nor counsel can assure prospective unitholders that the IRS will
not successfully contend in court that those positions are impermissible. Any
challenge by the IRS could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each unitholder to adjust a
prior year's tax liability, and possibly may result in an audit of his own
return. Any audit of a unitholder's return could result in adjustments not
related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership proceeding rather than
in separate proceedings with the partners. The Internal Revenue Code requires
that one partner be designated as the "Tax Matters Partner" for these purposes.
The partnership agreement names the general partner as our Tax Matters Partner.
The Tax Matters Partner is entitled to make elections on our behalf and
on behalf of unitholders. In addition, the Tax Matters Partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review, by which all the unitholders are bound, of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, judicial review may be sought by any unitholder having at least a 1%
interest in profits or by any group of unitholders having in the aggregate at
least a 5% interest in profits. However, only one action for judicial review
will go forward, and each unitholder with an interest in the outcome may
participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is not consistent
with the treatment of the item on our return. Intentional or negligent disregard
of this consistency requirement may subject a unitholder to substantial
penalties.
Nominee Reporting. Persons who hold an interest in us as a nominee for
another person are required to furnish to us:
(a) the name, address and taxpayer identification number of the
beneficial owner and the nominee;
(b) whether the beneficial owner is
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(1) a person that is not a United States person,
(2) a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the foregoing, or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or transferred
for the beneficial owner; and
(d) specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on units they acquire, hold or transfer for their own account. A
penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with the
information furnished to us.
Registration as a Tax Shelter. The Internal Revenue Code requires that
"tax shelters" be registered with the Secretary of the Treasury. The temporary
Treasury Regulations interpreting the tax shelter registration provisions of the
Internal Revenue Code are extremely broad. It is arguable that we are not
subject to the registration requirement on the basis that we will not constitute
a tax shelter. However, the general partner, as our principal organizer, has
registered us as a tax shelter with the Secretary of Treasury because of the
absence of assurance that we will not be subject to tax shelter registration and
in light of the substantial penalties which might be imposed if registration is
required and not undertaken.
The IRS has issued to us the following tax-shelter registration number:
90036000017. A unitholder who sells or otherwise transfers a unit in a later
transaction must furnish the registration number to the transferee. The penalty
for failure of the transferor of a unit to furnish the registration number to
the transferee is $100 for each failure. In addition, the unitholders must
disclose our tax shelter registration number on Form 8271 to be attached to the
tax return on which any deduction, loss or other benefit we generate is claimed
or on which any of our income is included. A unitholder who fails to disclose
the tax shelter registration number on his return, without reasonable cause for
that failure, will be subject to a $250 penalty for each failure. Any penalties
discussed are not deductible for federal income tax purposes.
ISSUANCE OF THIS REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN US
OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS.
Accuracy-related Penalties. An additional tax equal to 20% of the
amount of any portion of an underpayment of tax that is attributable to one or
more specified causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and substantial valuation
misstatements, is imposed by the Internal Revenue Code. No penalty will be
imposed, however, for any portion of an underpayment if it is shown that there
was a reasonable cause for that portion and that the taxpayer acted in good
faith regarding that portion.
A substantial understatement of income tax in any taxable year exists
if the amount of the understatement exceeds the greater of 10% of the tax
required to be shown on the return for the taxable year or $5,000 ($10,000 for
most corporations). The amount of any understatement subject to penalty
generally is reduced if any portion is attributable to a position adopted on the
return:
(1) for which there is, or was, "substantial authority," or
(2) as to which there is a reasonable basis and the pertinent facts of
that position are disclosed on the return.
More stringent rules apply to "tax shelters," a term that in this
context does not appear to include us. If any item of income, gain, loss or
deduction included in the distributive shares of unitholders might result in
that kind of
44
an "understatement" of income for which no "substantial authority" exists, we
must disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a tax return is 200%
or more of the amount determined to be the correct amount of the valuation or
adjusted basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400% or more than
the correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, you will be subject to other
taxes, including state and local income taxes, unincorporated business taxes,
and estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in which you are a
resident. Although an analysis of those various taxes is not presented here,
each prospective unitholder should consider their potential impact on his
investment in us. You will be required to file state income tax returns and to
pay state income taxes in some or all of the states in which we do business or
own property and may be subject to penalties for failure to comply with those
requirements. We currently do business or own property in Alabama, Arkansas,
Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Missouri, Montana,
Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania,
Rhode Island, South Dakota, Texas, Utah and Wyoming. With the exceptions of
South Dakota, Texas and Wyoming, you will likely be required to file state
income tax returns in all of these jurisdictions. In some states, tax losses may
not produce a tax benefit in the year incurred and also may not be available to
offset income in subsequent taxable years. Some of the states may require us, or
we may elect, to withhold a percentage of income from amounts to be distributed
to a unitholder who is not a resident of the state. Withholding, the amount of
which may be greater or less than a particular unitholder's income tax liability
to the state, generally does not relieve a nonresident unitholder from the
obligation to file an income tax return. Amounts withheld may be treated as if
distributed to unitholders for purposes of determining the amounts distributed
by us. Please read "-- Tax Consequences of Unit Ownership -- Entity-Level
Collections." We may also own property or do business in other states in the
future.
It is the responsibility of each unitholder to investigate the legal
and tax consequences, under the laws of pertinent states and localities, of his
investment in us. Accordingly, each prospective unitholder is urged to consult,
and must depend upon, his own tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each unitholder to file all state
and local, as well as United States federal tax returns, that may be required of
him. Counsel has not rendered an opinion on the state or local tax consequences
of an investment in us.
TAX CONSEQUENCES OF OWNERSHIP OF DEBT SECURITIES
A description of the material federal income tax consequences of the
acquisition, ownership and disposition of debt securities will be set forth in
the prospectus supplement relating to the offering of debt securities.
INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to certain
additional considerations because the investments of such plans are subject to
the fiduciary responsibility and prohibited transaction provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
restrictions imposed by Section 4975 of the Internal Revenue Code. As used
herein, the term "employee benefit plan" includes, but is not limited to,
qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified
employee pension plans and tax deferred annuities or IRAs established or
maintained by an employer or employee organization. Among other things,
consideration should be given to (a) whether such investment is prudent under
Section 404(a)(1)(B) of ERISA; (b) whether in making such investment, such plan
will satisfy the diversification requirement of Section 404(a)(1)(C) of ERISA;
and (c) whether such investment will result in recognition of unrelated business
taxable income by such plan and, if so, the potential after-tax investment
return. Please read "Tax Considerations--Tax-Exempt Organizations and Other
Investors." The person with investment discretion with respect to the assets of
45
an employee benefit plan (a "fiduciary") should determine whether an investment
in us is authorized by the appropriate governing instrument and is a proper
investment for such plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code
(which also applies to IRAs that are not considered part of an employee benefit
plan) prohibit an employee benefit plan from engaging in certain transactions
involving "plan assets" with parties that are "parties in interest" under ERISA
or "disqualified persons" under the Internal Revenue Code with respect to the
plan.
In addition to considering whether the purchase of limited partnership
units is a prohibited transaction, a fiduciary of an employee benefit plan
should consider whether such plan will, by investing in us, be deemed to own an
undivided interest in our assets, with the result that the General Partner also
would be a fiduciary of such plan and our operations would be subject to the
regulatory restrictions of ERISA, including its prohibited transaction rules, as
well as the prohibited transaction rules of the Internal Revenue Code.
The Department of Labor regulations provide guidance with respect to
whether the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under certain circumstances. Pursuant to
these regulations, an entity's assets would not be considered to be "plan
assets" if, among other things, (a) the equity interest acquired by employee
benefit plans are publicly offered securities--i.e., the equity interests are
widely held by 100 or more investors independent of the issuer and each other,
freely transferable and registered pursuant to certain provisions of the federal
securities laws, (b) the entity is an "Operating Partnership"-- i.e., it is
primarily engaged in the production or sale of a product or service other than
the investment of capital either directly or through a majority owned subsidiary
or subsidiaries, or (c) there is no significant investment by benefit plan
investors, which is defined to mean that less than 25% of the value of each
class of equity interest (disregarding certain interests held by the General
Partner, its affiliates, and certain other persons) is held by the employee
benefit plans referred to above, IRAs and other employee benefit plans not
subject to ERISA (such as governmental plans). Our assets should not be
considered "plan assets" under these regulations because it is expected that the
investment will satisfy the requirements in (a) and (b) above and may also
satisfy the requirements in (c).
Plan fiduciaries contemplating a purchase of limited partnership units
should consult with their own counsel regarding the consequences under ERISA and
the Internal Revenue Code in light of the serious penalties imposed on persons
who engage in prohibited transactions or other violations.
PLAN OF DISTRIBUTION
We may sell the securities being offered hereby:
o directly to purchasers,
o through agents,
o through underwriters, and
o through dealers.
We, or agents designated by us, may directly solicit, from time to
time, offers to purchase the securities. Any such agent may be deemed to be an
underwriter as that term is defined in the Securities Act of 1933, as amended.
We will name the agents involved in the offer or sale of the securities and
describe any commissions payable by us to these agents in the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, these
agents will be acting on a best efforts basis for the period of their
appointment. The agents may be entitled under agreements which may be entered
into with us to indemnification by us against specific civil liabilities,
including liabilities under the Securities Act of 1933, as amended. The agents
may also be our customers or may engage in transactions with or perform services
for us in the ordinary course of business.
If any underwriters are utilized in the sale of the securities in
respect of which this prospectus is delivered, we will enter into an
underwriting agreement with those underwriters at the time of sale to them. The
names of these
46
underwriters and the terms of the transaction will be set forth in the
prospectus supplement, which will be used by the underwriters to make resales of
the securities in respect of which this prospectus is delivered to the public.
The underwriters may be entitled, under the relevant underwriting agreement, to
indemnification by us against specific liabilities, including liabilities under
the Securities Act. The underwriters may also be our customers or may engage in
transactions with or perform services for us in the ordinary course of business.
If a dealer is utilized in the sale of the securities in respect of
which this prospectus is delivered, we will sell those securities to the dealer,
as principal. The dealer may then resell those securities to the public at
varying prices to be determined by the dealer at the time of resale. Dealers may
be entitled to indemnification by us against specific liabilities, including
liabilities under the Securities Act. The dealers may also be our customers or
may engage in transactions with, or perform services for us in the ordinary
course of business.
The place and time of delivery for the securities in respect of which
this prospectus is delivered are set forth in the accompanying prospectus
supplement.
LEGAL
Certain legal matters in connection with the securities will be passed
upon by Vinson & Elkins L.L.P., Houston, Texas, as our counsel. Any underwriter
will be advised about other issues relating to any offering by their own legal
counsel.
EXPERTS
The consolidated financial statements of TEPPCO Partners, L.P. and
subsidiaries as of December 31, 2000 and 1999 and for each of the years in the
three-year period ended December 31, 2000, incorporated by reference herein
(included in TEPPCO Partners, L.P.'s Annual Report on Form 10-K for the year
ended December 31, 2000 and as amended and included in TEPPCO Partners, L.P.'s
Current Report on Form 8-K filed on July 27, 2001), the consolidated financial
statements of TE Products Pipeline Company, Limited Partnership and subsidiaries
as of December 31, 2000 and 1999 and for each of the years in the three-year
period ended December 31, 2000, and the consolidated balance sheet of Texas
Eastern Products Pipeline Company, LLC and subsidiary as of December 31, 2000,
incorporated by reference herein (included in TEPPCO Partners L.P.'s Current
Report on Form 8-K filed on November 30, 2001), have been incorporated by
reference herein in reliance upon the reports of KPMG LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The combined financial statements of ARCO Pipe Line Company's APL
Business (as defined in the Amended and Restated Purchase Agreement with Texas
Eastern Products Pipeline Company, LLC) at December 31, 1999 and 1998 and for
the years then ended incorporated in this prospectus by reference to the audited
historical financial statements included on pages 4 through 17 of TEPPCO
Partners, L.P's Report 8-K/A filed October 3, 2000, the financial statements of
Seaway Crude Pipeline Company at December 31, 1999 and 1998 and for the years
then ended incorporated in this prospectus by reference to the audited
historical financial statements included on pages 18 through 29 of TEPPCO
Partners, L.P's Report 8-K/A filed October 3, 2000 and the financial statements
of Jonah Gas Gathering Company as of December 31, 2000 and for the periods June
1, 2000 to December 31, 2000 and January 1, 2000 to May 31, 2000 (Predecessor)
incorporated in this prospectus by reference to the audited historical financial
statements included in pages 5 through 14 of TEPPCO Partners, L.P.'s Current
Report 8-K/A filed November 9, 2001 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.
47
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPECTUS. TEPPCO PARTNERS
HAS NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. TEPPCO
PARTNERS IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE OF THOSE DOCUMENTS.
TABLE OF CONTENTS
- ---------------------------------------------------------
PROSPECTUS SUPPLEMENT
Important notice about information in this
prospectus supplement and the accompanying
prospectus................................ i
Prospectus supplement summary............... S-1
Risk factors................................ S-11
Use of proceeds............................. S-11
Capitalization.............................. S-12
Description of the notes.................... S-13
Underwriting................................ S-23
Legal matters............................... S-24
BASE PROSPECTUS
About This Prospectus....................... 1
About TEPPCO Partners....................... 1
The Subsidiary Guarantors................... 1
Risk Factors................................ 2
Where You Can Find More Information......... 10
Forward-looking Statements and Associated
Risks..................................... 12
TEPPCO Partners............................. 13
Use of Proceeds............................. 14
Ratio of Earnings to Fixed Charges.......... 14
Description of Debt Securities.............. 14
Cash Distributions.......................... 24
Tax Considerations.......................... 31
Investment in Us by Employee Benefit
Plans..................................... 45
Plan of Distribution........................ 46
Legal....................................... 46
Experts..................................... 46
[TEPPCO LOGO]
TEPPCO Partners, L.P.
Unconditionally Guaranteed by
TE Products Pipeline Company,
Limited Partnership,
TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and
Jonah Gas Gathering Company
$500,000,000
% Senior Notes
due , 2012
------------------------
, 2002
------------------------
UBS WARBURG
SUNTRUST ROBINSON HUMPHREY
WACHOVIA SECURITIES
BANC ONE CAPITAL MARKETS, INC.
BNY CAPITAL MARKETS, INC.
CREDIT LYONNAIS SECURITIES
RBC CAPITAL MARKETS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
Securities and Exchange Commission registration fee........................... $ 12,731
Printing and engraving costs.................................................. 40,000
Legal fees and expenses....................................................... 100,000
Accounting fees and expenses.................................................. 50,000
Miscellaneous................................................................. 10,000
----------
Total......................................................................... $ 208,131
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subject to any terms, conditions or restrictions set forth in the
partnership agreements, Section 17-108 of the Delaware Revised Limited
Partnership Act empowers a Delaware limited partnership to indemnify and hold
harmless a partner or other persons from and against all claims and demands
whatsoever. The partnership agreements of TEPPCO Partners, L.P. (the
"Partnership") and the co-registrants (other than Jonah Gas Gathering Company
("Jonah")) provide that they will, to the fullest extent permitted by law,
indemnify and advance expenses to their general partner, any Departing Partner
(as defined therein), any person who is or was an affiliate of their general
partner or any Departing Partner, any person who is or was an officer, director,
employee, partner, agent or trustee of their general partner or any Departing
Partner or any affiliate of their general partner or any Departing Partner, or
any person who is or was serving at the request of their general partner or any
affiliate of their general partner or any Departing Partner or any affiliate of
any Departing Partner as an officer, director, employee, partner, agent or
trustee of another person ("Indemnitees") from and against any and all losses,
claims, damages, liabilities (joint or several), expenses (including legal fees
and expenses), judgments, fines, settlements and other amounts arising from any
and all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
their general partner, Departing Partner or an affiliate of either, an officer,
director, employee, partner, agent or trustee of their general partner, any
Departing Partner or affiliate of either or a person serving at the request of
their partnership in another entity in a similar capacity, provided that in each
case the Indemnitee acted in good faith and in a manner which such Indemnitee
reasonably believed to be in or not opposed to the best interests of their
partnership. This indemnification would under certain circumstances include
indemnification for liabilities under the Securities Act. In addition, each
Indemnitee would automatically be entitled to the advancement of expenses in
connection with the foregoing indemnification. Any indemnification under these
provisions will be only out of the assets of their partnership.
The partnership agreement of Jonah provides that the partnership shall
indemnify its managing general partner and each of its other partners, and their
respective directors, officers, agents and employees ("Jonah Indemnitees"), for
all costs, losses, liabilities, and damages paid or accrued by such parties in
connection with the business of the partnership except insofar as such items are
the result of the Jonah Indemnitee's gross negligence, bad faith or ultra vires
acts.
The Partnership is authorized to purchase (or to reimburse its general
partner for the costs of) insurance against liabilities asserted against and
expenses incurred by the persons described in the first paragraph above in
connection with the Partnership's activities, whether or not the Partnership
would have the power to indemnify such person against such liabilities under the
provisions described in the first paragraph above. The general partner of the
Partnership has purchased insurance, the cost of which is reimbursed by the
Partnership, covering its officers and directors against liabilities asserted
and expenses incurred in connection with their activities as officers and
directors
II-1
of the general partner or any of its direct or indirect subsidiaries including
TEPPCO GP, Inc., the general partner of the subsidiary guarantors (other than
Jonah) and the managing general partner of Jonah.
Any underwriting agreement entered into in connection with the sale of
the securities offered pursuant to this registration statement will provide for
indemnification of officers and directors of the general partner, including
liabilities under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits*
*1.1 -- Form of Underwriting Agreement.
4.1 -- Third Amended and Restated Agreement of Limited Partnership of TEPPCO
Partners, L.P., dated September 21, 2001 (Incorporated by reference to Exhibit
3.7 of TEPPCO Partners L.P.'s Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2001).
**4.2 -- Form of Senior Indenture.
**4.3 -- Form of Subordinated Indenture.
**5.1 -- Opinion of Vinson & Elkins L.L.P.
**8.1 -- Opinion of Vinson & Elkins L.L.P. regarding tax matters.
**12.1 -- Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP (Houston).
23.3 -- Consent of PricewaterhouseCoopers LLP (Denver).
**23.4 -- Consent of Counsel (the consent of Vinson
& Elkins L.L.P. to the use of their opinion
filed as Exhibit 5.1 to the Registration
Statement and the reference to their firm in
this Registration Statement is contained in
such opinion)
**23.5 -- Consent of Counsel (the consent of Vinson
& Elkins L.L.P. to the use of their opinion
filed as Exhibit 8.1 to the Registration
Statement and the reference to their firm in
this Registration Statement is contained in
such opinion).
**24.1 -- Powers of Attorney.
**25.1 -- Form T-1 Statement of Eligibility and Qualification.
- ----------
* To be filed by amendment or as an exhibit to a current report on
Form 8-K of the registrant.
** Previously filed.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS
I. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
i. To include any prospectus required by Section
10(a)(3) of the Securities Act;
ii. To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the
total dollar value of securities offered
II-2
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
iii. To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in this Registration Statement;
provided, however, that paragraphs i and ii above do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
III. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on the 7th day of
February, 2002.
TEPPCO PARTNERS, L.P.
By: TEXAS EASTERN PRODUCTS PIPELINE
COMPANY, LLC, as General Partner
By: /s/ CHARLES H. LEONARD
---------------------------------------
Charles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer
II-4
GUARANTOR REGISTRANTS
(majority owned
subsidiaries of the
above Registrant):
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
By: TEPPCO GP, Inc.
as General Partner
By: /s/ CHARLES H. LEONARD
---------------------------------------
Charles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer
TCTM, L.P.
By: TEPPCO GP, Inc.
as General Partner
By: /s/ CHARLES H. LEONARD
---------------------------------------
Charles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer
TEPPCO MIDSTREAM COMPANIES, L.P.
By: TEPPCO GP, Inc.
as General Partner
By: /s/ CHARLES H. LEONARD
---------------------------------------
Charles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer
JONAH GAS GATHERING COMPANY
By: TEPPCO GP, Inc.
as Managing General Partner
By: /s/ CHARLES H. LEONARD
---------------------------------------
Charles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer
II-5
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 2002.
SIGNATURE POSITION
--------- --------
* Chairman of the Board and Chief Executive Officer of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC and of TEPPCO GP, Inc.**
William L. Thacker
* President and Chief Operating Officer of Texas Eastern Products Pipeline
- ------------------------------------------ Company, LLC and of TEPPCO GP, Inc.**
Barry R. Pearl
/s/ CHARLES H. LEONARD Senior Vice President, Chief Financial Officer and Treasurer of Texas
- ------------------------------------------ Eastern Products Pipeline Company, LLC and of TEPPCO GP, Inc.**
Charles H. Leonard (Principal Accounting and Financial Officer)
* Vice Chairman of the Board and Director of Texas Eastern Products
- ------------------------------------------ Pipeline Company, LLC
Jim W. Mogg
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
Milton Carroll
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
Carl D. Clay
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
Derrill Cody
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
John P. DesBarres
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
Fred J. Fowler
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
Mark A. Borer
* Director of Texas Eastern
- ------------------------------------------ Products Pipeline Company, LLC
William W. Slaughter
*By: /s/ CHARLES H. LEONARD
-----------------------------------
Charles H. Leonard
Attorney-in-Fact
**Also a director of TEPPCO GP, Inc., the general partner of each of TE Products
Pipeline Company, Limited Partnership, TCTM, L.P. and TEPPCO Midstream
Companies, L.P. and the managing general partner of Jonah Gas Gathering Company.
II-6
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP (Houston).
23.3 -- Consent of PricewaterhouseCoopers LLP (Denver).
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Partners of
TEPPCO Partners, L.P.
We consent to the use of our reports on TEPPCO Partners, L.P., TE Products
Pipeline Company, Limited Partnership and Texas Eastern Products Pipeline
Company, LLC incorporated herein by reference and to the reference to our firm
under the heading "Experts" in the prospectus included as part of this
registration statement.
/s/ KPMG LLP
Houston, Texas
February 7, 2002
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of TEPPCO Partners, L.P. of our reports dated September
25, 2000 relating to the combined financial statements of ARCO Pipe Line
Company's APL Business (as defined in the Amended and Restated Purchase
Agreement with Texas Eastern Products Pipeline Company, LLC) and the financial
statements of Seaway Crude Pipeline Company, which appear in the Current Report
on Form 8-K/A of TEPPCO Partners, L.P. filed October 3, 2000. We also consent to
the reference to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 7, 2002
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of TEPPCO Partners, L.P. of our report dated October 31,
2001 relating to the financial statements of Jonah Gas Gathering Company as of
December 31, 2000 and for the periods June 1 to December 31, 2000 and January 1
to May 31, 2000 (Predecessor), which appears in the Current Report on Form 8-K/A
of TEPPCO Partners, L.P. filed November 9, 2001. We also consent to the
reference to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
February 7, 2002
