AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON [ ] 2005
REGISTRATION NO. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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GENESIS ENERGY, L.P. DELAWARE 76-0513049
(Exact name of registrant (State or other jurisdiction of (I.R.S. Employer
as specified in its charter) incorporation of organization) Identification No.)
500 DALLAS, SUITE 2500
HOUSTON, TEXAS 77002
(713) 860-2500
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
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ROSS A. BENAVIDES
500 DALLAS, SUITE 2500
HOUSTON, TEXAS 77002
(713) 860-2500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
J. VINCENT KENDRICK
AKIN GUMP STRAUSS HAUER & FELD LLP
1111 LOUISIANA STREET, 44TH FLOOR
HOUSTON, TEXAS 77002
(713) 220-5839
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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.
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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. [ ]
CALCULATION OF REGISTRATION FEE
================================================ =================== ================== ========================== =================
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT (1) PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED OFFERING PRICE AGGREGATE OFFERING PRICE REGISTRATION FEE
PER UNIT (2)
------------------------------------------------ ------------------- ------------------ -------------------------- -----------------
Equity Securities(1)........................ $250,000,000 $29,425
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------------------------------------------------ ------------------- ------------------ -------------------------- -----------------
Total....................................... $250,000,000 $29,425
================================================ =================== ================== ========================== =================
(1) An indeterminate number of equity securities registered hereunder may be
issued from time to time at indeterminate prices, with an aggregate
offering price not to exceed $250,000,000. This registration statement
also covers an indeterminate amount of equity securities as may be issued
in exchange for, or upon conversion or exercise of, as the case may be,
the equity securities registered hereunder.
(2) Rule 457(o) permits the registration fee to be calculated on the basis of
the maximum aggregate 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.
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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SUBJECT TO COMPLETION, DATED JULY 8, 2005
PROSPECTUS
GENESIS ENERGY, L.P.
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$250,000,000 OF EQUITY SECURITIES
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We may offer one or more classes or series of equity securities, as
described in this prospectus, in one or more separate offerings under this
prospectus. This prospectus describes the general terms of these equity
securities and the general manner in which we will offer the equity securities.
We may offer and sell equity securities using this prospectus only if
it is accompanied by a prospectus supplement. We will include the specific
terms of any equity securities we offer in a supplement to this prospectus. The
prospectus supplement will also describe the specific manner in which we will
offer the equity securities. You should read this prospectus and the prospectus
supplement carefully.
We may sell these equity securities to underwriters or dealers, or we
may sell them directly to other purchasers. See "Plan of Distribution." The
prospectus supplement will list any underwriters and the compensation they will
receive. The prospectus supplement will also show you the total amount of money
that we will receive from selling these equity securities, after we pay certain
expenses of the offering.
Our common units are listed on the American Stock Exchange under the
symbol "GEL."
INVESTING IN OUR EQUITY SECURITIES INVOLVES RISKS. LIMITED
PARTNERSHIPS ARE INHERENTLY DIFFERENT FROM CORPORATIONS. YOU SHOULD CAREFULLY
CONSIDER THE RISK FACTORS BEGINNING ON PAGE 3 OF THIS PROSPECTUS BEFORE YOU
MAKE AN INVESTMENT IN OUR EQUITY SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE EQUITY 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 _________, _________.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS....................................................................................1
ABOUT GENESIS ENERGY, L.P. AND GENESIS CRUDE OIL, L.P....................................................1
RISK FACTORS.............................................................................................2
Risks Related to Our Business.......................................................................2
Risks Related to Our Partnership Structure..........................................................8
Tax Risks to Common Unitholders....................................................................12
USE OF PROCEEDS.........................................................................................15
DESCRIPTION OF OUR EQUITY SECURITIES....................................................................16
General............................................................................................16
Our Common Units...................................................................................16
Our Equity Securities Other Than Common Units......................................................19
CASH DISTRIBUTION POLICY................................................................................20
Distributions of Available Cash....................................................................20
Operating Surplus and Capital Surplus..............................................................20
Distributions of Available Cash from Operating Surplus.............................................21
Distributions from Capital Surplus.................................................................22
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels........................22
Distributions of Cash Upon Liquidation.............................................................23
DESCRIPTION OF OUR PARTNERSHIP AGREEMENT................................................................25
Purpose............................................................................................25
Power of Attorney..................................................................................25
Reimbursements of Our General Partner..............................................................25
Issuance of Additional Securities..................................................................25
Amendments to Our Partnership Agreement............................................................25
Withdrawal or Removal of Our General Partner.......................................................26
Liquidation and Distribution of Proceeds...........................................................26
Change of Management Provisions....................................................................27
Limited Call Right.................................................................................27
Indemnification....................................................................................27
Registration Rights................................................................................27
MATERIAL TAX CONSEQUENCES...............................................................................28
Partnership Status.................................................................................28
Limited Partner Status.............................................................................29
Tax Consequences of Unit Ownership.................................................................30
Tax Treatment of Operations........................................................................34
Disposition of Common Units........................................................................34
Uniformity of Units................................................................................36
Tax-Exempt Organizations and Other Investors.......................................................37
Administrative Matters.............................................................................37
State, Local and Other Tax Considerations..........................................................39
INVESTMENT IN GENESIS BY EMPLOYEE BENEFIT PLANS.........................................................39
PLAN OF DISTRIBUTION....................................................................................41
WHERE YOU CAN FIND MORE INFORMATION.....................................................................41
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS........................................................42
LEGAL MATTERS...........................................................................................43
EXPERTS.................................................................................................43
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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 provide you different information. We are
not making an offer of these equity securities in any state where the offer is
not permitted. We will disclose any material changes in our affairs in an
amendment to this prospectus, a prospectus supplement or a future filing with
the Securities and Exchange Commission incorporated by reference in this
prospectus and any prospectus supplement. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
have filed with the Securities and Exchange Commission or the "Commission,"
using a "shelf" registration process. Under this shelf registration process, we
may sell one or more series or classes of equity securities, more particularly
described in this prospectus, in one or more offerings up to an aggregate
offering price of $250,000,000. This prospectus generally describes Genesis
Energy, L.P. and Genesis Crude Oil, L.P. and our equity securities, including
our common units. Each time we sell equity 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 the date on the cover page. You should carefully
read both this prospectus and any prospectus supplement, together with
additional information described under the heading "Where You Can Find More
Information" before you invest in our equity securities.
ABOUT GENESIS ENERGY, L.P. AND GENESIS CRUDE OIL, L.P.
Genesis Energy, L.P., a Delaware limited partnership, was formed in
December 1996. We conduct our operations through our operating subsidiary,
Genesis Crude Oil, L.P. and its subsidiaries, Genesis Pipeline Texas, L.P.,
Genesis Pipeline USA, L.P., Genesis Natural Gas Pipeline, L.P., Genesis CO2
Pipeline, L.P. and Genesis Syngas Investments, L.P. We are engaged in three
operations--crude oil gathering and marketing; crude oil, natural gas and
carbon dioxide (CO2) pipeline transportation; and CO2 operations.
We are an independent gatherer and marketer of crude oil. Our gathering
and marketing operations are concentrated in Texas, Louisiana, Alabama,
Florida, and Mississippi. Our gathering and marketing margins are generated by
buying crude oil at competitive prices, efficiently transporting or exchanging
the crude oil and marketing the crude oil to customers. We utilize our trucking
fleet of 54 leased tractor-trailers and our gathering lines to transport crude
oil. We also transport purchased crude oil on trucks, barges and pipelines
owned and operated by third parties.
Our pipeline transportation operations primarily relate to the
transportation of crude oil at regulated published tariffs on our three common
carrier pipeline systems. Those systems are the Texas System, the Jay System
extending between Florida and Alabama, and the Mississippi System. The Jay and
Mississippi pipeline systems have numerous points where the crude oil owned by
the shipper can be injected into the pipeline for delivery to or transfer to
connecting pipelines. The Texas pipeline system receives all of its volume from
connections to other carriers. We earn a tariff for the transportation
services, with the tariff rate per barrel of crude oil varying with the
distance from injection point to delivery point. We also transport natural gas
and carbon dioxide on various small gathering and pipeline systems located in
Texas, Louisiana and Mississippi.
In November 2003, we entered the CO2 business. During 2003 and 2004, we
acquired volumetric production payments from Denbury Resources Inc. or Denbury
Resources, to provide us with 200.5 billion cubic feet (Bcf) of CO2. We also
acquired from Denbury Resources five of its long-term industrial supply
contracts for CO2. We ship the CO2 from its source to customers on a pipeline
owned by Denbury Resources and sell the CO2 to the customers. These sales
contracts extend through 2015.
Genesis Energy, Inc. serves as our sole general partner. Our general
partner is owned by Denbury Gathering & Marketing, Inc., a subsidiary of
Denbury Resources. Our general partner was acquired by Denbury Resources from
Salomon Smith Barney Holdings Inc. and Salomon Brothers Holding Company Inc. in
May 2002.
Our executive offices are located at 500 Dallas, Suite 2500, Houston,
Texas 77002 and our telephone number is (713) 860-2500.
As used in this prospectus, "we," "us," "our" and "Genesis" means Genesis
Energy, L.P. and, where the context requires, our operating company, Genesis
Crude Oil, L.P. and its subsidiaries.
1
RISK FACTORS
An investment in our equity securities involves risks. You should consider
carefully the following risk factors, together with all of the other
information included in, or incorporated by reference into, this prospectus and
any prospectus supplement in evaluating an investment in our equity securities.
This prospectus also contains forward-looking statements that involve risks and
uncertainties. Please read "Forward-Looking Statements." Our actual results
could differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including the risks described below
and elsewhere in this prospectus. If any of these risks occur, our business,
financial condition or results of operation could be adversely affected.
RISKS RELATED TO OUR BUSINESS
WE MAY NOT HAVE SUFFICIENT CASH FROM OPERATIONS TO PAY THE CURRENT LEVEL
OF QUARTERLY DISTRIBUTION FOLLOWING THE ESTABLISHMENT OF CASH RESERVES AND
PAYMENT OF FEES AND EXPENSES, INCLUDING PAYMENTS TO OUR GENERAL PARTNER.
The amount of cash we distribute on our units principally depends upon
margins we generate from our crude oil gathering and marketing operations,
margins from the pipeline transportation operations and sales of CO2, which
will fluctuate from quarter to quarter based on, among other things:
o the prices at which we purchase and sell crude oil;
o the volumes of crude oil we transport;
o the volumes of CO2 we sell;
o the level of our operating costs;
o the level of our general and administrative costs; and
o prevailing economic conditions.
In addition, the actual amount of cash we will have available for
distribution will depend on other factors that include:
o the level of capital expenditures we make, including the cost of
acquisitions (if any);
o our debt service requirements;
o fluctuations in our working capital;
o restrictions on distributions contained in our debt instruments;
o our ability to borrow under our working capital facility to pay
distributions; and
o the amount of cash reserves established by our general partner in
its sole discretion in the conduct of our business.
You should also be aware that our ability to pay quarterly distributions
each quarter depends primarily on our cash flow, including cash flow from
financial reserves and working capital borrowings, and is not solely a function
of profitability, which will be affected by non-cash items. As a result, we may
make cash distributions during periods when we record losses and we may not
make distributions during periods when we record net income.
2
OUR INDEBTEDNESS COULD ADVERSELY RESTRICT OUR ABILITY TO OPERATE, AFFECT
OUR FINANCIAL CONDITION, PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER
OUR DEBT INSTRUMENTS AND MAKING DISTRIBUTIONS.
We have outstanding indebtedness and the ability to incur more
indebtedness. As of December 31, 2004, we had approximately $15.3 million
outstanding of senior secured indebtedness and approximately $75.4 million
outstanding of accounts payable.
We and all of our subsidiaries must comply with various affirmative and
negative covenants contained in our credit facilities. Among other things,
these covenants limit the ability of us and our subsidiaries to:
o incur additional indebtedness or liens;
o make payments in respect of or redeem or acquire any debt or equity
issued by us;
o sell assets;
o make loans or investments;
o extend credit;
o acquire or be acquired by other companies; and
o amend some of our contracts.
The restrictions under our indebtedness may prevent us from engaging in
certain transactions which might otherwise be considered beneficial to us and
could have other important consequences to you. For example, they could:
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to make distributions to unitholders; to fund
future working capital, capital expenditures and other general
partnership requirements; to engage in future acquisitions,
construction or development activities; or to otherwise fully
realize the value of our assets and opportunities because of the
need to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness or to comply with any
restrictive terms of our indebtedness;
o limit our flexibility in planning for, or reacting to, changes in
our businesses and the industries in which we operate; and
o place us at a competitive disadvantage as compared to our
competitors that have less debt.
We may incur additional indebtedness (public or private) in the future,
either under our existing credit facilities, by issuing debt instruments, under
new credit agreements, under joint venture credit agreements, under capital
leases or synthetic leases, on a project finance or other basis, or a
combination of any of these. If we incur additional indebtedness in the future,
it likely would be under our existing credit facility or under arrangements
which may have terms and conditions at least as restrictive as those contained
in our existing credit facilities. Failure to comply with the terms and
conditions of any existing or future indebtedness would constitute an event of
default. If an event of default occurs, the lenders will have the right to
accelerate the maturity of such indebtedness and foreclose upon the collateral,
if any, securing that indebtedness. If an event of default occurs under our
joint ventures' credit facilities, we may be required to repay amounts
previously distributed to us and our subsidiaries. In addition, if there is a
change of control as described in our credit facility, that would be an event
of default, unless our creditors agreed otherwise, under our credit facility.
Any such event could limit our ability to fulfill our obligations under our
debt instruments and to make cash distributions to unitholders which could
adversely affect the market price of our securities.
3
OUR PROFITABILITY AND CASH FLOW IS DEPENDENT ON OUR ABILITY TO INCREASE
OR, AT A MINIMUM, MAINTAIN OUR CURRENT COMMODITY--OIL, NATURAL GAS AND
CO2--VOLUMES, WHICH OFTEN DEPENDS ON ACTIONS AND COMMITMENTS BY PARTIES
BEYOND OUR CONTROL.
Our profitability and cash flow is dependent on our ability to increase
or, at a minimum, maintain our current commodity--oil, natural gas and
CO2--volumes. We access commodity volumes through two sources, producers and
service providers (including gatherers, shippers, marketers and other
aggregators). Depending on the needs of each customer and the market in which
it operates, we can either provide a service for a fee (as in the case of our
pipeline transportation operations) or we can purchase the commodity from our
customer and resell it to another party (as in the case of oil marketing and
CO2 operations).
Our source of volumes depends on successful exploration and development of
additional oil and natural gas reserves by others and other matters beyond
our control.
The oil, natural gas and other products available to us are derived from
reserves produced from existing wells, which reserves naturally decline over
time. In order to offset this natural decline, our energy infrastructure assets
must access additional reserves. Additionally, some of the projects we have
planned or recently completed are dependent on reserves that we expect to be
produced from newly discovered properties that producers are currently
developing.
Finding and developing new reserves is very expensive, requiring large
capital expenditures by producers for exploration and development drilling,
installing production facilities and constructing pipeline extensions to reach
the new wells. Many economic and business factors out of our control can
adversely affect the decision by any producer to explore for and develop new
reserves. These factors include the prevailing market price of the commodity,
the capital budgets of producers, the depletion rate of existing reservoirs,
the success of new wells drilled, environmental concerns, regulatory
initiatives, cost and availability of equipment, capital budget limitations or
the lack of available capital, and other matters beyond our control. Additional
reserves, if discovered, may not be developed in the near future or at all. We
cannot assure you that production will rise to sufficient levels to allow us to
maintain or increase the commodity volumes we are experiencing.
We face intense competition to obtain commodity volumes.
Our competitors--gatherers, transporters, marketers, brokers and other
aggregators--include independents and major integrated energy companies, as
well as their marketing affiliates, who vary widely in size, financial
resources and experience. Some of these competitors have capital resources many
times greater than ours and control substantially greater supplies of crude
oil.
Even if reserves exist in the areas accessed by our facilities and are
ultimately produced, we may not be chosen by the producers to gather,
transport, store or otherwise handle any of these reserves. We compete with
others for any such volumes on the basis of many factors, including:
o geographic proximity to the production;
o costs of connection;
o available capacity;
o rates; and
o access to markets.
Additionally, third-party shippers do not have long-term contractual
commitments to ship crude oil on our pipelines. A decision by a shipper to
substantially reduce or cease to ship volumes of crude oil on our pipelines
could cause a significant decline in our revenues. In Mississippi, we are
dependent on interconnections with other pipelines to provide shippers with a
market for their crude oil, and in Texas, we are dependent on interconnections
with other pipelines to provide shippers with transportation to our pipeline.
Any reduction of throughput available to our shippers on these interconnecting
pipelines as a result of testing, pipeline repair, reduced operating pressures
or
4
other causes could result in reduced throughput on our pipelines that would
adversely affect our cash flows and results of operations.
Fluctuations in demand for crude oil, such as those caused by refinery
downtime or shutdowns, can negatively affect our operating results. Reduced
demand in areas we service with our pipelines can result in less demand for our
transportation services. In addition, certain of our field and pipeline
operating costs and expenses are fixed and do not vary with the volumes we
gather and transport. These costs and expenses may not decrease ratably or at
all should we experience a reduction in our volumes gathered by truck or
transmitted by our pipelines. As a result, we may experience declines in our
margin and profitability if our volumes decrease.
FLUCTUATIONS IN COMMODITY PRICES COULD ADVERSELY AFFECT OUR BUSINESS.
Oil, natural gas, other petroleum product and CO2 prices are volatile and
could have an adverse effect on a portion of our profits and cash flow. Our
operations are affected by price reductions. Price reductions can materially
reduce the level of exploration, production and development operations, as well
as pipeline and marketing volumes.
Prices for commodities can fluctuate in response to changes in supply,
market uncertainty and a variety of additional factors that are beyond our
control.
OUR OPERATIONS ARE DEPENDENT UPON DEMAND FOR CRUDE OIL BY REFINERS IN THE
MIDWEST AND ON THE GULF COAST.
Any decrease in this demand for crude oil by the refineries or connecting
carriers to which we deliver could adversely affect our business. Those
refineries' need for crude oil also is dependent on the competition from other
refineries, the impact of future economic conditions, fuel conservation
measures, alternative fuel requirements, government regulation or technological
advances in fuel economy and energy generation devices, all of which could
reduce demand for our services.
WE ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS IN THE ORDINARY COURSE
OF OUR CRUDE OIL GATHERING AND MARKETING ACTIVITIES.
When we market crude oil, we must determine the amount, if any, of the
line of credit we will extend to any given customer. Since typical sales
transactions can involve tens of thousands of barrels of crude oil, the risk of
nonpayment and nonperformance by customers is an important consideration in our
business. In those cases where we provide division order services for crude oil
purchased at the wellhead, we may be responsible for distribution of proceeds
to all parties. In other cases, we pay all of or a portion of the production
proceeds to an operator who distributes these proceeds to the various interest
owners. These arrangements expose us to operator credit risk. As a result, we
must determine that operators have sufficient financial resources to make such
payments and distributions and to indemnify and defend us in case of a protest,
action or complaint. Even if our credit review and analysis mechanisms work
properly, there can be no assurance that we will not experience losses in
dealings with other parties.
OUR OPERATIONS ARE SUBJECT TO FEDERAL AND STATE ENVIRONMENTAL AND SAFETY
REGULATIONS AND LAWS RELATED TO ENVIRONMENTAL PROTECTION AND OPERATIONAL
SAFETY.
Our gathering and pipeline operations are subject to the risk of incurring
substantial environmental and safety related costs and liabilities. These costs
and liabilities could rise under increasingly strict environmental and safety
laws, including regulations and enforcement policies, or claims for damages to
property or persons resulting from our operations. If we are unable to recover
such resulting costs through increased rates or insurance reimbursements, our
cash flows and distributions to our unitholders could be materially affected.
The transportation and storage of crude oil involves a risk that crude oil
and related hydrocarbons may be suddenly or gradually released into the
environment, which may result in substantial expenditures for a response
action, significant government penalties, liability to government agencies for
natural resources damages, liability to private parties for personal injury or
property damages, and significant business interruption.
5
OUR CO2 OPERATIONS PRIMARILY RELATE TO OUR VOLUMETRIC PRODUCTION PAYMENT,
WHICH IS A FINITE RESOURCE PROJECTED TO TERMINATE AROUND 2015.
The cash flow from our CO2 operations primarily relates to our volumetric
production payment, which is projected to terminate around 2015. Unless we are
able to obtain a replacement supply of CO2 and enter into sales arrangements
that generate substantially similar economics, our cash flow could decline
significantly around 2015.
OUR CO2 OPERATIONS ARE EXPOSED TO RISKS RELATED TO DENBURY RESOURCES'
OPERATION OF THEIR CO2 FIELDS, EQUIPMENT AND PIPELINE.
Because Denbury Resources produces the CO2 and transports the CO2 to our
customers, any major failure of its operations could have an impact on our
ability to meet our obligations to our CO2 customers. We have no other supply
of CO2 or method to transport it to our customers.
The CO2 supplied by Denbury Resources to us for our sale to our customers
could fail to meet the quality standards in the contracts due to impurities or
water vapor content. If the CO2 were below specifications, we could be
contractually obligated to provide compensation to our customers for the costs
incurred in raising the CO2 quality to serviceable levels required by our
contracts.
FLUCTUATIONS IN DEMAND FOR CO2 BY OUR INDUSTRIAL CUSTOMERS COULD
MATERIALLY IMPACT OUR PROFITABILITY.
Our customers are not obligated to purchase volumes in excess of specified
minimum amounts in our contracts. As a result, fluctuations in our customers'
demand due to market forces or operational problems could result in a reduction
in our revenues from our sales of CO2.
OUR WHOLESALE CO2 INDUSTRIAL OPERATIONS ARE DEPENDENT ON THREE CUSTOMERS.
If one or more of those customers experience financial difficulties such
that they fail to purchase their required minimum take-or-pay volumes, our cash
flows could be adversely affected. We believe these three customers are credit
worthy, but we cannot assure you that an unanticipated deterioration in their
ability to meet their obligations to us might not occur.
WE MAY NOT BE ABLE TO FULLY EXECUTE OUR GROWTH STRATEGY IF WE ENCOUNTER
TIGHT CAPITAL MARKETS OR INCREASED COMPETITION FOR QUALIFIED ASSETS.
Our strategy contemplates substantial growth through the development and
acquisition of a wide range of midstream and other energy infrastructure assets
while maintaining a strong balance sheet. This strategy includes constructing
and acquiring additional assets and businesses to enhance our ability to
compete effectively, diversify our asset portfolio and, thereby, provide more
stable cash flow. We regularly consider and enter into discussions regarding,
and are currently contemplating, additional potential joint ventures,
stand-alone projects and other transactions that we believe will present
opportunities to realize synergies, expand our role in the energy
infrastructure business, and increase our market position and, ultimately,
increase distributions to unitholders.
We will need new capital to finance the future development and acquisition
of assets and businesses. Limitations on our access to capital will impair our
ability to execute this strategy. Expensive capital will limit our ability to
develop or acquire accretive assets. Although we intend to continue to expand
our business, this strategy may require substantial capital, and we may not be
able to raise the necessary funds on satisfactory terms, if at all.
In addition, we are experiencing increased competition for the assets we
purchase or contemplate purchasing. Increased competition for a limited pool of
assets could result in our not being the successful bidder more often or our
acquiring assets at a higher relative price than that which we have paid
historically. Either occurrence would limit our ability to fully execute our
growth strategy. Our ability to execute our growth strategy may impact the
market price of our securities.
6
OUR GROWTH STRATEGY MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS IF WE
DO NOT SUCCESSFULLY INTEGRATE THE BUSINESSES THAT WE ACQUIRE OR IF WE
SUBSTANTIALLY INCREASE OUR INDEBTEDNESS AND CONTINGENT LIABILITIES TO MAKE
ACQUISITIONS.
We may be unable to integrate successfully businesses we acquire. We may
incur substantial expenses, delays or other problems in connection with our
growth strategy that could negatively impact our results of operations.
Moreover, acquisitions and business expansions involve numerous risks,
including:
o difficulties in the assimilation of the operations, technologies,
services and products of the acquired companies or business
segments;
o inefficiencies and complexities that can arise because of
unfamiliarity with new assets and the businesses associated with
them, including unfamiliarity with their markets; and
o diversion of the attention of management and other personnel from
day-to-day business to the development or acquisition of new
businesses and other business opportunities.
If consummated, any acquisition or investment also likely would result in
the incurrence of indebtedness and contingent liabilities and an increase in
interest expense and depreciation, depletion and amortization expenses. A
substantial increase in our indebtedness and contingent liabilities could have
a material adverse effect on our business, as discussed above.
OUR ACTUAL CONSTRUCTION, DEVELOPMENT AND ACQUISITION COSTS COULD EXCEED
OUR FORECAST, AND OUR CASH FLOW FROM CONSTRUCTION AND DEVELOPMENT PROJECTS
MAY NOT BE IMMEDIATE.
Our forecast contemplates significant expenditures for the development,
construction or other acquisition of energy infrastructure assets, including
some construction and development projects with technological challenges. We
may not be able to complete our projects at the costs currently estimated. If
we experience material cost overruns, we will have to finance these overruns
using one or more of the following methods:
o using cash from operations;
o delaying other planned projects;
o incurring additional indebtedness; or
o issuing additional debt or equity.
Any or all of these methods may not be available when needed or may
adversely affect our future results of operations.
FLUCTUATIONS IN INTEREST RATES COULD ADVERSELY AFFECT OUR BUSINESS.
In addition to our exposure to commodity prices, we also have exposure to
movements in interest rates. The interest rates on our indebtedness outstanding
on the date of this prospectus, like our credit facility, are variable. Our
results of operations and our cash flow, as well as our access to future
capital and our ability to fund our growth strategy, could be adversely
affected by significant increases or decreases in interest rates.
OUR USE OF DERIVATIVE FINANCIAL INSTRUMENTS COULD RESULT IN FINANCIAL
LOSSES.
We use financial derivative instruments and other hedging mechanisms from
time to time to limit a portion of the adverse effects resulting from changes
in commodity prices, although there are times when we do not have any hedging
mechanisms in place. To the extent we hedge our commodity price exposure, we
forego the benefits we would otherwise experience if commodity prices were to
increase. In addition, we could experience losses resulting from our hedging
and other derivative positions. Such losses could occur under various
circumstances, including if our counterparty does not perform its obligations
under the hedge arrangement, our hedge is imperfect, or our hedging policies
and procedures are not followed.
7
A NATURAL DISASTER, CATASTROPHE OR OTHER INTERRUPTION EVENT INVOLVING US
COULD RESULT IN SEVERE PERSONAL INJURY, PROPERTY DAMAGE AND ENVIRONMENTAL
DAMAGE, WHICH COULD CURTAIL OUR OPERATIONS AND OTHERWISE ADVERSELY AFFECT
OUR ASSETS AND CASH FLOW.
Some of our operations involve higher risks of severe personal injury,
property damage and environmental damage, any of which could curtail our
operations and otherwise expose us to liability and adversely affect our cash
flow. Virtually all of our operations are exposed to the elements, including
tornadoes, storms, floods and earthquakes.
If one or more facilities that are owned by us or that connect to us is
damaged or otherwise affected by severe weather or any other disaster,
accident, catastrophe or event, our operations could be significantly
interrupted. Similar interruptions could result from damage to production or
other facilities that supply our facilities or other stoppages arising from
factors beyond our control. These interruptions might involve significant
damage to people, property or the environment, and repairs might take from a
week or less for a minor incident to six months or more for a major
interruption. Any event that interrupts the fees generated by our energy
infrastructure assets, or which causes us to make significant expenditures not
covered by insurance, could reduce our cash available for paying our interest
obligations as well as unitholder distributions and, accordingly, adversely
impact the market price of our securities. Additionally, the proceeds of any
property insurance maintained by us may not be paid in a timely manner or be in
an amount sufficient to meet our needs if such an event were to occur, and we
may not be able to renew it or obtain other desirable insurance on commercially
reasonable terms, if at all.
FERC REGULATION AND A CHANGING REGULATORY ENVIRONMENT COULD AFFECT OUR
CASH FLOW.
The FERC extensively regulates certain of our energy infrastructure
assets. This regulation extends to such matters as:
o rate structures;
o rates of return on equity;
o recovery of costs;
o the services that our regulated assets are permitted to perform;
o the acquisition, construction and disposition of assets; and
o to an extent, the level of competition in that regulated industry.
Given the extent of this regulation, the extensive changes in FERC policy
over the last several years, the evolving nature of regulation and the
possibility for additional changes, the current regulatory regime may change
and affect our financial position, results of operations or cash flows.
TERRORIST ATTACKS AIMED AT THE PARTNERSHIP'S FACILITIES COULD ADVERSELY
AFFECT THE BUSINESS.
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scale. Since the September 11 attacks, the U.S.
government has issued warnings that energy assets, specifically the nation's
pipeline infrastructure, may be the future targets of terrorist organizations.
These developments have subjected our operations to increased risks. Any future
terrorist attack at our facilities, those of our customers and, in some cases,
those of other pipelines, could have a material adverse effect on our business.
RISKS RELATED TO OUR PARTNERSHIP STRUCTURE
DENBURY RESOURCES AND ITS AFFILIATES HAVE CONFLICTS OF INTEREST WITH US
AND LIMITED FIDUCIARY RESPONSIBILITIES, WHICH MAY PERMIT THEM TO FAVOR
THEIR OWN INTERESTS TO YOUR DETRIMENT.
Denbury Resources indirectly owns and controls our general partner.
Conflicts of interest may arise between Denbury Resources and its affiliates,
including our general partner, on the one hand, and us and our unitholders, on
the other hand. As a result of these conflicts, our general partner may favor
its own interest and the interest of its
8
affiliates or others over the interest of our unitholders. These conflicts
include, among others, the following situations:
o neither our partnership agreement nor any other agreement requires
Denbury Resources to pursue a business strategy that favors us or
utilizes our assets. Denbury Resources' directors and officers have
a fiduciary duty to make these decisions in the best interest of
the stockholders of Denbury Resources;
o Denbury Resources may compete with us. Denbury Resources owns the
largest reserves of CO2 used for tertiary oil recovery east of the
Mississippi River and may manage these reserves in a manner that
could adversely affect our CO2 business;
o our general partner is allowed to take into account the interest of
parties other than us, such as Denbury Resources, in resolving
conflicts of interest;
o our general partner may limit its liability and reduce its
fiduciary duties, while also restricting the remedies available to
our unitholders for actions that, without the limitations, might
constitute breaches of fiduciary duty;
o our general partner determines the amount and timing of asset
purchases and sales, capital expenditures, borrowings, including
for incentive distributions, issuance of additional partnership
securities, reimbursements and enforcement of obligations to the
general partner and its affiliates, retention of counsel,
accountants and service providers, and cash reserves, each of which
can also affect the amount of cash that is distributed to our
unitholders;
o our general partner determines which costs incurred by it and its
affiliates are reimbursable by us and the reimbursement of these
costs and of any services provided by our general partner could
adversely affect our ability to pay cash distributions to our
unitholders;
o our general partner controls the enforcement of obligations owed to
us by our general partner and its affiliates;
o our general partner decides whether to retain separate counsel,
accountants or others to perform services for us; and
o in some instances, our general partner may cause us to borrow funds
in order to permit the payment of distributions even if the purpose
or effect of the borrowing is to make incentive distributions.
We expect to continue to enter into substantial transactions and other
activities with Denbury Resources and its subsidiaries because of the
businesses and areas in which we and Denbury Resources currently operate, as
well as those in which we plan to operate in the future. Some more recent
transactions in which we, on the one hand, and Denbury Resources and its
subsidiaries, on the other hand, had a conflict of interest include:
o transportation services
o pipeline monitoring services; and
o CO2 volumetric production payment.
In addition, Denbury Resources' beneficial ownership interest in our
outstanding partnership interests could have a substantial effect on the
outcome of some actions requiring partner approval. Accordingly, subject to
legal requirements, Denbury Resources makes the final determination regarding
how any particular conflict of interest is resolved.
EVEN IF UNITHOLDERS ARE DISSATISFIED, THEY CANNOT EASILY REMOVE OUR
GENERAL PARTNER.
Unlike the holders of common stock in a corporation, unitholders have only
limited voting rights on matters affecting our business and, therefore, limited
ability to influence management's decisions regarding our business.
9
Unitholders did not elect our general partner or its board of directors and
will have no right to elect our general partner or its board of directors on an
annual or other continuing basis. The board of directors of our general partner
is chosen by the stockholders of our general partner. In addition, if the
unitholders are dissatisfied with the performance of our general partner, they
will have little ability to remove our general partners. As a result of these
limitations, the price at which the common units trade could be diminished
because of the absence or reduction of a takeover premium in the trading price.
The vote of the holders of at least a majority of all outstanding units
(excluding any units held by our general partner and its affiliates) is
required to remove the general partner without cause. For the definition of
"cause," please see "Description of Our Partnership Agreement" in this
prospectus. If our general partner is removed without cause, (i) Denbury
Resources will have the option to acquire a substantial portion of our
Mississippi pipeline system at 110% of its then fair market value, and (ii) our
general partner will have the option to convert its interest in us (other than
its common units) into common units or to require our replacement general
partner to purchase such interest for cash at its then fair market value. In
addition, unitholders' voting rights are further restricted by our partnership
agreement provision providing that any units held by a person that owns 20% or
more of any class of units then outstanding, other than the general partner,
its affiliates, their transferees, and persons who acquired such units with the
prior approval of the board of directors of the general partner, cannot vote on
any matter. Our partnership agreement also contains provisions limiting the
ability of unitholders to call meetings or to acquire information about our
operations, as well as other provisions limiting the unitholders' ability to
influence the manner of direction of management.
As a result of these provisions, the price at which our common units trade
may be lower because of the absence or reduction of a takeover premium.
THE CONTROL OF OUR GENERAL PARTNER MAY BE TRANSFERRED TO A THIRD PARTY
WITHOUT UNITHOLDER CONSENT, WHICH COULD EFFECT OUR STRATEGIC DIRECTION AND
LIQUIDITY.
Our general partner may transfer its general partner interest to a third
party in a merger or in a sale of all or substantially all of its assets
without the consent of the unitholders. Furthermore, there is no restriction in
our partnership agreement on the ability of the owner of our general partner
from transferring its ownership interest in the general partner to a third
party. The new owner of the general partner would then be in a position to
replace the board of directors and officers of the general partner with its own
choices and to control the decisions taken by the board of directors and
officers.
In addition, unless our creditors agreed otherwise, we would be required
to repay the amounts outstanding under our credit facilities upon the
occurrence of any change of control described therein. We may not have
sufficient funds available or be permitted by our other debt instruments to
fulfill these obligations upon such occurrence. A change of control could have
other consequences to us depending on the agreements and other arrangements we
have in place from time to time, including employment compensation
arrangements.
OUR GENERAL PARTNER AND ITS AFFILIATES MAY SELL UNITS OR OTHER LIMITED
PARTNER INTERESTS IN THE TRADING MARKET, WHICH COULD REDUCE THE MARKET
PRICE OF COMMON UNITS.
As of December 31, 2004, our general partner and its affiliates own
688,811 (approximately 7%) of our common units. In the future, they may acquire
additional interest or dispose of some or all of their interest. If they
dispose of a substantial portion of their interest in the trading markets, the
sale could reduce the market price of common units. Our partnership agreement,
and other agreements to which we are party, allow our general partner and
certain of its subsidiaries to cause us to register for sale the partnership
interests held by such persons, including common units. These registration
rights allow our general partner and its subsidiaries to request registration
of those partnership interests and to include any of those securities in a
registration of other capital securities by us.
OUR GENERAL PARTNER HAS ANTI-DILUTION RIGHTS.
Whenever we issue equity securities to any person other than our general
partner and its affiliates, our general partner and its affiliates have the
right to purchase an additional amount of those equity securities on the same
terms as they are issued to the other purchasers. This allows our general
partner and its affiliates to maintain their
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percentage partnership interest in us. No other unitholder has a similar right.
Therefore, only our general partner may protect itself against dilution caused
by the issuance of additional equity securities.
DUE TO OUR SIGNIFICANT RELATIONSHIPS WITH DENBURY RESOURCES, ADVERSE
DEVELOPMENTS CONCERNING DENBURY RESOURCES COULD ADVERSELY AFFECT US, EVEN
IF WE HAVE NOT SUFFERED ANY SIMILAR DEVELOPMENTS.
Through its subsidiaries, Denbury Resources owns 100 percent of our
general partner and has historically, with its affiliates, employed the
personnel who operate our businesses. Denbury Resources is a significant
stakeholder in our limited partner interests, and as with many other energy
companies, is a significant customer of ours.
WE MAY ISSUE ADDITIONAL COMMON UNITS WITHOUT YOUR APPROVAL, WHICH WOULD
DILUTE YOUR OWNERSHIP INTERESTS.
We may issue an unlimited number of limited partners interests of any type
without the approval of our unitholders.
The issuance of additional common units or other equity securities of
equal or senior rank will have the following effects:
o our unitholders' proportionate ownership interest in us will
decrease;
o the amount of cash available for distribution on each unit may
decrease;
o the relative voting strength of each previously outstanding unit
may be diminished; and
o the market price of our common units may decline.
OUR GENERAL PARTNER HAS A LIMITED CALL RIGHT THAT MAY REQUIRE YOU TO SELL
YOUR COMMON UNITS AT AN UNDESIRABLE TIME OR PRICE.
If at any time our general partner and its affiliates own more than 80% of
the common units, our general partner will have the right, but not the
obligation, which it may assign to any of its affiliates or to us, to acquire
all, but not less than all, of the common units held by unaffiliated persons at
a price not less than their then-current market price. As a result, you may be
required to sell your common units at an undesirable time or price and may not
receive any return on your investment. You may also incur a tax liability upon
a sale of your units.
THE INTERRUPTION OF DISTRIBUTIONS TO US FROM OUR SUBSIDIARIES AND JOINT
VENTURES MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON INDEBTEDNESS OR CASH
DISTRIBUTIONS TO OUR UNITHOLDERS.
We are a holding company. As such, our primary assets are the equity
interests in our subsidiaries and joint ventures. Consequently, our ability to
fund our commitments (including payments on our indebtedness) and to make cash
distributions depends upon the earnings and cash flow of our subsidiaries and
joint ventures and the distribution of that cash to us. Distributions from our
joint ventures are subject to the discretion of their respective management
committees. Further, each joint venture's charter documents typically vest in
its management committee sole discretion regarding distributions. Accordingly,
our joint ventures may not continue to make distributions to us at current
levels or at all.
WE CANNOT CAUSE OUR JOINT VENTURES TO TAKE OR NOT TO TAKE CERTAIN ACTIONS
UNLESS SOME OR ALL OF THE JOINT VENTURE PARTICIPANTS AGREE.
Due to the nature of joint ventures, each participant (including us) in
our joint venture, T & P Syngas Supply Company, has made substantial
investments (including contributions and other commitments) in that joint
venture and, accordingly, has required that the relevant charter documents
contain certain features designed to provide each participant with the
opportunity to participate in the management of the joint venture and to
protect its investment in that joint venture, as well as any other assets which
may be substantially dependent on or otherwise affected by the activities of
that joint venture. These participation and protective features include a
corporate governance structure that consists of a management committee composed
of four members, only two of which are appointed by us. In addition, Praxair,
the other 50% owner, operates the joint venture facilities. Thus, without the
concurrence of the other joint venture participant, we cannot cause our joint
venture to take or not to take certain actions, even though
11
those actions may be in the best interest of the joint venture or us. As of
April 1, 2005, our aggregate investment in T & P Syngas Supply Company totaled
$13.5 million.
OUR SYNGAS OPERATIONS ARE DEPENDENT ON ONE CUSTOMER.
Our joint venture has dedicated 100% of its syngas processing capacity to
one customer pursuant to a processing contract. The contract term expires in
2016, unless our customer elects to extend the contract for two additional five
year terms. If our customer reduces or discontinues its business with us, or if
we are not able to successfully negotiate a replacement contract with our sole
customer after the expiration of such contract, or if the replacement contract
is on less favorable terms, the effect on us will be adverse. In addition, if
our sole customer for syngas processing were to experience financial
difficulties such that it failed to provide volumes to process, our cash flow
from the syngas joint venture could be adversely affected. We believe this
customer is creditworthy, but we cannot assure you that unanticipated
deterioration of their abilities to meet their obligations to the syngas joint
venture might not occur.
WE DO NOT HAVE THE SAME FLEXIBILITY AS OTHER TYPES OF ORGANIZATIONS TO
ACCUMULATE CASH AND EQUITY TO PROTECT AGAINST ILLIQUIDITY IN THE FUTURE.
Unlike a corporation, our partnership agreement requires us to make
quarterly distributions to our unitholders of all available cash reduced by any
amounts reserved for commitments and contingencies, including capital and
operating costs and debt service requirements. The value of our units and other
limited partner interests will decrease in direct correlation with decreases in
the amount we distribute per unit. Accordingly, if we experience a liquidity
problem in the future, we may not be able to issue more equity to recapitalize.
TAX RISKS TO COMMON UNITHOLDERS
You should read "Material Tax Consequences" for a full discussion of the
expected material federal income tax consequences of owning and disposing of
common units.
THE IRS COULD TREAT US AS A CORPORATION FOR TAX PURPOSES, WHICH WOULD
SUBSTANTIALLY REDUCE THE CASH AVAILABLE FOR DISTRIBUTION TO YOU.
The after-tax economic benefit of an investment in the common units
depends largely on our being treated as a partnership for federal income tax
purposes. We have not requested, and do not plan to request, a ruling from the
IRS on this or any other tax matter affecting us.
If we were treated 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 may be taxed again as
corporate dividends, and no income, gains, losses or deductions would flow
through to you. Because a tax would be imposed upon us as a corporation, our
cash available for distribution to you would be substantially reduced. If we
were treated as a corporation, there would be a material reduction in the
after-tax return to the unitholders, likely causing a substantial reduction in
the value of our common units.
Current law may change so as to cause us to be treated as a corporation
for federal income tax purposes or otherwise subject us to entity-level
taxation. In addition, because of widespread state budget deficits, several
states are evaluating ways to subject partnerships to entity-level taxation
through the imposition of state income, franchise or other forms of taxation.
If any state were to impose a tax upon us as an entity, the cash available for
distribution to you would be reduced. The 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, the
minimum quarterly distribution amount and the target distribution amounts will
be adjusted to reflect the impact of that law on us.
A SUCCESSFUL IRS CONTEST OF THE FEDERAL INCOME TAX POSITIONS WE TAKE MAY
ADVERSELY AFFECT THE MARKET FOR OUR COMMON UNITS, AND THE COST OF ANY IRS
CONTEST WILL BE BORNE BY OUR UNITHOLDERS AND OUR GENERAL PARTNER.
We have not requested a ruling from the IRS with respect to our treatment
as a partnership for federal income tax purposes or any other matter affecting
us. The IRS may adopt positions that differ from the conclusions of our
12
counsel expressed in this prospectus or from the positions we take. It may be
necessary to resort to administrative or court proceedings to sustain some or
all of our counsel's conclusions or the positions we take. A court may not
agree with some or all of our counsel's conclusions or positions we take. Any
contest with the IRS may materially and adversely impact the market for our
common units and the price at which they trade. In addition, our costs of any
contest with the IRS will be borne indirectly by our unitholders and our
general partner, and these costs will reduce our cash available for
distribution.
YOU MAY BE REQUIRED TO PAY TAXES ON INCOME FROM US EVEN IF YOU DO NOT
RECEIVE ANY CASH DISTRIBUTIONS FROM US.
You will be required to pay any federal income taxes and, in some cases,
state and local income taxes on your share of our taxable income even if you
receive no cash distributions from us. You may not receive cash distributions
from us equal to your share of our taxable income or even the tax liability
that results from that income.
TAX GAIN OR LOSS ON DISPOSITION OF COMMON UNITS COULD BE DIFFERENT THAN
EXPECTED.
If you sell your common units, you will recognize a gain or loss equal to
the difference between the amount realized and your tax basis in those common
units. Prior distributions to you in excess of the total net taxable income you
were allocated for a common unit, which decreased your tax basis in that common
unit, will, in effect, become taxable income to you if the common unit is sold
at a price greater than your tax basis in that common unit, even if the price
is less than your original cost. A substantial portion of the amount realized,
whether or not representing gain, may be ordinary income. In addition, if you
sell your units, you may incur a tax liability in excess of the amount of cash
you receive from the sale.
TAX-EXEMPT ENTITIES, REGULATED INVESTMENT COMPANIES AND FOREIGN PERSONS
FACE UNIQUE TAX ISSUES FROM OWNING COMMON UNITS THAT MAY RESULT IN ADVERSE
TAX CONSEQUENCES TO THEM.
Investment in common units by tax-exempt entities, such as individual
retirement accounts (known as IRAs), regulated investment companies (known as
mutual funds) and non U.S. persons raises issues unique to them. For example, a
significant amount of our income allocated to organizations exempt from federal
income tax, including individual retirement accounts and other retirement
plans, may be unrelated business taxable income and will be taxable to such a
unitholder. Recent legislation treats net income derived from the ownership of
certain publicly traded partnerships (including us) as qualifying income to a
regulated investment company. However, this legislation is only effective for
taxable years beginning after October 22, 2004, the date of enactment. For
taxable years beginning prior to the date of enactment, very little of our
income will be qualifying income to a regulated investment company.
Distributions to non-U.S. persons will be reduced by withholding tax at the
highest effective tax rate applicable to individuals, and non U.S. unitholders
will be required to file federal income tax returns and pay tax on their share
of our taxable income.
WE ARE REGISTERED AS A TAX SHELTER. THIS MAY INCREASE THE RISK OF AN IRS
AUDIT OF US OR YOU.
We are registered with the IRS as a "tax shelter." Our tax shelter
registration number is 97043000153. The federal income tax laws require that
some types of entities, including some partnerships, register as tax shelters
in response to the perception that they claim tax benefits that may be
unwarranted. As a result, we may be audited by the IRS and tax adjustments may
be made. Any unitholder owning less than a 1% profit 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 your tax returns and
may lead to audits of your tax returns and adjustments of items unrelated to
us. You would bear the cost of any expense incurred in connection with an
examination of your tax return.
WE WILL TREAT EACH PURCHASER OF COMMON UNITS AS HAVING THE SAME TAX
BENEFITS WITHOUT REGARD TO THE UNITS PURCHASED. THE IRS MAY CHALLENGE THIS
TREATMENT, WHICH COULD ADVERSELY AFFECT THE VALUE OF OUR COMMON UNITS.
Because we cannot match transferors and transferees of common units, we
adopt depreciation and amortization positions that may not conform with all
aspects of applicable Treasury regulations. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits available to a
common unitholder. It also could
13
affect the timing of these tax benefits or the amount of gain from a sale of
common units and could have a negative impact on the value of the common units
or result in audit adjustments to the common unitholder's tax returns.
YOU WILL LIKELY BE SUBJECT TO STATE AND LOCAL TAXES IN STATES WHERE YOU DO
NOT LIVE AS A RESULT OF AN INVESTMENT IN UNITS.
In addition to federal income taxes, you will likely be subject to other
taxes, including foreign, 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, even if you do not live
in any of those jurisdictions. You will likely be required to file foreign,
state and local income tax returns and pay state and local income taxes in some
or all of these jurisdictions. Further, you may be subject to penalties for
failure to comply with those requirements. We own assets and do business in
Texas, Louisiana, Mississippi, Alabama, Florida, and Oklahoma. Louisiana,
Mississippi, Alabama, Florida, and Oklahoma currently impose a personal income
tax. It is your responsibility to file all United States federal, foreign,
state and local tax returns. Our counsel has not rendered an opinion on the
state or local tax consequences of an investment in the common units.
14
USE OF PROCEEDS
Unless otherwise specified in an accompanying prospectus supplement, we
will use the net proceeds we receive from the sale of the equity securities
described in this prospectus for general partnership purposes, which may
include, among other things, repayment of indebtedness, the acquisition of
businesses and other capital expenditures, payment of distributions and
additions to working capital. The exact amounts to be used and when the net
proceeds will be applied will depend on a number of factors, including our
funding requirements and the availability of alternative funding sources.
15
DESCRIPTION OF OUR EQUITY SECURITIES
GENERAL
As of the date of this prospectus, we have outstanding only common units.
In the future we may issue additional common units and one or more series or
classes of other equity securities, including, without limitation, subordinated
securities, preference securities, senior securities, deferred participation
securities or warrant securities, in one or more series or classes. Those
equity securities may have rights to distributions and allocations junior,
equal or superior to our common units. Our general partner can determine the
voting powers, designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions of any
series or class and the number constituting any series or class of equity
securities.
OUR COMMON UNITS
Our common units represent limited partner interests in Genesis Energy,
L.P. that entitle the holders to participate in our cash distributions and to
exercise the rights or privileges available to limited partners under our
partnership agreement. For a description of the relative rights and preferences
of holders of common units and our general partner in and to partnership
distributions, see "Cash Distribution Policy" in this prospectus.
Our outstanding common units are
listed on the American Stock Exchange
under the symbol "GEL."
The transfer agent and registrar for our common units is American Stock
Transfer & Trust Company.
Status as Limited Partner or Assignee. Except as described under "--
Limited Liability," the common units will be fully paid, and the unitholders
will not be required to make additional capital contributions to us.
Transfer of Common Units. Each purchaser of common units offered by this
prospectus must execute a transfer application. By executing and delivering a
transfer application, the purchaser of common units:
o becomes the record holder of the common units and is an assignee
until admitted into our partnership as a substituted limited
partner;
o automatically requests admission as a substituted limited partner
in our partnership;
o agrees to be bound by the terms and conditions of, and executes,
our partnership agreement;
o represents that he has the capacity, power and authority to enter
into the partnership agreement;
o grants powers of attorney to officers of the general partner and
any liquidator of our partnership as specified in the partnership
agreement; and
o makes the consents and waivers contained in the partnership
agreement.
An assignee will become a substituted limited partner of our partnership
for the transferred common units upon the consent of our general partner and
the recording of the name of the assignee on our books and records. The general
partner may withhold its consent in its sole discretion.
Transfer applications may be completed, executed and delivered by a
purchaser's broker, agent or nominee. We are entitled to treat the nominee
holder of a common unit as the absolute owner. In that case, the beneficial
holders' rights are limited solely to those that it has against the nominee
holder as a result of any agreement between the beneficial owner and the
nominee holder.
Common units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired, the
purchaser has the right to request admission as a substituted limited partner
in our partnership for the purchased common units. A purchaser of common units
who does not execute and deliver a transfer application obtains only:
o the right to assign the common unit to a purchaser or transferee;
and
o the right to transfer the right to seek admission as a substituted
limited partner in our partnership for the purchased common units.
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Thus, a purchaser of common units who does not execute and deliver a
transfer application:
o will not receive cash distributions or federal income tax
allocations, unless the common units are held in a nominee or
"street name" account and the nominee or broker has executed and
delivered a transfer application; and
o may not receive some federal income tax information or reports
furnished to record holders of common units.
Until a common unit has been transferred on our books, we and the transfer
agent, notwithstanding any notice to the contrary, may treat the record holder
of the unit as the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
Limited Liability. Assuming that a limited partner does not participate in
the control of our business within the meaning of the Delaware Revised Uniform
Limited Partnership Act (the "Delaware Act") and that he otherwise acts in
conformity with the provisions of our partnership agreement, his liability
under the Delaware Act will be limited, subject to possible exceptions, to the
amount of capital he is obligated to contribute to us for his common units plus
his share of any undistributed profits and assets. If it were determined,
however, that the right or exercise of the right by the limited partners as a
group:
o to remove or replace the general partner;
o to approve some amendments to our partnership agreement; or
o to take other action under our partnership agreement
constituted "participation in the control" of our business for the purposes of
the Delaware Act, then the limited partners could be held personally liable for
our obligations under Delaware law, to the same extent as the general partner.
This liability would extend to persons who transact business with us and who
reasonably believe that the limited partner is a general partner. Neither our
partnership agreement nor the Delaware Act specifically provides for legal
recourse against our general partner if a limited partner were to lose limited
liability through any fault of the general partner. While this does not mean
that a limited partner could not seek legal recourse, we have found no
precedent for this type of a claim in Delaware case law.
Under the Delaware Act, a limited partnership may not make a distribution
to a partner if after the distribution all liabilities of the limited
partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to
specific property of our partnership, exceed the fair value of the assets of
the limited partnership. For the purpose of determining the fair value of the
assets of a limited partnership, the Delaware Act provides that the fair value
of property subject to liability for which recourse of creditors is limited
shall be included in the assets of the limited partnership only to the extent
that the fair value of that property exceeds the nonrecourse liability. The
Delaware Act provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was in violation of
the Delaware Act shall be liable to the limited partnership for the amount of
the distribution for three years. Under the Delaware Act, an assignee who
becomes a substituted limited partner of a limited partnership is liable for
the obligations of his assignor to make contributions to our partnership,
except the assignee is not obligated for liabilities unknown to him at the time
he became a limited partner and which could not be ascertained from our
partnership agreement.
Meetings; Voting. Except as described below regarding a person or group
owning 20% or more of any class of units then outstanding, unitholders or
assignees who are record holders of units on the record date will be entitled
to notice of, and to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited. Common units that are owned by an
assignee who is a record holder, but who has not yet been admitted as a limited
partner, will be voted by our general partner at the written direction of the
record holder. Absent direction of this kind, the common units will not be
voted, except that, in the case of common units held by our general partner on
behalf of non-citizen assignees, our general partner will distribute the votes
on those common units in the same ratios as the votes of limited partners on
other units are cast.
Our general partner does not anticipate that any meeting of unitholders
will be called in the foreseeable future. Any action that is required or
permitted to be taken by the unitholders may be taken either at a meeting of
the unitholders or without a meeting if consents in writing describing the
action so taken are signed by holders of the
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number of units as would be necessary to authorize or take that action at a
meeting. Meetings of the unitholders may be called by our general partner or by
unitholders owning at least 20% of the outstanding units of the class for which
a meeting is proposed. Unitholders may vote either in person or by proxy at
meetings. The holders of a majority of the outstanding units of the class or
classes for which a meeting has been called represented in person or by proxy
shall constitute a quorum unless any action by the unitholders requires
approval by holders of a greater percentage of the units, in which case the
quorum shall be the greater percentage.
Each record holder of a unit has a vote according to his percentage
interest in our partnership, although additional limited partner interests
having special voting rights could be issued. However, if at any time any
person or group, other than our general partner and its affiliates, or a direct
or subsequently approved transferee of our general partner or its affiliates or
a person or group who acquires the units with the prior approval of the board
of directors, acquires, in the aggregate, beneficial ownership of 20% or more
of any class of units then outstanding, the person or group will lose voting
rights on all of its units and the units may not be voted on any matter and
will not be considered to be outstanding when sending notices of a meeting of
unitholders, calculating required votes, determining the presence of a quorum
or for other similar purposes. Common units held in nominee or street name
account will be voted by the broker or other nominee in accordance with the
instruction of the beneficial owner unless the arrangement between the
beneficial owner and his nominee provides otherwise.
Any notice, demand, request, report or proxy material required or
permitted to be given or made to record holders of common units under our
partnership agreement will be delivered to the record holder by us or by the
transfer agent.
Books and Reports. Our general partner is required to keep appropriate
books of our business at our principal office. The books will be maintained for
both tax and financial reporting purposes on an accrual basis. For tax and
fiscal reporting purposes, our fiscal year is the calendar year.
We will furnish or make available to record holders of common units,
within 120 days after the close of each fiscal year, an annual report
containing audited financial statements and a report on those financial
statements by our independent public accountants. Except for our fourth
quarter, we will also furnish or make available unaudited financial information
within 90 days after the close of each quarter.
We will furnish each record holder of a unit with information reasonably
required for tax reporting purposes within 90 days after the close of each
calendar year. This information is expected to be furnished in summary form so
that some complex calculations normally required of partners can be avoided.
Our ability to furnish this summary information to unitholders will depend on
the cooperation of unitholders in supplying us with specific information. Every
unitholder will receive information to assist him in determining his federal
and state tax liability and filing his federal and state income tax returns,
regardless of whether he supplies us with information.
Our partnership agreement provides that a limited partner can, for a
purpose reasonably related to his interest as a limited partner, upon
reasonable demand and at his own expense, have furnished to him:
o a current list of the name and last known address of each partner;
o a copy of our tax returns;
o information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each became a partner;
o copies of our partnership agreement, the certificate of limited
partnership of the partnership, related amendments and powers of
attorney under which they have been executed;
o information regarding the status of our business and financial
condition; and
o any other information regarding our affairs as is just and
reasonable.
Our general partner may, and intends to, keep confidential from the
limited partners trade secrets or other information the disclosure of which our
general partner believes in good faith is not in our best interests or which we
are required by law or by agreements with third parties to keep confidential.
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Summary of Partnership Agreement. For a summary of the important
provisions of our partnership agreement, many of which apply to holders of
common units, see "Description of Our Partnership Agreement" in this
prospectus.
OUR EQUITY SECURITIES OTHER THAN COMMON UNITS
Except as set forth below, our partnership agreement authorizes us to
issue an unlimited number of additional equity securities for the consideration
and with the rights, preferences and privileges established by our general
partner in its sole discretion without the approval of any of our limited
partners. In accordance with Delaware Law and the provisions of that
partnership agreement, we may also issue additional equity securities that, in
the sole discretion of our general partner, have special voting rights to which
our common units are not entitled. Accordingly, in the future, we may issue one
or more series or classes of equity securities other than common units,
including, without limitation, subordinated securities, preference securities,
senior securities, deferred participation securities or warrant securities.
Should we offer equity securities other than common units under this
prospectus, a prospectus supplement relating to the particular equity
securities offered will include the specific terms of those equity securities,
including the following:
o the designation, stated value, liquidation preference and number of
the equity securities offered;
o the initial public offering price at which those particular equity
securities will be issued;
o the conversion or exchange provisions of those particular equity
securities;
o any redemption or sinking fund provisions of those particular
equity securities;
o the distribution rights of those particular equity securities, if
any;
o a discussion of material federal income tax considerations, if any,
regarding those particular equity securities; and
o any additional rights, preferences, privileges, limitations and
restrictions of those particular equity securities.
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CASH DISTRIBUTION POLICY
DISTRIBUTIONS OF AVAILABLE CASH
General. Within approximately 45 days after the end of each quarter,
Genesis Energy, L.P. will distribute all available cash to unitholders of
record on the applicable record date. However, there is no guarantee that we
will pay a distribution on the common units in any quarter, and we will be
prohibited from making any distributions to unitholders if it would cause an
event of default, or if an event of default then exists, under our credit
facility.
Definition of Available Cash.
Available cash generally means, for each
fiscal quarter, all cash on hand at the
end of the quarter:
o less the amount of cash reserves that the general partner
determines in its reasonable discretion is necessary or appropriate
to:
o provide for the proper conduct of our business;
o comply with applicable law, any of our debt instruments, or other
agreements; or
o provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four quarters;
o plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings.
Working capital borrowings are generally borrowings that are made
under our credit facility and in all cases are used solely for
working capital purposes or to pay distributions to partners.
OPERATING SURPLUS AND CAPITAL SURPLUS
General. All cash distributed to unitholders will be characterized either
as operating surplus or capital surplus. We distribute available cash from
operating surplus differently than available cash from capital surplus.
Maintenance capital expenditures are capital expenditures made to
maintain, over the long term, the operating capacity of our assets as they
existed at the time of the expenditure. Expansion capital expenditures are
capital expenditures made to increase over the long term the operating capacity
of our assets as they existed at the time of the expenditure. The general
partner has the discretion to determine how to allocate a capital expenditure
for the acquisition or expansion of our pipeline systems, storage facilities
and related assets between maintenance capital expenditures and expansion
capital expenditures, and its good faith allocation will be conclusive.
Maintenance capital expenditures reduce operating surplus, from which we pay
the minimum quarterly distribution, but expansion capital expenditures do not.
Definition of Operating Surplus. For any period, operating surplus
generally means:
o our cash balance on the closing date of our initial public
offering; plus
o $20.0 million (as described below); plus
o all of our cash receipts since the closing of our initial public
offering, excluding cash from borrowings that are not working
capital borrowings, sales of equity and debt securities and sales
or other dispositions of assets outside the ordinary course of
business; plus
o working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for that
quarter; less
o all of our operating expenses since the closing of our initial
public offering, including the repayment of working capital
borrowings and the payment of capital expenditures, other than:
- repayments of indebtedness that are required in connection with
the sale or other disposition of assets or that are made in
connection with the refinancing or refunding of indebtedness
with the proceeds from new indebtedness or from the sale of
equity securities;
- expansion capital expenditures;
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- transaction expenses relating to borrowings or refinancings of
indebtedness (other than for working capital purposes), sales of
debt or equity securities or sales or other dispositions of
assets other than in the ordinary course of business; less
o the amount of cash reserves that the general partner deems
necessary or advisable to provide funds for future operating
expenditures.
Definition of Capital Surplus. Capital surplus will generally be
generated only by:
o borrowings other than working capital borrowings;
o sales of debt and equity securities; or
o sales or other disposition of assets for cash, other than
inventory, accounts receivable and other current assets sold in the
ordinary course of business or as part of normal retirements or
replacements of assets.
Characterization of Cash Distributions. We will treat all available cash
distributed as coming from operating surplus until the sum of all available
cash distributed since we began operations equals the operating surplus as of
the most recent date of determination of available cash. We will treat any
amount distributed in excess of operating surplus, regardless of its source, as
capital surplus. We do not anticipate that we will make any distributions from
capital surplus. As reflected above, operating surplus includes $20.0 million
in addition to our cash balance on the closing date of our initial public
offering, cash receipts from our operations and cash from working capital
borrowings. This amount does not reflect actual cash on hand at closing that is
available for distribution to our unitholders. Rather, it is a provision that
will enable us, if we choose, to distribute as operating surplus up to $20
million of cash we receive in the future from non-operating sources, such as
assets sales, issuances of securities and long-term borrowings, which would
otherwise be considered distributions of capital surplus. Any distributions of
capital surplus would trigger certain adjustment provisions in our partnership
agreement as described below. See "-- Distributions From Capital Surplus" and
"-- Adjustment to the Minimum Quarterly Distribution and Target Distribution
Levels."
DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS
We will make distributions of available cash from operating surplus in the
following manner:
o First, 98% to all unitholders, pro rata, and 2% to the general
partner until we distribute for each outstanding unit an amount
equal to the minimum quarterly distribution for that quarter; and
o Thereafter, in the manner described under "-- Incentive
Distribution Rights" below
Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing
percentage of quarterly distributions of available cash from operating surplus
after the minimum quarterly distribution and the target distribution levels
have been achieved. Our general partner holds all of the incentive distribution
rights. There are no restrictions on the ability of our general partner to
transfer the incentive distribution rights.
If for any quarter we have distributed available cash from operating
surplus to the common unitholders in an amount equal to the minimum quarterly
distribution, then we will distribute any additional available cash from
operating surplus for that quarter among the unitholders and the general
partner in the following manner:
o First, 98% to all unitholders, pro rata, and 2% to the general
partner, until each unitholder receives a total of $0.25 per unit
for that quarter (the "first target distribution");
o Second, 84.74% to all unitholders, pro rata, 13.26% to the holder
of the incentive distribution rights and 2% to the general partner,
until each unitholder receives a total of $0.28 per unit for that
quarter (the "second target distribution");
o Third, 74.26% to all unitholders, pro rata, 23.74% to the holder of
the incentive distribution rights and 2% to the general partner,
until each unitholder receives a total of $0.33 per unit for that
quarter (the "third target distribution"); and
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o Thereafter, 49.02% to all unitholders, pro rata, 48.98% to the
holder of the incentive distribution rights and 2% to the general
partner.
PERCENTAGE ALLOCATIONS OF AVAILABLE CASH FROM OPERATING SURPLUS
The following table illustrates the percentage allocations of the
additional available cash from operating surplus between the unitholders and
our general partner up to the various target distribution levels. The amounts
set forth under "Marginal Percentage Interest in Distributions" are the
percentage interests of our general partner and the unitholders in any
available cash from operating surplus we distribute up to and including the
corresponding amount in the column "Total Quarterly Distribution Target
Amount," until available cash from operating surplus we distribute reaches the
next target distribution level, if any. The percentage interests shown for the
unitholders and the general partner for the minimum quarterly distribution
are also applicable to quarterly distribution amounts that are less than
the minimum quarterly distribution.
MARGINAL PERCENTAGE INTEREST IN DISTRIBUTIONS
TOTAL QUARTERLY -----------------------------------------------
DISTRIBUTION GENERAL HOLDER OF INCENTIVE
TARGET AMOUNT UNITHOLDERS PARTNER DISTRIBUTION RIGHTS
----------------------- ----------- ------- -------------------
Minimum Quarterly Distribution up to $0.20 98% 2% --
First Target Distribution above $0.20 up to $0.25 98% 2% --
Second Target Distribution above $0.25 up to $0.28 84.74% 2% 13.26%
Third Target Distribution above $0.28 up to $0.33 74.26% 2% 23.74%
Thereafter above $0.33 49.02% 2% 48.98%
DISTRIBUTIONS FROM CAPITAL SURPLUS
We will make distributions of available cash from capital surplus, if any,
in the following manner:
o First, 98% to all unitholders, pro rata, and 2% to the general
partner, until we distribute for each common unit that was issued
in the initial public offering, an amount of available cash from
capital surplus equal to the initial public offering price; and
o Thereafter, we will make all distributions of available cash from
capital surplus as if they were from operating surplus.
Effect of a Distribution from Capital Surplus. The partnership agreement
treats a distribution of capital surplus as the repayment of the initial unit
price from the initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital surplus per
unit is referred to as the unrecovered initial unit price. Each time a
distribution of capital surplus is made, the minimum quarterly distribution and
the target distribution levels will be reduced in the same proportion as the
corresponding reduction in the unrecovered initial unit price. Because
distributions of capital surplus will reduce the minimum quarterly
distribution, after any of these distributions are made, it may be easier for
the general partner to receive incentive distributions.
Once we distribute capital surplus on a unit in an amount equal to the
initial unit price, we will reduce the minimum quarterly distribution and the
target distribution levels to zero and we will make all future distributions
from operating surplus, with 49.02% being paid to the unitholders and 50.98% to
the general partner.
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
In addition to adjusting the minimum quarterly distribution and target
distribution levels to reflect a distribution of capital surplus, if we combine
our units into fewer units or subdivide our units into a greater number of
units, we will proportionately adjust:
o the minimum quarterly distribution;
o the target distribution levels; and
o the unrecovered initial unit price.
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For example, if a two-for-one split of the common units should occur, the
minimum quarterly distribution, the target distribution levels and the
unrecovered initial unit price would each be reduced to 50% of its initial
level. We will not make any adjustment by reason of the issuance of additional
units for cash or property.
In addition, if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us to become taxable as a corporation or
otherwise subject to taxation as an entity for federal, state or local income
tax purposes, we will reduce the minimum quarterly distribution and the target
distribution levels by multiplying the same by one minus the sum of the highest
marginal federal corporate income tax rate that could apply and the effective
overall state and local income tax rates. For example, if we became subject to
a maximum marginal federal, and effective state and local income tax rate of
38%, then the minimum quarterly distribution and the target distributions
levels would each be reduced to 62% of their previous levels.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
If we dissolve in accordance with our partnership agreement, we will sell
or otherwise dispose of our assets in a process called a liquidation. We will
first apply the proceeds of liquidation to the payment of our creditors. We
will distribute any remaining proceeds to the unitholders and the general
partner, in accordance with their capital account balances, as adjusted to
reflect any gain or loss upon the sale or other disposition of our assets in
liquidation.
Manner of Adjustment for Gain. The manner of the adjustment is set forth
in the partnership agreement. Upon liquidation, we will allocate any gain to
the partners in the following manner:
o First, to our general partner and the holders of units who have
negative balances in their capital accounts to the extent of and in
proportion to those negative balances;
o Second, 98% to the common unitholders, pro rata, and 2% to the
general partner, until the capital account for each common unit is
equal to the sum of:
(1) the unrecovered initial unit price; plus
(2) the amount of the minimum quarterly distribution for the
quarter during which our liquidation occurs;
o Third, 98% to all unitholders, pro rata, and 2% to the general
partner, pro rata, until we allocate under this paragraph an amount
per unit equal to:
(1) the sum of the excess of the first target distribution per
unit over the minimum quarterly distribution per unit for each quarter
of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the minimum
quarterly distribution per unit that was distributed 98% to the units,
pro rata, and 2% to the general partner, pro rata, for each quarter of
our existence;
o Fourth, 84.74% to all unitholders, pro rata, 13.26% to the holder
of the incentive distribution rights and 2% to the general partner,
until we allocate under this paragraph an amount per unit equal to:
(1) the sum of the excess of the second target distribution per
unit over the first target distribution per unit for each quarter of
our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the first target
distribution per unit that was distributed 84.74% to the unitholders,
pro rata, 13.26% to the holder of the incentive distribution rights
and 2% to the general partner for each quarter of our existence;
o Fifth, 74.26% to all unitholders, pro rata, 23.74% to the holder of
the incentive distribution rights and 2% to the general partner,
until we allocate under this paragraph an amount per unit equal to:
(1) the sum of the excess of the third target distribution per
unit over the second target distribution per unit for each quarter of
our existence; less
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(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the second target
distribution per unit that was distributed 74.26% to the unitholders,
pro rata, 23.74% to the holder of the incentive distribution rights
and 2% to the general partner for each quarter of our existence;
o Thereafter, 49.02% to all unitholders, pro rata, 48.98% to the
holder of the incentive distribution rights and 2% to the general
partner.
Manner of Adjustment for Losses. Upon our liquidation, we will generally
allocate any loss to the general partner and the unitholders in the following
manner:
o First, 98% to the holders of common units in proportion to the
positive balances in their capital accounts and 2% to the general
partner until the capital accounts of the common unitholders have
been reduced to zero; and
o Thereafter, 100% to the general partner.
Adjustments to Capital Accounts Upon the Issuance of Additional Units. We
will make adjustments to capital accounts upon the issuance of additional
units. In doing so, we will allocate any gain or loss resulting from the
adjustments to the unitholders and the general partner in the same manner as we
allocate gain or loss upon liquidation. In the event that we make positive
interim adjustments to the capital accounts, we will allocate any later
negative adjustments to the capital accounts resulting from the issuance of
additional units or distributions of property or upon liquidation in a manner
which results, to the extent possible, in the capital account balance of the
general partner equaling the amount which would have been in its capital
account if no earlier positive adjustments to the capital accounts had been
made.
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DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership
agreement. Our partnership agreement has been filed with the Securities and
Exchange Commission, and is incorporated by reference in this prospectus. The
following provisions of our partnership agreement are summarized elsewhere in
this prospectus:
o allocations of taxable income and other tax matters are described
under "Material Tax Consequences"; and
o rights of holders of common units are described under "Description
of Our Common Units."
PURPOSE
Our purpose under our partnership agreement is to engage directly or
indirectly in any business activity that is approved by our general partner and
that may be lawfully conducted by a limited partnership under the Delaware Act.
All of our operations are conducted through our operating company, Genesis
Crude Oil, L.P., and its subsidiaries.
POWER OF ATTORNEY
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application, grants to our
general partner and, if appointed, a liquidator, a power of attorney to, among
other things, execute and file documents required for our qualification,
continuance or dissolution. The power of attorney also grants the general
partner the authority to amend, and to make consents and waivers under, our
partnership agreement.
REIMBURSEMENTS OF OUR GENERAL PARTNER
Our general partner does not receive any compensation for its services as
our general partner. It is, however, entitled to be reimbursed for all of its
costs incurred in managing and operating our business. Our partnership
agreement provides that our general partner will determine the expenses that
are allocable to us in any reasonable manner determined by our general partner
in its sole discretion.
ISSUANCE OF ADDITIONAL SECURITIES
Our partnership agreement authorizes us to issue an unlimited number of
additional partner securities and rights to buy partnership securities that are
equal in rank with or junior to our common units on terms and conditions
established by our general partner in its sole discretion without the approval
of the unitholders.
It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional
common units we issue will be entitled to share equally with the then-existing
holders of common units in our distributions of available cash. In addition,
the issuance of additional equity securities may dilute the value of the
interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership
agreement, we may also issue additional equity securities that, in the sole
discretion of our general partner, may have special voting rights to which
common units are not entitled.
Our general partner has the right, which it may from time to time assign
in whole or in part to any of its affiliates, to purchase common units or other
equity securities whenever, and on the same terms that, we issue those
securities to persons other than our general partner and its affiliates, to the
extent necessary to maintain its percentage interest, including its interest
represented by common units, that existed immediately prior to the issuance.
The holders of common units will not have preemptive rights to acquire
additional common units or other partnership securities.
AMENDMENTS TO OUR PARTNERSHIP AGREEMENT
Amendments to our partnership agreement may be proposed only by or with
the consent of our general partner. Any amendment that materially and adversely
affects the rights or preferences of any type or class of limited partner
interests in relation to other types or classes of limited partner interests or
our general partner interest will require the approval of at least a majority
of the type or class of limited partner interests or general partner interests
so affected.
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However, in some circumstances, more particularly described in our partnership
agreement, our general partner may make amendments to our partnership agreement
without the approval of our limited partners or assignees.
WITHDRAWAL OR REMOVAL OF OUR GENERAL PARTNER
Our general partner has agreed not to withdraw voluntarily as our general
partner prior to December 31, 2006 without obtaining the approval of the
holders of a majority of our outstanding common units and furnishing an opinion
of counsel regarding limited liability and tax matters. On or after December
31, 2006, our general partner may withdraw as general partner without first
obtaining approval of any unitholder by giving 90 days' written notice, and
that withdrawal will not constitute a violation of our partnership agreement.
In addition, our general partner may withdraw without unitholder approval upon
90 days' notice to our limited partners if at least 50% of our outstanding
common units are held or controlled by one person and its affiliates other than
our general partner and its affiliates.
Upon the voluntary withdrawal of our general partner, the holders of a
majority of our outstanding common units may elect a successor to the
withdrawing general partner. If a successor is not elected, or is elected but
an opinion of counsel regarding limited liability and tax matters cannot be
obtained, we will be dissolved, wound up and liquidated, unless within 180 days
after that withdrawal, the holders of a majority of our outstanding common
units agree in writing to continue our business and to appoint a successor
general partner.
Our general partner may be removed with or without cause. "Cause" means
that a court of competent jurisdiction has entered a final, non-appealable
judgment finding our general partner liable for actual fraud, gross negligence
or willful or wanton misconduct in its capacity as our general partner. If
cause exists, our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than two-thirds of our
outstanding units, including units held by our general partner and its
affiliates. If no cause exists, our general partner may not be removed unless
that removal is approved by the vote of the holders of not less than a majority
of our outstanding units, excluding units held by our general partner and its
affiliates. Any removal of our general partner by the unitholders is also
subject to the approval of a successor general partner by the vote of the
holders of a majority of our outstanding common units and the receipt of an
opinion of counsel regarding limited liability and tax matters. If a proposed
removal is without cause, and the general partner to be removed is an affiliate
of Denbury Resources, then, if an affiliate of Denbury Resources is not
proposed as a successor general partner, any such action for removal must also
provide for Denbury Resources to be granted an option immediately upon the
effectiveness of the removal to purchase all of our ownership interest in our
Mississippi pipeline system at 110% of its fair market value, as determined by
independent appraisal in the manner set forth in our partnership agreement.
Denbury Resources' option will be exercisable for a period of 45 days following
the determination of such fair market value. Additionally, upon removal of the
general partner without cause, our general partner will have the option to
convert its interest in us (other than its common units) into common units or
to require our replacement general partner to purchase such interest for cash
at its then fair market value.
While our partnership agreement limits the ability of our general partner
to withdraw, it allows the general partner interest to be transferred to an
affiliate or to a third party in conjunction with a merger or sale of all or
substantially all of the assets of our general partner. In addition, our
partnership agreement expressly permits the sale, in whole or in part, of the
ownership of our general partner. Our general partner may also transfer, in
whole or in part, the common units and any other partnership securities it
owns, including the incentive distribution rights.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon our dissolution, unless we are reconstituted and continued as a new
limited partnership, the person authorized to wind up our affairs (the
liquidator) will, acting with all the powers of our general partner that the
liquidator deems necessary or desirable in its judgment, liquidate our assets.
The proceeds of the liquidation will be applied as follows:
o first, towards the payment of all of our creditors; and
o then, to our unitholders and our general partner in accordance with
the positive balance in their respective capital accounts.
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The liquidator may defer liquidation of our assets for a reasonable period
or distribute assets to our partners in kind if it determines that a sale would
be impractical or would cause undue loss to our partners.
CHANGE OF MANAGEMENT PROVISIONS
Our partnership agreement contains the following specific provisions that
are intended to discourage a person or group from attempting to remove our
general partner or otherwise change management:
o any units held by a person that owns 20% or more of any class of
units then outstanding, other than our general partner and its
affiliates, cannot be voted on any matter; and
o the partnership agreement contains provisions limiting the ability
of unitholders to call meetings or to acquire information about our
operations, as well as other provisions limiting the unitholders'
ability to influence the manner or direction of management.
LIMITED CALL RIGHT
If at any time our general partner and its affiliates own more than 80% of
the issued and outstanding limited partner interests of any class, our general
partner will have the right to acquire all, but not less than all, of the
outstanding limited partner interests of that class that are held by
non-affiliated persons. The record date for determining ownership of the
limited partner interests would be selected by our general partner on at least
ten but not more than 60 days notice. The purchase price in the event of a
purchase under these provisions would be the greater of (1) the current market
price (as defined in our partnership agreement) of the limited partner
interests of the class as of the date three days prior to the date that notice
is mailed to the limited partners as provided in the partnership agreement and
(2) the highest cash price paid by our general partner or any of its affiliates
for any partnership securities of the class purchased within the 90 days
preceding the date our general partner first mails notice of its election to
purchase those partnership securities.
INDEMNIFICATION
Under our partnership agreement, in most circumstances, we will indemnify
our general partner, its affiliates and their officers and directors to the
fullest extent permitted by law, from and against all losses, claims or damages
any of them may suffer by reason of their status as general partner, officer or
director, as long as the person seeking indemnity acted in good faith and in a
manner believed to be in or not opposed to our best interest. Any
indemnification under these provisions will only be out of our assets. Our
general partner and its affiliates shall not be personally liable for, or have
any obligation to contribute or loan funds or assets to us to enable us to
effectuate any indemnification. We are authorized to purchase insurance against
liabilities asserted against and expenses incurred by persons for our
activities, regardless of whether we would have the power to indemnify the
person against liabilities under our partnership agreement.
REGISTRATION RIGHTS
Under our partnership agreement, we have agreed to register for resale
under the Securities Act and applicable state securities laws any common units
or other partnership securities proposed to be sold by our general partner or
any of its affiliates or their assignees if an exemption from the registration
requirements is not otherwise available. We are obligated to pay all expenses
incidental to the registration, excluding underwriting discounts and
commissions.
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MATERIAL TAX CONSEQUENCES
This section is a summary of the material tax consequences that may be
relevant to prospective unitholders who are individual citizens or residents of
the United States and, unless otherwise noted in the following discussion,
expresses the opinion of Akin Gump Strauss Hauer & Feld LLP, counsel to the
general partner and us, insofar as it relates to federal income tax 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," "we," "our," and "ours" are references to Genesis
Energy, L.P. and its subsidiaries.
This section does not comment on all federal income tax matters affecting
us or our unitholders. Moreover, the discussion focuses on unitholders who are
individual citizens or residents of the United States and has only limited
application to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as tax-exempt
institutions, foreign persons, individual retirement accounts (IRAs), real
estate investment trusts (REITs) or mutual funds. Accordingly, we recommend
that each prospective unitholder consult, and depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of common units.
All statements as to matters of law and legal conclusions, but not as to
factual matters, contained in this section, unless otherwise noted, are the
opinion of Akin Gump Strauss Hauer & Feld LLP and are based on the accuracy of
the representations made by us and our general partner. No ruling has been or
will be requested from the IRS regarding any matter affecting us or prospective
unitholders. Instead, we rely on opinions and advice of Akin Gump Strauss Hauer
& Feld LLP. Unlike a ruling, 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 common units and the prices
at which common units trade. In addition, the costs of any contest with the IRS
will be borne directly or indirectly by the unitholders and the general
partner. Furthermore, the tax treatment of us, or of an investment in us, may
be significantly modified by future legislative or administrative changes or
court decisions. Any modifications may or may not be retroactively applied.
For the reasons described below, Akin Gump Strauss Hauer & Feld LLP has
not rendered an opinion with respect to the following specific federal income
tax issues:
(1) the treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of common units (please read "--Tax
Consequences of Unit Ownership--Treatment of Short Sales" in this
prospectus);
(2) whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (please read
"--Disposition of Common Units--Allocations Between Transferors and
Transferees" in this prospectus); and
(3) whether our method for depreciating Section 743 adjustments is
sustainable (please read "--Tax Consequences of Unit Ownership--Section
754 Election" in this prospectus).
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his share of items of income, gain, loss and deduction of the
partnership in computing his federal income tax liability, regardless of
whether cash distributions are made to him by the partnership. Distributions by
a partnership to a partner are generally not taxable unless the amount of cash
distributed is in excess of the partner's adjusted basis in his partnership
interest.
Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with
respect to publicly-traded partnerships of which 90% or more of the gross
income for every taxable year consists of "qualifying income." Qualifying
income includes income and gains derived from the transportation, storage and
28
processing of crude oil, natural gas and products thereof and fertilizer. 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 4% of our
current 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, Akin Gump Strauss Hauer & Feld LLP is of the
opinion that at least 90% of our current gross income constitutes qualifying
income.
No ruling has been or will be sought from the IRS and the IRS has made no
determination as to our status as a partnership for federal income tax purposes
or whether our operations generate "qualifying income" under Section 7704 of
the Code. Instead, we will rely on the opinion of Akin Gump Strauss Hauer &
Feld LLP that, based upon the Internal Revenue Code, its regulations, published
revenue rulings and court decisions and the representations described below, we
will be classified as a partnership for federal income tax purposes.
In rendering its opinion, Akin Gump Strauss Hauer & Feld LLP has relied on
factual representations made by us and our general partner. The representations
made by us and our general partner upon which counsel has relied are:
(a) Neither we nor the operating company has elected or will elect
to be treated as a corporation; and
(b) For each taxable year, more than 90% of our gross income has been
and will be income from sources that Akin Gump Strauss Hauer & Feld LLP
has opined or will opine is "qualifying income" within the meaning of
Section 7704(d) of the Internal Revenue Code.
If we fail to meet the Qualifying Income Exception, other than a failure
which is determined by the IRS to be inadvertent and that is cured within a
reasonable time after discovery, we will be treated as if we had transferred
all of our assets, subject to liabilities, to a newly formed corporation, on
the first day of the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then distributed that
stock to the unitholders in liquidation of their interests in us. This
contribution and liquidation should be tax-free to unitholders and us so long
as we, at that time, do not have liabilities in excess of the tax basis of our
assets. Thereafter, we would be treated as a corporation for federal income tax
purposes.
If we were taxable as a corporation in any taxable year, either as a
result of a failure to meet the Qualifying Income Exception or otherwise, our
items of income, gain, loss and deduction would be reflected only on our tax
return rather than being passed through to our 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 common units, or taxable capital gain, after the
unitholder's tax basis in his common 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 remainder of this section is based on Akin Gump Strauss Hauer & Feld
LLP's opinion that we will be classified as a partnership for federal income
tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of Genesis will be treated as
partners of Genesis for federal income tax purposes. Also:
(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited partners, and
(b) unitholders whose common units are held in street name or by a
nominee and who have the right to direct the nominee in the exercise of
all substantive rights attendant to the ownership of their common units,
will be treated as partners of Genesis for federal income tax purposes. As
there is no direct authority addressing assignees of common units who are
entitled to execute and deliver transfer applications and become entitled to
direct
29
the exercise of attendant rights, but who fail to execute and deliver transfer
applications, the opinion of Akin Gump Strauss Hauer & Feld LLP does not extend
to these persons. Furthermore, a purchaser or other transferee of common units
who does not execute and deliver a transfer application may not receive some
federal income tax information or reports furnished to record holders of common
units unless the common units are held in a nominee or street name account and
the nominee or broker has executed and delivered a transfer application for
those common units.
A beneficial owner of common units whose units have been transferred to a
short seller to complete a short sale would appear to lose his status as a
partner with respect to those units for federal income tax purposes. Please
read "--Tax Consequences of Unit Ownership--Treatment of Short Sales" in this
prospectus.
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. These holders
are urged to consult their own tax advisors with respect to their status as
partners in Genesis for federal income tax purposes.
TAX CONSEQUENCES OF UNIT OWNERSHIP
Flow-through of Taxable Income. We will not pay any federal income tax.
Instead, each unitholder will be required to report on his income tax return
his share of our income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a cash
distribution. Each unitholder will be required to include in income his
allocable share of our income, gains, losses and deductions for our taxable
year ending with or within his taxable year. Our taxable year ends on December
31.
Treatment of Distributions. Distributions by us to a unitholder generally
will not be taxable to the unitholder for federal income tax purposes to the
extent of his tax basis in his common units immediately before the
distribution. Our cash distributions in excess of a unitholder's tax basis
generally will be considered to be gain from the sale or exchange of the common
units, taxable in accordance with the rules described under "--Disposition of
Common Units" below. Any reduction in a 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. 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."
A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease his share of our nonrecourse
liabilities, and thus will result in a corresponding deemed distribution of
cash. A non-pro rata distribution of money or property may result in ordinary
income to a unitholder, regardless of his tax basis in his common units, if the
distribution reduces the unitholder's share of our "unrealized receivables,"
including depreciation recapture, and/or substantially appreciated "inventory
items," both as defined in Section 751 of the Internal Revenue Code, and
collectively, "Section 751 Assets." To that extent, he will be treated as
having been distributed his proportionate share of the Section 751 Assets and
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 Common Units. A unitholder's initial tax basis for his common
units will be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his 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 unitholder will have no share of our debt which is recourse to the general
partner, but will have a share, generally based on his share of profits, of our
nonrecourse liabilities. Please read "--Disposition of Common
Units--Recognition of Gain or Loss."
Limitations on Deductibility of Losses. The deduction by a unitholder of
his share of our losses will be limited to the tax basis in his units and, in
the case of an individual unitholder or a corporate unitholder, if more than
50% of
30
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 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 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 such
unitholder 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." 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.
The IRS has indicated that net passive income from a publicly-traded
partnership constitutes 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.
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
31
partnership agreement in the manner necessary to maintain uniformity of
intrinsic tax characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority and
characterization of distributions otherwise applicable under the partnership
agreement is maintained as nearly as is practicable. Payments by us as
described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner would be required to file a claim
in order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In general, if we have a
net profit, our items of income, gain, loss and deduction will be allocated
among the general partner and the unitholders in accordance with their
percentage interests in us. At any time that incentive distributions are made
to the general partner, gross income will be allocated to the recipients to the
extent of these distributions. If we have a net loss for the entire year, that
loss will be allocated first to the general partner and the unitholders in
accordance with their percentage interests in us to the extent of their
positive capital accounts and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be allocated
to account for the difference between the tax basis and fair market value of
our assets at the time of an offering, referred to in this discussion as
"Contributed Property." The effect of these allocations to a unitholder
purchasing common units in our 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 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," will generally 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.
Akin Gump Strauss Hauer & Feld LLP is of the opinion that, with the
exception of the issues described in "--Tax Consequences of Unit
Ownership--Section 754 Election" and "--Disposition of Common
Units--Allocations Between Transferors and Transferees," in this prospectus
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
o all of these distributions would appear to be ordinary income.
Akin Gump Strauss Hauer & Feld LLP has not rendered an opinion regarding
the treatment of a unitholder where common units are loaned to a short seller
to cover a short sale of common units; therefore, unitholders desiring to
assure their status as partners and avoid the risk of gain recognition from a
loan to a short seller 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 Common
Units--Recognition of Gain or Loss."
Alternative Minimum Tax. Each unitholder will be required to take into
account his distributive share of any items of our income, gain, loss or
deduction for purposes of the alternative minimum tax. The current minimum tax
32
rate for noncorporate taxpayers is 26% on the first $175,000 of alternative
minimum taxable income in excess of the exemption amount and 28% on any
additional alternative minimum taxable income. Prospective unitholders are
urged to consult with their tax advisors as to the impact of an investment in
units on their liability for the alternative minimum tax.
Tax Rates. In general, the highest effective United States federal income
tax rate for individuals currently is 35% and the maximum United States federal
income tax rate for net capital gains of an individual currently is 15% if the
asset disposed of was held for more than 12 months at the time of disposition.
Section 754 Election. We have made the election permitted by Section 754
of the Internal Revenue Code. That election is irrevocable without the consent
of the IRS. The election will generally permit us to adjust a common 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 common 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 Section 743 of the Internal Revenue Code
require, if the remedial allocation method is adopted (which we have adopted),
a portion of the Section 743(b) adjustment attributable to recovery property to
be depreciated over the remaining cost recovery period for the Section 704(c)
built-in gain. Under Treasury Regulation Section 1.167(c)-l(a)(6), a Section
743(b) adjustment attributable to property subject to depreciation under
Section 167 of the Internal Revenue Code rather than cost recovery deductions
under Section 168 is generally required to be depreciated using either the
straight-line method or the 150% declining balance method. Under our
partnership agreement, the general partner is authorized to take a position to
preserve the uniformity of units even if that position is not consistent with
these Treasury regulations. Please read "--Tax Treatment of
Operations--Uniformity of Units" in this prospectus.
Although Akin Gump Strauss Hauer & Feld LLP is unable to opine as to the
validity of this approach because there is no clear authority on this issue, we
intend to depreciate the portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of Contributed Property, to the extent of
any unamortized Book-Tax Disparity, using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the common basis of the property, or treat that portion as
non-amortizable to the extent attributable to property the common basis of
which is not amortizable. This method is consistent with the regulations under
Section 743 but is arguably inconsistent with Treasury Regulation Section
1.167(c)-1(a)(6), which is not expected to directly apply to a material portion
of our assets. To the extent this Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized Book-Tax Disparity, we will
apply the rules described in the Treasury regulations and legislative history.
If we determine that this position cannot reasonably be taken, we may take a
depreciation or amortization position under which all purchasers acquiring
units in the same month would receive depreciation or amortization, whether
attributable to common basis or a Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest in our assets.
This kind of aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to some unitholders.
Please read "--Tax Treatment of Operations--Uniformity of Units" in this
prospectus.
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 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 we allocated 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
33
assets. We cannot assure you that the determinations we make will not be
successfully challenged by the IRS and that the deductions resulting from them
will not be reduced or disallowed altogether. Should the IRS require a
different basis adjustment to be made, and should, in our opinion, the expense
of compliance exceed the benefit of the election, we may seek permission from
the IRS to revoke our Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than he would have
been allocated had the election not been revoked.
TAX TREATMENT OF OPERATIONS
Accounting Method and Taxable Year. We use the year ending December 31 as
our taxable year and the accrual method of accounting for federal income tax
purposes. Each unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending within or with
his taxable year. In addition, a unitholder who has a taxable year ending on a
date other than December 31 and who disposes of all of his units following the
close of our taxable year but before the close of his taxable year must include
his share of our income, gain, loss and deduction in income for his taxable
year, with the result that he will be required to include in income for his
taxable year his share of more than one year of our income, gain, loss and
deduction. Please read "--Disposition of Common Units--Allocations Between
Transferors and Transferees" in this prospectus.
Tax Basis, Depreciation and Amortization. The tax basis of our assets will
be used for purposes of computing depreciation and cost recovery deductions
and, ultimately, gain or loss on the disposition of these assets. The federal
income tax burden associated with the difference between the fair market value
of our assets and their tax basis immediately prior to an offering will be
borne by the general partner, its affiliates and our other unitholders as of
that time. Please read "--Tax Consequences of Unit Ownership--Allocation of
Income, Gain, Loss and Deduction" in this prospectus.
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 were 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 Common Units--Recognition of Gain or
Loss" in this prospectus.
The costs incurred in selling our units (called "syndication expenses")
must be capitalized and cannot be deducted currently, ratably or upon our
termination. There are uncertainties regarding the classification of costs as
organization expenses, which we may amortize, and as syndication expenses,
which we may not amortize. The underwriting discounts and commissions we incur
will be treated as syndication expenses.
Valuation and Tax Basis of Our Properties. The federal income tax
consequences of the ownership and disposition of units will depend in part on
our estimates of the relative fair market values, and the tax bases, of our
assets. Although we may from time to time consult with professional appraisers
regarding valuation matters, we will make many of the relative fair market
value estimates ourselves. These estimates of basis are subject to challenge
and will not be binding on the IRS or the courts. If the estimates of fair
market value or basis are later found to be incorrect, the character and amount
of items of income, gain, loss or deductions previously reported by unitholders
might change, and unitholders might be required to adjust their tax liability
for prior years and incur interest and penalties with respect to those
adjustments.
DISPOSITION OF COMMON UNITS
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of
units equal to the difference between the amount realized and the 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 he receives
plus his share of our
34
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 common unit that decreased a unitholder's tax basis in that common unit will,
in effect, become taxable income if the common unit is sold at a price greater
than the unitholder's tax basis in that common unit, even if the price received
is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain recognized
by an individual on the sale of units held more than 12 months will generally
be taxed at a maximum rate of 15%. A portion of this gain or loss, which will
likely be substantial, however, will be separately computed and taxed as
ordinary income or loss under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" we own. The term "unrealized
receivables" includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory
items and depreciation recapture may exceed net taxable gain realized upon the
sale of a unit 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 under Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an ascertainable
holding period to elect to use the actual holding period of the common units
transferred. Thus, according to the ruling, a common unitholder will be unable
to select high or low basis common units to sell as would be the case with
corporate stock, but, according to the regulations, may designate specific
common units sold for purposes of determining the holding period of units
transferred. A unitholder electing to use the actual holding period of common
units transferred must consistently use that identification method for all
subsequent sales or exchanges of common units. A unitholder considering the
purchase of additional units or a sale of common units purchased in separate
transactions is urged to consult his tax advisor as to the possible
consequences of this ruling and application of the Treasury regulations.
Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests, by
treating a taxpayer as having sold an "appreciated" partnership interest, one
in which gain would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons enter(s) into:
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
35
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, Akin Gump Strauss Hauer & Feld LLP 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 purchaser of units from another unitholder is
required to notify us in writing of that purchase within 30 days after the
purchase. 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.
Constructive Termination. We will be considered to have been terminated
for tax purposes if there is a sale or exchange of 50% or more of the total
interests in our capital and profits within a 12-month period. A constructive
termination results in the closing of our taxable year for all unitholders. In
the case of a unitholder reporting on a taxable year other than a fiscal year
ending December 31, the closing of our taxable year may result in more than 12
months of our taxable income or loss being includable in his taxable income for
the year of termination. We would be required to make new tax elections after a
termination, including a new election under Section 754 of the Internal Revenue
Code, and a termination would result in a deferral of our deductions for
depreciation. A termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted before the termination.
UNIFORMITY OF UNITS
Because we cannot match transferors and transferees of units, we must
maintain uniformity of the economic and tax characteristics of the units to a
purchaser of these units. In the absence of uniformity, we may be unable to
completely comply with a number of federal income tax requirements, both
statutory and regulatory. A lack of uniformity can result from a literal
application of Treasury Regulation Section 1.167(c)-1(a)(6). Any non-uniformity
could have a negative impact on the value of the units. Please read "--Tax
Consequences of Unit Ownership--Section 754 Election" in this prospectus.
We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property,
to the extent of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or amortization
method and useful life applied to the common basis of that property, or treat
that portion as nonamortizable, to the extent attributable to property the
common basis of which is not amortizable, consistent with the regulations under
Section 743, even though that position may be inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6) which is not expected to apply directly to
a material portion of our assets. Please read "--Tax Consequences of Unit
Ownership--Section 754 Election" in this prospectus. To the extent that the
Section 743(b) adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, we will apply the rules described in the
Treasury regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation and
amortization position under which all purchasers acquiring units in the same
month would receive depreciation and amortization deductions, whether
attributable to a common basis or Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest in our
property. If this position is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be allowable to
some unitholders and risk the loss of depreciation and amortization deductions
not taken in the year that these deductions are otherwise allowable. This
position will not be adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on the unitholders.
If we choose not to utilize this aggregate method, we may use any other
reasonable depreciation and amortization method to preserve the uniformity of
the intrinsic tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any method of
36
depreciating the Section 743(b) adjustment described in this paragraph. If this
challenge were sustained, the uniformity of units might be affected, and the
gain from the sale of units might be increased without the benefit of
additional deductions. Please read "--Disposition of Common Units--Recognition
of Gain or Loss" in this prospectus.
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. Recent legislation also includes net income derived from
the ownership of an interest in a "qualified publicly traded partnership" as
qualified income to a regulated investment company. We expect that we will meet
the definition of a qualified publicly traded partnership. However, this
legislation is only effective for taxable years beginning after October 22,
2004.
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. Under rules applicable to publicly traded partnerships, we will
withhold tax, at the highest effective 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 BEN or applicable substitute
form in order to obtain credit for these withholding taxes. A change in
applicable law may require us to change these procedures.
In addition, because a foreign corporation that owns units will be treated
as engaged in a United States trade or business, that corporation may be
subject to the United States branch profits tax at a rate of 30%, in addition
to regular federal income tax, on its share of our income and gain, as adjusted
for changes in the foreign corporation's "U.S. net equity," which is
effectively connected with the conduct of a United States trade or business.
That tax may be reduced or eliminated by an income tax treaty between the
United States and the country in which the foreign corporate unitholder is a
"qualified resident." In addition, this type of unitholder is subject to
special information reporting requirements under Section 6038C of the Internal
Revenue Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on
the sale or disposition of that unit to the extent that this gain is
effectively connected with a United States trade or business of the foreign
unitholder. Apart from the ruling, a foreign unitholder will not be taxed or
subject to withholding upon the sale or disposition of a unit if he has owned
less than 5% in value of the units during the five-year period ending on the
date of the disposition and if the units are regularly traded on an established
securities market at the time of the sale or disposition.
ADMINISTRATIVE MATTERS
Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes his share of our income,
gain, loss and deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by 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
37
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 our general partner as our Tax
Matters Partner.
The Tax Matters Partner will make some elections on our behalf and on
behalf of unitholders. In addition, the Tax Matters Partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review, by which all the unitholders are bound, of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder having at
least a 1% interest in profits or by any group of unitholders having in the
aggregate at least a 5% interest in profits. However, only one action for
judicial review will go forward, and each unitholder with an interest in the
outcome may participate.
A unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of this
consistency requirement may subject a unitholder to substantial penalties.
Nominee Reporting. Persons who hold an interest in us as a nominee for
another person are required to furnish to us:
(a) the name, address and taxpayer identification number of the beneficial
owner and the nominee;
(b) whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the foregoing,
or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or transferred for
the beneficial owner; and
(d) specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition cost
for purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on units they acquire, hold or transfer for their own account. A
penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with
the information furnished to us.
Accuracy-related and Assessable 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
38
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, including additional penalties and extended statutes
of limitations, may apply as a result of our participation in "listed
transactions" or "reportable transactions with a significant tax avoidance
purpose." While we do not anticipate participating in such transactions, if any
item of income, gain, loss or deduction included in the distributive shares of
unitholders might result in that kind of an "understatement" of income relating
to such a transaction, 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 and to take other
actions as may be appropriate to permit unitholders to avoid liability for
penalties.
A substantial valuation misstatement exists if the value of any property,
or the adjusted basis of any property, claimed on a tax return is 200% or more
of the amount determined to be the correct amount of the valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000
for most corporations). If the valuation claimed on a return is 400% or more
than the correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL 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. We currently do business or own property in 8 states, most of which
impose income taxes. We may also own property or do business in other states in
the future. Although an analysis of those various taxes is not presented here,
each prospective unitholder is urged to consider their potential impact on his
investment in us. You may not be required to file a return and pay taxes in
some states because your income from that state falls below the filing and
payment requirement. You will be required, however, to file state income tax
returns and to pay state income taxes in many of the states in which we do
business or own property, and you may be subject to penalties for failure to
comply with those requirements. In some states, tax losses may not produce a
tax benefit in the year incurred and also may not be available to offset income
in subsequent taxable years. Some of the states may require us, or we may
elect, to withhold a percentage of income from amounts to be distributed to a
unitholder who is not a resident of the state. Withholding, the amount of which
may be greater or less than a particular 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" in this prospectus.
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, WE STRONGLY RECOMMEND THAT EACH PROSPECTIVE
UNITHOLDER CONSULT, AND DEPEND UPON, HIS OWN TAX COUNSEL OR OTHER ADVISOR WITH
REGARD TO THOSE MATTERS. FURTHER, IT IS THE RESPONSIBILITY OF EACH UNITHOLDER
TO FILE ALL STATE AND LOCAL, AS WELL AS UNITED STATES FEDERAL TAX RETURNS, THAT
MAY BE REQUIRED OF HIM. AKIN GUMP STRAUSS HAUER & FELD LLP HAS NOT RENDERED AN
OPINION ON THE STATE OR LOCAL TAX CONSEQUENCES OF AN INVESTMENT IN US.
INVESTMENT IN GENESIS BY EMPLOYEE BENEFIT PLANS
An investment in Genesis by an employee benefit plan is subject to certain
additional considerations because persons with discretionary control of assets
of such plans (a "fiduciary") are subject to the fiduciary responsibility
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and transactions are
39
subject to restrictions imposed by Section 4975 of the Code. As used in this
prospectus, the term "employee benefit plan" includes, but is not limited to,
qualified pension, profit-sharing and stock bonus plans, Keogh plans,
Simplified Employee Pension Plans, and tax deferred annuities or Individual
Retirement Accounts ("IRAs") established or maintained by an employer or
employee organization. Among other things, consideration should be given to (1)
whether such investment is prudent under Section 404(a)(1)(B) of ERISA, (2)
whether in making such investment such plan will satisfy the diversification
requirement of Section 404(a)(1)(C) of ERISA, and (3) whether such investment
will result in recognition of unrelated business taxable income by such plan.
Please read "Material Tax Consequences - Tax-Exempt Organizations and Other
Investors." Fiduciaries should determine whether an investment in Genesis is
authorized by the appropriate governing instrument and is an appropriate
investment for such plan.
In addition, a fiduciary of an employee benefit plan should consider
whether such plan will, by investing in Genesis, be deemed to own an undivided
interest in the assets of Genesis, with the result that the general partner
would also be a fiduciary of such plan and Genesis would be subject to the
regulatory restrictions of ERISA, including its prohibited transaction rules,
as well as the prohibited transaction rules of the Code.
Section 406 of ERISA and Section 4975 of the Code (which also applies to
IRAs that are not considered part of an employee benefit plan; i.e., IRAs
established or maintained by individuals rather than an employer or employee
organization) prohibit an employee benefit plan from engaging in certain
transactions involving "plan assets" with parties who are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.
Under Department of Labor regulations the assets of an entity in which employee
benefit plans acquire equity interests would not be deemed "plan assets" if,
among other things, (1) the equity interests 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 law, (2) the entity is an "operating company" - i.e., it is
primarily engaged in the production or sale of a product or service other than
the investment of capital, or (3) 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 is held by the employee benefit plans referred to
above, IRAs and other employee benefit plans not subject to ERISA (such as
government plans). Genesis' assets are not expected to be considered "plan
assets" under these regulations because it is expected that the investment will
satisfy the requirements in (1) above, and may also satisfy the requirements in
(2) and (3).
40
PLAN OF DISTRIBUTION
We may sell the equity securities directly, through agents, or to or
through underwriters or dealers. The prospectus supplement relating to any
particular offering will contain the terms of the equity securities sold in
that offering, including:
o the names of any underwriters, dealers or agents (if any);
o the offering price;
o underwriting discounts;
o sales agents' commissions;
o other forms of underwriter or agent compensation;
o discounts, concessions or commissions that underwriters may pass on
to other dealers; and
o any exchange on which the equity securities are listed.
We may change the offering price, underwriting discounts or concessions,
or the price to dealers when necessary. Discounts or commissions received by
underwriters or agents and any profits on the resale of equity securities by
them may constitute underwriting discounts and commissions under the Securities
Act of 1933, as amended.
Unless we state otherwise in a prospectus supplement, underwriters will
need to meet certain requirements before purchasing equity securities. Agents
will act on a "best efforts" basis during their appointment. We will also state
the net proceeds from the sale in a prospectus supplement.
Any brokers or dealers that participate in the distribution of the equity
securities may be "underwriters" within the meaning of the Securities Act for
such sales. Profits, commissions, discounts or concessions received by such
broker or dealer may be underwriting discounts and commissions under the
Securities Act.
When necessary, we may fix equity securities distribution using
changeable, fixed prices, market prices at the time of sale, prices related to
market prices, or negotiated prices.
We may, through agreements, indemnify underwriters, dealers or agents that
participate in the distribution of the equity securities against certain
liabilities including liabilities under the Securities Act. We may also provide
funds for payments that the underwriters, dealers or agents may be required to
make. Underwriters, dealers and agents, and their affiliates may transact with
us and our affiliates in the ordinary course of their business.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports and other information with the
Commission. You may read and copy documents we file at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Commission at 1-800-SEC-0330 for information on the public reference room.
You can also find our filings at the Commission's website at http://www.sec.gov
and on our website at http://www.genesiscrudeoil.com. Information contained on
our website is not part of this prospectus. In addition, our reports and other
information concerning us can be inspected at the American Stock Exchange, 86
Trinity Place, New York, New York 10006.
The Commission allows us to "incorporate by reference" the information we
have filed with the Commission, which means that we 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 and later information that we
file with the Commission will automatically update and supersede this
information. Therefore, before you decide to invest in a particular offering
under this shelf registration, you should always check for reports we may have
filed with the Commission after the date of this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the
Commission under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange
Act of 1934 which is deemed
41
"filed" with the Commission until we sell all of the equity securities offered
by this prospectus, other than information under Item 9 or 12 of any Current
Report on Form 8-K that is listed below or information furnished under Items
2.02 or 7.01 of any Form 8-K that is listed below or filed in the future, which
information is not deemed filed under the Securities Exchange Act of 1934 and
is not incorporated in this prospectus:
o Annual Report on Form 10-K for the fiscal year ended December 31,
2004;
o Quarterly Report on Form 10-Q for the three month period ended
March 31, 2005;
o Current Reports on Form 8-K filed January 19, 2005, February 7,
2005, March 9, 2005, April 7, 2005, May 4, 2005, June 6, 2005 and
June 15, 2005, and on Form 8-K/A filed June 16, 2005; and
o The description of the common units contained in our Registration
Statement on Form 8-A, dated January 30, 2001.
We will provide without charge to each person, including any beneficial owner,
to whom this prospectus is delivered, upon written or oral request, a copy of
any document incorporated by reference in this prospectus, other than exhibits
to any such document not specifically described above. Requests for such
documents should be directed to:
Investor Relations
Genesis Energy, L.P.
500 Dallas, Suite 2500
Houston, Texas 77002
(713) 860-2500 or
(800) 284-3365
We intend to furnish or make available to our unitholders within 90 days
(or such shorter period as the Commission may prescribe) following the close of
our fiscal year end annual reports containing audited financial statements
prepared in accordance with generally accepted accounting principles and
furnish or make available within 45 days (or such shorter period as the
Commission may prescribe) following the close of each fiscal quarter quarterly
reports containing unaudited interim financial information, including the
information required by Form 10-Q for the first three fiscal quarters of each
of our fiscal years. Our annual report will include a description of any
transactions with out general partner or its affiliates, and of fees,
commissions, compensation and other benefits paid, or accrued to our general
partner or its affiliates for the fiscal year completed, including the amount
paid or accrued to each recipient and the services performed.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in this prospectus by
reference include forward-looking statements. These forward-looking statements
are identified as any statement that does not relate strictly to historical or
current facts. They use words such as "anticipate," "believe," "continue,"
"estimate," "expect," "forecast," "intend," "may," "plan," "position,"
"projection," "strategy" or "will" or the negative of those terms or other
variations of them or by comparable terminology. In particular, statements,
expressed or implied, concerning future actions, conditions or events or future
operating results or the ability to generate sales, income or cash flow are
forward-looking statements. Forward-looking statements are not guarantees of
performance. They involve risks, uncertainties and assumptions. Future actions,
conditions or events and future results of operations may differ materially
from those expressed in these forward-looking statements. Many of the factors
that will determine these results are beyond our ability or the ability of our
affiliates to control or predict. Specific factors that could cause actual
results to differ from those in the forward-looking statements include:
o demand for, the supply of, changes in forecast data for, and price
trends related to crude oil, liquid petroleum, natural gas and
natural gas liquids or "NGLs" in the United States, all of which
may be affected by economic activity, capital expenditures by
energy producers, weather, alternative energy sources,
international events, conservation and technological advances;
o throughput levels and rates;
42
o changes in, or challenges to, our tariff rates;
o our ability to successfully identify and consummate strategic
acquisitions, make cost saving changes in operations and integrate
acquired assets or businesses into our existing operations;
o service interruptions in our liquids transportation systems,
natural gas transportation systems or natural gas gathering and
processing operations;
o shut-downs or cutbacks at refineries, petrochemical plants,
utilities or other businesses for which we transport crude oil,
natural gas or other products or to whom we sell such products;
o changes in laws or regulations to which we are subject;
o our inability to borrow or otherwise access funds needed for
operations, expansions or capital expenditures as a result of
existing debt agreements that contain restrictive financial
covenants;
o loss of key personnel;
o the effects of competition, in particular, by other pipeline
systems;
o hazards and operating risks that may not be covered fully by
insurance;
o the condition of the capital markets in the United States;
o the political and economic stability of the oil producing nations
of the world; and
o general economic conditions, including rates of inflation and
interest rates.
You should not put undue reliance on any forward-looking statements. When
considering forward-looking statements, please review the risk factors
described under "Risk Factors" beginning on page 3 of this prospectus.
LEGAL MATTERS
Akin Gump Strauss Hauer & Feld LLP, as our counsel, will issue an opinion
for us about the legality of the equity securities and the material federal
income tax considerations regarding the common units. Any underwriter will be
advised about other issues relating to any offering by its own legal counsel.
EXPERTS
The consolidated financial statements and management's report on the
effectiveness of internal control over financial reporting incorporated in this
prospectus by reference from the Company's Annual Report on Form 10-K have been
audited by Deloitte & Touche LLP, an independent registered public accounting
firm, as stated in their reports, which are incorporated herein by reference,
and have been so incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of T&P Syngas Supply Company as of and for the
years ended December 31, 2004 and 2003, incorporated in this prospectus by
reference have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in the Current Report on Form 8-K/A of Genesis
Energy, L.P. filed on June 16, 2005, and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than selling
or underwriting discounts and commissions, we expect to incur in connection
with the issuance and distribution of the equity securities being registered.
All amounts shown are estimated except the Commission registration fee. Genesis
Energy, L.P. will bear all such costs.
Securities and Exchange Commission registration fee........... $29,425
Accounting fees and expenses.................................. 25,000
Legal fees and expenses....................................... 50,000
Printing and engraving expenses............................... 100,000
Miscellaneous................................................. 10,000
--------------
$ 214,425
Total....................................................
==============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
GENESIS
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
provides that, subject to such standards and restrictions, if any, as are set
forth in its limited partnership agreement, a Delaware limited partnership may,
and shall have the power to, indemnify and hold harmless any partner or other
person from and against all claims and demands whatsoever. The partnership
agreement of Genesis Energy, L.P. provides that Genesis Energy, L.P. will
indemnify (to the fullest extent permitted by applicable law) certain persons
(each, an "Indemnitee") from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including legal fees and expenses),
judgments, fines, penalties, interest, settlements or other amounts incurred by
such Indemnitee in connection with any claim, demand, action, suit or
proceeding to which the Indemnitee is or was an actual or threatened party by
reason or its status as an Indemnitee. This indemnity is available only if the
Indemnitee acted in good faith, in a manner in which such Indemnitee believed
to be in, or not opposed to, the best interests of Genesis and, with respect to
any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. Indemnitees include the general partner, any Departing Partner (as
defined in the partnership agreement of Genesis Energy, L.P.), any affiliate of
the general partner or any Departing Partner, any person who is or was a
director, officer, employee, agent or trustee of the general partner or any
Departing Partner or any affiliate of either (including Genesis Energy, L.P.
and its subsidiaries), or any person who is or was serving at the request of
the general partner, any Departing Partner, or any such affiliate as a
director, officer, employee, member, partner, agent fiduciary or trustee of
another person. Expenses subject to indemnity will be paid by the applicable
partnership to the Indemnitee in advance, subject to receipt of an undertaking
by or on behalf of the Indemnitee to repay such amount if it is ultimately
determined that the Indemnitee is not entitled to indemnification. Genesis
Energy, L.P. will, to the extent commercially reasonable, purchase and maintain
insurance on behalf of the Indemnitees, whether or not Genesis Energy, L.P.
would have the power to indemnify such Indemnitees against liability under the
applicable partnership agreement.
Reference is made to Exhibit 1.1 hereto, which will contain provisions for
indemnification of Genesis Energy, L.P., the general partner and its directors,
officers, and any controlling persons, against certain liabilities for
information furnished by the underwriters and/or agents, as applicable,
expressly for use in a prospectus supplement.
ITEM 16. EXHIBITS
Reference is made to the Index to Exhibits following the signature page,
which Index is hereby incorporated into this item.
II-1
ITEM 17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
o To include any prospectus required by Section 10(a)(3) of the
Securities Act;
o 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 equity securities offered
(if the total dollar value of equity securities offered 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, 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
o 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 the first two items of paragraph-A(l) above do not
apply if the information required to be included in a post-effective amendment
by those items is contained in periodic reports filed by Genesis Energy, L.P.
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the equity securities offered
therein, and the offering of such equity securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the equity securities being registered which remain
unsold at the termination of the offering.
B. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the equity
securities offered therein, and the offering of such equity securities at
that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of Genesis
Energy L.P.'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 equity securities offered herein,
and the offering of such equity securities at that time shall be deemed to be
the initial bona fide offering thereof.
D. 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
II-2
otherwise, the Registrant has been informed 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 equity 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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned Registrant 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, in the State of
Texas, on July 8, 2005.
GENESIS ENERGY, L.P.
By: GENESIS ENERGY, INC., its general partner
By: /s/ MARK J. GORMAN
------------------------------------------
Mark J. Gorman
Chief Executive Officer and President
Each person whose signature appears below hereby constitutes and appoints
Ross A. Benavides and Karen N. Pape, and each of them, any of whom may act
without the joinder of the other, as their true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for
this offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as he or she
might or would do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them of their or his or her substitute
and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities on July 8, 2005.
SIGNATURE TITLE
--------- -----
(OF GENESIS ENERGY, INC.)*
/s/ MARK J. GORMAN Chief Executive Officer, President and Director
------------------------------------------- (Principal Executive Officer)
Mark J. Gorman
/s/ ROSS A. BENAVIDES Chief Financial Officer, General Counsel and Secretary
------------------------------------------- (Principal Financial Officer)
Ross A. Benavides
/s/ KAREN N. PAPE Vice President and Controller
------------------------------------------- (Principal Accounting Officer)
Karen N. Pape
/s/ GARETH ROBERTS Chairman of the Board
-------------------------------------------
Gareth Roberts
/s/ RONALD T. EVANS Director
-------------------------------------------
Ronald T. Evans
/s/ HERBERT I. GOODMAN Director
-------------------------------------------
Herbert I. Goodman
SIGNATURE TITLE
--------- -----
(OF GENESIS ENERGY, INC.)*
/s/ SUSAN O. RHENEY Director
-------------------------------------------
Susan O. Rheney
/s/ PHIL RYKHOEK Director
-------------------------------------------
Phil Rykhoek
/s/ J. CONLEY STONE Director
-------------------------------------------
J. Conley Stone
/s/ MARK A. WORTHEY Director
-------------------------------------------
Mark A. Worthey
*Genesis Energy, Inc. is the general partner of Genesis Energy, L.P.
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
1.1* Form of Underwriting Agreement
3.1 Certificate of Limited Partnership of Genesis Energy, L.P.
(incorporated herein by reference to Exhibit 3.1 to Registration
Statement, File No. 333-11545)
3.2 Certificate of Limited Partnership of Genesis Crude Oil, L.P.
(incorporated herein by reference to Exhibit 3.1 to Registration
Statement, File No. 333-11545)
4.1 Fourth Amended and Restated Agreement of Limited Partnership of
Genesis Energy Partners, L.P. (incorporated herein by reference
to Exhibit 4.1 to Form 8-K filed on June 15, 2005)
4.2 Fourth Amended and Restated Agreement of Limited Partnership of
Genesis Crude Oil, L.P. (incorporated herein by reference to
Exhibit 4.2 to Form 8-K filed on June 15, 2005)
5.1** Opinion of Akin Gump Strauss Hauer & Feld LLP as to the legality
of the equity securities
8.1** Opinion of Akin Gump Strauss Hauer & Feld LLP as to certain
federal income tax matters (included in Exhibit 5.1)
23.1** Consent of Deloitte & Touche LLP
23.2** Consent of Akin Gump Strauss Hauer & Feld LLP (included in
Exhibits 5.1 and 8.1)
24.1** Powers of Attorney (included on the signature pages of this
Registration Statement)
-------------------
* To be filed by amendment or as an exhibit to a Current Report on Form 8-K.
** Filed herewith.