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As filed with the Securities and Exchange Commission on
May 14, 2007
Registration
No. 333-141809
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
Form S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Regency Energy Partners
LP
Regency Energy Finance
Corp.
(and certain subsidiaries identified in footnote (*)
below)
(Exact name of registrant as
specified in its charter)
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Delaware
Delaware
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16-1731691
38-3747282
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1700 Pacific,
Suite 2900
Dallas, Texas 75201
(214) 750-1771
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
William E.
Joor III
Regency GP LLC
1700 Pacific,
Suite 2900
Dallas, Texas 75201
(214) 750-1771
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copy to:
Dan A. Fleckman
Vinson & Elkins
L.L.P.
First City Tower
1001 Fannin Street,
Suite 2500
Houston, Texas
77002-6760
(713) 758-2222
Approximate date of commencement of proposed sale to the
public: From time to time after the effective
date of this registration statement as determined by market
conditions and other factors.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box. o
If any of the securities being registered on this form are being
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, please check the following
box. þ
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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. o
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. o
If this form is a registration statement pursuant to General
Instruction I.D. or a post-effective amendment thereto that
shall become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act, check the
following box o
If this form is a post-effective amendment to a registration
statement filed pursuant to General Instruction I.D. filed
to register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities
Act, check the following
box. o
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 or until the Registration
Statement shall become effective on such date as the Commission
acting pursuant to said 8(a), may determine.
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* |
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The following are co-registrants that may guarantee the debt
securities. |
Regency
Gas Services LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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03-0516215
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
OLP GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-4188520
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Intrastate Gas, LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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32-0077616
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Midcon Gas LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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86-1061643
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Liquids Pipeline LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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32-0077619
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Gas Gathering and Processing LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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32-0077618
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Waha GP, LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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38-3697585
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
NGL GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-0941731
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Gas Marketing GP, LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-1005445
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Waha LP, LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-0749513
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
NGL Marketing LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-0941662
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Gas Marketing LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-1005447
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Gas Services Waha LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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20-0750124
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
TS GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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37-1540711
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
FS GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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74-3138090
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
GU GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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74-3138092
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Guarantor GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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34-2057138
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Operating GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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34-2057140
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
TS Acquisition GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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34-2057145
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
FN GP LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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74-3138095
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
TGG LLC
(Exact
Name of Registrant As Specified In Its Charter)
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Texas
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20-0330629
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
TS Acquisition LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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34-2057145
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Eastex Protreat I LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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75-3216838
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Eastex Protreat II LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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75-3216839
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Field Services LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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35-2270502
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Frio Newline LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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26-0103023
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Gas Utility LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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26-0103022
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Guarantor LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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34-2057138
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Operating LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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34-2057141
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Eastex Newline LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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75-3216837
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
FS LP
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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75-3165677
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Gulf
States Transmission Corporation
(Exact
Name of Registrant As Specified In Its Charter)
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Louisiana
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72-1146059
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Gas Company Ltd.
(Exact
Name of Registrant As Specified In Its Charter)
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Texas
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75-3016693
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Regency
Pipeline Company Inc.
(Exact
Name of Registrant As Specified In Its Charter)
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Texas
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74-3016692
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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Palafox
Joint Venture
(Exact
Name of Registrant As Specified In Its Charter)
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Delaware
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74-3017118
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
Number)
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EXPLANATORY
NOTE
This registration statement consists of two separate forms of
prospectuses to be used in connection with the offering of:
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common units and debt securities of Regency Energy Partners LP
(and, in the case of debt securities, Regency Energy Finance
Corp.) and guarantees of certain subsidiaries identified in
footnote (*) above; and
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common units of Regency Energy Partners LP that may be sold in
one or more secondary offerings by the selling unitholders
listed in the form of prospectus.
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The
information in this prospectus is not complete and may be
changed. This prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. We may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective.
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SUBJECT
TO COMPLETION, DATED MAY 14, 2007
Preliminary
Prospectus
$691,322,449
Regency Energy Partners
LP
Regency Energy Finance
Corp.
Common
Units
Debt
Securities
We may offer, from time to time, in one or more series, the
following securities under this prospectus:
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common units representing limited partnership interests in
Regency Energy Partners LP; and
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debt securities, which may be secured or unsecured senior debt
securities or secured or unsecured subordinated debt securities.
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Regency Energy Finance Corp. may act as co-issuer of the debt
securities, and all other direct or indirect subsidiaries of
Regency Energy Partners LP, other than minor
subsidiaries as such item is interpreted in the securities
regulation governing financial reporting for guarantors, may
guarantee the debt securities.
Our common units are listed on the Nasdaq Stock Market LLC under
the symbol RGNC. We will provide information in the
prospectus supplement for the trading market, if any, for any
debt securities we may offer.
We may offer and sell these securities to or through one or more
underwriters, dealers and agents, or directly to purchasers, on
a continuous or delayed basis. This prospectus describes the
general terms of these securities. The specific terms of any
securities and the specific manner in which we will offer them
will be included in a supplement to this prospectus relating to
that offering.
You should carefully read this prospectus and any prospectus
supplement before you invest. You also should read the documents
we have referred you to in the Where You Can Find More
Information section of this prospectus for information on
us and our financial statements. This prospectus may not be used
to consummate sales of securities unless accompanied by a
prospectus supplement.
Investing in our securities involves risks. Limited
partnerships are inherently different from corporations. You
should carefully consider the risk factors beginning on
page 3 of this prospectus and in the applicable prospectus
supplement before you make an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2007.
In making your investment decision, you should rely only on
the information contained or incorporated by reference in this
prospectus. We have not authorized anyone to provide you with
any other information. If anyone provides you with different or
inconsistent information, you should not rely on it.
You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front cover of this prospectus. You should not assume that the
information contained in the documents incorporated by reference
in this prospectus is accurate as of any date other than the
respective dates of those documents. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
Table of
Contents
i
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement on
Form S-3
that we filed with the Securities and Exchange Commission, or
SEC, using a shelf registration process. Under this
shelf process, we may offer from time to time up to $691,322,449
of our securities in one or more offerings. Each time we offer
securities, we will provide you with a prospectus supplement
that will describe, among other things, the specific amounts and
prices of the securities being offered and the terms of the
offering, including, in the case of debt securities, the
specific terms of the securities. The prospectus supplement may
include additional risk factors or other specific considerations
applicable to those securities. The prospectus supplement may
also add, update or change information contained in this
prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement,
you should rely on the information in that prospectus
supplement. Additional information, including our financial
statements and the notes thereto, is incorporated in this
prospectus by reference to our reports filed with the SEC.
Please read Where You Can Find More Information. You
are urged to read this prospectus carefully, including the
Risk Factors, and our SEC reports in their entirety
before investing in our common units or debt securities. You
should read this prospectus and any attached prospectus
supplements relating to the securities offered to you together
with the additional information described under the heading
Where You Can Find More Information.
As used in this prospectus, Regency Energy Partners,
we, our, us or like terms
mean Regency Energy Partners LP, or the Partnership, and its
subsidiaries. References to our general partner or
the General Partner refer to Regency GP LP, the
general partner of the Partnership, except where otherwise
indicated, and to the Managing General Partner refer
to Regency GP LLC, the general partner of the General Partner,
which effectively manages the business and affairs of the
Partnership. References to HM Capital refer to HM
Capital Partners LLC. References to HM Capital
Investors refer to Regency Acquisition LP, HMTF Regency
L.P., HM Capital and funds managed by HM Capital, including the
Hicks, Muse, Tate & Furst Equity Fund V, L.P.,
and certain co-investors, including some of the directors and
officers of the Managing General Partner. Regency Acquisition LP
is wholly owned by HMTF Regency L.P., which, in turn, is wholly
owned by HM Capital, funds managed by HM Capital and certain
co-investors.
REGENCY
ENERGY PARTNERS LP
We are a growth-oriented publicly-traded Delaware limited
partnership engaged in the gathering, processing, marketing and
transportation of natural gas. We provide these services through
systems located in north Louisiana, Texas and the mid-continent
region of the United States, which includes Kansas, Oklahoma,
Colorado and the Texas Panhandle. We were formed in April 2005
by HM Capital to capitalize on opportunities in the midstream
sector of the natural gas industry.
We divide our operations into two business segments:
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Gathering and Processing: in which we provide
wellhead-to-market
services to producers of natural gas, which include transporting
raw natural gas from the wellhead through gathering systems,
processing raw natural gas to separate natural gas liquids, or
NGLs, from the raw natural gas and selling or delivering the
pipeline-quality natural gas and NGLs to various markets and
pipeline systems; and
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Transportation: in which we deliver natural
gas from northwest Louisiana to more favorable markets in
northeast Louisiana through our
320-mile
Regency Intrastate Pipeline system, which has been significantly
expanded and extended over the last 18 months.
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All of our assets are located in well-established areas of
natural gas production that are characterized by long-lived,
predictable reserves. These areas are generally experiencing
increased levels of natural gas exploration, development and
production activities as a result of strong demand for natural
gas, attractive recent discoveries, infill drilling
opportunities and the implementation of new exploration and
production techniques.
1
Regency Energy Finance Corp., our wholly-owned subsidiary, has
no material assets or any liabilities other than as a co-issuer
of our debt securities. Its activities will be limited to
co-issuing our debt securities and engaging in other activities
incidental thereto.
Our principal executive offices are located in 1700 Pacific,
Suite 2900, Dallas, Texas 75201 and our phone number is
(214) 750-1771.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus and the documents
we incorporate by reference herein are forward-looking
statements intended to qualify for the safe harbors from
liability established by the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended (the Securities Act) and
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). These forward-looking
statements are identified as any statement that does not relate
strictly to historical or current facts. Statements using words
such as anticipate, believe,
intend, project, plan,
expect, continue, estimate,
goal, forecast, may,
will, or similar expressions help identify
forward-looking statements. Although we and our Managing General
Partner believe such forward-looking statements are based on
reasonable assumptions and current expectations and projections
about future events, neither we nor our Managing General Partner
can give assurances that such expectations will prove to be
correct. Forward-looking statements are subject to a variety of
risks, uncertainties and assumptions.
These risks and uncertainties include, but are not limited to:
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changes in laws and regulations impacting the gathering and
processing industry;
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the level of creditworthiness of our counterparties;
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our ability to access the debt and equity markets;
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our use of derivative financial instruments to hedge commodity
and interest rate risks;
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the amount of collateral required to be posted from time to time
in our transactions;
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changes in commodity prices, interest rates, demand for our
services;
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weather and other natural phenomena;
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industry changes including the impact of consolidations and
changes in competition;
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our ability to obtain required approvals for construction or
modernization of our facilities and the timing of production
from such facilities; and
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the effect of accounting pronouncements issued periodically by
accounting standard setting boards.
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If one or more of these risks or uncertainties materialize or if
underlying assumptions prove incorrect, our actual results may
vary materially from those anticipated, estimated, projected or
expected. When considering forward-looking statements, please
read the section titled Risk Factors included in
this prospectus.
Except as required by applicable securities laws, we do not
intend to update these forward-looking statements and
information.
2
RISK
FACTORS
You should carefully consider the following risk factors
together with all of the other information included in this
prospectus, any prospectus supplement and the information that
we have incorporated herein by reference in evaluating an
investment in Regency Energy Partners LP. If any of the
following risks were actually to occur, our business, financial
condition, results of operations or cash flows could be
materially adversely affected. In that case, we might not be
able to pay the minimum quarterly distribution on our common
units to pay debt service on our debt securities, the trading
price of our common units or debt securities could decline and
you could lose all or part of your investment. When we offer and
sell any securities pursuant to a prospectus supplement, we may
include additional risk factors relevant to such securities in
the prospectus supplement.
Risks
Related to Our Business
We may
be unable to integrate successfully the operations of TexStar or
future acquisitions with our operations and we may not realize
all the anticipated benefits of the acquisition of TexStar or
any future acquisition.
Integration of TexStar with our business and operations has been
a complex, time consuming and costly process. We cannot assure
you that we will achieve the desired profitability from TexStar
or any other acquisitions we may complete in the future. In
addition, failure to assimilate future acquisitions successfully
could adversely affect our financial condition and results of
operations.
Our acquisitions involve numerous risks, including:
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operating a significantly larger combined organization and
adding operations;
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difficulties in the assimilation of the assets and operations of
the acquired businesses, especially if the assets acquired are
in a new business segment or geographic area;
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the risk that natural gas reserves expected to support the
acquired assets may not be of the anticipated magnitude or may
not be developed as anticipated;
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the loss of significant producers or markets or key employees
from the acquired businesses;
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the diversion of managements attention from other business
concerns;
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the failure to realize expected profitability or growth;
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the failure to realize expected synergies and cost savings;
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coordinating geographically disparate organizations, systems and
facilities; and
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coordinating or consolidating corporate and administrative
functions.
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Further, unexpected costs and challenges may arise whenever
businesses with different operations or management are combined,
and we may experience unanticipated delays in realizing the
benefits of an acquisition. If we consummate any future
acquisition, our capitalization and results of operation may
change significantly, and you may not have the opportunity to
evaluate the economic, financial and other relevant information
that we will consider in evaluating future acquisitions.
While
substantial amounts of the transportation capacity of the
Regency Intrastate Pipeline System have been contracted, if we
are unable to utilize the remaining transportation capacity, our
business and our operating results could be adversely
affected.
As of March 1, 2007, we had definitive agreements for
562,900 MMBtu/d of firm transportation on the Regency
Intrastate Pipeline System, of which 500,679 MMBtu/d was
utilized in February 2007. During the month of February 2007, we
also provided 195,395 MMBtu/d of interruptible
transportation. If we are unable to commit the remaining
uncommitted capacity on the system to firm gas transportation
contracts and the
3
parties to existing interruptible transportation contracts fail
to utilize the capacity, our business and operating results
could be adversely affected.
Because
of the natural decline in production from existing wells, our
success depends on our ability to obtain new supplies of natural
gas, which involves factors beyond our control. Any decrease in
supplies of natural gas in our areas of operation could
adversely affect our business and operating
results.
Our gathering and transportation pipeline systems are dependent
on the level of production from natural gas wells that supply
our systems and from which production will naturally decline
over time. As a result, our cash flows associated with these
wells will also decline over time. In order to maintain or
increase through-put volume levels on our gathering and
transportation pipeline systems and the asset utilization rates
at our natural gas processing plants, we must continually obtain
new supplies. The primary factors affecting our ability to
obtain new supplies of natural gas and attract new customers to
our assets are: the level of successful drilling activity near
these systems and our ability to compete with other gathering
and processing companies for volumes from successful new wells.
The level of natural gas drilling activity is dependent on
economic and business factors beyond our control. The primary
factor that impacts drilling decisions is natural gas prices.
Natural gas prices reached historic highs in 2005 and early 2006
but have declined substantially in the second half of 2006. The
averages of the NYMEX daily settlement prices per MMBtu of
natural gas for the year ended December 31, 2005 and 2006
were $9.02 per MMBtu and $6.98 per MMBtu,
respectively. A sustained decline in natural gas prices could
result in a decrease in exploration and development activities
in the fields served by our gathering and processing facilities
and pipeline transportation systems, which would lead to reduced
utilization of these assets. Other factors that impact
production decisions include producers capital budget
limitations, the ability of producers to obtain necessary
drilling and other governmental permits and regulatory changes.
Because of these factors, even if additional natural gas
reserves were discovered in areas served by our assets,
producers may choose not to develop those reserves. If we were
not able to obtain new supplies of natural gas to replace the
natural decline in volumes from existing wells due to reductions
in drilling activity or competition, through-put volumes on our
pipelines and the utilization rates of our processing facilities
would decline, which could have a material adverse effect on our
business, results of operations and financial condition.
We
depend on certain key producers and other customers for a
significant portion of our supply of natural gas. The loss of,
or reduction in volumes from, any of these key producers or
customers could adversely affect our business and operating
results.
We rely on a limited number of producers and other customers for
a significant portion of our natural gas supplies. Three
customers represented 44 percent of our natural gas supply
in our transportation segment for the year ended
December 31, 2006. These contracts have terms that are
either
month-to-month
or
year-to-year.
As these contracts expire, we will have to negotiate extensions
or renewals or replace the contracts with those of other
suppliers. For example, a significant contract with ExxonMobil
expired in August 2006 and was not renewed. We may be unable to
obtain new or renewed contracts on favorable terms, if at all.
The loss of all or even a portion of the volumes of natural gas
supplied by these producers and other customers, as a result of
competition or otherwise, could have a material adverse effect
on our business, results of operations and financial condition.
In
accordance with industry practice, we do not obtain independent
evaluations of natural gas reserves dedicated to our gathering
systems. Accordingly, volumes of natural gas gathered on our
gathering systems in the future could be less than we
anticipate, which could adversely affect our business and
operating results.
In accordance with industry practice, we do not obtain
independent evaluations of natural gas reserves connected to our
gathering systems due to the unwillingness of producers to
provide reserve information as well as the cost of such
evaluations. Accordingly, we do not have estimates of total
reserves dedicated to our systems or the anticipated lives of
such reserves. If the total reserves or estimated lives of the
reserves connected to our gathering systems is less than we
anticipate and we are unable to secure additional sources of
4
natural gas, then the volumes of natural gas gathered on our
gathering systems in the future could be less than we
anticipate. A decline in the volumes of natural gas gathered on
our gathering systems could have an adverse effect on our
business, results of operations and financial condition.
Natural
gas, NGLs and other commodity prices are volatile, and a
reduction in these prices could adversely affect our cash flow
and operating results.
We are subject to risks due to frequent and often substantial
fluctuations in commodity prices. NGL prices generally fluctuate
on a basis that correlates to fluctuations in crude oil prices.
In the past, the prices of natural gas and crude oil have been
extremely volatile, and we expect this volatility to continue.
For example, natural gas prices reached historic highs in 2005
and early 2006, but declined substantially in the second half of
2006. The NYMEX daily settlement price for natural gas for the
prompt month contract in 2005 ranged from a high of
$15.38 per MMBtu to a low of $5.79 per MMBtu and for
the year ended December 31, 2006 ranged from a high of
$10.63 per MMBtu to a low of $4.20 per MMBtu. The
NYMEX daily settlement price for crude oil for the prompt month
contract in 2005 ranged from a high of $69.81 per barrel to
a low of $42.12 per barrel and for the year ended
December 31, 2006 ranged from a high of $77.03 per
barrel to a low of $55.81 per barrel. The markets and
prices for natural gas and NGLs depend upon factors beyond our
control. These factors include demand for oil, natural gas and
NGLs, which fluctuate with changes in market and economic
conditions and other factors, including:
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the impact of weather on the demand for oil and natural gas;
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the level of domestic oil and natural gas production;
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the availability of imported oil and natural gas;
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actions taken by foreign oil and gas producing nations;
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the availability of local, intrastate and interstate
transportation systems;
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the availability and marketing of competitive fuels;
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the impact of energy conservation efforts; and
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the extent of governmental regulation and taxation.
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Our natural gas gathering and processing businesses operate
under two types of contractual arrangements that expose our cash
flows to increases and decreases in the price of natural gas and
NGLs:
percentage-of-proceeds
and keep-whole arrangements. Under
percentage-of-proceeds
arrangements, we generally purchase natural gas from producers
and retain an agreed percentage of the proceeds (in cash or
in-kind) from the sale at market prices of pipeline-quality gas
and NGLs or NGL products resulting from our processing
activities. Under keep-whole arrangements, we receive the NGLs
removed from the natural gas during our processing operations as
the fee for providing our services in exchange for replacing the
thermal content removed as NGLs with a like thermal content in
pipeline-quality gas or its cash equivalent. Under these types
of arrangements our revenues and our cash flows increase or
decrease as the prices of natural gas and NGLs fluctuate. The
relationship between natural gas prices and NGL prices may also
affect our profitability. When natural gas prices are low
relative to NGL prices, it is more profitable for us to process
natural gas under keep-whole arrangements. When natural gas
prices are high relative to NGL prices, it is less profitable
for us and our customers to process natural gas both because of
the higher value of natural gas and of the increased cost
(principally that of natural gas as a feedstock and a fuel) of
separating the mixed NGLs from the natural gas. As a result, we
may experience periods in which higher natural gas prices
relative to NGL prices reduce our processing margins or reduce
the volume of natural gas processed at some of our plants.
5
In our
gathering and processing operations, we purchase raw natural gas
containing significant quantities of NGLs, process the raw
natural gas and sell the processed gas and NGLs. If we are
unsuccessful in balancing the purchase of raw natural gas with
its component NGLs and our sales of pipeline quality gas and
NGLs, our exposure to commodity price risks will
increase.
We purchase from producers and other customers a substantial
amount of the natural gas that flows through our natural gas
gathering and processing systems and our transportation pipeline
for resale to third parties, including natural gas marketers and
utilities. We may not be successful in balancing our purchases
and sales. In addition, a producer could fail to deliver
promised volumes or could deliver volumes in excess of
contracted volumes, a purchaser could purchase less than
contracted volumes, or the natural gas price differential
between the regions in which we operate could vary unexpectedly.
Any of these actions could cause our purchases and sales not to
be balanced. If our purchases and sales are not balanced, we
will face increased exposure to commodity price risks and could
have increased volatility in our operating results.
Our
results of operations and cash flow may be adversely affected by
risks associated with our hedging activities.
In performing our functions in the Gathering and Processing
segment, we are a seller of NGLs and are exposed to commodity
price risk associated with downward movements in NGL prices. As
a result of the volatility of NGL, we have executed swap
contracts settled against ethane, propane, butane and natural
gasoline market prices, supplemented with crude oil put options.
(Historically, changes in the prices of heavy NGLs, such as
natural gasoline, have generally correlated with changes in the
price of crude oil.) As of March 29, 2007, we have hedged
approximately 71 percent of our expected exposure to NGL
prices in 2007 and 2008 and approximately 28 percent in
2009. We have hedged approximately 66 percent of our
expected exposure to condensate prices in 2007 and approximately
64 percent in 2008 and 2009. We have hedged approximately
60 percent of our expected exposure to natural gas prices
in 2007. We continually monitor our hedging and contract
portfolio and expect to continue to adjust our hedge position as
conditions warrant. Also, we may seek to limit our exposure to
changes in interest rates by using financial derivative
instruments and other hedging mechanisms from time to time. For
more information about our risk management activities, please
read Item 7A Quantitative and Qualitative
Disclosures about Market Risk of our Annual Report on
Form 10-K
incorporated by reference herein.
Even though our management monitors our hedging activities,
these activities can result in substantial losses. Such losses
could occur under various circumstances, including any
circumstance in which a counterparty does not perform its
obligations under the applicable hedging arrangement, the
hedging arrangement is imperfect, or our hedging policies and
procedures are not followed or do not work as planned.
To the
extent that we intend to grow internally through construction of
new, or modification of existing, facilities, we may not be able
to manage that growth effectively, which could decrease our cash
flow and adversely affect our results of
operation.
A principal focus of our strategy is to continue to grow by
expanding our business both internally and through acquisitions.
Our ability to grow internally will depend on a number of
factors, some of which will be beyond our control. In general,
the construction of additions or modifications to our existing
systems, and the construction of new midstream assets involve
numerous regulatory, environmental, political and legal
uncertainties beyond our control. Any project that we undertake
may not be completed on schedule, at budgeted cost or at all.
Construction may occur over an extended period, and we are not
likely to receive a material increase in revenues related to
such project until it is completed. Moreover, our revenues may
not increase immediately upon its completion because the
anticipated growth in gas production that the project was
intended to capture does not materialize, our estimates of the
growth in production prove inaccurate or for other reasons. For
any of these reasons, newly constructed or modified midstream
facilities may not generate our expected investment return and
that, in turn, could adversely affect our cash flows and results
of operations.
6
In addition, our ability to undertake to grow in this fashion
will depend on our ability to finance the construction or
modification project and on our ability to hire, train and
retain qualified personnel to manage and operate these
facilities when completed.
Because
we distribute all of our available cash to our unitholders, our
future growth may be limited.
Since we will distribute all of our available cash to our
unitholders, subject to the limitations on restricted payments
contained in the indenture governing our senior notes and our
credit facility, we will depend on financing provided by
commercial banks and other lenders and the issuance of debt and
equity securities to finance any significant internal organic
growth or acquisitions. For a definition of available cash,
please see our partnership agreement. If we are unable to obtain
adequate financing from these sources, our ability to grow will
be limited.
Our
industry is highly competitive, and increased competitive
pressure could adversely affect our business and operating
results.
We compete with similar enterprises in each of our areas of
operations. Some of our competitors are large oil, natural gas
and petrochemical companies that have greater financial
resources and access to supplies of natural gas than we do. In
addition, our customers who are significant producers or
consumers of NGLs may develop their own processing facilities in
lieu of using ours. Similarly, competitors may establish new
connections with pipeline systems that would create additional
competition for services that we provide to our customers. Our
ability to renew or replace existing contracts with our
customers at rates sufficient to maintain current revenues and
cash flows could be adversely affected by the activities of our
competitors. All of these competitive pressures could have a
material adverse effect on our business, results of operations
and financial condition.
If
third-party pipelines interconnected to our processing plants
become unavailable to transport NGLs, our cash flow and results
of operations could be adversely affected.
We depend upon third party pipelines that provide delivery
options to and from our processing plants for the benefit of our
customers. If any of these pipelines become unavailable to
transport the NGLs produced at our related processing plants, we
would be required to find alternative means to transport the
NGLs out of our processing plants, which could increase our
costs, reduce the revenues we might obtain from the sale of NGLs
or reduce our ability to process natural gas at these plants.
We are
exposed to the credit risks of our key customers, and any
material nonpayment or nonperformance by our key customers could
adversely affect our cash flow and results of
operations.
We are subject to risks of loss resulting from nonpayment or
nonperformance by our customers. Any material nonpayment or
nonperformance by our key customers could reduce our ability to
make distributions to our unitholders. Furthermore, some of our
customers may be highly leveraged and subject to their own
operating and regulatory risks, which increases the risk that
they may default on their obligations to us.
Our
business involves many hazards and operational risks, some of
which may not be fully covered by insurance. If a significant
accident or event occurs that is not fully insured, our
operations and financial results could be adversely
affected.
Our operations are subject to the many hazards inherent in the
gathering, processing and transportation of natural gas and
NGLs, including:
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damage to our gathering and processing facilities, pipelines,
related equipment and surrounding properties caused by
tornadoes, floods, fires and other natural disasters and acts of
terrorism;
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inadvertent damage from construction and farm equipment;
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leaks of natural gas, NGLs and other hydrocarbons or losses of
natural gas or NGLs as a result of the malfunction of pipelines,
measurement equipment or facilities at receipt or delivery
points;
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fires and explosions;
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weather related hazards, such as hurricanes; and
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other hazards, including those associated with high-sulfur
content, or sour gas, such as an accidental discharge of
hydrogen sulfide gas, that could also result in personal injury
and loss of life, pollution and suspension of operations.
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These risks could result in substantial losses due to personal
injury or loss of life, severe damage to and destruction of
property and equipment and pollution or other environmental
damage and may result in curtailment or suspension of our
related operations. A natural disaster or other hazard affecting
the areas in which we operate could have a material adverse
effect on our operations. We are not insured against all
environmental events that might occur. If a significant accident
or event occurs that is not insured or fully insured, it could
adversely affect our operations and financial condition.
Due to
our lack of asset diversification, adverse developments in our
midstream operations would adversely affect our cash flows and
results of operations.
We rely exclusively on the revenues generated from our midstream
energy business, and as a result, our financial condition
depends upon prices of, and continued demand for, natural gas
and NGLs. Due to our lack of diversification in asset type, an
adverse development in this business would have a significantly
greater impact on our financial condition and results of
operations than if we maintained more diverse assets.
Failure
of the gas that we ship on our pipelines to meet the
specifications of interconnecting interstate pipelines could
result in curtailments by the interstate
pipelines.
The markets to which the shippers on our pipelines ship natural
gas include interstate pipelines. These interstate pipelines
establish specifications for the natural gas that they are
willing to accept, which include requirements such as
hydrocarbon dewpoint, temperature, and foreign content including
water, sulfur, carbon dioxide and hydrogen sulfide. These
specifications vary by interstate pipeline. If the total mix of
natural gas shipped by the shippers on our pipeline fails to
meet the specifications of a particular interstate pipeline, it
may refuse to accept all or a part of the natural gas scheduled
for delivery to it. In those circumstances, we may be required
to find alternative markets for that gas or to shut-in the
producers of the non-conforming gas, potentially reducing our
through-put volumes or revenues.
Terrorist
attacks, the threat of terrorist attacks, continued hostilities
in the Middle East or other sustained military campaigns may
adversely impact our results of operations.
The long-term impact of terrorist attacks, such as the attacks
that occurred on September 11, 2001, and the magnitude of
the threat of future terrorist attacks on the energy
transportation industry in general and on us in particular are
not known at this time. Uncertainty surrounding continued
hostilities in the Middle East or other sustained military
campaigns may affect our operations in unpredictable ways,
including disruptions of natural gas supplies and markets for
natural gas and NGLs and the possibility that infrastructure
facilities could be direct targets of, or indirect casualties
of, an act of terror.
Changes in the insurance markets attributable to terrorist
attacks may make certain types of insurance more difficult for
us to obtain. Moreover, the insurance that may be available to
us may be significantly more expensive than our existing
insurance coverage. Instability in the financial markets as a
result of terrorism or war could also affect our ability to
raise capital.
We do
not own all of the land on which our pipelines and facilities
have been constructed, and we are therefore subject to the
possibility of increased costs or the inability to retain
necessary land use.
We obtain the rights to construct and operate our pipelines on
land owned by third parties and governmental agencies for
specified periods of time. Many of these
rights-of-way
are perpetual in duration; others have terms ranging from five
to ten years. Many are subject to rights of reversion in the
case of non-utilization for periods ranging from one to three
years. In addition, some of our processing facilities are
8
located on leased premises. Our loss of these rights, through
our inability to renew
right-of-way
contracts or leases or otherwise, could have a material adverse
effect on our business, results of operations and financial
condition.
In addition, the construction of additions to our existing
gathering assets may require us to obtain new
rights-of-way
prior to constructing new pipelines. We may be unable to obtain
such
rights-of-way
to connect new natural gas supplies to our existing gathering
lines or to capitalize on other attractive expansion
opportunities. If the cost of obtaining new
rights-of-way
increases, then our cash flows and growth opportunities could be
adversely affected.
A
successful challenge to the rates we charge on our Regency
Intrastate Pipeline may reduce the amount of cash we
generate.
To the extent our Regency Intrastate Pipeline transports natural
gas in interstate commerce, the rates, terms and conditions of
that transportation service are subject to regulation by the
FERC, pursuant to Section 311 of the NGPA, which regulates,
among other things, the provision of transportation services by
an intrastate natural gas pipeline on behalf of an interstate
natural gas pipeline. Under Section 311, rates charged for
transportation must be fair and equitable, and the FERC is
required to approve the terms and conditions of the service.
Rates established pursuant to Section 311 are generally
analogous to the cost based rates FERC deems just and
reasonable for interstate pipelines under the NGA. FERC
may therefore apply its NGA policies to determine costs that can
be included in cost of service used to establish
Section 311 rates. These rate policies include the recent
FERC policy on income tax allowance that permits interstate
pipelines to include, as part of the cost of service, a full
income tax allowance for all entities owning the utility asset
provided such entities or individuals are subject to an actual
or potential tax liability. If the Section 311 rates
presently approved for Regency through May 1, 2008 are
successfully challenged in a complaint or after such date the
FERC disallows the inclusion of costs in the cost of service,
changes its regulations or policies, or establishes more onerous
terms and conditions applicable to Section 311 service,
this may adversely affect our business. Any reduction in our
rates could have an adverse effect on our business, results of
operations and financial condition.
A
change in the characterization of some of our assets by federal,
state or local regulatory agencies or a change in policy by
those agencies may result in increased regulation of our assets,
which may cause our revenues to decline and operating expenses
to increase.
Our natural gas gathering and intrastate transportation
operations are generally exempt from FERC regulation under the
NGA, but FERC regulation still affects these businesses and the
markets for products derived from these businesses. FERCs
policies and practices, including, for example, its policies on
open access transportation, ratemaking, capacity release, and
market center promotion, indirectly affect intrastate markets.
In recent years, FERC has pursued pro-competitive regulatory
policies. We cannot assure you, however, that FERC will continue
this approach as it considers matters such as pipeline rates and
rules and policies that may affect rights of access to natural
gas transportation capacity. In addition, the distinction
between FERC-regulated transmission service and federally
unregulated gathering services is the subject of regular
litigation at FERC and in the courts and of policy discussions
at FERC, so, in such circumstances, the classification and
regulation of some of our gathering facilities or our intrastate
transportation pipeline may be subject to change based on future
determinations by FERC, the courts or Congress. Such a change
could result in increased regulation by FERC.
Other state and local regulations also affect our business. Our
gathering lines are subject to ratable take and common purchaser
statutes in states in which we operate. Ratable take statutes
generally require gatherers to take, without undue
discrimination, oil or natural gas production that may be
tendered to the gatherer for handling. Similarly, common
purchaser statutes generally require gatherers to purchase
without undue discrimination as to source of supply or producer.
These statutes restrict our right as an owner of gathering
facilities to decide with whom we contract to purchase or
transport natural gas. Federal law leaves any economic
regulation of natural gas gathering to the states. States in
which we operate have adopted complaint-based regulation of oil
and natural gas gathering activities, which allows oil and
natural gas producers and
9
shippers to file complaints with state regulators in an effort
to resolve grievances relating to oil and natural gas gathering
access and rate discrimination.
We may
incur significant costs and liabilities in the future resulting
from a failure to comply with new or existing environmental
regulations or an accidental release of hazardous substances
into the environment.
Our operations are subject to stringent and complex federal,
state and local environmental laws and regulations governing,
among other things, air emissions, wastewater discharges, the
use, management and disposal of hazardous and nonhazardous
materials and wastes, and the cleanup of contamination.
Noncompliance with such laws and regulations, or incidents
resulting in environmental releases, could cause us to incur
substantial costs, penalties, fines and other criminal
sanctions, third party claims for personal injury or property
damage, investments to retrofit or upgrade our facilities and
programs, or curtailment of operations. Certain environmental
statutes, including CERCLA and comparable state laws, impose
strict, joint and several liability for costs required to clean
up and restore sites where hazardous substances have been
disposed or otherwise released.
There is inherent risk of the incurrence of environmental costs
and liabilities in our business due to the necessity of handling
natural gas and petroleum products, air emissions related to our
operations, and historical industry operations and waste
disposal practices. For example, an accidental release from one
of our pipelines or processing facilities could subject us to
substantial liabilities arising from environmental cleanup and
restoration costs, claims made by neighboring landowners and
other third parties for personal injury and property damage, and
fines or penalties for related violations of environmental laws
or regulations. Moreover, the possibility exists that stricter
laws, regulations or enforcement policies could significantly
increase our compliance costs and the cost of any remediation
that may become necessary. We may not be able to recover these
costs from insurance. We believe, based on current information,
that any costs we may incur relating to environmental matters
will not adversely affect us. We cannot be certain, however,
that identification of presently unidentified conditions, more
vigorous enforcement by regulatory agencies, enactment of more
stringent laws and regulations, or other unanticipated events
will not arise in the future and give rise to material
environmental liabilities that could have a material adverse
effect on our business, financial condition or results of
operations.
If we
fail to develop or maintain an effective system of internal
controls, we may not be able to report our financial results
accurately or prevent fraud.
We became subject to the public reporting requirements of the
Securities Exchange Act of 1934 on February 3, 2006. We
produce our consolidated financial statements in accordance with
the requirements of GAAP, but we do not become subject to
certain of the internal controls standards applicable to most
companies with publicly traded securities until 2008. We may not
currently meet all those standards. Effective internal controls
are necessary for us to provide reliable financial reports to
prevent fraud and to operate successfully as a publicly traded
partnership. Our efforts to develop and maintain our internal
controls compliance program may not be successful, and we may be
unable to maintain adequate controls over our financial
processes and reporting in the future, including compliance with
the obligations under Section 404 of the Sarbanes-Oxley Act
of 2002, which we refer to as Section 404. For example,
Section 404 will require us, among other things, annually
to review and report on, and our independent registered public
accounting firm to attest to, our internal control over
financial reporting. We must comply with Section 404 for
our fiscal year ending December 31, 2007. Any failure to
develop or maintain an effective internal controls compliance
program or difficulties encountered in its implementation or
other effective improvement of our internal controls could harm
our operating results or cause us to fail to meet our reporting
obligations. Given the difficulties inherent in the design and
operation of internal controls over financial reporting, we can
provide no assurance as to our conclusions under
Section 404, or those of our independent registered public
accounting firm, regarding the effectiveness of our internal
controls. Ineffective internal controls subject us to regulatory
scrutiny and a loss of confidence in our reported financial
information, which could have an adverse effect on our business,
results of operations and financial condition.
10
Our
leverage may limit our ability to borrow additional funds,
comply with the terms of our indebtedness or capitalize on
business opportunities.
Our leverage is significant in relation to our partners
capital. Our debt to capital ratio (calculated as total debt
divided by the sum of total debt and partners capital) as
of December 31, 2006 was 76 percent. As of
March 22, 2007, our total outstanding long-term debt was
$698.1 million. We will be prohibited from making cash
distributions during an event of default under any of our
indebtedness. Various limitations in our credit facility, as
well as the indentures for the notes, may reduce our ability to
incur additional debt, to engage in some transactions and to
capitalize on business opportunities. Any subsequent refinancing
of our current indebtedness or any new indebtedness could have
similar or greater restrictions.
Our leverage may adversely affect our ability to fund future
working capital, capital expenditures and other general
partnership requirements, future acquisition, 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.
Our leverage may also make our results of operations more
susceptible to adverse economic and industry conditions by
limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate and
may place us at a competitive disadvantage as compared to our
competitors that have less debt.
Increases
in interest rates, which have recently experienced record lows,
could adversely impact our unit price and our ability to issue
additional equity, in order to make acquisitions, to reduce debt
or for other purposes.
During 2004 and 2005, the credit markets experienced
50-year
record lows in interest rates. During the latter half of 2005
and in 2006, interest rates increased. If the overall economy
continues to strengthen, monetary policy may tighten further,
resulting in higher interest rates to counter possible
inflation. The interest rate on our senior notes is fixed and
the loans outstanding under our credit facility bear interest at
a floating rate. An increase of 100 basis points in the
LIBOR rate would increase our annual payment by approximately
$1,100,000. Additionally, interest rates on future credit
facilities and debt offerings could be higher than current
levels, causing our financing costs to increase accordingly. As
with other yield-oriented securities, the market price for our
units will be affected by the level of our cash distributions
and implied distribution yield. The distribution yield is often
used by investors to compare and rank yield-oriented securities
for investment decision-making purposes. Therefore, changes in
interest rates, either positive or negative, may affect the
yield requirements of investors who invest in our units, and a
rising interest rate environment could have an adverse effect on
our unit price and our ability to issue additional equity, in
order to make acquisitions, to reduce debt or for other purposes.
You
may not be able to sell large blocks of our common units in a
single day without realizing a lower than expected sales
price.
During the six months ended March 15, 2007, the average
daily volume of our common units traded on the NASDAQ was
43,000. The median of the daily volume for the same period was
39,200. The maximum and minimum daily volume for the same period
was 120,400 and 8,500, respectively. If we are unable to
increase the market demand for our equity securities, you may be
adversely affected.
We may
not have the ability to raise funds necessary to finance any
change of control offer required under our senior
notes.
If a change of control (as defined in the indenture) occurs, we
will be required to offer to purchase our outstanding senior
notes at 101 percent of their principal amount plus accrued
and unpaid interest. If a purchase offer obligation arises under
the indenture governing the senior notes, a change of control
could also have occurred under the senior secured credit
facilities, which could result in the acceleration of the
indebtedness outstanding thereunder. Any of our future debt
agreements may contain similar restrictions and
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provisions. If a purchase offer were required under the
indenture for our debt, we may not have sufficient funds to pay
the purchase price of all debt that we are required to purchase
or repay.
Risks
Related to Our Structure
HM
Capital Investors own 60.2 percent of our outstanding
limited partner units and control our general partner, which has
sole responsibility for conducting our business and managing our
operations.
HM Capital Investors own 60.2 percent of our outstanding
limited partner units and control our general partner. Although
our general partner has a fiduciary duty to manage us in a
manner beneficial to us and our unitholders, the directors and
officers of our general partner have a fiduciary duty to manage
our general partner in a manner beneficial to its owners, the HM
Capital Investors. Conflicts of interest may arise between the
HM Capital Investors and their affiliates, including our general
partner, on the one hand, and us, on the other hand. In
resolving these conflicts of interest, our general partner may
favor its own interests and the interests of its affiliates over
our interests. These conflicts include, among others, the
following situations:
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neither our partnership agreement nor any other agreement
requires the HM Capital Investors or their affiliates to pursue
a business strategy that favors us;
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our General Partner is allowed to take into account the
interests of parties other than us, such as the HM Capital
Investors, in resolving conflicts of interest;
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HM Capital Investors and their affiliates may engage in
competition with us;
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our General Partner has limited its liability and reduced its
fiduciary duties, and has also restricted the remedies available
to our unitholders for actions that, without the limitations,
might constitute breaches of fiduciary duty;
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our General Partner determines the amount and timing of asset
purchases and sales, capital expenditures, borrowings, issuance
of additional partnership securities, and reserves, each of
which can affect the amount of cash available to pay interest
on, and principal of, the notes;
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our General Partner determines which costs incurred by it and
its affiliates are reimbursable by us;
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our partnership agreement does not restrict our General Partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf;
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our General Partner intends to limit its liability regarding our
contractual and other obligations; and
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our General Partner controls the enforcement of obligations owed
to us by our General Partner and its affiliates.
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HM
Capital Investors and their affiliates may compete directly with
us.
HM Capital Investors and their affiliates are not prohibited
from owning assets or engaging in businesses that compete
directly or independently with us. In addition, HM Capital
Investors or their affiliates may acquire, construct or dispose
of any additional midstream or other assets in the future,
without any obligation to offer us the opportunity to purchase
or construct or dispose of those assets.
Our
reimbursement of our general partners expenses will reduce
our cash available for distribution to you.
Prior to making any distribution on the common units, we will
reimburse our general partner and its affiliates for all
expenses they incur on our behalf. These expenses will include
all costs incurred by our general partner and its affiliates in
managing and operating us, including costs for rendering
corporate staff and support services to us. Please read
Item 13. Certain Relationships and Related Party
Transactions of our Annual Report on
Form 10-K
incorporated by reference herein. The reimbursement of expenses
of our general partner and its affiliates could adversely affect
our ability to pay cash distributions to you.
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Our
partnership agreement limits our general partners
fiduciary duties to our unitholders and restricts the remedies
available to unitholders for actions taken by our general
partner that might otherwise constitute breaches of fiduciary
duty.
Our partnership agreement contains provisions that reduce the
standards to which our general partner would otherwise be held
by state fiduciary duty law. For example, our partnership
agreement:
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permits our general partner to make a number of decisions in its
individual capacity, as opposed to its capacity as our general
partner. This entitles our general partner to consider only the
interests and factors that it desires, and it has no duty or
obligation to give any consideration to any interest of, or
factors affecting, us, our affiliates or any limited partner.
Examples include the exercise of its limited call right, its
voting rights with respect to the units it owns, its
registration rights and its determination whether or not to
consent to any merger or consolidation of the partnership;
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provides that our general partner will not have any liability to
us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed the decision was in the best interests of our
partnership;
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provides that our general partner is entitled to make other
decisions in good faith if it believes that the
decision is in our best interests;
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provides generally that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of our general partner and not involving a vote of unitholders
must be on terms no less favorable to us than those generally
being provided to or available from unrelated third parties or
be fair and reasonable to us, as determined by our
general partner in good faith, and that, in determining whether
a transaction or resolution is fair and reasonable,
our general partner may consider the totality of the
relationships between the parties involved, including other
transactions that may be particularly advantageous or beneficial
to us; and
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non- appealable judgment entered by a court of
competent jurisdiction determining that the general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct.
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By purchasing a common unit, a common unitholder will become
bound by the provisions in the partnership agreement, including
the provisions discussed above.
Unitholders
have limited voting rights and are not entitled to elect our
general partner or its directors.
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
did not elect our general partner or 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 members of our
general partner. Furthermore, if the unitholders were
dissatisfied with the performance of our general partner, they
will have little ability to remove our general partner. As a
result of these limitations, the price at which the common units
will trade could be diminished because of the absence or
reduction of a takeover premium in the trading price.
Even
if unitholders are dissatisfied, they cannot remove our general
partner without its consent.
The unitholders are currently unable to remove the general
partner without its consent because the general partner and its
affiliates own sufficient units to be able to prevent its
removal. The vote of the holders of at least
662/3
percent of all outstanding units voting together as a single
class is required to remove the general partner. Our general
partner and its affiliates own 60.3 percent of the total of
our common and subordinated units. Moreover, if our general
partner is removed without cause during the subordination period
and units held by our general partner and its affiliates are not
voted in favor of that removal, all remaining subordinated units
will automatically convert into common units and any existing
arrearages on the common units will be
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extinguished. A removal of the general partner under these
circumstances would adversely affect the common units by
prematurely eliminating their distribution and liquidation
preference over the subordinated units, which would otherwise
have continued until we had met certain distribution and
performance tests.
Our
partnership agreement restricts the voting rights of those
unitholders owning 20 percent or more of our common
units.
Unitholders voting rights are further restricted by the
partnership agreement provision providing that any units held by
a person that owns 20 percent or more of any class of units
then outstanding, other than our general partner, its
affiliates, their transferees, and persons who acquired such
units with the prior approval of our 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 or direction of management.
Control
of our general partner may be transferred to a third party
without unitholder consent.
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, our partnership agreement does not restrict the
ability of the partners of our general partner from transferring
their ownership in our general partner to a third party. The new
partners of our general partner would then be in a position to
replace the board of directors and officers of Regency GP LLC
with their own choices and to control the decisions taken by the
board of directors and officers.
We may
issue an unlimited number of additional units without your
approval, which would dilute your existing ownership
interest.
Our general partner, without the approval of our unitholders,
may cause us to issue an unlimited number of additional common
units.
The issuance by us of additional common units or other equity
securities of equal or senior rank will have the following
effects:
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our unitholders proportionate ownership interest in us
will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Our
general partner has a limited call right that may require you to
sell your units at an undesirable time or price.
If at any time our general partner and its affiliates own more
than 80 percent 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. Our general partner and its affiliates now own
approximately 20.7 percent of the common units. At the end
of the subordination period, assuming no additional issuances of
common units, our general partner and its affiliates will own
approximately 60.3 percent of the common units.
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Your
liability may not be limited if a court finds that unitholder
action constitutes control of our business.
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law and we conduct
business in a number of other states. The limitations on the
liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly
established in some of the other states in which we do business.
In most states, a limited partner is only liable if he
participates in the control of the business of the
partnership. These statutes generally do not define control, but
do permit limited partners to engage in certain activities,
including, among other actions, taking any action with respect
to the dissolution of the partnership, the sale, exchange, lease
or mortgage of any asset of the partnership, the admission or
removal of the general partner and the amendment of the
partnership agreement. You could, however, be liable for any and
all of our obligations as if you were a general partner if:
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a court or government agency determined that we were conducting
business in a state but had not complied with that particular
states partnership statute; or
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your right to act with other unitholders to take other actions
under our partnership agreement is found to constitute
control of our business.
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Unitholders
may have liability to repay distributions that were wrongfully
distributed to them.
Under certain circumstances, unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, we may
not make a distribution to you if the distribution would cause
our liabilities to exceed the fair value of our assets. Delaware
law provides that for a period of three years from the date of
the distribution, limited partners who received an impermissible
distribution and who knew at the time of the distribution that
it violated Delaware law will be liable to the limited
partnership for the distribution amount. Substituted limited
partners are liable for the obligations of the assignor to make
required contributions to the partnership other than
contribution obligations that are unknown to the substituted
limited partner at the time it became a limited partner and that
could not be ascertained from the partnership agreement.
Liabilities to partners on account of their partnership interest
and liabilities that are non-recourse to the partnership are not
counted for purposes of determining whether a distribution is
permitted.
Risks
Related to the Debt Securities
We
have a holding company structure in which our subsidiaries
conduct our operations and own our operating
assets.
We have a holding company structure, and our subsidiaries
conduct all of our operations and own all of our operating
assets. We have no significant assets other than the ownership
interests in our subsidiaries. As a result, our ability to make
required payments on the debt securities depends on the
performance of our subsidiaries and their ability to distribute
funds to us. The ability of our subsidiaries to make
distributions to us may be restricted by, among other things,
credit facilities and applicable state partnership laws and
other laws and regulations. Pursuant to the credit facilities,
we may be required to establish cash reserves for the future
payment of principal and interest on the amounts outstanding
under the credit facilities. If we are unable to obtain the
funds necessary to pay the principal amount at maturity of the
debt securities, or to repurchase the debt securities upon the
occurrence of a change of control, we may be required to adopt
one or more alternatives, such as a refinancing of the debt
securities. We cannot assure you that we would be able to
refinance the debt securities.
We do
not have the same flexibility as other types of organizations to
accumulate cash, which may limit cash available to service the
debt securities or to repay them at maturity.
Unlike a corporation, our partnership agreement requires us to
distribute, on a quarterly basis, 100% of our available cash to
our unitholders of record and our general partner. Available
cash is generally all of our
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cash receipts adjusted for cash distributions and net changes to
reserves. Our general partner will determine the amount and
timing of such distributions and has broad discretion to
establish and make additions to our reserves or the reserves of
our operating partnerships in amounts the general partner
determines in its reasonable discretion to be necessary or
appropriate:
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to provide for the proper conduct of our business and our
subsidiaries (including reserves for future capital expenditures
and for our anticipated future credit needs),
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to comply with applicable law or any of our debt instruments or
other agreements, or
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to provide funds for distributions to our unitholders and the
general partner for any one or more of the next four calendar
quarters.
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Although our payment obligations to our unitholders are
subordinate to our payment obligations to debtholders, the value
of our units will decrease in direct correlation with any
decrease in the amount we distribute per unit. Accordingly, if
we experience a liquidity problem in the future, we may not be
able to issue equity to recapitalize.
We
require a significant amount of cash to service our
indebtedness. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our
indebtedness, including our outstanding senior notes and any
future issuance of debt securities, and to fund planned capital
expenditures depends on our ability to generate cash in the
future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.
We cannot assure you that we will generate sufficient cash flow
from operations or that future borrowings will be available to
us under the senior secured revolving credit facility or
otherwise in an amount sufficient to enable us to pay our
indebtedness, including our outstanding senior notes and any
future issuance of debt securities, or to fund our other
liquidity needs. We may need to refinance all or a portion of
our indebtedness, including our outstanding senior notes and any
future issuance of debt securities, on or before maturity. We
cannot assure you that we will be able to refinance any of our
indebtedness, including our outstanding senior notes and any
future issuances of debt securities, on commercially reasonable
terms or at all.
The
guarantees by certain of our subsidiaries of our outstanding
senior notes and any future issuances of debt securities could
be deemed fraudulent conveyances under certain circumstances,
and a court may try to subordinate or void these subsidiary
guarantees.
Under U.S. bankruptcy law and comparable provisions of
state fraudulent transfer laws, a guarantee can be voided or
claims under a guarantee may be subordinated to all other debts
of that guarantor if, among other things, the guarantor, at the
time it incurred the indebtedness evidenced by its guarantee:
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intended to hinder, delay or defraud any present or future
creditor or received less than reasonably equivalent value or
fair consideration for the incurrence of the guarantee;
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was insolvent or rendered insolvent by reason of such incurrence;
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was engaged in a business or transaction for which the
guarantors remaining assets constituted unreasonably small
capital; or
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intended to incur, or believed that it would incur, debts beyond
its ability to pay those debts as they mature.
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In addition, any payment by that guarantor under a guarantee
could be voided and required to be returned to the guarantor or
to a fund for the benefit of the creditors of the guarantor. The
measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding
to
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determine whether a fraudulent transfer has occurred. Generally,
however, a subsidiary guarantor would be considered insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
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the present saleable value of its assets was less than the
amount that would be required to pay its probable liability,
including contingent liabilities, on its existing debts as they
become absolute and mature; or
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it could not pay its debts as they became due.
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Tax Risks
to Common Unitholders
In addition to reading the following risk factors, you should
read Material Tax Consequences for a more complete
discussion of the expected material federal income tax
consequences of owning and disposing of common units.
Our
tax treatment depends on our status as a partnership for federal
income tax purposes, as well as our not being subject to a
material amount of entity-level taxation by individual states.
If the IRS were to treat us as a corporation or if we become
subject to a material amount of entity-level taxation for state
tax purposes, it would reduce the amount of cash available for
distribution to you.
The anticipated after-tax economic benefit of an investment in
our 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 taxable income
at the corporate tax rate, which is currently a maximum of 35%,
and would likely pay state income tax at varying rates.
Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses or deductions would
flow through to you. Because a tax would be imposed upon us as a
corporation, our cash available for distribution to you would be
substantially reduced. Therefore, treatment of us as a
corporation would result in a material reduction in the
anticipated cash flow and 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 and other reasons, several states are
evaluating ways to subject partnerships to entity-level taxation
through the imposition of state income, franchise and other
forms of taxation. For example, beginning in 2008, we will be
required to pay Texas franchise tax at a maximum effective rate
of 0.7% of our gross income apportioned to Texas in the prior
year. Imposition of such a tax on us by Texas and, if
applicable, by any other state will reduce the cash available
for distribution to you.
Our partnership agreement provides that if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, the minimum quarterly distribution amount and the
target distribution amounts will be adjusted to reflect the
impact of that law on us.
If the
IRS contests the federal income tax positions we take, the
market for our common units may be adversely impacted and the
cost of any IRS contest will reduce our cash available for
distribution to you.
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 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 counsels conclusions or the positions we take.
A court may not agree with some or all of our counsels
conclusions or positions we take. Any contest with the IRS may
materially and adversely impact the market for our common units
and the price
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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 because the costs will reduce our cash available
for distribution.
You
may be required to pay taxes on your share of our income even if
you do not receive any cash distributions from us.
Because our unitholders will be treated as partners to whom we
will allocate taxable income that could be different in amount
than the cash we distribute, 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 equal to the actual tax liability that results from that
income.
Tax
gain or loss on disposition of our common units could be more or
less 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. Because distributions in excess of
your allocable share of our net taxable income decrease your tax
basis in your common units, the amount, if any, of such prior
excess distributions with respect to the units you sell will, in
effect, become taxable income to you if you sell such units at a
price greater than your tax basis in those units, even if the
price you receive is less than your original cost. Furthermore,
a substantial portion of the amount realized, whether or not
representing gain, may be taxed as ordinary income due to
potential recapture items, including depreciation recapture. In
addition, because the amount realized includes a
unitholders share of our nonrecourse liabilities, if you
sell your units, you may incur a tax liability in excess of the
amount of cash you receive from the sale. Please read
Material Tax Consequences Disposition of
Common Units Recognition of Gain or Loss for a
further discussion of the foregoing.
Tax-exempt
entities and foreign persons face unique tax issues from owning
our 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), and
non-U.S. persons
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from federal
income tax, including individual retirement accounts and other
retirement plans, will be unrelated business taxable income and
will be taxable to them. Distributions to
non-U.S. persons
will be reduced by withholding taxes at the highest applicable
effective tax rate, and
non-U.S. persons
will be required to file United States federal tax returns and
pay tax on their share of our taxable income. If you are a tax
exempt entity or a foreign person, you should consult your tax
advisor before investing in our common units.
We
will treat each purchaser of common units as having the same tax
benefits without regard to the actual common units purchased.
The IRS may challenge this treatment, which could adversely
affect the value of the common units.
Because we cannot match transferors and transferees of common
units and because of other reasons, we will adopt depreciation
and amortization positions that may not conform to all aspects
of existing Treasury Regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of
these tax benefits or the amount of gain from your sale of
common units and could have a negative impact on the value of
our common units or result in audit adjustments to your tax
returns. Please read Material Tax Consequences
Tax Consequences of Unit Ownership Section 754
Election for a further discussion of the effect of the
depreciation and amortization positions we adopted.
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The
sale or exchange of 50% or more of our capital and profits
interests during any twelve-month period will result in the
termination of our partnership for federal income tax
purposes.
We will be considered to have terminated for federal income tax
purposes if there is a sale or exchange of 50% or more of the
total interests in our capital and profits within a twelve-month
period. Our termination would, among other things, result in the
closing of our taxable year for all unitholders and could result
in a deferral of depreciation deductions allowable in computing
our taxable income. 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 twelve
months of our taxable income or loss being includable in his
taxable income for the year of termination. Our termination
currently would not affect our classification as a partnership
for federal income tax purposes, but instead, we would be
treated as a new partnership for tax purposes. If treated as a
new partnership, we must make new tax elections and could be
subject to penalties if we are unable to determine that a
termination occurred. Please read Material Tax
Consequences Disposition of Common Units
Constructive Termination for a discussion of the
consequences of our termination for federal income tax purposes.
You
will likely be subject to state and local taxes and return
filing requirements in states where you do not live as a result
of investing in our common 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 various
jurisdictions. Further, you may be subject to penalties for
failure to comply with those requirements. We will initially own
assets and do business in Arkansas, Colorado, Kansas, Louisiana,
Oklahoma, and Texas. Each of these states, other than Texas,
currently imposes a personal income tax on individuals. Most of
these states also impose an income tax on corporations and other
entities. As we make acquisitions or expand our business, we may
own assets or conduct business in additional states that 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 our common units.
19
USE OF
PROCEEDS
Unless otherwise indicated to the contrary in an accompanying
prospectus supplement, we will use the net proceeds from the
sale of securities covered by this prospectus for general
partnership purposes, which may include repayment of
indebtedness and other capital expenditures and additions to
working capital.
The actual application of proceeds from the sale of any
particular offering of securities using this prospectus will be
described in the applicable prospectus supplement relating to
such offering. The precise amount and timing of the application
of these proceeds will depend upon our funding requirements and
the availability and cost of other funds.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table presents the ratios of earnings to fixed
charges of the Partnership and its predecessor for the periods
indicated. For purposes of computing the ratios of earnings to
fixed charges, earnings consist of income from continuing
operations before adjustment for equity income from equity
method investees plus fixed charges, amortization of capitalized
interest and distributed income from investees accounted for
under the equity method. Fixed charges consist of interest
expensed and capitalized and an estimated interest component of
rent expense.
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Regency Energy Partners LP
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Regency Predecessor LLC
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Period from
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Period from
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Period from
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Acquisition Date
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Inception
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January 1,
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(December 1,
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(April 2, 2003) to
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2004 to
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2004) to
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Year Ended
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Year Ended
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December 31,
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November 30,
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December 31,
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December 31,
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December 31,
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2003(1)
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2004
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2004
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2005(2)
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2006(2)
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Ratio of earnings to fixed charges
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3.39
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4.67
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2.03
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The predecessor of the Partnership was organized on
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Earnings were inadequate to cover fixed charges for the years
ended December 31, 2006 and 2005 by $8.2 and
$14.5 million, respectively. |
20
DESCRIPTION
OF OUR COMMON UNITS
The
Units
The common units and the subordinated units are separate classes
of our limited partner interests. The holders of units are
entitled to participate in partnership distributions and
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
subordinated units in and to partnership distributions, please
read this section and How We Make Cash
Distributions. For a description of the rights and
privileges of limited partners under our partnership agreement,
including voting rights, please read The Partnership
Agreement.
Our outstanding common units are listed on The Nasdaq Stock
Market LLC, or Nasdaq, and trade in the Nasdaq Global Select
Market under the symbol RGNC.
The transfer agent and registrar for our common units is
American Stock Transfer & Trust Company.
Transfer
of Common Units
By transfer of our common units in accordance with our
partnership agreement, each transferee of our common units will
be admitted as a unitholder with respect to the common units
transferred when such transfer and admission is reflected in our
books and records. Additionally, each transferee of our common
units:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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gives the consents and approvals contained in our partnership
agreement.
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An assignee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. The
general partner will cause any transfers to be recorded on our
books and records no less frequently than quarterly.
We may, at our discretion, 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 transfers of securities. In addition to other
rights acquired upon transfer, the transferor gives the
transferee the right to become a substituted limited partner in
our partnership for the transferred 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.
21
DESCRIPTION
OF OUR DEBT SECURITIES
We will issue our debt securities under an indenture among us,
as issuer, the Trustee and any subsidiary guarantors. The debt
securities will be governed by the provisions of the Indenture
and those made part of the Indenture by reference to the Trust
Indenture Act of 1939. We, the Trustee and any subsidiary
guarantors may enter into supplements to the Indenture from time
to time. If we decide to issue subordinated debt securities, we
will issue them under a separate Indenture containing
subordination provisions.
This description is a summary of the material provisions of the
debt securities and the Indentures. We urge you to read the
forms of senior indenture and subordinated indenture filed as
exhibits to the registration statement of which this prospectus
is a part because those Indentures, and not this description,
govern your rights as a holder of debt securities. References in
this prospectus to an Indenture refer to the
particular Indenture under which we issue a series of debt
securities. References in this prospectus to Trustee
refer to the trustee that we appoint for any series of debt, as
further described in The Trustee.
Regency Energy Partners LP may issue debt securities in one or
more series, and Regency Energy Finance Corp. may be a co-issuer
of one or more series of debt securities. Regency Energy Finance
Corp. was incorporated under the laws of the State of Delaware
in 2006, is wholly-owned by Regency Energy Partners LP, and has
no material assets or any liabilities other than as a co-issuer
of debt securities. Its activities will be limited to co-issuing
debt securities and engaging in other activities incidental
thereto. When used in this section Description of the Debt
Securities, the terms we, us,
our and issuers refer jointly to Regency
Energy Partners LP and Regency Energy Finance Corp., and the
terms Regency and Regency Finance Corp
refer strictly to Regency Energy Partners LP and Regency Energy
Finance Corp., respectively.
General
The
Debt Securities
Any series of debt securities that we issue:
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will be our general obligations;
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will be general obligations of any Subsidiary Guarantors that
guarantee that series; and
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may be subordinated to our senior indebtedness, with any
guarantees also being subordinated to any senior indebtedness.
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The Indenture does not limit the total amount of debt securities
that we may issue. We may issue debt securities under the
Indenture from time to time in separate series, up to the
aggregate amount authorized for each such series.
We will prepare a prospectus supplement and either an indenture
supplement or a resolution of the board of directors of our
general partner and accompanying officers certificate
relating to any series of debt securities that we offer, which
will include specific terms relating to some or all of the
following:
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whether Regency Finance Corp. will be a co-issuer of the debt
securities;
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whether the debt securities are entitled to the benefits of any
guarantees by the Subsidiary Guarantors;
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the form and title of the debt securities;
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the total principal amount of the debt securities;
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the date or dates on which the debt securities may be issued;
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the portion of the principal amount that will be payable if the
maturity of the debt securities is accelerated;
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any right we may have to defer payments of interest by extending
the dates payments are due and whether interest on those
deferred amounts will be payable;
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the dates on which the principal and premium, if any, of the
debt securities will be payable;
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the interest rate that the debt securities will bear and the
interest payment dates for the debt securities;
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any optional redemption provisions;
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
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whether the debt securities may be issued in amounts other than
$1,000 each or multiples thereof;
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any changes to or additional Events of Default or covenants;
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the subordination, if any, of the debt securities and any
changes to the subordination provisions of the
Indenture; and
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any other terms of the debt securities.
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This description of debt securities will be deemed modified,
amended or supplemented by any description of any series of debt
securities set forth in a prospectus supplement related to that
series.
The prospectus supplement will also describe any material United
States federal income tax consequences or other special
considerations regarding the applicable series of debt
securities, including those relating to:
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debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index or
formula, including changes in prices of particular securities,
currencies or commodities;
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debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency;
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debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that
at the time of issuance is below market rates; and
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variable rate debt securities that are exchangeable for fixed
rate debt securities.
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At our option, we may make interest payments by check mailed to
the registered holders of any debt securities not in global form
or, if so stated in the applicable prospectus supplement, at the
option of a holder by wire transfer to an account designated by
the holder.
Unless otherwise provided in the applicable prospectus
supplement, fully registered securities may be transferred or
exchanged at the office of the Trustee at which its corporate
trust business is principally administered in the United States,
subject to the limitations provided in the Indenture, without
the payment of any service charge, other than any applicable tax
or governmental charge.
Any funds we pay to a paying agent for the payment of amounts
due on any debt securities that remain unclaimed for two years
will be returned to us, and the holders of the debt securities
must look only to us for payment after that time.
The
Subsidiary Guarantees
Our payment obligations under any series of debt securities may
be jointly and severally, fully and unconditionally guaranteed
by one or more Subsidiary Guarantors. If a series of debt
securities is so guaranteed, the Subsidiary Guarantors will
execute a notation of guarantee as further evidence of their
guarantee. The applicable prospectus supplement will describe
the terms of any guarantee by the Subsidiary Guarantors.
The obligations of each Subsidiary Guarantor under its guarantee
of the debt securities will be limited to the maximum amount
that will not result in the obligations of the Subsidiary
Guarantor under the guarantee constituting a fraudulent
conveyance or fraudulent transfer under federal or state law,
after giving effect to:
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all other contingent and fixed liabilities of the Subsidiary
Guarantor; and
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any collections from or payments made by or on behalf of any
other Subsidiary Guarantors in respect of the obligations of the
Subsidiary Guarantor under its guarantee.
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The guarantee of any Subsidiary Guarantor may be released under
certain circumstances. If no default has occurred and is
continuing under the Indenture and to the extent not otherwise
prohibited by the Indenture, a Subsidiary Guarantor will be
unconditionally released and discharged from the guarantee:
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automatically upon any sale, exchange or transfer, to any person
that is not our affiliate, of all of our direct or indirect
limited partnership or other equity interests in the Subsidiary
Guarantor;
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automatically upon the merger of the Subsidiary Guarantor into
us or any other Subsidiary Guarantor or the liquidation and
dissolution of the Subsidiary Guarantor; or
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upon our delivery of a written notice to the Trustee of the
release of all guarantees by the Subsidiary Guarantor of any
debt of ours for borrowed money (or a guarantee of such debt),
except for any series of debt securities, other than a release
resulting from a payment of such guarantees.
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If a series of debt securities is guaranteed by the Subsidiary
Guarantors and is designated as subordinate to our senior
indebtedness, then the guarantees by the Subsidiary Guarantors
will be subordinated to the senior indebtedness of the
Subsidiary Guarantors to substantially the same extent as the
series is subordinated to our senior indebtedness. See
Subordination.
Covenants
Reports
The Indenture contains the following covenant for the benefit of
the holders of all series of debt securities:
So long as any debt securities are outstanding, we will:
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for as long as we are required to file information with the SEC
pursuant to the Exchange Act, file with the Trustee, within
30 days after we file with the SEC, copies of the annual
reports and of the information, documents and other reports that
we are required to file with the SEC pursuant to the Exchange
Act; and
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if we are not required to file information with the SEC pursuant
to the Exchange Act, file with the Trustee, within 30 days
after we would have been required to file with the SEC,
financial statements and a Managements Discussion and
Analysis of Financial Condition and Results of Operations, both
comparable to what we would have been required to file with the
SEC had we been subject to the reporting requirements of the
Exchange Act.
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Other
Covenants
A series of debt securities may contain additional financial and
other covenants applicable to us and our subsidiaries. The
applicable prospectus supplement will contain a description of
any such covenants that are added to the Indenture specifically
for the benefit of holders of a particular series.
Events of
Default, Remedies and Notice
Events
of Default
Each of the following events will be an Event of
Default under the Indenture with respect to a series of
debt securities:
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default in any payment of interest on any debt securities of
that series when due that continues for 30 days;
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default in the payment of principal of or premium, if any, on
any debt securities of that series when due at its stated
maturity, upon redemption, upon required repurchase or otherwise;
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default in the payment of any sinking fund payment on any debt
securities of that series when due;
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failure by us or, if the series of debt securities is guaranteed
by the Subsidiary Guarantors, by a Subsidiary Guarantor, to
comply for 60 days after notice with the other agreements
contained in the Indenture, any supplement to the Indenture or
any board resolution authorizing the issuance of that series;
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certain events of bankruptcy, insolvency or reorganization of us
or, if the series of debt securities is guaranteed by the
Subsidiary Guarantors, of the Subsidiary Guarantors; or
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if the series of debt securities is guaranteed by the Subsidiary
Guarantors:
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any of the guarantees by the Subsidiary Guarantors ceases to be
in full force and effect, except as otherwise provided in the
Indenture;
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any of the guarantees by the Subsidiary Guarantors is declared
null and void in a judicial proceeding; or
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any Subsidiary Guarantor denies or disaffirms its obligations
under the Indenture or its guarantee.
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Exercise
of Remedies
If an Event of Default, other than an Event of Default with
respect to us described in the fifth bullet point above, occurs
and is continuing, the Trustee or the holders of at least 25% in
principal amount of the outstanding debt securities of that
series may declare the entire principal of, premium, if any, and
accrued and unpaid interest, if any, on all the debt securities
of that series to be due and payable immediately.
A default under the fourth bullet point above will not
constitute an Event of Default until the Trustee or the holders
of 25% in principal amount of the outstanding debt securities of
that series notify us and, if the series of debt securities is
guaranteed by the Subsidiary Guarantors, the Subsidiary
Guarantors, of the default and such default is not cured within
60 days after receipt of notice.
If an Event of Default with respect to us described in the fifth
bullet point above occurs and is continuing, the principal of,
premium, if any, and accrued and unpaid interest on all
outstanding debt securities of all series will become
immediately due and payable without any declaration of
acceleration or other act on the part of the Trustee or any
holders.
The holders of a majority in principal amount of the outstanding
debt securities of a series may rescind any declaration of
acceleration by the Trustee or the holders with respect to the
debt securities of that series, but only if:
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rescinding the declaration of acceleration would not conflict
with any judgment or decree of a court of competent
jurisdiction; and
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all existing Events of Default with respect to that series have
been cured or waived, other than the nonpayment of principal,
premium, if any, or interest on the debt securities of that
series that have become due solely by the declaration of
acceleration.
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If an Event of Default occurs and is continuing, the Trustee
will be under no obligation, except as otherwise provided in the
Indenture, to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders
unless such holders have offered to the Trustee reasonable
indemnity or security against any costs, liability or expense.
No holder may pursue any remedy with respect to the Indenture or
the debt securities of any series, except to enforce the right
to receive payment of principal, premium, if any, or interest
when due with respect to its own debt securities, unless:
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such holder has previously given the Trustee notice that an
Event of Default with respect to that series is continuing;
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holders of at least 25% in principal amount of the outstanding
debt securities of that series have requested that the Trustee
pursue the remedy;
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such holders have offered the Trustee reasonable indemnity or
security against any cost, liability or expense;
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the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of
indemnity or security; and
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the holders of a majority in principal amount of the outstanding
debt securities of that series have not given the Trustee a
direction that is inconsistent with such request within such
60-day
period.
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The holders of a majority in principal amount of the outstanding
debt securities of a series have the right, subject to certain
restrictions, to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or of
exercising any right or power conferred on the Trustee with
respect to that series of debt securities. The Trustee, however,
may refuse to follow any direction that:
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conflicts with law;
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is inconsistent with any provision of the Indenture;
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the Trustee determines is unduly prejudicial to the rights of
any other holder; or
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would involve the Trustee in personal liability.
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Notice
of Event of Default
Within 30 days after the occurrence of an Event of Default,
we are required to give written notice to the Trustee and
indicate the status of the default and what action we are taking
or propose to take to cure the default. In addition, we and any
Subsidiary Guarantors are required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a
compliance certificate indicating that we and any Subsidiary
Guarantors have complied with all covenants contained in the
Indenture or whether any default or Event of Default has
occurred during the previous year.
If an Event of Default occurs and is continuing, the Trustee
must mail to each holder a notice of the Event of Default by the
later of 90 days after the Event of Default occurs or
30 days after the Trustee knows of the Event of Default.
Except in the case of a default in the payment of principal,
premium, if any, or interest with respect to any debt
securities, the Trustee may withhold such notice, but only if
and so long as the board of directors, the executive committee
or a committee of directors or responsible officers of the
Trustee in good faith determines that withholding such notice is
in the interests of the holders.
Amendments
and Waivers
We may amend the Indenture without the consent of any holder of
debt securities to:
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provide for the assumption by a successor of our obligations
under the Indenture;
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add covenants for the benefit of the holders or surrender any
right or power conferred upon us or any Subsidiary Guarantor;
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cure any ambiguity, omission, defect or inconsistency;
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convey, transfer, assign, mortgage or pledge any property to or
with the Trustee;
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comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act;
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add Subsidiary Guarantors with respect to the debt securities;
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secure the debt securities or any guarantee;
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make any change that does not adversely affect the rights under
the Indenture of any holder;
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add or appoint a successor or separate Trustee;
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change or eliminate any restriction on the payment of principal
of, or premium, if any, on any subordinated debt
securities; or
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establish the form or terms of any new series of debt securities.
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In addition, we may amend the Indenture if the holders of a
majority in principal amount of all debt securities of each
series that would be affected under the Indenture consent to it.
We may not, however, without the consent of each holder of
outstanding debt securities that would be affected, amend the
Indenture to:
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reduce the percentage in principal amount of debt securities of
any series whose holders must consent to an amendment;
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reduce the rate of or extend the time for payment of interest on
any debt securities;
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reduce the principal of or extend the stated maturity of any
debt securities;
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reduce any premium payable upon the redemption of any debt
securities or change the time at which any debt securities may
or shall be redeemed;
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make any debt securities payable in other than U.S. dollars;
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impair the right of any holder to receive payment of premium, if
any, principal or interest with respect to such holders
debt securities on or after the applicable due date;
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impair the right of any holder to institute suit for the
enforcement of any payment with respect to such holders
debt securities;
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release any security that has been granted in respect of the
debt securities, other than in accordance with the Indenture;
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make any change in the amendment provisions that require each
holders consent;
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make any change in the waiver provisions; or
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release a Subsidiary Guarantor other than as provided in the
Indenture or modify such Subsidiary Guarantors guarantee
in any manner adverse to the holders.
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The consent of the holders is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the
proposed amendment. After an amendment under the Indenture
requiring the consent of the holders of any series of debt
securities becomes effective, we are required to mail to all
holders a notice briefly describing the amendment with respect
to other holders. The failure to give, or any defect in, such
notice to any holder, however, will not impair or affect the
validity of the amendment with respect to other holders.
The holders of a majority in principal amount of the outstanding
debt securities of each affected series, on behalf of all such
holders, may waive:
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compliance by us or a Subsidiary Guarantor with certain
restrictive provisions of the Indenture; and
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any past default under the Indenture; except that such majority
of holders may not waive a default:
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in the payment of principal, premium, if any, or
interest; or
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in respect of a provision that under the Indenture cannot be
amended without the consent of all holders of the series of debt
securities that is affected.
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Defeasance
At any time, we may terminate, with respect to debt securities
of a particular series, all our obligations under such series of
debt securities and the Indenture, which we call a legal
defeasance. If we decide to make a legal defeasance,
however, we may not terminate certain of our obligations,
including those:
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relating to the defeasance trust;
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to register the transfer or exchange of the debt securities of
that series;
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to replace mutilated, destroyed, lost or stolen debt securities
of that series; or
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to maintain a registrar and paying agent in respect of the debt
securities of that series.
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At any time we may also affect a covenant
defeasance, which means we have elected to terminate our
obligations under or the operation of:
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covenants applicable to a series of debt securities and
described in the prospectus supplement applicable to such
series, other than as described in such prospectus supplement;
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the bankruptcy provisions with respect to the Subsidiary
Guarantors, if any; and
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the guarantee provision described under Events
of Default, Remedies and Notice Events of
Default above with respect to that series of debt
securities.
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If we exercise either our legal defeasance option or our
covenant defeasance option, any subsidiary guarantee will
terminate with respect to that series of debt securities.
We may exercise our legal defeasance option notwithstanding our
prior exercise of our covenant defeasance option. If we exercise
our legal defeasance option, payment of the affected series of
debt securities may not be accelerated because of an Event of
Default with respect to that series. If we exercise our covenant
defeasance option, payment of the affected series of debt
securities may not be accelerated because of an Event of Default
specified in the fourth, fifth (with respect only to a
Subsidiary Guarantor, if any) or sixth bullet points under
Events of Default, Remedies and
Notice Events of Default above or an
Event of Default that is added specifically for such series and
described in a prospectus supplement.
If we exercise either our legal defeasance option or our
covenant defeasance option, any subsidiary guarantee will
terminate with respect to that series of debt securities. In
order to exercise either defeasance option, we must:
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irrevocably deposit in trust with the Trustee money or certain
U.S. government obligations for the payment of principal,
premium, if any, and interest on the series of debt securities
to redemption or final maturity, as the case may be;
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comply with certain other conditions, including that no default
has occurred and is continuing after the deposit in
trust; and
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deliver to the Trustee an opinion of counsel to the effect that
holders of the series of debt securities will not recognize
income, gain or loss for federal income tax purposes as a result
of such defeasance and will be subject to federal income tax on
the same amounts and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not
occurred. In the case of legal defeasance only, such opinion of
counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law.
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No
Personal Liability of General Partner
Regency GP LP, our general partner, and its directors, officers,
employees and partners, as such, will not be liable for:
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any of our obligations or the obligations of any Subsidiary
Guarantors under the debt securities, the Indenture or the
guarantees; or
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any claim based on, in respect of, or by reason of, such
obligations or their creation.
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By accepting a debt security, each holder will be deemed to have
waived and released all such liability. This waiver and release
are part of the consideration for our issuance of the debt
securities. This waiver may not be effective, however, to waive
liabilities under the federal securities laws and it is the view
of the SEC that such a waiver is against public policy.
28
Subordination
Debt securities of a series may be subordinated to our
Senior Indebtedness, which we define generally to
include any obligation created or assumed by us (or, if the
series is guaranteed, the Subsidiary Guarantors) for the
repayment of borrowed money and any guarantee therefor, whether
outstanding or hereafter issued, unless, by the terms of the
instrument creating or evidencing such obligation, it is
provided that such obligation is subordinate or not superior in
right of payment to the debt securities (or, if the series is
guaranteed, the guarantee of the Subsidiary Guarantors), or to
other obligations that are pari passu with or subordinated to
the debt securities (or, if the series is guaranteed, the
guarantee of the Subsidiary Guarantors). Subordinated debt
securities will be subordinate in right of payment, to the
extent and in the manner set forth in the Indenture and the
prospectus supplement relating to such series, to the prior
payment of all of our indebtedness and that of any Subsidiary
Guarantor that is designated as Senior Indebtedness
with respect to the series.
The holders of our Senior Indebtedness or, if applicable, of a
Subsidiary Guarantor, will receive payment in full of the Senior
Indebtedness before holders of subordinated debt securities will
receive any payment of principal, premium, if any, or interest
with respect to the subordinated debt securities upon any
payment or distribution of our assets or, if applicable to any
series of outstanding debt securities, the Subsidiary
Guarantors assets, to creditors:
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upon a liquidation or dissolution of us or, if applicable to any
series of outstanding debt securities, the Subsidiary
Guarantors; or
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in a bankruptcy, receivership or similar proceeding relating to
us or, if applicable to any series of outstanding debt
securities, to the Subsidiary Guarantors.
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Until the Senior Indebtedness is paid in full, any distribution
to which holders of subordinated debt securities would otherwise
be entitled will be made to the holders of Senior Indebtedness,
except that the holders of subordinated debt securities may
receive units representing limited partner interests in us and
any debt securities that are subordinated to Senior Indebtedness
to at least the same extent as the subordinated debt securities.
If we do not pay any principal, premium, if any, or interest
with respect to Senior Indebtedness within any applicable grace
period (including at maturity), or any other default on Senior
Indebtedness occurs and the maturity of the Senior Indebtedness
is accelerated in accordance with its terms, we may not:
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make any payments of principal, premium, if any, or interest
with respect to subordinated debt securities;
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make any deposit for the purpose of defeasance of the
subordinated debt securities; or
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repurchase, redeem or otherwise retire any subordinated debt
securities, except that in the case of subordinated debt
securities that provide for a mandatory sinking fund, we may
deliver subordinated debt securities to the Trustee in
satisfaction of our sinking fund obligation,
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unless, and until,
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the default has been cured or waived and any declaration of
acceleration has been rescinded;
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the Senior Indebtedness has been paid in full in cash; or
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we and the Trustee receive written notice approving the payment
from the representatives of each issue of Designated
Senior Indebtedness.
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Generally, Designated Senior Indebtedness will
include:
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any specified issue of Senior Indebtedness of at least
$100 million; and
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any other Senior Indebtedness that we may designate in respect
of any series of subordinated debt securities.
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29
During the continuance of any default, other than a default
described in the immediately preceding paragraph, that may cause
the maturity of any Designated Senior Indebtedness to be
accelerated immediately without further notice, other than any
notice required to effect such acceleration, or the expiration
of any applicable grace periods, we may not pay the subordinated
debt securities for a period called the Payment Blockage
Period. A Payment Blockage Period will commence on the
receipt by us and the Trustee of written notice of the default,
called a Blockage Notice, from the representative of
any Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and will end 179 days
thereafter.
The Payment Blockage Period may be terminated before its
expiration:
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by written notice from the person or persons who gave the
Blockage Notice;
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by repayment in full in cash of the Designated Senior
Indebtedness with respect to which the Blockage Notice was
given; or
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if the default giving rise to the Payment Blockage Period is no
longer continuing.
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Unless the holders of the Designated Senior Indebtedness have
accelerated the maturity of the Designated Senior Indebtedness,
we may resume payments on the subordinated debt securities after
the expiration of the Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any
period of 360 consecutive days. The total number of days during
which any one or more Payment Blockage Periods are in effect,
however, may not exceed an aggregate of 179 days during any
period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the
subordinated debt securities are paid in full, holders of the
subordinated debt securities shall be subrogated to the rights
of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness.
As a result of the subordination provisions described above, in
the event of insolvency, the holders of Senior Indebtedness, as
well as certain of our general creditors, may recover more,
ratably, than the holders of the subordinated debt securities.
Book
Entry, Delivery and Form
We may issue debt securities of a series in the form of one or
more global certificates deposited with a depositary. We expect
that The Depository Trust Company, New York, New York, or
DTC, will act as depositary. If we issue debt
securities of a series in book-entry form, we will issue one or
more global certificates that will be deposited with or on
behalf of DTC and will not issue physical certificates to each
holder. A global security may not be transferred unless it is
exchanged in whole or in part for a certificated security,
except that DTC, its nominees and their successors may transfer
a global security as a whole to one another.
DTC will keep a computerized record of its participants, such as
brokers, whose clients have purchased the debt securities. The
participants will then keep records of their clients who
purchased the debt securities. Beneficial interests in global
securities will be shown on, and transfers of beneficial
interests in global securities will be made only through,
records maintained by DTC and its participants.
DTC advises us that it is:
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a limited-purpose trust company organized under the New York
Banking Law;
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a banking organization within the meaning of the New
York Banking Law;
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a member of the United States Federal Reserve System;
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a clearing corporation within the meaning of the New
York Uniform Commercial Code; and
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a clearing agency registered under the provisions of
Section 17A of the Securities Exchange Act of 1934.
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30
DTC is owned by a number of its participants and by The Nasdaq
Stock Market LLC, The American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. The rules that
apply to DTC and its participants are on file with the SEC.
DTC holds securities that its participants deposit with DTC. DTC
also records the settlement among participants of securities
transactions, such as transfers and pledges, in deposited
securities through computerized records for participants
accounts. This eliminates the need to exchange certificates.
Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations.
We will wire principal, premium, if any, and interest payments
due on the global securities to DTCs nominee. We, any
Subsidiary Guarantors, the Trustee and any paying agent will
treat DTCs nominee as the owner of the global securities
for all purposes. Accordingly, we, any Subsidiary Guarantors,
the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global
securities to owners of beneficial interests in the global
securities.
It is DTCs current practice, upon receipt of any payment
of principal, premium, if any, or interest, to credit
participants accounts on the payment date according to
their respective holdings of beneficial interests in the global
securities as shown on DTCs records. In addition, it is
DTCs current practice to assign any consenting or voting
rights to participants, whose accounts are credited with debt
securities on a record date, by using an omnibus proxy.
Payments by participants to owners of beneficial interests in
the global securities, as well as voting by participants, will
be governed by the customary practices between the participants
and the owners of beneficial interests, as is the case with debt
securities held for the account of customers registered in
street name. Payments to holders of beneficial
interests are the responsibility of the participants and not of
DTC, the Trustee, any Subsidiary Guarantors or us.
Beneficial interests in global securities will be exchangeable
for certificated securities with the same terms in authorized
denominations only if:
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DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under applicable law and, in either event, a successor
depositary is not appointed by us within 90 days; or
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an Event of Default occurs and DTC notifies the Trustee of its
decision to require that all of the debt securities of a series
be represented by certificated securities.
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The
Trustee
We may appoint a separate trustee for any series of debt
securities. We use the term Trustee to refer to the
trustee appointed with respect to any such series of debt
securities. We may maintain banking and other commercial
relationships with the Trustee and its affiliates in the
ordinary course of business, and the Trustee may own debt
securities.
Governing
Law
The Indenture and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York.
31
HOW WE
MAKE CASH DISTRIBUTIONS
Set forth below is a summary of the significant provisions of
our partnership agreement that relate to cash distributions.
General
Our partnership agreement requires that, within 45 days
after the end of each quarter, we distribute all of our
available cash to the holders of record of our common units on
the applicable record date. All cash distributed to unitholders
will be characterized as either operating surplus or
capital surplus. We treat distributions of available
cash from operating surplus differently than distributions of
available cash from capital surplus.
Operating
Surplus and Capital Surplus
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.
Definition
of Available Cash
Available cash is defined in our partnership agreement and
generally means, for each fiscal quarter, all cash on hand at
the end of such quarter:
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less the amount of cash reserves established by our general
partner:
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to provide for the proper conduct of our business (including
reserves for future capital expenditures and for our anticipated
credit needs);
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to comply with applicable law, any of our debt instruments or
other agreements; and
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to provide funds for distribution to our unitholders and to our
general partner for any one or more of the next four quarters;
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plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter for which the determination is
being made. Working capital borrowings are generally borrowings
that will be made under our credit facility and in all cases are
used solely for working capital purposes or to pay distributions
to partners.
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Definition
of Operating Surplus
Operating surplus is defined in our partnership agreement, and
for any period it generally means:
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our cash balance on the closing date of our initial public
offering in February 2006 offering; plus
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$20.0 million (as described below); plus
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all of our cash receipts after the closing of our initial public
offering, excluding cash from (1) borrowings that are not
working capital borrowings, (2) sales of equity and debt
securities and (3) sales or other dispositions of assets
outside the ordinary course of business; plus
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less
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operating expenses; less
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the amount of cash reserves established by our general partner
for future operating expenditures.
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32
If a working capital borrowing, which increases operating
surplus, is not repaid during the twelve-month period following
the borrowing, it will be deemed repaid at the end of such
period, thus decreasing operating surplus at such time. When
such working capital is in fact repaid, it will not be treated
as a reduction in operating surplus because operating surplus
will have been previously reduced by the deemed repayment.
As described above, operating surplus does not reflect actual
cash on hand at closing that is available for distribution to
our unitholders. For example, it includes a provision that will
enable us, if we choose, to distribute as operating surplus up
to $20.0 million of cash we receive in the future from
non-operating sources, such as asset sales, issuances of
securities, and long-term borrowings, that would otherwise be
distributed as capital surplus.
Definition
of Capital Surplus
Capital surplus is defined in our partnership agreement, and it
will generally be generated only by:
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borrowings other than working capital borrowings;
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sales of debt and equity securities; and
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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 non-current assets sold as
part of normal retirements or replacements of assets.
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Subordination
Period
Overview
During the subordination period, which we define below and is
defined in our partnership agreement, the common units have the
right to receive distributions of available cash from operating
surplus in an amount equal to the minimum quarterly distribution
of $0.35 per quarter, plus any arrearages in the payment of
the minimum quarterly distribution on the common units from
prior quarters, before any distributions of available cash from
operating surplus may be made on the subordinated units.
Distribution arrearages do not accrue on the subordinated units.
The purpose of the subordinated units is to increase the
likelihood that during the subordination period there will be
available cash from operating surplus to be distributed on the
common units.
Definition
of Subordination Period
The subordination period is defined in our partnership
agreement. Except as described below under
Early Termination of Subordination
Period, the subordination period will extend until the
first day of any quarter beginning after December 31, 2008
that each of the following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units and subordinated units equaled
or exceeded the minimum quarterly distribution for each of the
three consecutive, non-overlapping four-quarter periods
immediately preceding that date;
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the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common units and subordinated units during
those periods on a fully diluted basis and the related
distribution on the 2% general partner interest during those
periods; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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33
Early
Termination of Subordination Period
The subordination period will automatically terminate and all of
the subordinated units will convert into common units on an
one-for-one
basis if each of the following occurs:
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distributions of available cash from operating surplus on each
outstanding common unit and subordinated unit equaled or
exceeded $2.10 (150% of the annualized minimum quarterly
distribution) for any four-quarter period ending on or after
December 31, 2006;
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the adjusted operating surplus (as defined below)
generated during any four-quarter period immediately preceding
that date equaled or exceeded the sum of a distribution of $2.10
(150% of the annualized minimum quarterly distribution) on all
of the outstanding common units and subordinated units on a
fully diluted basis; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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Definition
of Adjusted Operating Surplus
Adjusted operating surplus is defined in our partnership
agreement, and for any period it generally means:
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operating surplus generated with respect to that period; less
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any net increase in working capital borrowings with respect to
that period; less
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any net reduction in cash reserves for operating expenditures
made with respect to that period not relating to an operating
expenditure made with respect to that period; plus
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any net decrease in working capital borrowings with respect to
that period; plus
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any net increase in cash reserves for operating expenditures
with respect to that period required by any debt instrument for
the repayment of principal, interest or premium.
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Adjusted operating surplus is intended to reflect the cash
generated from operations during a particular period and
therefore excludes net increases in working capital borrowings
and net drawdowns of reserves of cash generated in prior periods.
Effect
of Expiration of the Subordination Period
Upon expiration of the subordination period, each outstanding
subordinated unit will convert into one common unit and will
then participate pro rata with the other common units in
distributions of available cash. In addition, if the unitholders
remove our general partner other than for cause and units held
by our general partner and its affiliates are not voted in favor
of such removal:
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The subordination period will end and each subordinated unit
will immediately convert into one common unit;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner interest and, if any, its incentive distribution rights
into common units or to receive cash in exchange for those
interests.
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Distributions
of Available Cash from Operating Surplus During the
Subordination Period
We will make distributions of available cash from operating
surplus for any quarter during the subordination period in the
following manner:
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First, 98% to the common unitholders, pro rata, and 2% to our
general partner, until we distribute for each outstanding common
unit an amount equal to the minimum quarterly distribution for
that quarter;
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second, 98% to the common unitholders, pro rata, and 2% to our
general partner, until we distribute for each outstanding common
unit an amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units for any prior
quarters during the subordination period;
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third, 98% to the subordinated unitholders, pro rata, and 2% to
our general partner, until we distribute for each subordinated
unit an amount equal to the minimum quarterly distribution for
that quarter; and
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thereafter, in the manner described in
Incentive Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
Distributions
of Available Cash from Operating Surplus After the Subordination
Period
We will make distributions of available cash from operating
surplus for any quarter after the subordination period in the
following manner:
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First, 98% to all unitholders, pro rata, and 2% to our general
partner, until we distribute for each outstanding unit an amount
equal to the minimum quarterly distribution for that
quarter; and
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thereafter, in the manner described in
Incentive Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
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 currently holds the incentive
distribution rights, but may transfer these rights separately
from its general partner interest, subject to restrictions in
the partnership agreement.
If for any quarter:
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we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and
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we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution;
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then, we will distribute any additional available cash from
operating surplus for that quarter among the unitholders and our
general partner in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our general
partner, until each unitholder receives a total of
$0.4025 per unit for that quarter (the first target
distribution);
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second, 85% to all unitholders, pro rata, and 15% to our general
partner, until each unitholder receives a total of
$0.4375 per unit for that quarter (the second target
distribution);
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third, 75% to all unitholders, pro rata, and 25% to our general
partner, until each unitholder receives a total of
$0.5250 per unit for that quarter (the third target
distribution); and
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thereafter, 50% to all unitholders, pro rata, and 50% to our
general partner.
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In each case, the amount of the target distribution set forth
above is exclusive of any distributions to common unitholders to
eliminate any cumulative arrearages in payment of the minimum
quarterly distribution. The percentage interests set forth above
for our general partner assume that our general partner
maintains its 2% general partner interest, that our general
partner has not transferred the incentive distribution rights
and that we do not issue additional classes of equity securities.
35
Percentage
Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of
the additional available cash from operating surplus among 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 the unitholders and our general partner 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 our general partner for the minimum
quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution. The percentage interests set forth below for our
general partner include its 2% general partner interest and
assume our general partner has contributed additional capital to
maintain its 2% general partner interest, that our general
partner has not transferred the incentive distribution rights
and that we do not issue additional classes of equity securities.
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Marginal Percentage
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Total Quarterly
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Interest in Distributions
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Distribution Target
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General
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Amount
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Unitholders
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Partner
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Minimum Quarterly Distribution
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$0.3500
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98%
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2%
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First Target Distribution
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up to $0.4025
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98%
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2%
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Second Target Distribution
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above $0.4025 up to $0.4375
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85%
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15%
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Third Target Distribution
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above $0.4375 up to $0.5250
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75%
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25%
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Thereafter
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above $0.5250
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50%
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50%
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Distributions
from Capital Surplus
How
Distributions from Capital Surplus Will Be Made
We will make distributions of available cash from capital
surplus, if any, in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our general
partner, until we distribute for each common unit an amount of
available cash from capital surplus equal to the initial public
offering price;
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second, 98% to the common unitholders, pro rata, and 2% to our
general partner, until we distribute for each common unit an
amount of available cash from capital surplus equal to any
unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and
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thereafter, we will make all distributions of available cash
from capital surplus as if they were from operating surplus.
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The preceding discussion is based on the assumption that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
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 this
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 our general partner to receive
incentive distributions and for the subordinated units to
convert into common units. Any distribution of capital surplus
before the unrecovered initial unit price is reduced to zero
cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, we will
reduce the minimum quarterly distribution and the target
distribution levels to zero. We will
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then make all future distributions from operating surplus, with
50% being paid to the holders of units and 50% to our general
partner.
Adjustment
to the 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:
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the minimum quarterly distribution;
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the target distribution levels;
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the unrecovered initial unit price; and
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the number of common units into which a subordinated unit is
convertible.
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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 and each subordinated unit would be convertible into two
common units. 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 by a governmental taxing authority so
that we 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 for each quarter by multiplying
each distribution level by a fraction, the numerator of which is
available cash for that quarter and the denominator of which is
the sum of available cash for that quarter plus our general
partners estimate of our aggregate liability for the
quarter for such income taxes payable by reason of such
legislation or interpretation. To the extent that the actual tax
liability differs from the estimated tax liability for any
quarter, the difference will be accounted for in subsequent
quarters.
Distributions
of Cash Upon Liquidation
Overview
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
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 our 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.
The allocations of gain and loss upon liquidation are intended,
to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding
subordinated units upon our liquidation, to the extent required
to permit common unitholders to receive their unrecovered
initial unit price plus the minimum quarterly distribution for
the quarter during which liquidation occurs plus any unpaid
arrearages in payment of the minimum quarterly distribution on
the common units. There may not, however, be sufficient gain
upon our liquidation to enable the holders of common units to
recover fully all of these amounts, even though there may be
cash available to pay distributions to the holders of
subordinated units. Any further net gain recognized upon
liquidation will be allocated in a manner that takes into
account the incentive distribution rights of our general partner.
Manner
of Adjustments for Gain
The manner of the adjustment for gain is set forth in the
partnership agreement. If our liquidation occurs before the end
of the subordination period, we will allocate any gain to the
partners in the following manner:
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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;
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second, 98% to the common unitholders, pro rata, and 2% to our
general partner, until the capital account for each common unit
is equal to the sum of:
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(1) the unrecovered initial unit price for that common unit;
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs; and
(3) any unpaid arrearages in payment of the minimum
quarterly distribution;
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third, 98% to the subordinated unitholders, pro rata, and 2% to
our general partner until the capital account for each
subordinated unit is equal to the sum of:
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(1) the unrecovered initial unit price for that
subordinated unit; and
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs;
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fourth, 98% to all unitholders, pro rata, and 2% to our general
partner, until we allocate under this paragraph an amount per
unit equal to:
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(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 we distributed 98% to the
unitholders, pro rata, and 2% to our general partner, for each
quarter of our existence;
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fifth, 85% to all unitholders, pro rata, and 15% to our general
partner, until we allocate under this paragraph an amount per
unit equal to:
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(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 we distributed 85% to the
unitholders, pro rata, and 15% to our general partner for each
quarter of our existence;
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sixth, 75% to all unitholders, pro rata, and 25% to our general
partner, until we allocate under this paragraph an amount per
unit equal to:
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(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
(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 we distributed 75% to the
unitholders, pro rata, and 25% to our general partner for each
quarter of our existence; and
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thereafter, 50% to all unitholders, pro rata, and 50% to our
general partner.
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The percentage interests set forth above for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that clause (3) of the second
bullet point above and all of the third bullet point above will
no longer be applicable.
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Manner
of Adjustments for Losses
If our liquidation occurs before the end of the subordination
period, we will generally allocate any loss to our general
partner and the unitholders in the following manner:
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first, 98% to holders of subordinated units in proportion to the
positive balances in their capital accounts and 2% to our
general partner, until the capital accounts of the subordinated
unitholders have been reduced to zero;
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second, 98% to the holders of common units in proportion to the
positive balances in their capital accounts and 2% to our
general partner, until the capital accounts of the common
unitholders have been reduced to zero; and
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thereafter, 100% to our general partner.
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The percentage interests set forth above for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that all of the first bullet point
above will no longer be applicable.
Adjustments
to Capital Accounts
We will make adjustments to capital accounts upon the issuance
of additional units. In doing so, we will allocate any
unrealized and, for tax purposes, unrecognized gain or loss
resulting from the adjustments to the unitholders and our
general partner in the same manner as we allocate gain or loss
upon liquidation. If we make positive adjustments to the capital
accounts upon the issuance of additional units, we will allocate
any later negative adjustments to the capital accounts resulting
from the issuance of additional units or upon our liquidation in
a manner which results, to the extent possible, in our general
partners capital account balances equaling the amount that
they would have been if no earlier positive adjustments to the
capital accounts had been made.
39
MATERIAL
PROVISIONS OF
THE PARTNERSHIP AGREEMENT OF REGENCY ENERGY PARTNERS,
L.P.
The following is a summary of the material provisions of the
Amended and Restated Agreement of Limited Partnership of Regency
Energy Partners LP, which is referred to in this prospectus as
our partnership agreement. Our partnership agreement is
available as described under Where You Can Find More
Information. We will provide prospective investors with a
copy of this agreement upon request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this Prospectus:
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with regard to distributions of available cash, please read
How We Make Cash Distributions;
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with regard to the transfer of common units, please read
Description of the Common Units Transfer
of Common Units; and
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with regard to allocations of taxable income and taxable loss,
please read Material Tax Consequences.
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Organization
and Duration
Our partnership was organized in September 2005 and will have a
perpetual existence.
Purpose
Our purpose under the partnership agreement is to engage in any
business activities that are approved by our general partner.
Our general partner, however, may not cause us to engage in any
business activities that it determines would cause us to be
treated as a corporation for federal income tax purposes. Our
general partner is authorized in general to perform all acts it
determines to be necessary or appropriate to carry out our
purposes and to conduct our business.
Power of
Attorney
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney, among other things, to execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to grant consents and waivers on behalf of the
limited partners under, our partnership agreement.
Capital
Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
Voting
Rights
The following table includes a summary of the unitholder vote
required for the matters specified below. Matters requiring the
approval of a unit majority require:
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during the subordination period, the approval of a majority of
the common units, excluding those common units held by our
general partner and its affiliates, and a majority of the
subordinated units, voting as separate classes; and
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after the subordination period, the approval of a majority of
the common units.
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In voting their common and subordinated units, our general
partner and its affiliates will have no fiduciary duty or
obligation whatsoever to us or the limited partners, including
any duty to act in good faith or in the best interests of us or
the limited partners.
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Issuance of additional units
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No approval right.
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Amendment of the partnership
agreement
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Certain amendments may be made by
the general partner without the approval of the unitholders.
Other amendments generally require the approval of a unit
majority. Please read Amendment of the
Partnership Agreement.
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Merger of our partnership or the
sale of all or substantially all of our assets
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Unit majority in certain
circumstances. Please read Merger, Sale or Other
Disposition of Assets.
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Dissolution of our partnership
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Unit majority. Please read
Termination and Dissolution.
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Reconstitution of our partnership
upon dissolution
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Unit majority. Please read
Termination and Dissolution.
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Withdrawal of the general partner
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Under most circumstances, the
approval of a majority of the common units, excluding common
units held by our general partner and its affiliates, is
required for the withdrawal of our general partner prior to
December 31, 2015 in a manner that would cause a
dissolution of our partnership. Please read
Withdrawal or Removal of the General Partner.
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Removal of the general partner
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Not less than
662/3%
of the outstanding units, including units held by our general
partner and its affiliates. Please read
Withdrawal or Removal of the General
Partner.
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Transfer of the general partner
interest
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Our general partner may transfer
all, but not less than all, of its general partner interest in
us without a vote of our unitholders to an affiliate or another
person in connection with its merger or consolidation with or
into, or sale of all or substantially all of its assets, to such
person. The approval of a majority of the common units,
excluding common units held by the general partner and its
affiliates, is required in other circumstances for a transfer of
the general partner interest to a third party prior to
December 31, 2015. See Transfer of General
Partner Interest.
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Transfer of incentive distribution
rights
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Except for transfers to an
affiliate or another person as part of our general
partners merger or consolidation, sale of all or
substantially all of its assets or the sale of all of the
ownership interests in such holder, the approval of a majority
of the common units, excluding common units held by the general
partner and its affiliates, is required in most circumstances
for a transfer of the incentive distribution rights to a third
party prior to December 31, 2015. Please read
Transfer of Incentive Distribution Rights.
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Transfer of ownership interests in
our general partner
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No approval required at any time.
Please read Transfer of Ownership Interests in the
General Partner.
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Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that he otherwise acts in conformity with the provisions of
the 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:
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to remove or replace the general partner;
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to approve some amendments to the partnership agreement; or
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to take other action under the partnership agreement;
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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 the laws of Delaware, to the same extent as the general
partner. This liability would extend to persons who transact
business with us who reasonably believe that the limited partner
is a general partner. Neither the partnership agreement nor the
Delaware Act specifically provides for legal recourse against
the 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 know of 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 the partnership, would 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, a substituted limited partner of a
limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except that
such person is not obligated for liabilities unknown to him at
the time he became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiaries conduct business in five states. Maintenance of
our limited liability as a member of the operating company may
require compliance with legal requirements in the jurisdictions
in which the operating company conducts business, including
qualifying our subsidiaries to do business there.
Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly
established in many jurisdictions. If, by virtue of our
membership interest in the operating company or otherwise, it
were determined that we were conducting business in any state
without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise
of the right by the limited partners as a group to remove or
replace the general partner, to approve some amendments to the
partnership agreement, or to take other action under the
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the
circumstances. We will operate in a manner that the general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities for the
consideration and on the terms and conditions determined by our
general partner without the approval of the unitholders. We have
in the past funded, and may in the future fund, acquisitions
through the issuance of additional common units, subordinated
units or other partnership 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 common
units or other partnership 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 partnership
securities that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit the issuance by our subsidiaries of equity securities
that may effectively rank senior to the common units.
Upon issuance of additional partnership securities, our general
partner will be entitled, but not required, to make additional
capital contributions to the extent necessary to maintain its 2%
general partner interest in us. Our general partners 2%
interest in us will be reduced if we issue additional units in
the future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2% general
partner
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interest. Moreover, our general partner will have the right,
which it may from time to time assign in whole or in part to any
of its affiliates, to purchase common units, subordinated units
or other partnership 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 the percentage interest of the general partner and its
affiliates, including such interest represented by common units
and subordinated units, that existed immediately prior to each
issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership
securities.
Amendment
of the Partnership Agreement
General. Amendments to our partnership
agreement may be proposed only by or with the consent of our
general partner. Our general partner, however, will have no duty
or obligation to propose any amendment and may decline to do so
free of any fiduciary duty or obligation whatsoever to us or the
limited partners, including any duty to act in good faith or in
the best interests of us or the limited partners. In order to
adopt a proposed amendment, other than the amendments discussed
below, our general partner is required to seek written approval
of the holders of the number of units required to approve the
amendment or to call a meeting of the limited partners to
consider and vote upon the proposed amendment. Except as
described below, an amendment must be approved by a unit
majority.
Prohibited Amendments. No amendment may be
made that would:
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enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or
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enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner
or any of its affiliates without the consent of our general
partner, which consent may be given or withheld at its option.
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The provision of our partnership agreement preventing the
amendments having the effects described in any of the clauses
above can only be amended upon the approval of the holders of at
least 90% of the outstanding units voting together as a single
class (including units owned by our general partner and its
affiliates). As of the date of this prospectus, the HM Capital
Investors and their affiliates, including our general partner,
own approximately 60.4 percent of our outstanding limited
partner units.
No Unitholder Approval. Our general partner
may generally make amendments to our partnership agreement
without the approval of any limited partner or assignee to
reflect:
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a change in our name, the location of our principal place of our
business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or
appropriate to qualify or continue our qualification as a
limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or
to ensure that neither we nor the operating company nor any of
its subsidiaries will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes;
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or its directors, officers,
agents or trustees from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisors Act of 1940, or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, or ERISA, whether or not substantially similar to plan
asset regulations currently applied or proposed;
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an amendment that our general partner determines to be necessary
or appropriate for the authorization of additional partnership
securities or rights to acquire partnership securities;
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any amendment expressly permitted by our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement;
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a change in our fiscal year or taxable year and related changes;
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mergers with or conveyances to another limited liability entity
that is newly formed and has no assets, liabilities or
operations at the time of the merger or conveyance other than
those it receives by way of the merger or conveyance; or
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any other amendments substantially similar to any of the matters
described in the clauses above.
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In addition, our general partner may make amendments to our
partnership agreement without the approval of any limited
partner or transferee in connection with a merger or
consolidation approved in accordance with our partnership
agreement, or if our general partner determines that those
amendments:
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do not adversely affect the limited partners (or any particular
class of limited partners) in any material respect;
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are necessary or appropriate to satisfy any requirements,
conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of
limited partner interests or to comply with any rule,
regulation, guideline or requirement of any securities exchange
on which the limited partner interests are or will be listed for
trading;
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are necessary or appropriate for any action taken by our general
partner relating to splits or combinations of units under the
provisions of our partnership agreement; or
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are required to effect the intent expressed in this prospectus
or the intent of the provisions of our partnership agreement or
are otherwise contemplated by our partnership agreement.
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Opinion of Counsel and Unitholder
Approval. Our general partner will not be
required to obtain an opinion of counsel that an amendment will
not result in a loss of limited liability to the limited
partners or result in our being treated as an entity for federal
income tax purposes in connection with any of the amendments
described under No Unitholder Approval.
No other amendments to our partnership agreement will become
effective without the approval of holders of at least 90% of the
outstanding units voting as a single class unless we first
obtain an opinion of counsel to the effect that the amendment
will not affect the limited liability under applicable law of
any of our limited partners.
In addition to the above restrictions, any amendment that would
have a material adverse effect on the rights or preferences of
any type or class of outstanding units in relation to other
classes of units will require the approval of at least a
majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required to take
any action is required to be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced.
Merger,
Sale or Other Disposition of Assets
A merger or consolidation of us requires the prior consent of
our general partner. Our general partner, however, will have no
duty or obligation to consent to any merger or consolidation and
may decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interest of us or the limited
partners.
In addition, the partnership agreement generally prohibits our
general partner, without the prior approval of the holders of a
unit majority, from causing us, among other things, to sell,
exchange or otherwise dispose
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of all or substantially all of our assets in a single
transaction or a series of related transactions, including by
way of merger, consolidation or other combination, or approving
on our behalf the sale, exchange or other disposition of all or
substantially all of the assets of our subsidiaries. Our general
partner may, however, mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of our assets
without that approval. Our general partner may also sell all or
substantially all of our assets under a foreclosure or other
realization upon those encumbrances without that approval.
Finally, our general partner may consummate any merger without
the prior approval of our unitholders if we are the surviving
entity in the transaction, the transaction would not result in a
material amendment to the partnership agreement, and each of our
units will be an identical unit of our partnership following the
transaction.
If the conditions specified in the partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity if the sole purpose of that merger or
conveyance is to effect a mere change in our legal form into
another limited liability entity. The unitholders are not
entitled to dissenters rights of appraisal under the
partnership agreement or applicable Delaware law in the event of
a conversion, merger or consolidation, a sale of substantially
all of our assets or any other transaction or event.
Termination
and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our
partnership; or
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the withdrawal or removal of our general partner or any other
event that results in it ceasing to be our general partner other
than by reason of a transfer of its general partner interest in
accordance with our partnership agreement or withdrawal or
removal following approval and admission of a successor.
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Upon a dissolution under the last clause above, the holders of a
unit majority, may also elect, within specific time limitations,
to reconstitute us and continue our business on the same terms
and conditions described in our partnership agreement by forming
a new limited partnership on terms identical to those in our
partnership agreement and having as general partner an entity
approved by the holders of units representing a unit majority,
subject to our receipt of an opinion of counsel to the effect
that:
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the action would not result in the loss of limited liability of
any limited partner; and
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neither our partnership, the reconstituted limited partnership,
our operating company nor any of our other subsidiaries, would
be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax
purposes upon the exercise of that right to continue.
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Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the liquidator authorized to wind
up our affairs will, acting with all of the powers of our
general partner that are necessary or appropriate to liquidate
our assets and apply the proceeds of the liquidation as provided
in How We Make Cash
Distributions Distributions of Cash upon
Liquidation. The liquidator may defer liquidation or
distribution of our assets for a reasonable period of time or
distribute assets to partners in kind if it determines that a
sale would be impractical or would cause undue loss to our
partners.
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Withdrawal
or Removal of the General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
December 31, 2015 without obtaining the approval of the
holders of at least a majority of the outstanding common units,
excluding common units held by the general partner and its
affiliates, and furnishing an opinion of counsel regarding
limited liability and tax matters. On or after December 31,
2015, 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.
Notwithstanding the information above, our general partner may
withdraw without unitholder approval upon 90 days
notice to the limited partners if at least 50% of the
outstanding common units are held or controlled by one person
and its affiliates other than the general partner and its
affiliates. In addition, the partnership agreement permits our
general partner in some instances to sell or otherwise transfer
all of its general partner interest in us without the approval
of the unitholders. Please read Transfer of
General Partner Interest and Transfer of
Incentive Distribution Rights.
Upon withdrawal of our general partner under any circumstances,
other than as a result of a transfer by our general partner of
all or a part of its general partner interest in us, the holders
of a unit majority may select a successor to that 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 a specified period after that
withdrawal, the holders of a unit majority agree in writing to
continue our business and to appoint a successor general
partner. Please read Termination and
Dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than
662/3%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units and subordinated units, voting as separate classes. The
ownership of more than
331/3%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent our
general partners removal. The HM Capital Investors and
their affiliates, including our general partner, own
approximately 60.4 percent of our outstanding limited
partner units.
Our partnership agreement also provides that, if our general
partner is removed as our general partner under circumstances in
which cause does not exist and units held by the general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end, and all outstanding
subordinated units will immediately convert into common units on
a
one-for-one
basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished without
payment; and
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests
based on the fair market value of those interests at that time.
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In the event of removal of a general partner under circumstances
in which cause exists or withdrawal of a general partner where
that withdrawal violates our partnership agreement, a successor
general partner will have the option to purchase the general
partner interest and incentive distribution rights of the
departing general partner for a cash payment equal to the fair
market value of those interests. Under all other circumstances
where a general partner withdraws or is removed by the limited
partners, the departing general partner will have the option to
require the successor general partner to purchase the general
partner interest of the departing general partner and its
incentive distribution rights for fair market value. In each
case, this fair market value will be determined by agreement
between the departing general partner and the successor general
partner. If no agreement is reached, an independent investment
banking firm or other independent expert selected by the
departing general partner and the successor general partner will
determine the fair market
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value. Or, if the departing general partner and the successor
general partner cannot agree upon an expert, then an expert
chosen by agreement of the experts selected by each of them will
determine the fair market value.
If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest and
its incentive distribution rights will automatically convert
into common units equal to the fair market value of those
interests as determined by an investment banking firm or other
independent expert selected in the manner described in the
preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general
partner, including all employee-related liabilities, including
severance liabilities, incurred for the termination of any
employees employed by the departing general partner or its
affiliates for our benefit.
Transfer
of General Partner Interest
Except for a transfer by our general partner of all, but not
less than all, of its general partner interest in our
partnership to:
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an affiliate of our general partner (other than an
individual); or
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity;
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our general partner may not transfer all or any part of its
general partner interest in our partnership to another person
prior to December 31, 2015 without the approval of the
holders of at least a majority of the outstanding common units,
excluding common units held by our general partner and its
affiliates. As a condition of this transfer, the transferee must
assume, among other things, the rights and duties of our general
partner, agree to be bound by the provisions of our partnership
agreement, and furnish an opinion of counsel regarding limited
liability and tax matters.
Our general partner and its affiliates may at any time, transfer
subordinated units or units to one or more persons, without
unitholder approval, except that they may not transfer
subordinated units to us.
Transfer
of Ownership Interests in the General Partner
At any time, the HMTF Investors may sell or transfer all or part
of their membership interest in Regency GP LLC or their limited
partner interests in our general partner to an affiliate or
third party without the approval of our unitholders.
Transfer
of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all of the ownership interest of the
holder or the sale of all or substantially all of its assets to
that entity, in each case without the prior approval of the
unitholders. Prior to December 31, 2015, other transfers of
incentive distribution rights will require the affirmative vote
of holders of a majority of the outstanding common units,
excluding common units held by our general partner and its
affiliates. On or after December 31, 2015, the incentive
distribution rights will be freely transferable.
Change of
Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove our general partner or otherwise change our management.
If any person or group other than our general partner and its
affiliates acquires beneficial ownership of 20% or more of any
class of units, that person or group loses voting rights on all
of its units. This loss of voting rights does not apply to any
person or group that acquires the units from our general partner
or its affiliates and any transferees of that person or group
approved by our general partner or to any person or group who
acquires the units with the prior approval of our general
partner.
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Our partnership agreement also provides that if our general
partner is removed under circumstances in which cause does not
exist and units held by our general partner and its affiliates
are not voted in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a
one-for-one
basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished without
payment; and
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests.
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Limited
Call Right
If at any time our general partner and its affiliates own more
than 80% of the then issued and outstanding limited partner
interests of any class, our general partner will have the right,
which it may assign in whole or in part to any of its affiliates
or to us, to acquire all, but not less than all, of the
remaining partnership securities of the class held by
unaffiliated persons as of a record date to be selected by our
general partner, on at least 10 but not more than 60 days
notice. The purchase price shall be the greater of:
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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 on which our general
partner first mails notice of its election to purchase those
limited partner interests; and
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the current market price as of the date three days before the
date the notice is mailed.
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As a result of our general partners right to purchase
outstanding partnership securities, a holder of partnership
securities may have his partnership securities purchased at an
undesirable time or price. The tax consequences to a unitholder
of the exercise of this call right are the same as a sale by
that unitholder of his common units in the market. Please read
Material Tax Consequences Disposition of
Common Units.
Meetings;
Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, unitholders or
transferees 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. 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 number of units 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 will 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 will be the greater
percentage.
Each record holder of a unit has a vote according to his
percentage interest in us; although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities.
If, however, 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,
acquires, in the aggregate, beneficial ownership of 20% or more
of any class of units then outstanding, that 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
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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. Except as our partnership agreement
otherwise provides, subordinated units will vote together with
common units as a single class.
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.
Status as
Limited Partner
By the transfer of common units in accordance with our
partnership agreement, each transferee of common units shall be
admitted as a limited partner with respect to the common units
transferred when such transfer and admission is reflected in our
books and records. Except as described under
Limited Liability, the common units will
be fully paid, and unitholders will not be required to make
additional contributions.
Non-Citizen
Assignees; Redemption
If we are or become subject to federal, state or local laws or
regulations that, in the reasonable determination of our general
partner, create a substantial risk of cancellation or forfeiture
of any property in which we have an interest because of the
nationality, citizenship or other related status of any limited
partner, we may redeem the units held by the limited partner at
their current market price. In order to avoid any cancellation
or forfeiture, our general partner may require each limited
partner to furnish information about his nationality,
citizenship or related status. If a limited partner fails to
furnish information about his nationality, citizenship or other
related status within 30 days after a request for the
information or our general partner determines after receipt of
the information that the limited partner is not an eligible
citizen; the limited partner may be treated as a non-citizen
assignee. A non-citizen assignee, is entitled to an interest
equivalent to that of a limited partner for the right to share
in allocations and distributions from us, including liquidating
distributions. A non-citizen assignee does not have the right to
direct the voting of his units and may not receive distributions
in kind upon our liquidation.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
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our general partner;
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any departing general partner;
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any person who is or was an affiliate of a general partner or
any departing general partner;
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any person who is or was a director, officer, member, partner,
fiduciary or trustee of any entity set forth in the preceding
three bullet points;
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any person who is or was serving as director, officer, member,
partner, fiduciary or trustee of another person at the request
of our general partner or any departing general partner; and
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any person designated by our general partner.
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Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
not be personally liable for, or have any obligation to
contribute or loan funds or assets to us to enable us to
effectuate, indemnification. We may 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.
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Reimbursement
of Expenses
Our partnership agreement requires us to reimburse our general
partner for all direct and indirect expenses it incurs or
payments it makes on our behalf and all other expenses allocable
to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary,
bonus, incentive compensation and other amounts paid to persons
who perform services for us or on our behalf and expenses
allocated to our general partner by its affiliates and include
amounts paid pursuant to indemnification obligations of our
general partner or its general partner. The general partner is
entitled to determine in good faith the expenses that are
allocable to us.
Books and
Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained
for both tax and financial reporting purposes on an accrual
basis. For tax and financial 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 summary 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.
Right to
Inspect Our Books and Records
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:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns;
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information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each partner became a partner;
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copies of our partnership agreement, our certificate of limited
partnership, related amendments and powers of attorney under
which they have been executed;
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information regarding the status of our business and financial
condition; and
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any other information regarding our affairs as is just and
reasonable.
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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 that we are required by law or
by agreements with third parties to keep confidential.
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, subordinated 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. These
registration rights continue for two years following any
withdrawal or removal of our general partner. 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 considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States and,
unless otherwise noted in the following discussion, is the
opinion of Vinson & Elkins L.L.P., counsel to our
general partner and us, insofar as it relates to legal
conclusions with respect to matters of United States federal
income tax law. This section is based upon current provisions of
the Internal Revenue Code, existing and proposed regulations and
current administrative rulings and court decisions, all of which
are subject to change. Later changes in these authorities may
cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise
requires, references in this section to us or
we are references to Regency Energy Partners LP and
our operating company.
The following discussion 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 encourage each prospective unitholder to
consult, and depend on, his own tax advisor in analyzing the
federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of common units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions of Vinson & Elkins L.L.P. Unlike
a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
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, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our
unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
For the reasons described below, Vinson & Elkins
L.L.P. has not rendered an opinion with respect to the following
specific federal income tax issues: (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);
(2) whether our monthly convention for allocating taxable
income and losses is permitted by existing Treasury Regulations
(please read Disposition of
Common Units Allocations Between
Transferors and Transferees); and (3) whether our
method for depreciating Section 743 adjustments is
sustainable in certain cases (please read Tax
Consequences of Unit Ownership Section 754
Election).
Partnership
Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable unless
the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income 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,
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storage processing and marketing of crude oil, natural gas and
products thereof. Other types of qualifying income include
interest (other than from a financial business), dividends,
gains from the sale of real property and gains from the sale or
other disposition of capital assets held for the production of
income that otherwise constitutes qualifying income. We estimate
that less than 3% of our current gross income is not qualifying
income; however, this estimate could change from time to time.
Based upon and subject to this estimate, the factual
representations made by us and our general partner and a review
of the applicable legal authorities, Vinson & Elkins
L.L.P. is of the opinion that at least 90% of our current gross
income constitutes qualifying income.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of the
operating company for federal income tax purposes or whether our
operations generate qualifying income under
Section 7704 of the Internal Revenue Code. Instead, we will
rely on the opinion of Vinson & Elkins L.L.P. on such
matters. It is the opinion of Vinson & Elkins L.L.P.
that, based upon the Internal Revenue Code, its regulations,
published revenue rulings and court decisions and the
representations described below, we will be classified as a
partnership and our operating company will be disregarded as an
entity separate from us for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. 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 that Vinson &
Elkins L.L.P. has opined or will opine is qualifying
income within the meaning of Section 7704(d) of the
Internal Revenue Code.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts, we will be treated as if
we had transferred all of our assets, subject to liabilities, to
a newly formed corporation, on the first day of the year in
which we fail to meet the Qualifying Income Exception, in return
for stock in that corporation, and then distributed that stock
to the unitholders in liquidation of their interests in us. This
deemed contribution and liquidation should be tax-free to
unitholders and us so long as we, at that time, do not have
liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we were treated 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
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on Vinson & Elkins
L.L.P.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 Regency Energy
Partners LP will be treated as partners of Regency Energy
Partners LP for federal income tax purposes. Also:
(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited
partners, and
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(b) unitholders whose common units are held in street name
or by a nominee and who have the right to direct the nominee in
the exercise of all substantive rights attendant to the
ownership of their common units
will be treated as partners of Regency Energy Partners LP for
federal income tax purposes.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit
Ownership Treatment of Short Sales.
Income, 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 appear to be fully taxable as ordinary income.
These holders are urged to consult their own tax advisors with
respect to their tax consequences of holding common units in
Regency Energy Partners LP.
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
we make cash distributions to 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, except to the extent
the amount of any such cash distribution exceeds his tax basis
in his common units immediately before the distribution. Our
cash distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units below. Any reduction in a unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution of cash to that unitholder. To the extent our
distributions cause a unitholders at risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of
Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in the Internal Revenue Code, and collectively,
Section 751 Assets. To that extent, he will be
treated as having been distributed his proportionate share of
the Section 751 Assets and having exchanged those assets
with us in return for the non-pro rata portion of the actual
distribution made to him. This latter deemed exchange will
generally result in the unitholders realization of
ordinary income, which will equal the excess of (1) the
non-pro rata portion of that distribution over (2) the
unitholders tax basis for the share of Section 751
Assets deemed relinquished in the exchange.
Basis of Common Units. A unitholders
initial tax basis for his common units will be the amount he
paid for the common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse
liabilities. That basis will be decreased, but not below zero,
by distributions from us, by the unitholders share of our
losses, by any decreases in his share of our nonrecourse
liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to
be capitalized. A unitholder will have no share of our debt that
is recourse to our 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.
53
Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholders stock is
owned directly or indirectly by or for five or fewer individuals
or some tax-exempt organizations, to the amount for which the
unitholder is considered to be at risk with respect
to our activities, if that 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 (i) any portion of that basis representing
amounts otherwise protected against loss because of a guarantee,
stop loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations can deduct losses from passive activities,
which are generally trade or business activities in which the
taxpayer does not materially participate, only to the extent of
the taxpayers income from those passive activities. The
passive loss limitations are applied separately with respect to
each publicly traded partnership. Consequently, any passive
losses we generate will only be available to offset our passive
income generated in the future and will not be available to
offset income from other passive activities or investments,
including our investments or investments in other publicly
traded partnerships, or salary or active business income.
Passive losses that are not deductible because they exceed a
unitholders share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on
deductions, including the at risk rules and the basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
interest on indebtedness properly allocable to property held for
investment;
our interest expense attributed to portfolio income; and
the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that the net passive income earned by a publicly
traded partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
54
Entity-Level Collections. If we are
required or elect under applicable law to pay any federal,
state, local or foreign income tax on behalf of any unitholder
or our 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
unitholder 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 our 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 our partnership
agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax
on behalf of an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain
a credit or refund.
Allocation of Income, Gain, Loss and
Deduction. In general, if we have a net profit,
our items of income, gain, loss and deduction will be allocated
among our general partner and the unitholders in accordance with
their percentage interests in us. At any time that distributions
are made to the common units in excess of distributions to the
subordinated units, or incentive distributions are made to our
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 our general partner and the unitholders in accordance with
their percentage interests in us to the extent of their positive
capital accounts and, second, to our 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, referred to as
Section 704(c) allocations, to a unitholder
purchasing common units in this offering will be essentially the
same as if the tax basis of our assets were equal to their fair
market value at the time of this offering. In the event we issue
additional common units or engage in certain other transactions
in the future reverse Section 704(c)
allocations, similar to the Section 704(c)
allocations described above, will be made to all holders of
partnership interests, including purchasers of common units in
this offering, to account for the difference between the
book basis for purposes of maintaining capital
accounts and the fair market value of all property held by us at
the time of the future transaction. In addition, items of
recapture income will be allocated to the extent possible to the
unitholder who was allocated the deduction giving rise to the
treatment of that gain as recapture income in order to minimize
the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital
accounts nevertheless result, items of our income and gain will
be allocated in an amount and manner to eliminate the negative
balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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
the rights of all the partners to distributions of capital upon
liquidation.
Vinson & Elkins L.L.P. is of the opinion that, with
the exception of the issues described in
Section 754 Election and
Disposition of Common Units
Allocations Between Transferors and Transferees,
allocations under our partnership agreement will be given effect
for federal income tax purposes in determining a partners
share of an item of income, gain, loss or deduction.
55
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 treated for tax purposes as
a partner with respect to those units during the period of the
loan and may recognize gain or loss from the disposition. As a
result, during this period:
any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
any cash distributions received by the unitholder as to those
units would be fully taxable; and
all of these distributions would appear to be ordinary income.
Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units;
therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable brokerage
account agreements to prohibit their brokers from loaning their
units. The IRS has announced that it is actively studying issues
relating to the tax treatment of short sales of partnership
interests. Please also read Disposition of
Common Units Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. 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 is
currently 35.0% and the maximum United States federal income tax
rate for net capital gains of an individual is currently 15.0%
if the asset disposed of was held for more than twelve 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 purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we have
adopted as to property other than certain goodwill properties),
the Treasury Regulations under Section 743 of the Internal
Revenue Code require a portion of the Section 743(b)
adjustment that is attributable to recovery property under
Section 168 of the Internal Revenue Code to be depreciated
over the remaining cost recovery period for the
Section 704(c) built-in gain. If we elect a method other
than the remedial method with respect to a goodwill property,
Treasury
Regulation Section 1.197-2(g)(3)
generally requires that the Section 743(b) adjustment
attributable to an amortizable Section 197 intangible,
which includes goodwill property, should be treated as a
newly-acquired asset placed in service in the month when the
purchaser acquires the common unit. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. If we elect a method other than the remedial method, the
depreciation and amortization methods and useful lives
associated with the Section 743(b) adjustment, therefore,
may differ from the methods and useful lives generally used to
depreciate the inside basis in such properties. Under our
partnership agreement, our general partner is authorized to take
a position to preserve the uniformity of units even if that
position is not consistent with these and any other Treasury
Regulations. If we elect a method other than the remedial method
with respect to a goodwill property, the common basis of such
property is not amortizable. Please read
Uniformity of Units.
56
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no direct or
indirect controlling 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 methods
employed by other publicly traded partnerships 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, and Treasury
Regulation Section 1.197-2(g)(3).
To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our assets. This kind of aggregate approach may result in lower
annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Units. A unitholders
tax basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please read Disposition of Common
Units Recognition of Gain or Loss. The
IRS may challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we take to
preserve the uniformity of the units. If such a challenge were
sustained, the gain from the sale of units might be increased
without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial
built in loss immediately after the transfer, or if
we distribute property and have a substantial basis reduction.
Generally a built in loss or a basis reduction is
substantial if it exceeds $250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally nonamortizable or amortizable over a longer period of
time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make
will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
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
57
must include his share of our income, gain, loss and deduction
in income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees.
Initial Tax Basis, Depreciation and
Amortization. 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 this offering will be borne by
our partners holding interests in us prior to the offering.
Please read Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. Because our general partner may determine not
to adopt the remedial method of allocation with respect to any
difference between the tax basis and the fair market value of
goodwill immediately prior to this or any future offering, we
may not be entitled to any amortization deductions with respect
to any goodwill conveyed to us on formation or held by us at the
time of any future offering. Please read
Uniformity of Units. 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
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction and Disposition of Common
Units Recognition of Gain or Loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and commissions we incur will be treated
as syndication expenses.
Valuation and Tax Basis of Our Properties. The
federal income tax consequences of the ownership and disposition
of units will depend in part on our estimates of the relative
fair market values, and the initial tax bases, of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for
prior years and incur interest and penalties with respect to
those adjustments.
Disposition
of Common Units
Recognition of Gain or Loss. Gain or loss will
be recognized on a sale of units equal to the difference between
the amount realized and the unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold
58
at a price greater than the unitholders tax basis in that
common unit, even if the price received is less than his
original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than twelve months
will generally be taxed at a maximum rate of 15%. However, a
portion of this gain or loss will be separately computed and
taxed as ordinary income or loss under Section 751 of the
Internal Revenue Code to the extent attributable to assets
giving rise to depreciation recapture or other unrealized
receivables or to inventory items we own. The
term unrealized receivables includes potential
recapture items, including depreciation recapture. Ordinary
income attributable to unrealized receivables, inventory items
and depreciation recapture may exceed net taxable gain realized
upon the sale of a unit and may be recognized even if there is a
net taxable loss realized on the sale of a unit. Thus, a
unitholder may recognize both ordinary income and a capital loss
upon a sale of units. Net capital losses may offset capital
gains and no more than $3,000 of ordinary income, in the case of
individuals, and may only be used to offset capital gains in the
case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. 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
regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
a short sale;
an offsetting notional principal contract; or
a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and
Transferees. In general, our taxable income 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, which we refer to in this
prospectus as the Allocation Date. However, gain or
loss realized on a sale or other disposition of our assets other
than in the ordinary course of
59
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations. Accordingly, Vinson & Elkins
L.L.P. is unable to opine on the validity of this method of
allocating income and deductions between transferor and
transferee unitholders. If this method is not allowed under the
Treasury Regulations, or only applies to transfers of less than
all of the unitholders interest, our taxable income or
losses might be reallocated among the unitholders. We are
authorized to revise our method of allocation between transferor
and transferee unitholders, as well as unitholders whose
interests vary during a taxable year, to conform to a method
permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who
sells any of his units is generally required to notify us in
writing of that sale within 30 days after the sale (or, if
earlier, January 15 of the year following the sale). A purchaser
of units who purchases units from another unitholder is also
generally required to notify us in writing of that purchase
within 30 days after the purchase. Upon receiving such
notifications, we are required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a purchase
may, in some cases, lead to the imposition of penalties.
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 who will satisfy
such requirements.
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 twelve-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 twelve
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)
and Treasury
Regulation Section 1.197-2(g)(3).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax Consequences of
Unit Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that
portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury Regulation
Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets, and Treasury
Regulation Section 1.197-2(g)(3).
Please read Tax Consequences of Unit
Ownership Section 754 Election. To the
extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
60
Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation
and amortization position under which all purchasers acquiring
units in the same month would receive depreciation and
amortization deductions, whether attributable to a common basis
or Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our property. If this position is adopted, it may result in
lower annual depreciation and amortization deductions than would
otherwise be allowable to some unitholders and risk the loss of
depreciation and amortization deductions not taken in the year
that these deductions are otherwise allowable. This position
will not be adopted if we determine that the loss of
depreciation and amortization deductions will have a material
adverse effect on the unitholders. If we choose not to utilize
this aggregate method, we may use any other reasonable
depreciation and amortization method to preserve the uniformity
of the intrinsic tax characteristics of any units that would not
have a material adverse effect on the unitholders. The IRS may
challenge any method of depreciating the Section 743(b)
adjustment described in this paragraph. If this challenge were
sustained, the uniformity of units might be affected, and the
gain from the sale of units might be increased without the
benefit of additional deductions. Please read
Disposition of Common
Units Recognition of Gain or Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations and
other foreign persons raises issues unique to those investors
and, as described below, may have substantially adverse tax
consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence, they will be required to file federal tax returns
to report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective tax rate from cash distributions made quarterly to
foreign unitholders. Each foreign unitholder must obtain a
taxpayer identification number from the IRS and submit that
number to our transfer agent on a
Form W-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
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. Because a
foreign unitholder is considered to be engaged in business in
the United States by virtue of the ownership of units, under
this ruling a foreign unitholder who sells or otherwise disposes
of a unit generally will be subject to federal income tax on
gain realized on the sale or disposition of units. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
61
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 each unitholders
share of income, gain, loss and deduction. We cannot assure you
that those positions will yield a result that conforms to the
requirements of the Internal Revenue Code, Treasury Regulations
or administrative interpretations of the IRS. Neither we nor
Vinson & Elkins L.L.P. can assure prospective
unitholders that the IRS will not successfully contend in court
that those positions are impermissible. Any challenge by the IRS
could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Our partnership agreement names Regency GP LP 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
62
account. A penalty of $50 per failure, up to a maximum of
$100,000 per calendar year, is imposed by the Internal
Revenue Code for failure to report that information to us. The
nominee is required to supply the beneficial owner of the units
with the information furnished to us.
Accuracy-Related Penalties. An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for that portion and that the taxpayer acted in good faith
regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
(1) for which there is, or was, substantial
authority; or
(2) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return.
If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules apply
to tax shelters, which we do not believe includes us.
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%.
Reportable Transactions. If we were to engage
in a reportable transaction, we (and possibly you
and others) would be required to make a detailed disclosure of
the transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or
that it produces certain kinds of losses for partnerships,
individuals, S corporations, and trusts in excess of
$2 million in any single year, or $4 million in any
combination of tax years. Our participation in a reportable
transaction could increase the likelihood that our federal
income tax information return (and possibly your tax return)
would be audited by the IRS. Please read
Information Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related Penalties,
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
63
State,
Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We will
initially own property or conduct business in Arkansas,
Colorado, Kansas, Louisiana, Oklahoma, and Texas. Each of these
states, other than Texas, currently imposes a personal income
tax on individuals. Most of these states also impose an income
tax on corporations and other entities. We may also own property
or do business in other jurisdictions in the future. Although
you may not be required to file a return and pay taxes in some
jurisdictions because your income from that jurisdiction falls
below the filing and payment requirement, you will be required
to file income tax returns and to pay income taxes in many of
these jurisdictions in which we do business or own property and
may be subject to penalties for failure to comply with those
requirements. In some jurisdictions, tax losses may not produce
a tax benefit in the year incurred and may not be available to
offset income in subsequent taxable years. Some of the
jurisdictions may require us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a
unitholder who is not a resident of the jurisdiction.
Withholding, the amount of which may be greater or less than a
particular unitholders income tax liability to the
jurisdiction, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return.
Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax Consequences of Unit
Ownership Entity-Level Collections.
Based on current law and our estimate of our future operations,
our general partner anticipates that any amounts required to be
withheld will not be material.
It is the responsibility of each unitholder to investigate the
legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as United States federal tax
returns, that may be required of him. Vinson & Elkins
L.L.P. has not rendered an opinion on the state, local or
foreign tax consequences of an investment in us.
Tax
Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of
the acquisition, ownership and disposition of debt securities
will be set forth on the prospectus supplement relating to the
offering of debt securities.
64
PLAN OF
DISTRIBUTION
Under this prospectus, we intend to offer our securities to the
public:
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through one or more broker-dealers;
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through underwriters; or
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directly to investors.
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We will fix a price or prices of our securities at:
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market prices prevailing at the time of any sale under this
registration statement;
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prices related to market prices; or
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negotiated prices.
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We may change the price of the securities offered from time to
time.
We will pay or allow distributors or sellers
commissions that will not exceed those customary in the types of
transactions involved. Broker-dealers may act as agent or may
purchase securities as principal and thereafter resell the
securities from time to time:
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in or through one or more transactions (which may involve
crosses and block transactions) or distributions;
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on The Nasdaq Stock Market LLC;
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in the
over-the-counter
market; or
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in private transactions.
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Broker-dealers or underwriters may receive compensation in the
form of underwriting discounts or commissions and may receive
commissions from purchasers of the securities for whom they may
act as agents. If any broker-dealer purchases the securities as
principal, it may effect resales of the securities from time to
time to or through other broker-dealers, and other
broker-dealers may receive compensation in the form of
concessions or commissions from the purchasers of securities for
whom they may act as agents.
To the extent required, the names of the specific managing
underwriter or underwriters, if any, as well as other important
information, will be set forth in prospectus supplements. In
that event, the discounts and commissions we will allow or pay
to the underwriters, if any, and the discounts and commissions
the underwriters may allow or pay to dealers or agents, if any,
will be set forth in, or may be calculated from, the prospectus
supplements. Any underwriters, brokers, dealers and agents who
participate in any sale of the securities may also engage in
transactions with, or perform services for, us or our affiliates
in the ordinary course of their businesses. We may indemnify
underwriters, brokers, dealers and agents against specific
liabilities, including liabilities under the Securities Act.
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a specific plan of
distribution.
In connection with offerings under this shelf registration and
in compliance with applicable law, underwriters, brokers or
dealers may engage in transactions that stabilize or maintain
the market price of the securities at levels above those that
might otherwise prevail in the open market. Specifically,
underwriters, brokers or dealers may over-allot in connection
with offerings, creating a short position in the securities for
their own accounts. For the purpose of covering a syndicate
short position or stabilizing the price of the securities, the
underwriters, brokers or dealers may place bids for the
securities or effect purchases of the securities in the open
market. Finally, the underwriters may impose a penalty whereby
selling concessions allowed to syndicate members or other
brokers or dealers for distribution the securities in offerings
may be reclaimed by the syndicate if the syndicate repurchases
previously distributed securities in transactions to cover short
positions, in stabilization transactions or otherwise. These
activities may stabilize, maintain or otherwise affect the
market price of the securities, which may be higher than the
price that might otherwise prevail in the open market, and, if
commenced, may be discontinued at any time.
65
LEGAL
MATTERS
Vinson & Elkins L.L.P., Houston, Texas, and Kean
Miller Hawthorne DArmond McCowan & Jarman, LLP
Baton Rouge, Louisiana will pass upon the validity of the
securities offered in this registration statement.
EXPERTS
The (1) consolidated financial statements of Regency Energy
Partners LP and subsidiaries and (2) the consolidated
balance sheet of Regency GP LP incorporated in this prospectus
by reference from Regency Energy Partners LPs 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 consolidated financial statements of Pueblo Midstream Gas
Corporation and subsidiary as of and for the year ended December
31, 2006 incorporated in this prospectus by reference from the
Regency Energy Partners LPs Current Report on Form 8-K
dated May 10, 2007 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
This prospectus, including any documents incorporated herein by
reference, constitutes a part of a registration statement on
Form S-3
that we filed with the SEC under the Securities Act. This
prospectus does not contain all the information set forth in the
registration statement. You should refer to the registration
statement and its related exhibits and schedules, and the
documents incorporated herein by reference, for further
information about our company and the securities offered in this
prospectus. Statements contained in this prospectus concerning
the provisions of any document are not necessarily complete and,
in each instance, reference is made to the copy of that document
filed as an exhibit to the registration statement or otherwise
filed with the SEC, and each such statement is qualified by this
reference. The registration statement and its exhibits and
schedules, and the documents incorporated herein by reference,
are on file at the offices of the SEC and may be inspected
without charge.
We file annual, quarterly, and current reports, proxy statements
and other information with the SEC. You can read and copy any
materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C.
20549. You can obtain information about the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains information that
we file electronically with the SEC, which you can access over
the Internet at http://www.sec.gov.
Our home page is located at http://www.regencyenergy.com. Our
annual reports on
Form 10-K,
our quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and other filings with the SEC are available free of charge
through our web site as soon as reasonably practicable after
those reports or filings are electronically filed or furnished
to the SEC. Information on our web site or any other web site is
not incorporated by reference in this prospectus and does not
constitute a part of this prospectus.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference in this prospectus information
we file with the SEC, which means that we are disclosing
important information to you by referring you to those
documents. The information that we incorporate by reference is
an important part of this prospectus, and later information that
we file with the SEC automatically will update and supersede
this information. We incorporate by reference the documents
listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the
66
Exchange Act, excluding any information in those documents that
is deemed by the rules of the SEC to be furnished not filed,
until we close this offering:
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our Annual Report on
Form 10-K
for the year ended December 31, 2006; and
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Our Current Reports on
Form 8-K
filed for January 26, 2007, February 16, 2007,
March 6, 2007, March 30, 2007, April 3, 2007,
April 27, 2007 and May 11, 2007.
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the description of our common units contained in our
registration statement on
Form 8-A
filed on January 24, 2006, and including any other
amendments or reports filed for the purpose of updating such
description.
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You may request a copy of these filings, which we will provide
to you at no cost, by writing or telephoning us at the following
address and telephone number:
Regency GP
LLC
1700 Pacific, Suite 2900
Dallas, Texas 75201
(214) 750-1771
Attention: Investor Relations
67
The
information in this prospectus is not complete and may be
changed. This prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. We may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective.
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SUBJECT
TO COMPLETION, DATED MAY 14, 2007
Preliminary
Prospectus
Regency Energy Partners
LP
11,881,353 Common
Units
This prospectus relates to an aggregate of 11,881,353 common
units representing limited partner interests in Regency Energy
Partners LP. Of those,
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3,456,255 common units were issued to funds administered by HM
Capital Partners LLC, or HM Capital, at the time of our initial
public offering;
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4,692,417 common units were issued to funds administered by HM
Capital on conversion of Class B Common Units issued in
connection with our acquisition of TexStar Field Services, L.P.
and its general partner, TexStar GP, LLC (together, TexStar);
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123,921 common units were issued to other owners of TexStar on
conversion of Class B Common Units issued in that
acquisition;
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2,857,163 common units were issued to certain institutional
investors on conversion of Class C Common Units issued to
those institutions in a direct private placement and
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751,597 common units were issued to the stockholders of Pueblo
Midstream Gas Corporation (Pueblo) in connection
with our acquisition of Pueblo.
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Any or all these common units may be offered and sold by the
selling unitholders named in this prospectus or in any
supplement to this prospectus from time to time in accordance
with the provisions set forth under Plan of
Distribution.
The selling unitholders may sell the common units offered by
this prospectus from time to time on any exchange on which the
common units are listed on terms to be negotiated with buyers.
They may also sell the common units in private sales or through
dealers or agents. The selling unitholders may sell the common
units at prevailing market prices or at prices negotiated with
buyers. The selling unitholders will be responsible for any
commissions due to brokers, dealers or agents. We will be
responsible for all other offering expenses. We will not receive
any of the proceeds from the sale by the selling unitholders of
the common units offered by this prospectus. For a more detailed
discussion of the selling unitholders, please read Selling
Unitholders.
You should carefully read this prospectus and any supplement
before you invest. You also should read the documents to which
we have referred you under Where You Can Find More
Information for information about us and our financial
statements. This prospectus may not be used to consummate sales
of securities unless accompanied by a prospectus supplement.
Our common units are listed on The Nasdaq Stock Market LLC under
the symbol RGNC.
Investing in our securities involves risks. Limited
partnerships are inherently different from corporations. You
should carefully consider the risk factors beginning on
page 3 of this prospectus and in the applicable prospectus
supplement before you make an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2007.
In making your investment decision, you should rely only on
the information contained or incorporated by reference in this
prospectus. We have not authorized anyone to provide you with
any other information. If anyone provides you with different or
inconsistent information, you should not rely on it.
You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front cover of this prospectus. You should not assume that the
information contained in the documents incorporated by reference
in this prospectus is accurate as of any date other than the
respective dates of those documents. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
Table of
Contents
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i
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or SEC, using
a shelf registration process. Under this shelf
process the selling unitholders named in this prospectus or in
any supplement to this prospectus may sell the common units
described in this prospectus in one or more offerings. This
prospectus provides you with a general description of the common
units the selling unitholders may offer. Each time it sells
common units, the selling unitholders will provide a prospectus
supplement that will contain specific information about the
terms of that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. You
should read both the prospectus and the prospectus supplement
relating to the common units offered to you together with the
additional information described under the heading Where
You Can Find More Information.
As used in this prospectus, Regency Energy Partners,
we, our, us or like terms
mean Regency Energy Partners LP, or the Partnership, and its
subsidiaries. References to our general partner or
the General Partner refer to Regency GP LP, the
general partner of the Partnership, except where otherwise
indicated, and to the Managing General Partner refer
to Regency GP LLC, the general partner of the General Partner,
which effectively manages the business and affairs of the
Partnership. References to HM Capital refer to HM
Capital Partners LLC. References to HM Capital
Investors refer to Regency Acquisition LP, HMTF Regency
L.P., HM Capital and funds managed by HM Capital, including the
Hicks, Muse, Tate & Furst Equity Fund V, L.P.,
and certain co-investors, including some of the directors and
officers of the Managing General Partner. Regency Acquisition LP
is wholly owned by HMTF Regency L.P., which, in turn, is wholly
owned by HM Capital, funds managed by HM Capital and certain
co-investors.
REGENCY
ENERGY PARTNERS LP
We are a growth-oriented publicly-traded Delaware limited
partnership engaged in the gathering, processing, marketing and
transportation of natural gas. We provide these services through
systems located in north Louisiana, Texas and the mid-continent
region of the United States, which includes Kansas, Oklahoma,
Colorado and the Texas Panhandle. We were formed in September
2005 by HM Capital to capitalize on opportunities in the
midstream sector of the natural gas industry.
We divide our operations into two business segments:
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Gathering and Processing: in which we provide
wellhead-to-market
services to producers of natural gas, which include transporting
raw natural gas from the wellhead through gathering systems,
processing raw natural gas to separate natural gas liquids, or
NGLs, from the raw natural gas and selling or delivering the
pipeline-quality natural gas and NGLs to various markets and
pipeline systems; and
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Transportation: in which we deliver natural
gas from northwest Louisiana to more favorable markets in
northeast Louisiana through our
320-mile
Regency Intrastate Pipeline system, which has been significantly
expanded and extended over the last 18 months.
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All of our assets are located in well-established areas of
natural gas production that are characterized by long-lived,
predictable reserves. These areas are generally experiencing
increased levels of natural gas exploration, development and
production activities as a result of strong demand for natural
gas, attractive recent discoveries, infill drilling
opportunities and the implementation of new exploration and
production techniques.
Our principal executive offices are located in 1700 Pacific,
Suite 2900, Dallas, Texas 75201 and our phone number is
(214) 750-1771.
1
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus and the documents
we incorporate by reference herein are forward-looking
statements intended to qualify for the safe harbors from
liability established by the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended (the Securities Act) and
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). These forward-looking
statements are identified as any statement that does not related
strictly to historical or current facts. Statements using words
such as anticipate, believe,
intend, project, plan,
expect, continue, estimate,
goal, forecast, may,
will, or similar expressions help identify
forward-looking statements. Although we and our Managing General
Partner believe such forward-looking statements are based on
reasonable assumptions and current expectations and projections
about future events, neither we nor our Managing General Partner
can give assurances that such expectations will prove to be
correct. Forward-looking statements are subject to a variety of
risks, uncertainties and assumptions.
These risks and uncertainties include, but are not limited to:
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changes in laws and regulations impacting the gathering and
processing industry;
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the level of creditworthiness of our counterparties;
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our ability to access the debt and equity markets;
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our use of derivative financial instruments to hedge commodity
and interest rate risks;
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the amount of collateral required to be posted from time to time
in our transactions;
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changes in commodity prices, interest rates, demand for our
services;
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weather and other natural phenomena;
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industry changes including the impact of consolidations and
changes in competition;
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our ability to obtain required approvals for construction or
modernization of our facilities and the timing of production
from such facilities; and
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the effect of accounting pronouncements issued periodically by
accounting standard setting boards.
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If one or more of these risks or uncertainties materialize or if
underlying assumptions prove incorrect, our actual results may
vary materially from those anticipated, estimated, projected or
expected. When considering forward-looking statements, please
read the section titled Risk factors included in
this confidential offering memorandum.
Except as required by applicable securities laws, we do not
intend to update these forward-looking statements and
information.
2
RISK
FACTORS
Risks
Related to Our Business
We may
be unable to successfully integrate the operations of TexStar or
future acquisitions with our operations and we may not realize
all the anticipated benefits of the acquisition of TexStar or
any future acquisition.
Integration of TexStar with our business and operations will be
a complex, time consuming and costly process. Failure to
integrate TexStar successfully with our business and operations
in a timely manner may have a material adverse effect on our
business, financial condition and results of operations. We
cannot assure you that we will achieve the desired profitability
from TexStar or any other acquisitions we may complete in the
future. In addition, failure to assimilate future acquisitions
successfully could adversely affect our financial condition and
results of operations.
Our acquisitions involve numerous risks, including:
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operating a significantly larger combined organization and
adding operations;
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difficulties in the assimilation of the assets and operations of
the acquired businesses, especially if the assets acquired are
in a new business segment or geographic area;
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the risk that natural gas reserves expected to support the
acquired assets may not be of the anticipated magnitude or may
not be developed as anticipated;
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the loss of significant producers or markets or key employees
from the acquired businesses;
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the diversion of managements attention from other business
concerns;
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the failure to realize expected profitability or growth;
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the failure to realize expected synergies and cost savings;
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coordinating geographically disparate organizations, systems and
facilities; and
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coordinating or consolidating corporate and administrative
functions.
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Further, unexpected costs and challenges may arise whenever
businesses with different operations or management are combined,
and we may experience unanticipated delays in realizing the
benefits of an acquisition. If we consummate any future
acquisition, our capitalization and results of operation may
change significantly, and you may not have the opportunity to
evaluate the economic, financial and other relevant information
that we will consider in evaluating future acquisitions.
While
substantial amounts of the transportation capacity of the
Regency Intrastate Pipeline System have been contracted, if we
are unable to utilize the remaining transportation capacity, our
business and our operating results could be adversely
affected.
As of March 1, 2007, we had definitive agreements for
562,900 MMBtu/d of firm transportation on the Regency
Intrastate Pipeline System, of which 500,679 MMBtu/d was
utilized in February 2007. During the month of February 2007, we
also provided 195,395 MMBtu/d of interruptible
transportation. Additionally, we are currently engaged in
discussions with other parties interested in utilizing the
systems remaining firm transportation. If we are unable to
commit the remaining uncommitted capacity on the system to firm
gas transportation contracts and the parties to existing
interruptible transportation contracts fail to utilize the
capacity, our business and operating results could be adversely
affected.
3
Because
of the natural decline in production from existing wells, our
success depends on our ability to obtain new supplies of natural
gas, which involves factors beyond our control. Any decrease in
supplies of natural gas in our areas of operation could
adversely affect our business and operating
results.
Our gathering and transportation pipeline systems are dependent
on the level of production from natural gas wells that supply
our systems and from which production will naturally decline
over time. As a result, our cash flows associated with these
wells will also decline over time. In order to maintain or
increase through-put volume levels on our gathering and
transportation pipeline systems and the asset utilization rates
at our natural gas processing plants, we must continually obtain
new supplies. The primary factors affecting our ability to
obtain new supplies of natural gas and attract new customers to
our assets are: the level of successful drilling activity near
these systems and our ability to compete with other gathering
and processing companies for volumes from successful new wells.
The level of natural gas drilling activity is dependent on
economic and business factors beyond our control. The primary
factor that impacts drilling decisions is natural gas prices.
Natural gas prices reached historic highs in 2005 and early 2006
but have declined substantially in the second half of 2006. The
averages of the NYMEX daily settlement prices per MMBtu of
natural gas for the year ended December 31, 2005 and 2006
were $9.02 per MMBtu and $6.98 per MMBtu,
respectively. A sustained decline in natural gas prices could
result in a decrease in exploration and development activities
in the fields served by our gathering and processing facilities
and pipeline transportation systems, which would lead to reduced
utilization of these assets. Other factors that impact
production decisions include producers capital budget
limitations, the ability of producers to obtain necessary
drilling and other governmental permits and regulatory changes.
Because of these factors, even if additional natural gas
reserves were discovered in areas served by our assets,
producers may choose not to develop those reserves. If we were
not able to obtain new supplies of natural gas to replace the
natural decline in volumes from existing wells due to reductions
in drilling activity or competition, through-put volumes on our
pipelines and the utilization rates of our processing facilities
would decline, which could have a material adverse effect on our
business, results of operations and financial condition.
We
depend on certain key producers and other customers for a
significant portion of our supply of natural gas. The loss of,
or reduction in volumes from, any of these key producers or
customers could adversely affect our business and operating
results.
We rely on a limited number of producers and other customers for
a significant portion of our natural gas supplies. Three
customers represented 44 percent of our natural gas supply
in our transportation segment for the year ended
December 31, 2006. These contracts have terms that are
either
month-to-month
or
year-to-year.
As these contracts expire, we will have to negotiate extensions
or renewals or replace the contracts with those of other
suppliers. For example, a significant contract with ExxonMobil
expired in August 2006 and was not renewed. We may be unable to
obtain new or renewed contracts on favorable terms, if at all.
The loss of all or even a portion of the volumes of natural gas
supplied by these producers and other customers, as a result of
competition or otherwise, could have a material adverse effect
on our business, results of operations and financial condition.
In
accordance with industry practice, we do not obtain independent
evaluations of natural gas reserves dedicated to our gathering
systems. Accordingly, volumes of natural gas gathered on our
gathering systems in the future could be less than we
anticipate, which could adversely affect our business and
operating results.
In accordance with industry practice, we do not obtain
independent evaluations of natural gas reserves connected to our
gathering systems due to the unwillingness of producers to
provide reserve information as well as the cost of such
evaluations. Accordingly, we do not have estimates of total
reserves dedicated to our systems or the anticipated lives of
such reserves. If the total reserves or estimated lives of the
reserves connected to our gathering systems is less than we
anticipate and we are unable to secure additional sources of
natural gas, then the volumes of natural gas gathered on our
gathering systems in the future could be less than we
anticipate. A decline in the volumes of natural gas gathered on
our gathering systems could have an adverse effect on our
business, results of operations and financial condition.
4
Natural
gas, NGLs and other commodity prices are volatile, and a
reduction in these prices could adversely affect our cash flow
and operating results.
We are subject to risks due to frequent and often substantial
fluctuations in commodity prices. NGL prices generally fluctuate
on a basis that correlates to fluctuations in crude oil prices.
In the past, the prices of natural gas and crude oil have been
extremely volatile, and we expect this volatility to continue.
For example, natural gas prices reached historic highs in 2005
and early 2006, but declined substantially in the second half of
2006. The NYMEX daily settlement price for natural gas for the
prompt month contract in 2005 ranged from a high of
$15.38 per MMBtu to a low of $5.79 per MMBtu and for
the year ended December 31, 2006 ranged from a high of
$10.63 per MMBtu to a low of $4.20 per MMBtu. The
NYMEX daily settlement price for crude oil for the prompt month
contract in 2005 ranged from a high of $69.81 per barrel to
a low of $42.12 per barrel and for the year ended
December 31, 2006 ranged from a high of $77.03 per
barrel to a low of $55.81 per barrel. The markets and
prices for natural gas and NGLs depend upon factors beyond our
control. These factors include demand for oil, natural gas and
NGLs, which fluctuate with changes in market and economic
conditions and other factors, including:
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the impact of weather on the demand for oil and natural gas;
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the level of domestic oil and natural gas production;
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the availability of imported oil and natural gas;
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actions taken by foreign oil and gas producing nations;
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the availability of local, intrastate and interstate
transportation systems;
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the availability and marketing of competitive fuels;
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the impact of energy conservation efforts; and
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the extent of governmental regulation and taxation.
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Our natural gas gathering and processing businesses operate
under two types of contractual arrangements that expose our cash
flows to increases and decreases in the price of natural gas and
NGLs:
percentage-of-proceeds
and keep-whole arrangements. Under
percentage-of-proceeds
arrangements, we generally purchase natural gas from producers
and retain an agreed percentage of the proceeds (in cash or
in-kind) from the sale at market prices of pipeline-quality gas
and NGLs or NGL products resulting from our processing
activities. Under keep-whole arrangements, we receive the NGLs
removed from the natural gas during our processing operations as
the fee for providing our services in exchange for replacing the
thermal content removed as NGLs with a like thermal content in
pipeline-quality gas or its cash equivalent. Under these types
of arrangements our revenues and our cash flows increase or
decrease as the prices of natural gas and NGLs fluctuate. The
relationship between natural gas prices and NGL prices may also
affect our profitability. When natural gas prices are low
relative to NGL prices, it is more profitable for us to process
natural gas under keep-whole arrangements. When natural gas
prices are high relative to NGL prices, it is less profitable
for us and our customers to process natural gas both because of
the higher value of natural gas and of the increased cost
(principally that of natural gas as a feedstock and a fuel) of
separating the mixed NGLs from the natural gas. As a result, we
may experience periods in which higher natural gas prices
relative to NGL prices reduce our processing margins or reduce
the volume of natural gas processed at some of our plants. For a
detailed discussion of these arrangements, please read
Item 1 Business Our
Contracts of our Annual Report on
Form 10-K
incorporated by reference herein.
In our
gathering and processing operations, we purchase raw natural gas
containing significant quantities of NGLs, process the raw
natural gas and sell the processed gas and NGLs. If we are
unsuccessful in balancing the purchase of raw natural gas with
its component NGLs and our sales of pipeline quality gas and
NGLs, our exposure to commodity price risks will
increase.
We purchase from producers and other customers a substantial
amount of the natural gas that flows through our natural gas
gathering and processing systems and our transportation pipeline
for resale to third
5
parties, including natural gas marketers and utilities. We may
not be successful in balancing our purchases and sales. In
addition, a producer could fail to deliver promised volumes or
could deliver volumes in excess of contracted volumes, a
purchaser could purchase less than contracted volumes, or the
natural gas price differential between the regions in which we
operate could vary unexpectedly. Any of these actions could
cause our purchases and sales not to be balanced. If our
purchases and sales are not balanced, we will face increased
exposure to commodity price risks and could have increased
volatility in our operating results.
Our
results of operations and cash flow may be adversely affected by
risks associated with our hedging activities.
In performing our functions in the Gathering and Processing
segment, we are a seller of NGLs and are exposed to commodity
price risk associated with downward movements in NGL prices. As
a result of the volatility of NGL and other commodity, we have
executed swap contracts settled against ethane, propane, butane
and natural gasoline market prices, supplemented with crude oil
put options. (Historically, changes in the prices of heavy NGLs,
such as natural gasoline, have generally correlated with changes
in the price of crude oil.) As of December 31, 2006, we
have hedged approximately 66 percent of our expected
exposure to NGL prices based upon current production levels in
2007, approximately 43 percent in 2008 and approximately
15 percent in 2009. We continually monitor our hedging and
contract portfolio and expect to continue to adjust our hedge
position as conditions warrant. Also, we may seek to limit our
exposure to changes in interest rates by using financial
derivative instruments and other hedging mechanisms from time to
time. For more information about our risk management activities,
please read Item 7A Quantitative and
Qualitative Disclosures about Market Risk of our Annual Report
on
Form 10-K
incorporated by reference herein.
Even though our management monitors our hedging activities,
these activities can result in substantial losses. Such losses
could occur under various circumstances, including any
circumstance in which a counterparty does not perform its
obligations under the applicable hedging arrangement, the
hedging arrangement is imperfect, or our hedging policies and
procedures are not followed or do not work as planned.
To the
extent that we intend to grow internally through construction of
new, or modification of existing, facilities, we may not be able
to manage that growth effectively, which could decrease our cash
flow and adversely affect our results of
operation.
A principal focus of our strategy is to continue to grow by
expanding our business both internally and through acquisitions.
Our ability to grow internally will depend on a number of
factors, some of which will be beyond our control. In general,
the construction of additions or modifications to our existing
systems, and the construction of new midstream assets involve
numerous regulatory, environmental, political and legal
uncertainties beyond our control. Any project that we undertake
may not be completed on schedule, at budgeted cost or at all.
Construction may occur over an extended period, and we are not
likely to receive a material increase in revenues related to
such project until it is completed. Moreover, our revenues may
not increase immediately upon its completion because the
anticipated growth in gas production that the project was
intended to capture does not materialize, our estimates of the
growth in production prove inaccurate or for other reasons. For
any of these reasons, newly constructed or modified midstream
facilities may not generate our expected investment return and
that, in turn, could adversely affect our cash flows and results
of operations.
In addition, our ability to undertake to grow in this fashion
will depend on our ability to finance the construction or
modification project and on our ability to hire, train and
retain qualified personnel to manage and operate these
facilities when completed.
Because
we distribute all of our available cash to our unitholders, our
future growth may be limited.
Since we will distribute all of our available cash to our
unitholders, subject to the limitations on restricted payments
contained in the indenture governing our senior notes and our
credit facility, we will depend on financing provided by
commercial banks and other lenders and the issuance of debt and
equity securities to finance any significant internal organic
growth or acquisitions. For a definition of available cash,
please see
6
our partnership agreement. If we are unable to obtain adequate
financing from these sources, our ability to grow will be
limited.
Our
industry is highly competitive, and increased competitive
pressure could adversely affect our business and operating
results.
We compete with similar enterprises in each of our areas of
operations. Some of our competitors are large oil, natural gas
and petrochemical companies that have greater financial
resources and access to supplies of natural gas than we do. In
addition, our customers who are significant producers or
consumers of NGLs may develop their own processing facilities in
lieu of using ours. Similarly, competitors may establish new
connections with pipeline systems that would create additional
competition for services that we provide to our customers. Our
ability to renew or replace existing contracts with our
customers at rates sufficient to maintain current revenues and
cash flows could be adversely affected by the activities of our
competitors. All of these competitive pressures could have a
material adverse effect on our business, results of operations
and financial condition.
If
third-party pipelines interconnected to our processing plants
become unavailable to transport NGLs, our cash flow and results
of operations could be adversely affected.
We depend upon third party pipelines that provide delivery
options to and from our processing plants for the benefit of our
customers. For example:
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all of the NGLs produced at our north Louisiana system are
transported on the Black Lake Pipeline, which is owned by BP
Energy Company and Duke Energy Field Services;
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all of the NGLs produced at the Waha processing plants are
transported by the Louis Dreyfus pipeline and ExxonMobil
Corporations NGL pipeline; and
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all of the NGLs produced at our Mocane processing plant are
transported by ONEOK Hydrocarbon Southwest L.L.C.s NGL
pipeline.
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If any of these pipelines become unavailable to transport the
NGLs produced at our related processing plants, we would be
required to find alternative means to transport the NGLs out of
our processing plants, which could increase our costs, reduce
the revenues we might obtain from the sale of NGLs or reduce our
ability to process natural gas at these plants.
We are
exposed to the credit risks of our key customers, and any
material nonpayment or nonperformance by our key customers could
adversely affect our cash flow and results of
operations.
We are subject to risks of loss resulting from nonpayment or
nonperformance by our customers. Any material nonpayment or
nonperformance our key customers could reduce our ability to
make distributions to our unitholders. Furthermore, some of our
customers may be highly leveraged and subject to their own
operating and regulatory risks, which increases the risk that
they may default on their obligations to us.
Our
business involves many hazards and operational risks, some of
which may not be fully covered by insurance. If a significant
accident or event occurs that is not fully insured, our
operations and financial results could be adversely
affected.
Our operations are subject to the many hazards inherent in the
gathering, processing and transportation of natural gas and
NGLs, including:
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damage to our gathering and processing facilities, pipelines,
related equipment and surrounding properties caused by
tornadoes, floods, fires and other natural disasters and acts of
terrorism;
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inadvertent damage from construction and farm equipment;
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leaks of natural gas, NGLs and other hydrocarbons or losses of
natural gas or NGLs as a result of the malfunction of pipelines,
measurement equipment or facilities at receipt or delivery
points;
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fires and explosions;
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weather related hazards, such as hurricanes; and
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other hazards, including those associated with high-sulfur
content, or sour gas, such as an accidental discharge of
hydrogen sulfide gas, that could also result in personal injury
and loss of life, pollution and suspension of operations.
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These risks could result in substantial losses due to personal
injury or loss of life, severe damage to and destruction of
property and equipment and pollution or other environmental
damage and may result in curtailment or suspension of our
related operations. A natural disaster or other hazard affecting
the areas in which we operate could have a material adverse
effect on our operations. We are not insured against all
environmental events that might occur. If a significant accident
or event occurs that is not insured or fully insured, it could
adversely affect our operations and financial condition.
Due to
our lack of asset diversification, adverse developments in our
midstream operations would adversely affect our cash flows and
results of operations.
We rely exclusively on the revenues generated from our midstream
energy business, and as a result, our financial condition
depends upon prices of, and continued demand for, natural gas
and NGLs. Due to our lack of diversification in asset type, an
adverse development in this business would have a significantly
greater impact on our financial condition and results of
operations than if we maintained more diverse assets.
Failure
of the gas that we ship on our pipelines to meet the
specifications of interconnecting interstate pipelines could
result in curtailments by the interstate
pipelines.
The markets to which the shippers on our pipelines ship natural
gas include interstate pipelines. These interstate pipelines
establish specifications for the natural gas that they are
willing to accept, which include requirements such as
hydrocarbon dewpoint, temperature, and foreign content including
water, sulfur, carbon dioxide and hydrogen sulfide. These
specifications vary by interstate pipeline. If the total mix of
natural gas shipped by the shippers on our pipeline fails to
meet the specifications of a particular interstate pipeline, it
may refuse to accept all or a part of the natural gas scheduled
for delivery to it. In those circumstances, we may be required
to find alternative markets for that gas or to shut-in the
producers of the non-conforming gas, potentially reducing our
through-put volumes or revenues. Please see
Item 1 Business of our Annual
Report on
Form 10-K
incorporated by reference herein.
Terrorist
attacks, the threat of terrorist attacks, continued hostilities
in the Middle East or other sustained military campaigns may
adversely impact our results of operations.
The long-term impact of terrorist attacks, such as the attacks
that occurred on September 11, 2001, and the magnitude of
the threat of future terrorist attacks on the energy
transportation industry in general and on us in particular are
not known at this time. Uncertainty surrounding continued
hostilities in the Middle East or other sustained military
campaigns may affect our operations in unpredictable ways,
including disruptions of natural gas supplies and markets for
natural gas and NGLs and the possibility that infrastructure
facilities could be direct targets of, or indirect casualties
of, an act of terror.
Changes in the insurance markets attributable to terrorist
attacks may make certain types of insurance more difficult for
us to obtain. Moreover, the insurance that may be available to
us may be significantly more expensive than our existing
insurance coverage. Instability in the financial markets as a
result of terrorism or war could also affect our ability to
raise capital.
We do
not own all of the land on which our pipelines and facilities
have been constructed, and we are therefore subject to the
possibility of increased costs or the inability to retain
necessary land use.
We obtain the rights to construct and operate our pipelines on
land owned by third parties and governmental agencies for
specified periods of time. Many of these
rights-of-way
are perpetual in duration; others have terms ranging from five
to ten years. Many are subject to rights of reversion in the
case of non-
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utilization for periods ranging from one to three years. In
addition, some of our processing facilities are located on
leased premises. Our loss of these rights, through our inability
to renew
right-of-way
contracts or leases or otherwise, could have a material adverse
effect on our business, results of operations and financial
condition.
In addition, the construction of additions to our existing
gathering assets may require us to obtain new
rights-of-way
prior to constructing new pipelines. We may be unable to obtain
such
rights-of-way
to connect new natural gas supplies to our existing gathering
lines or to capitalize on other attractive expansion
opportunities. If the cost of obtaining new
rights-of-way
increases, then our cash flows and growth opportunities could be
adversely affected.
A
successful challenge to the rates we charge on our Regency
Intrastate Pipeline may reduce the amount of cash we
generate.
To the extent our Regency Intrastate Pipeline transports natural
gas in interstate commerce, the rates, terms and conditions of
that transportation service are subject to regulation by the
FERC, pursuant to Section 311 of the NGPA, which regulates,
among other things, the provision of transportation services by
an intrastate natural gas pipeline on behalf of an interstate
natural gas pipeline. Under Section 311, rates charged for
transportation must be fair and equitable, and the FERC is
required to approve the terms and conditions of the service.
Rates established pursuant to Section 311 are generally
analogous to the cost based rates FERC deems just and
reasonable for interstate pipelines under the NGA. FERC
may therefore apply its NGA policies to determine costs that can
be included in cost of service used to establish
Section 311 rates. These rate policies include the recent
FERC policy on income tax allowance that permits interstate
pipelines to include, as part of the cost of service, a full
income tax allowance for all entities owning the utility asset
provided such entities or individuals are subject to an actual
or potential tax liability. If the Section 311 rates
presently approved for Regency through May 1, 2008 are
successfully challenged in a complaint or after such date the
FERC disallows the inclusion of costs in the cost of service,
changes its regulations or policies, or establishes more onerous
terms and conditions applicable to Section 311 service,
this may adversely affect our business. Any reduction in our
rates could have an adverse effect on our business, results of
operations and financial condition.
A
change in the characterization of some of our assets by federal,
state or local regulatory agencies or a change in policy by
those agencies may result in increased regulation of our assets,
which may cause our revenues to decline and operating expenses
to increase.
Our natural gas gathering and intrastate transportation
operations are generally exempt from FERC regulation under the
NGA, but FERC regulation still affects these businesses and the
markets for products derived from these businesses. FERCs
policies and practices, including, for example, its policies on
open access transportation, ratemaking, capacity release, and
market center promotion, indirectly affect intrastate markets.
In recent years, FERC has pursued pro-competitive regulatory
policies. We cannot assure you, however, that FERC will continue
this approach as it considers matters such as pipeline rates and
rules and policies that may affect rights of access to natural
gas transportation capacity. In addition, the distinction
between FERC-regulated transmission service and federally
unregulated gathering services is the subject of regular
litigation at FERC and in the courts and of policy discussions
at FERC, so, in such circumstances, the classification and
regulation of some of our gathering facilities or our intrastate
transportation pipeline may be subject to change based on future
determinations by FERC, the courts or Congress. Such a change
could result in increased regulation by FERC.
Other state and local regulations also affect our business. Our
gathering lines are subject to ratable take and common purchaser
statutes in states in which we operate. Ratable take statutes
generally require gatherers to take, without undue
discrimination, oil or natural gas production that may be
tendered to the gatherer for handling. Similarly, common
purchaser statutes generally require gatherers to purchase
without undue discrimination as to source of supply or producer.
These statutes restrict our right as an owner of gathering
facilities to decide with whom we contract to purchase or
transport natural gas. Federal law leaves any economic
regulation of natural gas gathering to the states. States in
which we operate have adopted complaint-
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based regulation of oil and natural gas gathering activities,
which allows oil and natural gas producers and shippers to file
complaints with state regulators in an effort to resolve
grievances relating to oil and natural gas gathering access and
rate discrimination. Please read Item 1
Business Regulation of our Annual Report on
Form 10-K
incorporated by reference herein.
We may
incur significant costs and liabilities in the future resulting
from a failure to comply with new or existing environmental
regulations or an accidental release of hazardous substances
into the environment.
Our operations are subject to stringent and complex federal,
state and local environmental laws and regulations governing,
among other things, air emissions, wastewater discharges, the
use, management and disposal of hazardous and nonhazardous
materials and wastes, and the cleanup of contamination.
Noncompliance with such laws and regulations, or incidents
resulting in environmental releases, could cause us to incur
substantial costs, penalties, fines and other criminal
sanctions, third party claims for personal injury or property
damage, investments to retrofit or upgrade our facilities and
programs, or curtailment of operations. Certain environmental
statutes, including CERCLA and comparable state laws, impose
strict, joint and several liability for costs required to clean
up and restore sites where hazardous substances have been
disposed or otherwise released.
There is inherent risk of the incurrence of environmental costs
and liabilities in our business due to the necessity of handling
natural gas and petroleum products, air emissions related to our
operations, and historical industry operations and waste
disposal practices. For example, an accidental release from one
of our pipelines or processing facilities could subject us to
substantial liabilities arising from environmental cleanup and
restoration costs, claims made by neighboring landowners and
other third parties for personal injury and property damage, and
fines or penalties for related violations of environmental laws
or regulations. Moreover, the possibility exists that stricter
laws, regulations or enforcement policies could significantly
increase our compliance costs and the cost of any remediation
that may become necessary. We may not be able to recover these
costs from insurance. We believe, based on current information,
that any costs we may incur relating to environmental matters
will not adversely affect us. We cannot be certain, however,
that identification of presently unidentified conditions, more
vigorous enforcement by regulatory agencies, enactment of more
stringent laws and regulations, or other unanticipated events
will not arise in the future and give rise to material
environmental liabilities that could have a material adverse
effect on our business, financial condition or results of
operations. Please read Item 1
Business Regulation Environmental
matters and Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Other Matters
Environmental Matters of our Annual Report on
Form 10-K
incorporated by reference herein.
If we
fail to develop or maintain an effective system of internal
controls, we may not be able to report our financial results
accurately or prevent fraud.
We became subject to the public reporting requirements of the
Securities Exchange Act of 1934 on February 3, 2006. We
produce our consolidated financial statements in accordance with
the requirements of GAAP, but we do not become subject to
certain of the internal controls standards applicable to most
companies with publicly traded securities until 2008. We may not
currently meet all those standards. Effective internal controls
are necessary for us to provide reliable financial reports to
prevent fraud and to operate successfully as a publicly traded
partnership. Our efforts to develop and maintain our internal
controls compliance program may not be successful, and we may be
unable to maintain adequate controls over our financial
processes and reporting in the future, including compliance with
the obligations under Section 404 of the Sarbanes-Oxley Act
of 2002, which we refer to as Section 404. For example,
Section 404 will require us, among other things, annually
to review and report on, and our independent registered public
accounting firm to attest to, our internal control over
financial reporting. We must comply with Section 404 for
our fiscal year ending December 31, 2007. Any failure to
develop or maintain an effective internal controls compliance
program or difficulties encountered in its implementation or
other effective improvement of our internal controls could harm
our operating results or cause us to fail to meet our reporting
obligations. Given the difficulties inherent in the design and
operation of internal controls over financial reporting, we can
provide no
10
assurance as to our conclusions under Section 404, or those
of our independent registered public accounting firm, regarding
the effectiveness of our internal controls. Ineffective internal
controls subject us to regulatory scrutiny and a loss of
confidence in our reported financial information, which could
have an adverse effect on our business, results of operations
and financial condition.
Our
leverage may limit our ability to borrow additional funds,
comply with the terms of our indebtedness or capitalize on
business opportunities.
Our leverage is significant in relation to our partners
capital. Our debt to capital ratio (calculated as total debt
divided by the sum of total debt and partners capital) as
of December 31, 2006 was 76 percent. As of
March 22, 2007, our total outstanding long-term debt was
$698.1 million. We will be prohibited from making cash
distributions during an event of default under any of our
indebtedness. Various limitations in our credit facility, as
well as the indentures for the notes, may reduce our ability to
incur additional debt, to engage in some transactions and to
capitalize on business opportunities. Any subsequent refinancing
of our current indebtedness or any new indebtedness could have
similar or greater restrictions.
Our leverage may adversely affect our ability to fund future
working capital, capital expenditures and other general
partnership requirements, future acquisition, 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. Our leverage may also make our
results of operations more susceptible to adverse economic and
industry conditions by limiting our flexibility in planning for,
or reacting to, changes in our business and the industry in
which we operate and may place us at a competitive disadvantage
as compared to our competitors that have less debt.
Increases
in interest rates, which have recently experienced record lows,
could adversely impact our unit price and our ability to issue
additional equity, in order to make acquisitions, to reduce debt
or for other purposes.
During 2004 and 2005, the credit markets experienced
50-year
record lows in interest rates. During the latter half of 2005
and in 2006, interest rates increased. If the overall economy
continues to strengthen, monetary policy may tighten further,
resulting in higher interest rates to counter possible
inflation. The interest rate on our senior notes is fixed and
the loans outstanding under our credit facility bear interest at
a floating rate. An increase of 100 basis points in the
LIBOR rate would increase our annual payment by approximately
$1,100,000. Additionally, interest rates on future credit
facilities and debt offerings could be higher than current
levels, causing our financing costs to increase accordingly. As
with other yield-oriented securities, the market price for our
units will be affected by the level of our cash distributions
and implied distribution yield. The distribution yield is often
used by investors to compare and rank yield-oriented securities
for investment decision-making purposes. Therefore, changes in
interest rates, either positive or negative, may affect the
yield requirements of investors who invest in our units, and a
rising interest rate environment could have an adverse effect on
our unit price and our ability to issue additional equity, in
order to make acquisitions, to reduce debt or for other purposes.
You
may not be able to sell large blocks of our common units in a
single day without realizing a lower than expected sales
price.
During the six months ended March 15, 2007, the average
daily volume of our common units traded on the NASDAQ was
43,000. The median of the daily volume for the same period was
39,200. The maximum and minimum daily volume for the same period
was 120,400 and 8,500, respectively. If we are unable to
increase the market demand for our equity securities, you may be
adversely affected.
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Risks
Related to Our Structure
HM
Capital Investors own 60.4 percent of the limited partner
units outstanding in us and control our general partner, which
has sole responsibility for conducting our business and managing
our operations.
HM Capital Investors own 60.4 percent of the limited
partner units outstanding in us and control our general partner.
Although our general partner has a fiduciary duty to manage us
in a manner beneficial to us and our unitholders, the directors
and officers of our general partner have a fiduciary duty to
manage our general partner in a manner beneficial to its owners,
the HM Capital Investors. Conflicts of interest may arise
between the HM Capital Investors and their affiliates, including
our general partner, on the one hand, and us, on the other hand.
In resolving these conflicts of interest, our general partner
may favor its own interests and the interests of its affiliates
over our interests. These conflicts include, among others, the
following situations:
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neither our partnership agreement nor any other agreement
requires the HM Capital Investors or their affiliates to pursue
a business strategy that favors us;
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our General Partner is allowed to take into account the
interests of parties other than us, such as the HM Capital
Investors, in resolving conflicts of interest;
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HM Capital Investors and their affiliates may engage in
competition with us;
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our General Partner has limited its liability and reduced its
fiduciary duties, and has also restricted the remedies available
to our unitholders for actions that, without the limitations,
might constitute breaches of fiduciary duty;
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our General Partner determines the amount and timing of asset
purchases and sales, capital expenditures, borrowings, issuance
of additional partnership securities, and reserves, each of
which can affect the amount of cash available to pay interest
on, and principal of, the notes;
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our General Partner determines which costs incurred by it and
its affiliates are reimbursable by us;
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our partnership agreement does not restrict our General Partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf;
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our General Partner intends to limit its liability regarding our
contractual and other obligations; and
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our General Partner controls the enforcement of obligations owed
to us by our General Partner and its affiliates.
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HM
Capital Investors and their affiliates may compete directly with
us.
HM Capital Investors and their affiliates are not prohibited
from owning assets or engaging in businesses that compete
directly or independently with us. In addition, HM Capital
Investors or their affiliates may acquire, construct or dispose
of any additional midstream or other assets in the future,
without any obligation to offer us the opportunity to purchase
or construct or dispose of those assets.
Our
reimbursement of our general partners expenses will reduce
our cash available for distribution to you.
Prior to making any distribution on the common units, we will
reimburse our general partner and its affiliates for all
expenses they incur on our behalf. These expenses will include
all costs incurred by our general partner and its affiliates in
managing and operating us, including costs for rendering
corporate staff and support services to us. Please read
Item 13. Certain Relationships and Related Party
Transactions of our Annual Report on
Form 10-K
incorporated by reference herein. The reimbursement of expenses
of our general partner and its affiliates could adversely affect
our ability to pay cash distributions to you.
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Our
partnership agreement limits our general partners
fiduciary duties to our unitholders and restricts the remedies
available to unitholders for actions taken by our general
partner that might otherwise constitute breaches of fiduciary
duty.
Our partnership agreement contains provisions that reduce the
standards to which our general partner would otherwise be held
by state fiduciary duty law. For example, our partnership
agreement:
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permits our general partner to make a number of decisions in its
individual capacity, as opposed to its capacity as our general
partner. This entitles our general partner to consider only the
interests and factors that it desires, and it has no duty or
obligation to give any consideration to any interest of, or
factors affecting, us, our affiliates or any limited partner.
Examples include the exercise of its limited call right, its
voting rights with respect to the units it owns, its
registration rights and its determination whether or not to
consent to any merger or consolidation of the partnership;
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provides that our general partner will not have any liability to
us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed the decision was in the best interests of our
partnership;
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provides that our general partner is entitled to make other
decisions in good faith if it believes that the
decision is in our best interests;
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provides generally that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of our general partner and not involving a vote of unitholders
must be on terms no less favorable to us than those generally
being provided to or available from unrelated third parties or
be fair and reasonable to us, as determined by our
general partner in good faith, and that, in determining whether
a transaction or resolution is fair and reasonable,
our general partner may consider the totality of the
relationships between the parties involved, including other
transactions that may be particularly advantageous or beneficial
to us; and
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that the general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct.
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By purchasing a common unit, a common unitholder will become
bound by the provisions in the partnership agreement, including
the provisions discussed above.
Unitholders
have limited voting rights and are not entitled to elect our
general partner or its directors.
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
did not elect our general partner or 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 members of our
general partner. Furthermore, if the unitholders were
dissatisfied with the performance of our general partner, they
will have little ability to remove our general partner. As a
result of these limitations, the price at which the common units
will trade could be diminished because of the absence or
reduction of a takeover premium in the trading price.
Even
if unitholders are dissatisfied, they cannot remove our general
partner without its consent.
The unitholders are currently unable to remove the general
partner without its consent because the general partner and its
affiliates own sufficient units to be able to prevent its
removal. The vote of the holders of at least
662/3 percent
of all outstanding units voting together as a single class is
required to remove the general partner. Our general partner and
its affiliates own 60.3 percent of the total of our common
and subordinated units. Moreover, if our general partner is
removed without cause during the subordination period and units
held by our general partner and its affiliates are not voted in
favor of that removal, all remaining subordinated units will
automatically convert into common units and any existing
arrearages on the common units will be
13
extinguished. A removal of the general partner under these
circumstances would adversely affect the common units by
prematurely eliminating their distribution and liquidation
preference over the subordinated units, which would otherwise
have continued until we had met certain distribution and
performance tests.
Our
partnership agreement restricts the voting rights of those
unitholders owning 20 percent or more of our common
units.
Unitholders voting rights are further restricted by the
partnership agreement provision providing that any units held by
a person that owns 20 percent or more of any class of units
then outstanding, other than our general partner, its
affiliates, their transferees, and persons who acquired such
units with the prior approval of our 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 or direction of management.
Control
of our general partner may be transferred to a third party
without unitholder consent.
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, our partnership agreement does not restrict the
ability of the partners of our general partner from transferring
their ownership in our general partner to a third party. The new
partners of our general partner would then be in a position to
replace the board of directors and officers of Regency GP LLC
with their own choices and to control the decisions taken by the
board of directors and officers.
We may
issue an unlimited number of additional units without your
approval, which would dilute your existing ownership
interest.
Our general partner, without the approval of our unitholders,
may cause us to issue an unlimited number of additional common
units.
The issuance by us of additional common units or other equity
securities of equal or senior rank will have the following
effects:
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our unitholders proportionate ownership interest in us
will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Our
general partner has a limited call right that may require you to
sell your units at an undesirable time or price.
If at any time our general partner and its affiliates own more
than 80 percent 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. Our general partner and its affiliates now own
approximately 20.7 percent of the common units. At the end
of the subordination period, assuming no additional issuances of
common units, our general partner and its affiliates will own
approximately 60.3 percent of the common units.
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Your
liability may not be limited if a court finds that unitholder
action constitutes control of our business.
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law and we conduct
business in a number of other states. The limitations on the
liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly
established in some of the other states in which we do business.
In most states, a limited partner is only liable if he
participates in the control of the business of the
partnership. These statutes generally do not define control, but
do permit limited partners to engage in certain activities,
including, among other actions, taking any action with respect
to the dissolution of the partnership, the sale, exchange, lease
or mortgage of any asset of the partnership, the admission or
removal of the general partner and the amendment of the
partnership agreement. You could, however, be liable for any and
all of our obligations as if you were a general partner if:
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a court or government agency determined that we were conducting
business in a state but had not complied with that particular
states partnership statute; or
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your right to act with other unitholders to take other actions
under our partnership agreement is found to constitute
control of our business.
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Unitholders
may have liability to repay distributions that were wrongfully
distributed to them.
Under certain circumstances, unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, we may
not make a distribution to you if the distribution would cause
our liabilities to exceed the fair value of our assets. Delaware
law provides that for a period of three years from the date of
the distribution, limited partners who received an impermissible
distribution and who knew at the time of the distribution that
it violated Delaware law will be liable to the limited
partnership for the distribution amount. Substituted limited
partners are liable for the obligations of the assignor to make
required contributions to the partnership other than
contribution obligations that are unknown to the substituted
limited partner at the time it became a limited partner and that
could not be ascertained from the partnership agreement.
Liabilities to partners on account of their partnership interest
and liabilities that are non-recourse to the partnership are not
counted for purposes of determining whether a distribution is
permitted.
Tax Risks
to Common Unitholders
In addition to reading the following risk factors, you should
read Material Tax Consequences for a more complete
discussion of the expected material federal income tax
consequences of owning and disposing of common units.
Our
tax treatment depends on our status as a partnership for federal
income tax purposes, as well as our not being subject to a
material amount of entity-level taxation by individual states.
If the IRS were to treat us as a corporation or if we become
subject to a material amount of entity-level taxation for state
tax purposes, it would reduce the amount of cash available for
distribution to you.
The anticipated after-tax economic benefit of an investment in
our 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 taxable income
at the corporate tax rate, which is currently a maximum of 35%,
and would likely pay state income tax at varying rates.
Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses or deductions would
flow through to you. Because a tax would be imposed upon us as a
corporation, our cash available for distribution to you would be
substantially reduced. Therefore, treatment of us as a
corporation would result in a material reduction in the
anticipated cash flow and after-tax return to the unitholders,
likely causing a substantial reduction in the value of our
common units.
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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 and other reasons, several states are
evaluating ways to subject partnerships to entity-level taxation
through the imposition of state income, franchise and other
forms of taxation. For example, beginning in 2008, we will be
required to pay Texas franchise tax at a maximum effective rate
of 0.7% of our gross income apportioned to Texas in the prior
year. Imposition of such a tax on us by Texas and, if
applicable, by any other state will reduce the cash available
for distribution to you.
Our partnership agreement provides that if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, the minimum quarterly distribution amount and the
target distribution amounts will be adjusted to reflect the
impact of that law on us.
If the
IRS contests the federal income tax positions we take, the
market for our common units may be adversely impacted and the
cost of any IRS contest will reduce our cash available for
distribution to you.
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 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 counsels conclusions or the positions we take.
A court may not agree with some or all of our counsels
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 because the costs will reduce our cash
available for distribution.
You
may be required to pay taxes on your share of our income even if
you do not receive any cash distributions from us.
Because our unitholders will be treated as partners to whom we
will allocate taxable income that could be different in amount
than the cash we distribute, 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 equal to the actual tax liability that results from that
income.
Tax
gain or loss on disposition of our common units could be more or
less 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. Because distributions in excess of
your allocable share of our net taxable income decrease your tax
basis in your common units, the amount, if any, of such prior
excess distributions with respect to the units you sell will, in
effect, become taxable income to you if you sell such units at a
price greater than your tax basis in those units, even if the
price you receive is less than your original cost. Furthermore,
a substantial portion of the amount realized, whether or not
representing gain, may be taxed as ordinary income due to
potential recapture items, including depreciation recapture. In
addition, because the amount realized includes a
unitholders share of our nonrecourse liabilities, if you
sell your units, you may incur a tax liability in excess of the
amount of cash you receive from the sale. Please read
Material Tax Consequences Disposition of
Common Units Recognition of Gain or Loss for a
further discussion of the foregoing.
Tax-exempt
entities and foreign persons face unique tax issues from owning
our 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), and
non-U.S. persons
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from federal
income tax, including individual retirement accounts and other
retirement plans, will be unrelated business taxable income and
will be taxable to them. Distributions to
non-U.S. persons
will be reduced by withholding taxes at the highest applicable
effective tax rate, and
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non-U.S. persons
will be required to file United States federal tax returns and
pay tax on their share of our taxable income. If you are a tax
exempt entity or a foreign person, you should consult your tax
advisor before investing in our common units.
We
will treat each purchaser of common units as having the same tax
benefits without regard to the actual common units purchased.
The IRS may challenge this treatment, which could adversely
affect the value of the common units.
Because we cannot match transferors and transferees of common
units and because of other reasons, we will adopt depreciation
and amortization positions that may not conform to all aspects
of existing Treasury Regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of
these tax benefits or the amount of gain from your sale of
common units and could have a negative impact on the value of
our common units or result in audit adjustments to your tax
returns. Please read Material Tax Consequences
Tax Consequences of Unit Ownership Section 754
Election for a further discussion of the effect of the
depreciation and amortization positions we adopted.
The
sale or exchange of 50% or more of our capital and profits
interests during any twelve-month period will result in the
termination of our partnership for federal income tax
purposes.
We will be considered to have terminated for federal income tax
purposes if there is a sale or exchange of 50% or more of the
total interests in our capital and profits within a twelve-month
period. Our termination would, among other things, result in the
closing of our taxable year for all unitholders and could result
in a deferral of depreciation deductions allowable in computing
our taxable income. 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 twelve
months of our taxable income or loss being includable in his
taxable income for the year of termination. Our termination
currently would not affect our classification as a partnership
for federal income tax purposes, but instead, we would be
treated as a new partnership for tax purposes. If treated as a
new partnership, we must make new tax elections and could be
subject to penalties if we are unable to determine that a
termination occurred. Please read Material Tax
Consequences Disposition of Common Units
Constructive Termination for a discussion of the
consequences of our termination for federal income tax purposes.
You
will likely be subject to state and local taxes and return
filing requirements in states where you do not live as a result
of investing in our common 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 various
jurisdictions. Further, you may be subject to penalties for
failure to comply with those requirements. We will initially own
assets and do business in Arkansas, Colorado, Kansas, Louisiana,
Oklahoma, and Texas. Each of these states, other than Texas,
currently imposes a personal income tax on individuals. Most of
these states also impose an income tax on corporations and other
entities. As we make acquisitions or expand our business, we may
own assets or conduct business in additional states that 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 our common units.
USE OF
PROCEEDS
The common units to be offered and sold using this prospectus
will be offered and sold by the selling unitholders named in
this prospectus or in any supplement to this prospectus. We will
not receive any proceeds from the sale of such common units.
17
DESCRIPTION
OF THE COMMON UNITS
The
Units
The common units and the subordinated units are separate classes
of limited partner interests in us. The holders of units are
entitled to participate in partnership distributions and
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
subordinated units in and to partnership distributions, please
read this section and How We Make Cash
Distributions. For a description of the rights and
privileges of limited partners under our partnership agreement,
including voting rights, please read The Partnership
Agreement.
Our outstanding common units are listed on the Nasdaq Stock
Market LLC, or Nasdaq, and trade in the Nasdaq Global Select
Market under the symbol RGNC.
The transfer agent and registrar for our common units is
American Stock Transfer & Trust Company.
Transfer
of Common Units
By transfer of our common units in accordance with our
partnership agreement, each transferee of our common units will
be admitted as a unitholder with respect to the common units
transferred when such transfer and admission is reflected in our
books and records. Additionally, each transferee of our common
units:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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gives the consents and approvals contained in our partnership
agreement.
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An assignee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. The
general partner will cause any transfers to be recorded on our
books and records no less frequently than quarterly.
We may, at our discretion, 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 transfers of securities. In addition to other
rights acquired upon transfer, the transferor gives the
transferee the right to become a substituted limited partner in
our partnership for the transferred 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.
HOW WE
MAKE CASH DISTRIBUTIONS
Set forth below is a summary of the significant provisions of
our partnership agreement that relate to cash distributions.
General
Our partnership agreement requires that, within 45 days
after the end of each quarter, we distribute all of our
available cash to the holders of record of our common units on
the applicable record date. All cash distributed to unitholders
will be characterized as either operating surplus or
capital surplus. We treat distributions of available
cash from operating surplus differently than distributions of
available cash from capital surplus.
18
Operating
Surplus and Capital Surplus
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.
Definition
of Available Cash
Available cash is defined in our partnership agreement and
generally means, for each fiscal quarter, all cash on hand at
the end of such quarter:
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less the amount of cash reserves established by our general
partner:
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to provide for the proper conduct of our business (including
reserves for future capital expenditures and for our anticipated
credit needs);
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to comply with applicable law, any of our debt instruments or
other agreements; and
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to provide funds for distribution to our unitholders and to our
general partner for any one or more of the next four quarters;
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plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter for which the determination is
being made. Working capital borrowings are generally borrowings
that will be made under our credit facility and in all cases are
used solely for working capital purposes or to pay distributions
to partners.
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Definition
of Operating Surplus
Operating surplus is defined in our partnership agreement, and
for any period it generally means:
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our cash balance on the closing date of our initial public
offering in February 2006 offering; plus
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$20.0 million (as described below); plus
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all of our cash receipts after the closing of our initial public
offering, excluding cash from (1) borrowings that are not
working capital borrowings, (2) sales of equity and debt
securities and (3) sales or other dispositions of assets
outside the ordinary course of business; plus
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less
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operating expenses; less
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the amount of cash reserves established by our general partner
for future operating expenditures.
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If a working capital borrowing, which increases operating
surplus, is not repaid during the twelve-month period following
the borrowing, it will be deemed repaid at the end of such
period, thus decreasing operating surplus at such time. When
such working capital is in fact repaid, it will not be treated
as a reduction in operating surplus because operating surplus
will have been previously reduced by the deemed repayment.
As described above, operating surplus does not reflect actual
cash on hand at closing that is available for distribution to
our unitholders. For example, it includes a provision that will
enable us, if we choose, to distribute as operating surplus up
to $20.0 million of cash we receive in the future from
non-operating sources, such as asset sales, issuances of
securities, and long-term borrowings, that would otherwise be
distributed as capital surplus.
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Definition
of Capital Surplus
Capital surplus is defined in our partnership agreement, and it
will generally be generated only by:
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borrowings other than working capital borrowings;
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sales of debt and equity securities; and
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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 non-current assets sold as
part of normal retirements or replacements of assets.
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Subordination
Period
Overview
During the subordination period, which we define below and is
defined in our partnership agreement, the common units have the
right to receive distributions of available cash from operating
surplus in an amount equal to the minimum quarterly distribution
of $0.35 per quarter, plus any arrearages in the payment of
the minimum quarterly distribution on the common units from
prior quarters, before any distributions of available cash from
operating surplus may be made on the subordinated units.
Distribution arrearages do not accrue on the subordinated units.
The purpose of the subordinated units is to increase the
likelihood that during the subordination period there will be
available cash from operating surplus to be distributed on the
common units.
Definition
of Subordination Period
The subordination period is defined in our partnership
agreement. Except as described below under
Early Termination of Subordination
Period, the subordination period will extend until the
first day of any quarter beginning after December 31, 2008
that each of the following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units and subordinated units equaled
or exceeded the minimum quarterly distribution for each of the
three consecutive, non-overlapping four-quarter periods
immediately preceding that date;
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the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common units and subordinated units during
those periods on a fully diluted basis and the related
distribution on the 2% general partner interest during those
periods; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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Early
Termination of Subordination Period
The subordination period will automatically terminate and all of
the subordinated units will convert into common units on an
one-for-one
basis if each of the following occurs:
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distributions of available cash from operating surplus on each
outstanding common unit and subordinated unit equaled or
exceeded $2.10 (150% of the annualized minimum quarterly
distribution) for any four-quarter period ending on or after
December 31, 2006;
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the adjusted operating surplus (as defined below)
generated during any four-quarter period immediately preceding
that date equaled or exceeded the sum of a distribution of $2.10
(150% of the annualized minimum quarterly distribution) on all
of the outstanding common units and subordinated units on a
fully diluted basis; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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Definition
of Adjusted Operating Surplus
Adjusted operating surplus is defined in our partnership
agreement, and for any period it generally means:
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operating surplus generated with respect to that period; less
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any net increase in working capital borrowings with respect to
that period; less
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any net reduction in cash reserves for operating expenditures
made with respect to that period not relating to an operating
expenditure made with respect to that period; plus
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any net decrease in working capital borrowings with respect to
that period; plus
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any net increase in cash reserves for operating expenditures
with respect to that period required by any debt instrument for
the repayment of principal, interest or premium.
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Adjusted operating surplus is intended to reflect the cash
generated from operations during a particular period and
therefore excludes net increases in working capital borrowings
and net drawdowns of reserves of cash generated in prior periods.
Effect
of Expiration of the Subordination Period
Upon expiration of the subordination period, each outstanding
subordinated unit will convert into one common unit and will
then participate pro rata with the other common units in
distributions of available cash. In addition, if the unitholders
remove our general partner other than for cause and units held
by our general partner and its affiliates are not voted in favor
of such removal:
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The subordination period will end and each subordinated unit
will immediately convert into one common unit;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner interest and, if any, its incentive distribution rights
into common units or to receive cash in exchange for those
interests.
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Distributions
of Available Cash from Operating Surplus During the
Subordination Period
We will make distributions of available cash from operating
surplus for any quarter during the subordination period in the
following manner:
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First, 98% to the common unitholders, pro rata, and 2% to our
general partner, until we distribute for each outstanding common
unit an amount equal to the minimum quarterly distribution for
that quarter;
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second, 98% to the common unitholders, pro rata, and 2% to our
general partner, until we distribute for each outstanding common
unit an amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units for any prior
quarters during the subordination period;
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third, 98% to the subordinated unitholders, pro rata, and 2% to
our general partner, until we distribute for each subordinated
unit an amount equal to the minimum quarterly distribution for
that quarter; and
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thereafter, in the manner described in Incentive
Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
21
Distributions
of Available Cash from Operating Surplus After the Subordination
Period
We will make distributions of available cash from operating
surplus for any quarter after the subordination period in the
following manner:
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First, 98% to all unitholders, pro rata, and 2% to our general
partner, until we distribute for each outstanding unit an amount
equal to the minimum quarterly distribution for that
quarter; and
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thereafter, in the manner described in Incentive
Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
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 currently holds the incentive
distribution rights, but may transfer these rights separately
from its general partner interest, subject to restrictions in
the partnership agreement.
If for any quarter:
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we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and
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we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution;
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then, we will distribute any additional available cash from
operating surplus for that quarter among the unitholders and our
general partner in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our general
partner, until each unitholder receives a total of
$0.4025 per unit for that quarter (the first target
distribution);
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second, 85% to all unitholders, pro rata, and 15% to our general
partner, until each unitholder receives a total of
$0.4375 per unit for that quarter (the second target
distribution);
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third, 75% to all unitholders, pro rata, and 25% to our general
partner, until each unitholder receives a total of
$0.5250 per unit for that quarter (the third target
distribution); and
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thereafter, 50% to all unitholders, pro rata, and 50% to our
general partner.
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In each case, the amount of the target distribution set forth
above is exclusive of any distributions to common unitholders to
eliminate any cumulative arrearages in payment of the minimum
quarterly distribution. The percentage interests set forth above
for our general partner assume that our general partner
maintains its 2% general partner interest, that our general
partner has not transferred the incentive distribution rights
and that we do not issue additional classes of equity securities.
22
Percentage
Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of
the additional available cash from operating surplus among 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 the unitholders and our general partner 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 our general partner for the minimum
quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution. The percentage interests set forth below for our
general partner include its 2% general partner interest and
assume our general partner has contributed additional capital to
maintain its 2% general partner interest, that our general
partner has not transferred the incentive distribution rights
and that we do not issue additional classes of equity securities.
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Marginal Percentage
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Total Quarterly
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Interest in Distributions
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Distribution Target
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General
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Amount
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Unitholders
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Partner
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Minimum Quarterly Distribution
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$0.3500
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98
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%
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2%
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First Target Distribution
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up to $0.4025
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98
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%
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2%
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Second Target Distribution
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above $0.4025 up to $0.4375
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85
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%
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15%
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Third Target Distribution
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above $0.4375 up to $0.5250
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75
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%
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25%
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Thereafter
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above $0.5250
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50
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%
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50%
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Distributions
from Capital Surplus
How
Distributions from Capital Surplus Will Be Made
We will make distributions of available cash from capital
surplus, if any, in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our general
partner, until we distribute for each common unit an amount of
available cash from capital surplus equal to the initial public
offering price;
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second, 98% to the common unitholders, pro rata, and 2% to our
general partner, until we distribute for each common unit an
amount of available cash from capital surplus equal to any
unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and
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thereafter, we will make all distributions of available cash
from capital surplus as if they were from operating surplus.
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The preceding discussion is based on the assumption that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
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 this
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 our general partner to receive
incentive distributions and for the subordinated units to
convert into common units. Any distribution of capital surplus
before the unrecovered initial unit price is reduced to zero
cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, we will
reduce the minimum quarterly distribution and the target
distribution levels to zero. We will
23
then make all future distributions from operating surplus, with
50% being paid to the holders of units and 50% to our general
partner.
Adjustment
to the 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:
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the minimum quarterly distribution;
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the target distribution levels;
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the unrecovered initial unit price; and
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the number of common units into which a subordinated unit is
convertible.
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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 and each subordinated unit would be convertible into two
common units. 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 by a governmental taxing authority so
that we 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 for each quarter by multiplying
each distribution level by a fraction, the numerator of which is
available cash for that quarter and the denominator of which is
the sum of available cash for that quarter plus our general
partners estimate of our aggregate liability for the
quarter for such income taxes payable by reason of such
legislation or interpretation. To the extent that the actual tax
liability differs from the estimated tax liability for any
quarter, the difference will be accounted for in subsequent
quarters.
Distributions
of Cash Upon Liquidation
Overview
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
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 our 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.
The allocations of gain and loss upon liquidation are intended,
to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding
subordinated units upon our liquidation, to the extent required
to permit common unitholders to receive their unrecovered
initial unit price plus the minimum quarterly distribution for
the quarter during which liquidation occurs plus any unpaid
arrearages in payment of the minimum quarterly distribution on
the common units. There may not, however, be sufficient gain
upon our liquidation to enable the holders of common units to
recover fully all of these amounts, even though there may be
cash available to pay distributions to the holders of
subordinated units. Any further net gain recognized upon
liquidation will be allocated in a manner that takes into
account the incentive distribution rights of our general partner.
Manner
of Adjustments for Gain
The manner of the adjustment for gain is set forth in the
partnership agreement. If our liquidation occurs before the end
of the subordination period, we will allocate any gain to the
partners in the following manner:
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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;
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second, 98% to the common unitholders, pro rata, and 2% to our
general partner, until the capital account for each common unit
is equal to the sum of:
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(1) the unrecovered initial unit price for that common unit;
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs; and
(3) any unpaid arrearages in payment of the minimum
quarterly distribution;
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third, 98% to the subordinated unitholders, pro rata, and 2% to
our general partner until the capital account for each
subordinated unit is equal to the sum of:
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(1) the unrecovered initial unit price for that
subordinated unit; and
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs;
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fourth, 98% to all unitholders, pro rata, and 2% to our general
partner, until we allocate under this paragraph an amount per
unit equal to:
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(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 we distributed 98% to the
unitholders, pro rata, and 2% to our general partner, for each
quarter of our existence;
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fifth, 85% to all unitholders, pro rata, and 15% to our general
partner, until we allocate under this paragraph an amount per
unit equal to:
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(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 we distributed 85% to the
unitholders, pro rata, and 15% to our general partner for each
quarter of our existence;
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sixth, 75% to all unitholders, pro rata, and 25% to our general
partner, until we allocate under this paragraph an amount per
unit equal to:
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(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
(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 we distributed 75% to the
unitholders, pro rata, and 25% to our general partner for each
quarter of our existence; and
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thereafter, 50% to all unitholders, pro rata, and 50% to our
general partner.
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The percentage interests set forth above for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that clause (3) of the second
bullet point above and all of the third bullet point above will
no longer be applicable.
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Manner
of Adjustments for Losses
If our liquidation occurs before the end of the subordination
period, we will generally allocate any loss to our general
partner and the unitholders in the following manner:
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first, 98% to holders of subordinated units in proportion to the
positive balances in their capital accounts and 2% to our
general partner, until the capital accounts of the subordinated
unitholders have been reduced to zero;
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second, 98% to the holders of common units in proportion to the
positive balances in their capital accounts and 2% to our
general partner, until the capital accounts of the common
unitholders have been reduced to zero; and
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thereafter, 100% to our general partner.
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The percentage interests set forth above for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that all of the first bullet point
above will no longer be applicable.
Adjustments
to Capital Accounts
We will make adjustments to capital accounts upon the issuance
of additional units. In doing so, we will allocate any
unrealized and, for tax purposes, unrecognized gain or loss
resulting from the adjustments to the unitholders and our
general partner in the same manner as we allocate gain or loss
upon liquidation. If we make positive adjustments to the capital
accounts upon the issuance of additional units, we will allocate
any later negative adjustments to the capital accounts resulting
from the issuance of additional units or upon our liquidation in
a manner which results, to the extent possible, in our general
partners capital account balances equaling the amount that
they would have been if no earlier positive adjustments to the
capital accounts had been made.
26
MATERIAL
PROVISIONS OF THE PARTNERSHIP AGREEMENT
OF REGENCY ENERGY PARTNERS LP
The following is a summary of the material provisions of the
Amended and Restated Agreement of Limited Partnership of Regency
Energy Partners LP, which is referred to in this prospectus as
our partnership agreement. Our partnership agreement is
available as described under Where You Can Find More
Information. We will provide prospective investors with a
copy of this agreement upon request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this Prospectus:
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with regard to distributions of available cash, please read
How We Make Cash Distributions;
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with regard to the transfer of common units, please read
Description of the Common Units Transfer of
Common Units; and
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with regard to allocations of taxable income and taxable loss,
please read Material Tax Consequences.
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Organization
and Duration
Our partnership was organized in September 2005 and will have a
perpetual existence.
Purpose
Our purpose under the partnership agreement is to engage in any
business activities that are approved by our general partner.
Our general partner, however, may not cause us to engage in any
business activities that it determines would cause us to be
treated as a corporation for federal income tax purposes. Our
general partner is authorized in general to perform all acts it
determines to be necessary or appropriate to carry out our
purposes and to conduct our business.
Power of
Attorney
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney, among other things, to execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to grant consents and waivers on behalf of the
limited partners under, our partnership agreement.
Capital
Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
Voting
Rights
The following table includes a summary of the unitholder vote
required for the matters specified below. Matters requiring the
approval of a unit majority require:
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during the subordination period, the approval of a majority of
the common units, excluding those common units held by our
general partner and its affiliates, and a majority of the
subordinated units, voting as separate classes; and
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after the subordination period, the approval of a majority of
the common units.
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In voting their common and subordinated units, our general
partner and its affiliates will have no fiduciary duty or
obligation whatsoever to us or the limited partners, including
any duty to act in good faith or in the best interests of us or
the limited partners.
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Issuance of additional units
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No approval right.
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Amendment of the partnership
agreement
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Certain amendments may be made by
the general partner without the approval of the unitholders.
Other amendments generally require the approval of a unit
majority. Please read Amendment of the Partnership
Agreement.
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Merger of our partnership or the
sale of all or substantially all of our assets
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Unit majority in certain
circumstances. Please read Merger, Sale or Other
Disposition of Assets.
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Dissolution of our partnership
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Unit majority. Please read
Termination and Dissolution.
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Reconstitution of our partnership
upon dissolution
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Unit majority. Please read
Termination and Dissolution.
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Withdrawal of the general partner
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Under most circumstances, the
approval of a majority of the common units, excluding common
units held by our general partner and its affiliates, is
required for the withdrawal of our general partner prior to
December 31, 2015 in a manner that would cause a
dissolution of our partnership. Please read
Withdrawal or Removal of the General
Partner.
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Removal of the general partner
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Not less than
662/3%
of the outstanding units, including units held by our general
partner and its affiliates. Please read Withdrawal
or Removal of the General Partner.
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Transfer of the general partner
interest
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Our general partner may transfer
all, but not less than all, of its general partner interest in
us without a vote of our unitholders to an affiliate or another
person in connection with its merger or consolidation with or
into, or sale of all or substantially all of its assets, to such
person. The approval of a majority of the common units,
excluding common units held by the general partner and its
affiliates, is required in other circumstances for a transfer of
the general partner interest to a third party prior to
December 31, 2015. See Transfer of General
Partner Interest.
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Transfer of incentive distribution
rights
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Except for transfers to an
affiliate or another person as part of our general
partners merger or consolidation, sale of all or
substantially all of its assets or the sale of all of the
ownership interests in such holder, the approval of a majority
of the common units, excluding common units held by the general
partner and its affiliates, is required in most circumstances
for a transfer of the incentive distribution rights to a third
party prior to December 31, 2015. Please read
Transfer of Incentive Distribution Rights.
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Transfer of ownership interests in
our general partner
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No approval required at any time.
Please read Transfer of Ownership Interests in
the General Partner.
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Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that he otherwise acts in conformity with the provisions of
the 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:
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to remove or replace the general partner;
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to approve some amendments to the partnership agreement; or
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to take other action under the partnership agreement;
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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 the laws of Delaware, to the same extent as the general
partner. This liability would extend to persons who transact
business with us who reasonably believe that the limited partner
is a general partner. Neither the partnership agreement nor the
Delaware Act specifically provides for legal recourse against
the 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 know of 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 the partnership, would 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, a substituted limited partner of a
limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except that
such person is not obligated for liabilities unknown to him at
the time he became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiaries conduct business in five states. Maintenance of
our limited liability as a member of the operating company may
require compliance with legal requirements in the jurisdictions
in which the operating company conducts business, including
qualifying our subsidiaries to do business there.
Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly
established in many jurisdictions. If, by virtue of our
membership interest in the operating company or otherwise, it
were determined that we were conducting business in any state
without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise
of the right by the limited partners as a group to remove or
replace the general partner, to approve some amendments to the
partnership agreement, or to take other action under the
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the
circumstances. We will operate in a manner that the general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities for the
consideration and on the terms and conditions determined by our
general partner without the approval of the unitholders. We have
in the past funded, and may in the future fund, acquisitions
through the issuance of additional common units, subordinated
units or other partnership securities. Holders of any additional
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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 common
units or other partnership 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 partnership
securities that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit the issuance by our subsidiaries of equity securities
that may effectively rank senior to the common units.
Upon issuance of additional partnership securities, our general
partner will be entitled, but not required, to make additional
capital contributions to the extent necessary to maintain its 2%
general partner interest in us. Our general partners 2%
interest in us will be reduced if we issue additional units in
the future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2% general
partner interest. Moreover, our general partner will have the
right, which it may from time to time assign in whole or in part
to any of its affiliates, to purchase common units, subordinated
units or other partnership 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 the percentage interest of the general partner and its
affiliates, including such interest represented by common units
and subordinated units, that existed immediately prior to each
issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership
securities.
Amendment
of the Partnership Agreement
General. Amendments to our partnership
agreement may be proposed only by or with the consent of our
general partner. Our general partner, however, will have no duty
or obligation to propose any amendment and may decline to do so
free of any fiduciary duty or obligation whatsoever to us or the
limited partners, including any duty to act in good faith or in
the best interests of us or the limited partners. In order to
adopt a proposed amendment, other than the amendments discussed
below, our general partner is required to seek written approval
of the holders of the number of units required to approve the
amendment or to call a meeting of the limited partners to
consider and vote upon the proposed amendment. Except as
described below, an amendment must be approved by a unit
majority.
Prohibited Amendments. No amendment may be
made that would:
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enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or
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enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner
or any of its affiliates without the consent of our general
partner, which consent may be given or withheld at its option.
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The provision of our partnership agreement preventing the
amendments having the effects described in any of the clauses
above can only be amended upon the approval of the holders of at
least 90% of the outstanding units voting together as a single
class (including units owned by our general partner and its
affiliates). As of the date of this prospectus, the HM Capital
Investors and their affiliates, including our general partner,
own approximately 60.4 percent of our outstanding limited
partner units.
No Unitholder Approval. Our general partner
may generally make amendments to our partnership agreement
without the approval of any limited partner or assignee to
reflect:
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a change in our name, the location of our principal place of our
business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or
appropriate to qualify or continue our qualification as a
limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or
to ensure that neither we nor the operating company nor any of
its subsidiaries will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes;
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or its directors, officers,
agents or trustees from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisors Act of 1940, or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, or ERISA, whether or not substantially similar to plan
asset regulations currently applied or proposed;
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an amendment that our general partner determines to be necessary
or appropriate for the authorization of additional partnership
securities or rights to acquire partnership securities;
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any amendment expressly permitted by our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement;
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a change in our fiscal year or taxable year and related changes;
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mergers with or conveyances to another limited liability entity
that is newly formed and has no assets, liabilities or
operations at the time of the merger or conveyance other than
those it receives by way of the merger or conveyance; or
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any other amendments substantially similar to any of the matters
described in the clauses above.
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In addition, our general partner may make amendments to our
partnership agreement without the approval of any limited
partner or transferee in connection with a merger or
consolidation approved in accordance with our partnership
agreement, or if our general partner determines that those
amendments:
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do not adversely affect the limited partners (or any particular
class of limited partners) in any material respect;
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are necessary or appropriate to satisfy any requirements,
conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of
limited partner interests or to comply with any rule,
regulation, guideline or requirement of any securities exchange
on which the limited partner interests are or will be listed for
trading;
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are necessary or appropriate for any action taken by our general
partner relating to splits or combinations of units under the
provisions of our partnership agreement; or
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are required to effect the intent expressed in this prospectus
or the intent of the provisions of our partnership agreement or
are otherwise contemplated by our partnership agreement.
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Opinion of Counsel and Unitholder
Approval. Our general partner will not be
required to obtain an opinion of counsel that an amendment will
not result in a loss of limited liability to the limited
partners or result in our being treated as an entity for federal
income tax purposes in connection with any of the amendments
described under No Unitholder Approval. No
other amendments to our partnership agreement will become
effective without the approval of holders of at least 90% of the
outstanding units
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voting as a single class unless we first obtain an opinion of
counsel to the effect that the amendment will not affect the
limited liability under applicable law of any of our limited
partners.
In addition to the above restrictions, any amendment that would
have a material adverse effect on the rights or preferences of
any type or class of outstanding units in relation to other
classes of units will require the approval of at least a
majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required to take
any action is required to be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced.
Merger,
Sale or Other Disposition of Assets
A merger or consolidation of us requires the prior consent of
our general partner. Our general partner, however, will have no
duty or obligation to consent to any merger or consolidation and
may decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interest of us or the limited
partners.
In addition, the partnership agreement generally prohibits our
general partner, without the prior approval of the holders of a
unit majority, from causing us, among other things, to sell,
exchange or otherwise dispose of all or substantially all of our
assets in a single transaction or a series of related
transactions, including by way of merger, consolidation or other
combination, or approving on our behalf the sale, exchange or
other disposition of all or substantially all of the assets of
our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
substantially all of our assets without that approval. Our
general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those
encumbrances without that approval. Finally, our general partner
may consummate any merger without the prior approval of our
unitholders if we are the surviving entity in the transaction,
the transaction would not result in a material amendment to the
partnership agreement, and each of our units will be an
identical unit of our partnership following the transaction.
If the conditions specified in the partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity if the sole purpose of that merger or
conveyance is to effect a mere change in our legal form into
another limited liability entity. The unitholders are not
entitled to dissenters rights of appraisal under the
partnership agreement or applicable Delaware law in the event of
a conversion, merger or consolidation, a sale of substantially
all of our assets or any other transaction or event.
Termination
and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our
partnership; or
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the withdrawal or removal of our general partner or any other
event that results in it ceasing to be our general partner other
than by reason of a transfer of its general partner interest in
accordance with our partnership agreement or withdrawal or
removal following approval and admission of a successor.
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Upon a dissolution under the last clause above, the holders of a
unit majority, may also elect, within specific time limitations,
to reconstitute us and continue our business on the same terms
and conditions described in our partnership agreement by forming
a new limited partnership on terms identical to those in our
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partnership agreement and having as general partner an entity
approved by the holders of units representing a unit majority,
subject to our receipt of an opinion of counsel to the effect
that:
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the action would not result in the loss of limited liability of
any limited partner; and
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neither our partnership, the reconstituted limited partnership,
our operating company nor any of our other subsidiaries, would
be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax
purposes upon the exercise of that right to continue.
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Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the liquidator authorized to wind
up our affairs will, acting with all of the powers of our
general partner that are necessary or appropriate to liquidate
our assets and apply the proceeds of the liquidation as provided
in How We Make Cash Distributions
Distributions of Cash upon Liquidation. The liquidator may
defer liquidation or distribution of our assets for a reasonable
period of time or distribute assets to partners in kind if it
determines that a sale would be impractical or would cause undue
loss to our partners.
Withdrawal
or Removal of the General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
December 31, 2015 without obtaining the approval of the
holders of at least a majority of the outstanding common units,
excluding common units held by the general partner and its
affiliates, and furnishing an opinion of counsel regarding
limited liability and tax matters. On or after December 31,
2015, 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.
Notwithstanding the information above, our general partner may
withdraw without unitholder approval upon 90 days
notice to the limited partners if at least 50% of the
outstanding common units are held or controlled by one person
and its affiliates other than the general partner and its
affiliates. In addition, the partnership agreement permits our
general partner in some instances to sell or otherwise transfer
all of its general partner interest in us without the approval
of the unitholders. Please read Transfer of General
Partner Interest and Transfer of Incentive
Distribution Rights.
Upon withdrawal of our general partner under any circumstances,
other than as a result of a transfer by our general partner of
all or a part of its general partner interest in us, the holders
of a unit majority may select a successor to that 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 a specified period after that
withdrawal, the holders of a unit majority agree in writing to
continue our business and to appoint a successor general
partner. Please read Termination and
Dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than
662/3%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units and subordinated units, voting as separate classes. The
ownership of more than
331/3%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent our
general partners removal. The HM Capital Investors and
their affiliates, including our general partner, own
approximately 60.4 percent of our outstanding limited
partner units.
Our partnership agreement also provides that, if our general
partner is removed as our general partner under circumstances in
which cause does not exist and units held by the general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end, and all outstanding
subordinated units will immediately convert into common units on
a
one-for-one
basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished without
payment; and
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests
based on the fair market value of those interests at that time.
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In the event of removal of a general partner under circumstances
in which cause exists or withdrawal of a general partner where
that withdrawal violates our partnership agreement, a successor
general partner will have the option to purchase the general
partner interest and incentive distribution rights of the
departing general partner for a cash payment equal to the fair
market value of those interests. Under all other circumstances
where a general partner withdraws or is removed by the limited
partners, the departing general partner will have the option to
require the successor general partner to purchase the general
partner interest of the departing general partner and its
incentive distribution rights for fair market value. In each
case, this fair market value will be determined by agreement
between the departing general partner and the successor general
partner. If no agreement is reached, an independent investment
banking firm or other independent expert selected by the
departing general partner and the successor general partner will
determine the fair market value. Or, if the departing general
partner and the successor general partner cannot agree upon an
expert, then an expert chosen by agreement of the experts
selected by each of them will determine the fair market value.
If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest and
its incentive distribution rights will automatically convert
into common units equal to the fair market value of those
interests as determined by an investment banking firm or other
independent expert selected in the manner described in the
preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general
partner, including all employee-related liabilities, including
severance liabilities, incurred for the termination of any
employees employed by the departing general partner or its
affiliates for our benefit.
Transfer
of General Partner Interest
Except for a transfer by our general partner of all, but not
less than all, of its general partner interest in our
partnership to:
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an affiliate of our general partner (other than an
individual); or
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity;
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our general partner may not transfer all or any part of its
general partner interest in our partnership to another person
prior to December 31, 2015 without the approval of the
holders of at least a majority of the outstanding common units,
excluding common units held by our general partner and its
affiliates. As a condition of this transfer, the transferee must
assume, among other things, the rights and duties of our general
partner, agree to be bound by the provisions of our partnership
agreement, and furnish an opinion of counsel regarding limited
liability and tax matters.
Our general partner and its affiliates may at any time, transfer
subordinated units or units to one or more persons, without
unitholder approval, except that they may not transfer
subordinated units to us.
Transfer
of Ownership Interests in the General Partner
At any time, the HMTF Investors may sell or transfer all or part
of their membership interest in Regency GP LLC or their limited
partner interests in our general partner to an affiliate or
third party without the approval of our unitholders.
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Transfer
of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all of the ownership interest of the
holder or the sale of all or substantially all of its assets to
that entity, in each case without the prior approval of the
unitholders. Prior to December 31, 2015, other transfers of
incentive distribution rights will require the affirmative vote
of holders of a majority of the outstanding common units,
excluding common units held by our general partner and its
affiliates. On or after December 31, 2015, the incentive
distribution rights will be freely transferable.
Change of
Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove our general partner or otherwise change our management.
If any person or group other than our general partner and its
affiliates acquires beneficial ownership of 20% or more of any
class of units, that person or group loses voting rights on all
of its units. This loss of voting rights does not apply to any
person or group that acquires the units from our general partner
or its affiliates and any transferees of that person or group
approved by our general partner or to any person or group who
acquires the units with the prior approval of our general
partner.
Our partnership agreement also provides that if our general
partner is removed under circumstances in which cause does not
exist and units held by our general partner and its affiliates
are not voted in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a
one-for-one
basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished without
payment; and
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests.
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Limited
Call Right
If at any time our general partner and its affiliates own more
than 80% of the then issued and outstanding limited partner
interests of any class, our general partner will have the right,
which it may assign in whole or in part to any of its affiliates
or to us, to acquire all, but not less than all, of the
remaining partnership securities of the class held by
unaffiliated persons as of a record date to be selected by our
general partner, on at least 10 but not more than 60 days
notice. The purchase price shall be the greater of:
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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 on which our general
partner first mails notice of its election to purchase those
limited partner interests; and
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the current market price as of the date three days before the
date the notice is mailed.
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As a result of our general partners right to purchase
outstanding partnership securities, a holder of partnership
securities may have his partnership securities purchased at an
undesirable time or price. The tax consequences to a unitholder
of the exercise of this call right are the same as a sale by
that unitholder of his common units in the market. Please read
Material Tax Consequences Disposition of
Common Units.
Meetings;
Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, unitholders or
transferees 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. In the case of common units held by our general
partner on behalf of non-citizen assignees, our
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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 number of units 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 will 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 will be the greater
percentage.
Each record holder of a unit has a vote according to his
percentage interest in us; although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities. If,
however, 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, acquires,
in the aggregate, beneficial ownership of 20% or more of any
class of units then outstanding, that 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. Except as our partnership agreement
otherwise provides, subordinated units will vote together with
common units as a single class.
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.
Status as
Limited Partner
By the transfer of common units in accordance with our
partnership agreement, each transferee of common units shall be
admitted as a limited partner with respect to the common units
transferred when such transfer and admission is reflected in our
books and records. Except as described under
Limited Liability, the common units will be fully paid,
and unitholders will not be required to make additional
contributions.
Non-Citizen
Assignees; Redemption
If we are or become subject to federal, state or local laws or
regulations that, in the reasonable determination of our general
partner, create a substantial risk of cancellation or forfeiture
of any property in which we have an interest because of the
nationality, citizenship or other related status of any limited
partner, we may redeem the units held by the limited partner at
their current market price. In order to avoid any cancellation
or forfeiture, our general partner may require each limited
partner to furnish information about his nationality,
citizenship or related status. If a limited partner fails to
furnish information about his nationality, citizenship or other
related status within 30 days after a request for the
information or our general partner determines after receipt of
the information that the limited partner is not an eligible
citizen; the limited partner may be treated as a non-citizen
assignee. A non-citizen assignee, is entitled to an interest
equivalent to that of a limited partner for the right to share
in allocations and distributions from us, including liquidating
distributions. A non-citizen assignee does not have the right to
direct the voting of his units and may not receive distributions
in kind upon our liquidation.
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Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
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our general partner;
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any departing general partner;
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any person who is or was an affiliate of a general partner or
any departing general partner;
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any person who is or was a director, officer, member, partner,
fiduciary or trustee of any entity set forth in the preceding
three bullet points;
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any person who is or was serving as director, officer, member,
partner, fiduciary or trustee of another person at the request
of our general partner or any departing general partner; and
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any person designated by our general partner.
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Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
not be personally liable for, or have any obligation to
contribute or loan funds or assets to us to enable us to
effectuate, indemnification. We may 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.
Reimbursement
of Expenses
Our partnership agreement requires us to reimburse our general
partner for all direct and indirect expenses it incurs or
payments it makes on our behalf and all other expenses allocable
to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary,
bonus, incentive compensation and other amounts paid to persons
who perform services for us or on our behalf and expenses
allocated to our general partner by its affiliates and include
amounts paid pursuant to indemnification obligations of our
general partner or its general partner. The general partner is
entitled to determine in good faith the expenses that are
allocable to us.
Books and
Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained
for both tax and financial reporting purposes on an accrual
basis. For tax and financial 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 summary 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.
Right to
Inspect Our Books and Records
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:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns;
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information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each partner became a partner;
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copies of our partnership agreement, our certificate of limited
partnership, related amendments and powers of attorney under
which they have been executed;
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information regarding the status of our business and financial
condition; and
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any other information regarding our affairs as is just and
reasonable.
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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 that we are required by law or
by agreements with third parties to keep confidential.
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, subordinated 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. These
registration rights continue for two years following any
withdrawal or removal of our general partner. 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 considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States and,
unless otherwise noted in the following discussion, is the
opinion of Vinson & Elkins L.L.P., counsel to our
general partner and us, insofar as it relates to legal
conclusions with respect to matters of United States federal
income tax law. This section is based upon current provisions of
the Internal Revenue Code, existing and proposed regulations and
current administrative rulings and court decisions, all of which
are subject to change. Later changes in these authorities may
cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise
requires, references in this section to us or
we are references to Regency Energy Partners LP and
our operating company.
The following discussion 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 encourage each prospective unitholder to
consult, and depend on, his own tax advisor in analyzing the
federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of common units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions of Vinson & Elkins L.L.P. Unlike
a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
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, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our
unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
For the reasons described below, Vinson & Elkins
L.L.P. has not rendered an opinion with respect to the following
specific federal income tax issues: (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); (2) whether our monthly convention for
allocating taxable income and losses is permitted by existing
Treasury Regulations (please read Disposition of
Common Units Allocations Between Transferors and
Transferees); and (3) whether our method for
depreciating Section 743 adjustments is sustainable in
certain cases (please read Tax Consequences of Unit
Ownership Section 754 Election).
Partnership
Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable unless
the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income 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,
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storage processing and marketing of crude oil, natural gas and
products thereof. Other types of qualifying income include
interest (other than from a financial business), dividends,
gains from the sale of real property and gains from the sale or
other disposition of capital assets held for the production of
income that otherwise constitutes qualifying income. We estimate
that less than 3% of our current gross income is not qualifying
income; however, this estimate could change from time to time.
Based upon and subject to this estimate, the factual
representations made by us and our general partner and a review
of the applicable legal authorities, Vinson & Elkins
L.L.P. is of the opinion that at least 90% of our current gross
income constitutes qualifying income.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of the
operating company for federal income tax purposes or whether our
operations generate qualifying income under
Section 7704 of the Internal Revenue Code. Instead, we will
rely on the opinion of Vinson & Elkins L.L.P. on such
matters. It is the opinion of Vinson & Elkins L.L.P.
that, based upon the Internal Revenue Code, its regulations,
published revenue rulings and court decisions and the
representations described below, we will be classified as a
partnership and our operating company will be disregarded as an
entity separate from us for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. 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 that Vinson &
Elkins L.L.P. has opined or will opine is qualifying
income within the meaning of Section 7704(d) of the
Internal Revenue Code.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts, we will be treated as if
we had transferred all of our assets, subject to liabilities, to
a newly formed corporation, on the first day of the year in
which we fail to meet the Qualifying Income Exception, in return
for stock in that corporation, and then distributed that stock
to the unitholders in liquidation of their interests in us. This
deemed contribution and liquidation should be tax-free to
unitholders and us so long as we, at that time, do not have
liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we were treated 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
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on Vinson & Elkins
L.L.P.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 Regency Energy
Partners LP will be treated as partners of Regency Energy
Partners LP for federal income tax purposes. Also:
(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited
partners, and
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(b) unitholders whose common units are held in street name
or by a nominee and who have the right to direct the nominee in
the exercise of all substantive rights attendant to the
ownership of their common units
will be treated as partners of Regency Energy Partners LP for
federal income tax purposes.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit Ownership Treatment of
Short Sales.
Income, 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 appear to be fully taxable as ordinary income.
These holders are urged to consult their own tax advisors with
respect to their tax consequences of holding common units in
Regency Energy Partners LP.
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
we make cash distributions to 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, except to the extent
the amount of any such cash distribution exceeds his tax basis
in his common units immediately before the distribution. Our
cash distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units below. Any reduction in a unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution of cash to that unitholder. To the extent our
distributions cause a unitholders at risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in the Internal Revenue Code, and collectively,
Section 751 Assets. To that extent, he will be
treated as having been distributed his proportionate share of
the Section 751 Assets and having exchanged those assets
with us in return for the non-pro rata portion of the actual
distribution made to him. This latter deemed exchange will
generally result in the unitholders realization of
ordinary income, which will equal the excess of (1) the
non-pro rata portion of that distribution over (2) the
unitholders tax basis for the share of Section 751
Assets deemed relinquished in the exchange.
Basis of Common Units. A unitholders
initial tax basis for his common units will be the amount he
paid for the common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse
liabilities. That basis will be decreased, but not below zero,
by distributions from us, by the unitholders share of our
losses, by any decreases in his share of our nonrecourse
liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to
be capitalized. A unitholder will have no share of our debt that
is recourse to our 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.
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Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholders stock is
owned directly or indirectly by or for five or fewer individuals
or some tax-exempt organizations, to the amount for which the
unitholder is considered to be at risk with respect
to our activities, if that 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 (i) any portion of that basis representing
amounts otherwise protected against loss because of a guarantee,
stop loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations can deduct losses from passive activities,
which are generally trade or business activities in which the
taxpayer does not materially participate, only to the extent of
the taxpayers income from those passive activities. The
passive loss limitations are applied separately with respect to
each publicly traded partnership. Consequently, any passive
losses we generate will only be available to offset our passive
income generated in the future and will not be available to
offset income from other passive activities or investments,
including our investments or investments in other publicly
traded partnerships, or salary or active business income.
Passive losses that are not deductible because they exceed a
unitholders share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on
deductions, including the at risk rules and the basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
interest on indebtedness properly allocable to property held for
investment;
our interest expense attributed to portfolio income; and
the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that the net passive income earned by a publicly
traded partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
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Entity-Level Collections. If we are
required or elect under applicable law to pay any federal,
state, local or foreign income tax on behalf of any unitholder
or our 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
unitholder 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 our 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 our partnership
agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax
on behalf of an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain
a credit or refund.
Allocation of Income, Gain, Loss and
Deduction. In general, if we have a net profit,
our items of income, gain, loss and deduction will be allocated
among our general partner and the unitholders in accordance with
their percentage interests in us. At any time that distributions
are made to the common units in excess of distributions to the
subordinated units, or incentive distributions are made to our
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 our general partner and the unitholders in accordance with
their percentage interests in us to the extent of their positive
capital accounts and, second, to our 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, referred to as
Section 704(c) allocations, to a unitholder
purchasing common units in this offering will be essentially the
same as if the tax basis of our assets were equal to their fair
market value at the time of this offering. In the event we issue
additional common units or engage in certain other transactions
in the future reverse Section 704(c)
allocations, similar to the Section 704(c)
allocations described above, will be made to all holders of
partnership interests, including purchasers of common units in
this offering, to account for the difference between the
book basis for purposes of maintaining capital
accounts and the fair market value of all property held by us at
the time of the future transaction. In addition, items of
recapture income will be allocated to the extent possible to the
unitholder who was allocated the deduction giving rise to the
treatment of that gain as recapture income in order to minimize
the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital
accounts nevertheless result, items of our income and gain will
be allocated in an amount and manner to eliminate the negative
balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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
the rights of all the partners to distributions of capital upon
liquidation.
Vinson & Elkins L.L.P. is of the opinion that, with
the exception of the issues described in
Section 754 Election and
Disposition of Common Units Allocations
Between Transferors and Transferees, allocations under our
partnership agreement will be given effect for federal income
tax purposes in determining a partners share of an item of
income, gain, loss or deduction.
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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 treated for tax purposes as
a partner with respect to those units during the period of the
loan and may recognize gain or loss from the disposition. As a
result, during this period:
any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
any cash distributions received by the unitholder as to those
units would be fully taxable; and
all of these distributions would appear to be ordinary income.
Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units;
therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable brokerage
account agreements to prohibit their brokers from loaning their
units. The IRS has announced that it is actively studying issues
relating to the tax treatment of short sales of partnership
interests. Please also read Disposition of Common
Units Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. 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 is
currently 35.0% and the maximum United States federal income tax
rate for net capital gains of an individual is currently 15.0%
if the asset disposed of was held for more than twelve 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 purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we have
adopted as to property other than certain goodwill properties),
the Treasury Regulations under Section 743 of the Internal
Revenue Code require a portion of the Section 743(b)
adjustment that is attributable to recovery property under
Section 168 of the Internal Revenue Code to be depreciated
over the remaining cost recovery period for the
Section 704(c) built-in gain. If we elect a method other
than the remedial method with respect to a goodwill property,
Treasury
Regulation Section 1.197-2(g)(3)
generally requires that the Section 743(b) adjustment
attributable to an amortizable Section 197 intangible,
which includes goodwill property, should be treated as a
newly-acquired asset placed in service in the month when the
purchaser acquires the common unit. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. If we elect a method other than the remedial method, the
depreciation and amortization methods and useful lives
associated with the Section 743(b) adjustment, therefore,
may differ from the methods and useful lives generally used to
depreciate the inside basis in such properties. Under our
partnership agreement, our general partner is authorized to take
a position to preserve the uniformity of units even if that
position is not consistent with these and any other Treasury
Regulations. If we elect a method other than the remedial method
with respect to a goodwill property, the common basis of such
property is not amortizable. Please read
Uniformity of Units.
44
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no direct or
indirect controlling 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 methods
employed by other publicly traded partnerships 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, and Treasury
Regulation Section 1.197-2(g)(3).
To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our assets. This kind of aggregate approach may result in lower
annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Units. A unitholders tax
basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please read Disposition of Common
Units Recognition of Gain or Loss. The IRS may
challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we take to
preserve the uniformity of the units. If such a challenge were
sustained, the gain from the sale of units might be increased
without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial
built in loss immediately after the transfer, or if
we distribute property and have a substantial basis reduction.
Generally a built in loss or a basis reduction is
substantial if it exceeds $250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally nonamortizable or amortizable over a longer period of
time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make
will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
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
45
must include his share of our income, gain, loss and deduction
in income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common Units
Allocations Between Transferors and Transferees.
Initial Tax Basis, Depreciation and
Amortization. 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 this offering will be borne by
our partners holding interests in us prior to the offering.
Please read Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. Because our general partner may determine not
to adopt the remedial method of allocation with respect to any
difference between the tax basis and the fair market value of
goodwill immediately prior to this or any future offering, we
may not be entitled to any amortization deductions with respect
to any goodwill conveyed to us on formation or held by us at the
time of any future offering. Please read Uniformity
of Units. 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
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit Ownership
Allocation of Income, Gain, Loss and Deduction and
Disposition of Common Units Recognition
of Gain or Loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and commissions we incur will be treated
as syndication expenses.
Valuation and Tax Basis of Our Properties. The
federal income tax consequences of the ownership and disposition
of units will depend in part on our estimates of the relative
fair market values, and the initial tax bases, of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for
prior years and incur interest and penalties with respect to
those adjustments.
Disposition
of Common Units
Recognition of Gain or Loss. Gain or loss will
be recognized on a sale of units equal to the difference between
the amount realized and the unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold
46
at a price greater than the unitholders tax basis in that
common unit, even if the price received is less than his
original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than twelve months
will generally be taxed at a maximum rate of 15%. However, a
portion of this gain or loss will be separately computed and
taxed as ordinary income or loss under Section 751 of the
Internal Revenue Code to the extent attributable to assets
giving rise to depreciation recapture or other unrealized
receivables or to inventory items we own. The
term unrealized receivables includes potential
recapture items, including depreciation recapture. Ordinary
income attributable to unrealized receivables, inventory items
and depreciation recapture may exceed net taxable gain realized
upon the sale of a unit and may be recognized even if there is a
net taxable loss realized on the sale of a unit. Thus, a
unitholder may recognize both ordinary income and a capital loss
upon a sale of units. Net capital losses may offset capital
gains and no more than $3,000 of ordinary income, in the case of
individuals, and may only be used to offset capital gains in the
case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. 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
regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
a short sale;
an offsetting notional principal contract; or
a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and
Transferees. In general, our taxable income 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, which we refer to in this
prospectus as the Allocation Date. However, gain or
loss realized on a sale or other disposition of our assets other
than in the ordinary course of
47
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations. Accordingly, Vinson & Elkins
L.L.P. is unable to opine on the validity of this method of
allocating income and deductions between transferor and
transferee unitholders. If this method is not allowed under the
Treasury Regulations, or only applies to transfers of less than
all of the unitholders interest, our taxable income or
losses might be reallocated among the unitholders. We are
authorized to revise our method of allocation between transferor
and transferee unitholders, as well as unitholders whose
interests vary during a taxable year, to conform to a method
permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who
sells any of his units is generally required to notify us in
writing of that sale within 30 days after the sale (or, if
earlier, January 15 of the year following the sale). A purchaser
of units who purchases units from another unitholder is also
generally required to notify us in writing of that purchase
within 30 days after the purchase. Upon receiving such
notifications, we are required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a purchase
may, in some cases, lead to the imposition of penalties.
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 who will satisfy
such requirements.
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 twelve-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 twelve
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)
and Treasury
Regulation Section 1.197-2(g)(3).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax Consequences of Unit
Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that
portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets, and Treasury
Regulation Section 1.197-2(g)(3).
Please read Tax Consequences of Unit
Ownership Section 754 Election. To the
extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
Regulations and
48
legislative history. If we determine that this position cannot
reasonably be taken, we may adopt a depreciation and
amortization position under which all purchasers acquiring units
in the same month would receive depreciation and amortization
deductions, whether attributable to a common basis or
Section 743(b) adjustment, based upon the same applicable
rate as if they had purchased a direct interest in our property.
If this position is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be
allowable to some unitholders and risk the loss of depreciation
and amortization deductions not taken in the year that these
deductions are otherwise allowable. This position will not be
adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on
the unitholders. If we choose not to utilize this aggregate
method, we may use any other reasonable depreciation and
amortization method to preserve the uniformity of the intrinsic
tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any
method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained,
the uniformity of units might be affected, and the gain from the
sale of units might be increased without the benefit of
additional deductions. Please read Disposition of
Common Units Recognition of Gain or Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations and
other foreign persons raises issues unique to those investors
and, as described below, may have substantially adverse tax
consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence, they will be required to file federal tax returns
to report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective tax rate from cash distributions made quarterly to
foreign unitholders. Each foreign unitholder must obtain a
taxpayer identification number from the IRS and submit that
number to our transfer agent on a
Form W-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
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. Because a
foreign unitholder is considered to be engaged in business in
the United States by virtue of the ownership of units, under
this ruling a foreign unitholder who sells or otherwise disposes
of a unit generally will be subject to federal income tax on
gain realized on the sale or disposition of units. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
49
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 each unitholders
share of income, gain, loss and deduction. We cannot assure you
that those positions will yield a result that conforms to the
requirements of the Internal Revenue Code, Treasury Regulations
or administrative interpretations of the IRS. Neither we nor
Vinson & Elkins L.L.P. can assure prospective
unitholders that the IRS will not successfully contend in court
that those positions are impermissible. Any challenge by the IRS
could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Our partnership agreement names Regency GP LP 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
50
account. A penalty of $50 per failure, up to a maximum of
$100,000 per calendar year, is imposed by the Internal
Revenue Code for failure to report that information to us. The
nominee is required to supply the beneficial owner of the units
with the information furnished to us.
Accuracy-Related Penalties. An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for that portion and that the taxpayer acted in good faith
regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
(1) for which there is, or was, substantial
authority; or
(2) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return.
If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules apply
to tax shelters, which we do not believe includes us.
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%.
Reportable Transactions. If we were to engage
in a reportable transaction, we (and possibly you
and others) would be required to make a detailed disclosure of
the transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or
that it produces certain kinds of losses for partnerships,
individuals, S corporations, and trusts in excess of
$2 million in any single year, or $4 million in any
combination of tax years. Our participation in a reportable
transaction could increase the likelihood that our federal
income tax information return (and possibly your tax return)
would be audited by the IRS. Please read
Information Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related Penalties,
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
51
State,
Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We will
initially own property or conduct business in Arkansas,
Colorado, Kansas, Louisiana, Oklahoma, and Texas. Each of these
states, other than Texas, currently imposes a personal income
tax on individuals. Most of these states also impose an income
tax on corporations and other entities. We may also own property
or do business in other jurisdictions in the future. Although
you may not be required to file a return and pay taxes in some
jurisdictions because your income from that jurisdiction falls
below the filing and payment requirement, you will be required
to file income tax returns and to pay income taxes in many of
these jurisdictions in which we do business or own property and
may be subject to penalties for failure to comply with those
requirements. In some jurisdictions, tax losses may not produce
a tax benefit in the year incurred and may not be available to
offset income in subsequent taxable years. Some of the
jurisdictions may require us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a
unitholder who is not a resident of the jurisdiction.
Withholding, the amount of which may be greater or less than a
particular unitholders income tax liability to the
jurisdiction, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return.
Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax Consequences of Unit
Ownership Entity-Level Collections. Based
on current law and our estimate of our future operations, our
general partner anticipates that any amounts required to be
withheld will not be material.
It is the responsibility of each unitholder to investigate the
legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as United States federal tax
returns, that may be required of him. Vinson & Elkins
L.L.P. has not rendered an opinion on the state, local or
foreign tax consequences of an investment in us.
52
SELLING
UNITHOLDERS
The following table sets forth certain information regarding the
selling unitholders beneficial ownership of our common
units as of April 1, 2007. The information presented below
is based solely on our review of the Schedule 13G Statement
of Beneficial Ownership filed by such person with the Securities
and Exchange Commission or information otherwise provided by the
selling unitholders.
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|
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Number of
|
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|
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Number of
|
|
|
Percentage of
|
|
|
Number of
|
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|
Common Units
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|
|
Common Units
|
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Common Units
|
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Common
|
|
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Beneficially
|
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|
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Beneficially
|
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Beneficially
|
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Units that
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Owned After
|
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Owned
|
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Owned
|
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may be Sold
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Offering(1)
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HM Capital(2)
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HMTF GP, LLC
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3
|
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|
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*
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3
|
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|
0
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Hicks, Muse, Tate &
Furst Equity Fund V, LP
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4,592,464
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16.1
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%
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4,592,464
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0
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HM 5-P Coinvestors, LP
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93,724
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|
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|
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*
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93,724
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0
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HM 5-E Coinvestors, LP
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6,226
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|
|
|
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*
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6,226
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0
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Regency Acquisition LP
|
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3,456,255
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12.1
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%
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|
3,456,255
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|
|
0
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Other TexStar Owners
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|
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|
|
|
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|
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|
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Don E. Cole(3)
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16,595
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*
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16,595
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0
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Flatrock Production Company(4)
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24,866
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|
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*
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24,866
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|
0
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Thomas H. Flowers(5)
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4,954
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*
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4,954
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0
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Eric S. Friedrichs(6)
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7,925
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*
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7,925
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0
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Price S. Martin(7)
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16,595
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*
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16,595
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0
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Dorothy L. McCoppin(8)
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4,954
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*
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4,954
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0
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Phillip M. Mezey(9)
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16,595
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*
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16,595
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0
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Mark A. Norville
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4,954
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*
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4,954
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0
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David S. ODell(10)
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4,954
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*
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4,954
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0
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Clay Y. Smith(11)
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16,595
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*
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16,595
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0
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Margie L. Zolkoski
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4,954
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*
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4,954
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0
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Equity Investors
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|
|
|
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|
|
|
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GPS Income Fund
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409,524
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1.4
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%
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409,524
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0
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GPS Income Fund (Cayman) Ltd.
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314,286
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1.1
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%
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314,286
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0
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GPS High Yield Equities
Fund LP
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180,952
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*
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180,952
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0
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Kayne Anderson MLP Investment
Company(12)
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904,762
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3.2
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%
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|
904,762
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0
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Lehman Brother MLP Partners, LP(13)
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904,762
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3.2
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%
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|
904,762
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|
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0
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RCH Energy MLP Fund, LP(14)
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142,857
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*
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|
142,857
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|
|
|
0
|
|
53
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|
|
|
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|
|
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|
|
|
|
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|
|
|
|
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Number of
|
|
|
|
Number of
|
|
|
Percentage of
|
|
|
Number of
|
|
|
Common Units
|
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|
|
Common Units
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|
Common Units
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|
|
Common
|
|
|
Beneficially
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
Units that
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Owned After
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|
|
|
Owned
|
|
|
Owned
|
|
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may be Sold
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|
Offering(1)
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Pueblo Stockholders
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Bruce A. Duval(15)
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16,836
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*
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16,836
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0
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Christine M. Eklund
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5,411
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*
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5,411
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0
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Cindy K Rucker
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2,706
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*
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2,706
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0
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Donald H. Anderson
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2,706
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*
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|
2,706
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0
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Ingrid O. Edelman
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9,320
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|
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|
*
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9,320
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|
0
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Jon R. Whitney
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2,706
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*
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|
|
2,706
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|
|
|
0
|
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Michael J. Wozniak
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|
|
2,706
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|
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|
*
|
|
|
2,706
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|
|
|
0
|
|
Michael R. Henderson
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|
|
21,496
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|
|
|
|
*
|
|
|
21,496
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|
|
|
0
|
|
Nicholas Aretakis(16)
|
|
|
2,405
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|
|
|
|
*
|
|
|
2,405
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|
|
|
0
|
|
R&K Ventures, LLLP
|
|
|
28,786
|
|
|
|
|
*
|
|
|
28,786
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|
|
|
0
|
|
Robert J. Clark(17)
|
|
|
228,260
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|
|
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0.8
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%
|
|
|
228,260
|
|
|
|
0
|
|
Stewart Hershenfield
|
|
|
1,352
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|
|
|
|
*
|
|
|
1,352
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|
|
|
0
|
|
The Albert I. & Eleanor
W.
Edelman & Thomas J.
Edelman Irrevocable
Trust fbo Cornelia S. Edelman
|
|
|
8,042
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|
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|
|
*
|
|
|
8,042
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|
|
|
0
|
|
The Albert I. & Eleanor
W.
Edelman & Thomas J.
Edelman Irrevocable
Trust fbo Gwen A. Edelman
|
|
|
8,042
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|
|
|
|
*
|
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|
8,042
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|
|
|
0
|
|
The Albert I. & Eleanor
W.
Edelman & Thomas J.
Edelman Irrevocable
Trust fbo Jennifer
Edelman Lemler
|
|
|
8,042
|
|
|
|
|
*
|
|
|
8,042
|
|
|
|
0
|
|
The Thomas J. Edelman
Irrevocable Trust
fbo Eleanor A. Edelman
|
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14,355
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|
|
|
|
*
|
|
|
14,355
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|
|
|
0
|
|
The Thomas J. Edelman
Irrevocable Trust
fbo Elizabeth G. Edelman
|
|
|
14,355
|
|
|
|
|
*
|
|
|
14,355
|
|
|
|
0
|
|
Thomas J. Edelman(18)
|
|
|
374,071
|
|
|
|
1.3
|
%
|
|
|
374,071
|
|
|
|
0
|
|
Total
|
|
|
11,881,353
|
|
|
|
|
|
|
|
11,881,353
|
|
|
|
|
|
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Because the selling unitholders may sell all or a portion of the
common units registered hereby, we cannot estimate the number or
percentage of common units that the selling unitholders will
hold upon completion of the offering. Accordingly, the
information presented in this table assumes that each selling
unitholder will sell all of its common units. |
|
(2) |
|
According to Schedule 13D/A (Amendment
No. 4) dated March 30, 2007 (the
Schedule 13D) filed jointly by Regency
Acquisition LP, a Delaware limited partnership
(Acquisition); Regency Holdings LLC, a Delaware
limited liability company and the general partner of Acquisition
(Holdings); HMTF Regency, L.P., a Delaware limited
partnership which is the sole member of Holdings and owns all of
the limited partnership interest in Acquisition (HMTF
Regency); HMTF Regency, L.L.C., a Texas limited liability
company and the general partner of HMTF Regency (HMTF
GP); Hicks, Muse, Tate & Furst |
54
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|
|
Equity Fund V, L.P., a Delaware limited partnership and the
sole member of HMTF GP (Fund V); and HM5/ GP
LLC, a Texas limited liability company, the general partner of
Fund V (HM5); and, together with Acquisition,
Holdings, HMTF Regency, HMTF GP, and Fund V (the 13D
Parties), (i) Acquisition is the record owner of
3,456,255 common units and 16,699,462 subordinated units;
Fund V is the record owner of 4,592,464 common units; HMTF
GP, L.L.C. (HMTF Gas GP), of which Fund V is
the sole member, is the record owner of 3 common units; and two
limited partnerships (the Coinvest LPs) of which HM5
is the general partner are the record owner of an aggregate of
99,950 common units; (ii) as a result of the relationship
of HM5 to Fund V, Fund V to HMTF GP, HMTF GP to HMTF
Regency, HMTF Regency to Holdings, and Holdings to Acquisition,
each 13D Party may be deemed to have shared power to vote, or
direct the disposition of, and to dispose, or direct the
disposition of, the common units and subordinated units held of
record by Acquisition. (iii) as a result of the
relationship of HM5 to Fund V, HM5 may be deemed the
beneficial owner of all of the common units held by Fund V;
and (iv) as a result of the relationship of HM5 to the
Coinvest LPs, HM5 may be deemed the beneficial owner of the
common units held by the Coinvest LPs. |
|
(3) |
|
Mr. Don E. Cole was an officer of TexStar GP, LLC, which
was acquired by Regency Energy Partners LP in August 2006. |
|
(4) |
|
Price S. Martin and Phillip M. Mezey are deemed to have sole
voting power over the common units held by the selling
unitholder. |
|
(5) |
|
Mr. Thomas H. Flowers was an officer of FN GP, LLC, TexStar
FS GP, LLC, TexStar Guarantor GP, LLC, TexStar GU GP, LLC,
Texstar Gas Gathering, LLC and TexStar Acquisition GP, LLC, all
of which were acquired by Regency Energy Partners LP in August
2006. |
|
(6) |
|
Mr. Eric S. Friedrichs was an officer of FN GP, LLC,
TexStar FS GP, LLC, TexStar Guarantor GP, LLC, TexStar GU GP,
LLC, Texstar Gas Gathering, LLC, TexStar Operating GP, LLC,
TexStar GP, LLC and TexStar Acquisition GP, LLC, all of which
were acquired by Regency Energy Partners LP in August 2006. |
|
(7) |
|
Mr. Martin was an officer and manager of FN GP, LLC,
TexStar FS GP, LLC, TexStar Guarantor GP, LLC, TexStar GU GP,
LLC, TexStar Gas Gathering, LLC, TexStar Acquisition GP, LLC,
and TexStar Operating GP, LLC. Mr. Martin was Co-Chief
Executive Officer, President and Chief Financial Officer of
TexStar GP, LLC, all of which were acquired by Regency Energy
Partners, LP in August 2006. Does not include 1,000 common units
held in an account with A.G. Edwards & Sons, Inc. |
|
(8) |
|
Ms. McCoppin was an officer of FN GP, LLC, TexStar FS GP,
LLC, TexStar Guarantor GP, LLC, TexStar GU GP, LLC, TexStar Gas
Gathering, LLC, TexStar Acquisition GP, LLC, TexStar Operating
GP, LLC and TexStar GP, LLC, all of which were acquired by
Regency Energy Partners LP in August 2006. |
|
(9) |
|
Mr. Mezey was an officer of FN GP, LLC, TexStar FS GP, LLC,
TexStar Guarantor GP, LLC, TexStar GU GP, LLC, TexStar Gas
Gathering, LLC, TexStar Acquisition GP, LLC, TexStar Operating
GP, LLC and TexStar GP, LLC, all of which were acquired by
Regency Energy Partners LP in August 2006. Does not include 700
common units held in an account with UBS Security. |
|
(10) |
|
Mr. ODell was an officer of FN GP, LLC, TexStar FS
GP, LLC, TexStar Guarantor GP, LLC, TexStar GU GP, LLC, TexStar
Gas Gathering, LLC, TexStar Acquisition GP, all of which were
acquired by Regency Energy Partners LP in August 2006. |
|
(11) |
|
Mr. Smith is Vice President of Operations for Regency Gas
Services LP and was an officer of FN GP, LLC, TexStar FS GP,
LLC, TexStar Guarantor GP, LLC, TexStar GU GP, LLC, TexStar Gas
Gathering, LLC, TexStar Acquisition GP, all of which were
acquired by Regency Energy Partners LP in August 2006. |
|
(12) |
|
Richard A. Kayne, in his capacity as the majority shareholder of
Kayne Anderson Capital Advisors, L.P., holds voting and
dispositive power with respect to the securities held by the
selling unitholder. KA Associates, Inc., an affiliate of the
selling unitholder, is a broker-dealer registered pursuant to
Section 15(b) of the Exchange Act and is a member of the
NASD. The selling unitholder (i) purchased the securities
for the selling unitholders own account, not as a nominee
or agent, in the course of business and with no intention of
selling or otherwise distributing securities in any transaction
in violation of securities laws |
55
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|
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|
|
and (ii) at the time of purchase, the selling unitholder
did not have any agreement or understanding, direct or indirect,
with any other person to sell or otherwise distribute the
purchased securities. |
|
(13) |
|
The selling unitholder is an affiliate of a registered
broker-dealer. LB I Group Inc. controls the general partner of
this selling unitholder. Lehman Brothers Inc., a registered
broker-dealer and a member of the NASD, is the parent company of
LB I Group Inc. Lehman Brothers Holdings Inc., a public
reporting company, is the parent company of Lehman Brothers Inc.
The selling unitholder (i) purchased the securities for the
selling unitholders own account, not as a nominee or
agent, in the ordinary course of business and with no intention
of selling or otherwise distributing securities in any
transaction in violation of securities laws and (ii) at the
time of purchase, the selling unitholder did not have any
agreement or understanding, direct or indirect, with any other
person to sell or otherwise distribute the purchased securities. |
|
(14) |
|
The general partner of the selling unitholder is RCH Energy MLP
Fund GP, L.P. (RCH MLP). Robert J. Raymond, as
member of RR Advisors, LLC, the general partner of RCH MLP,
exercises voting and dispositive power with respect to the units
held by the selling unitholder. |
|
(15) |
|
Mr. Duval was a Vice President of Pueblo Midstream Gas
Corporation (Pueblo). |
|
(16) |
|
Mr. Aretakis was a Vice President, Treasurer and Chief
Financial Officer of Pueblo. |
|
(17) |
|
Mr. Clark was President and a director of Pueblo. |
|
(18) |
|
Mr. Edelman was Chairman of the Board of Pueblo. |
PLAN OF
DISTRIBUTION
As of the date of this prospectus, we have not been advised by
any other selling unitholders as to any plan of distribution.
Distributions of the common units by such other selling
unitholders, or by their partners, pledgees, donees (including
charitable organizations), transferees or other successors in
interest, may from time to time be offered for sale either
directly by such individual, or through underwriters, dealers or
agents or on any exchange on which the units may from time to
time be traded, in the
over-the-counter
market, or in independently negotiated transactions or
otherwise. The methods by which the common units may be sold
include:
|
|
|
|
|
a block trade (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent
but may position and resell a portion of the block as principal
to facilitate the transaction;
|
|
|
|
purchases by a broker or dealer as principal and resale by such
broker or dealer for its own account pursuant to this prospectus;
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exchange distributions or secondary distributions;
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|
sales in the
over-the-counter
market;
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underwritten transactions;
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|
short sales;
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|
broker-dealers may agree with the selling unitholders to sell a
specified number of such common units at a stipulated price per
unit;
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ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
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privately negotiated transactions;
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|
a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
|
Such transactions may be effected by the selling unitholders at
market prices prevailing at the time of sale or at negotiated
prices. The selling unitholders may effect such transactions by
selling the common units to underwriters or to or through
broker-dealers, and such underwriters or broker-dealers may
receive
56
compensation in the form of discounts or commissions from the
selling unitholders and may receive commissions from the
purchasers of the common units for whom they may act as agent.
The selling unitholders may agree to indemnify any underwriter,
broker-dealer or agent that participates in transactions
involving sales of the units against certain liabilities,
including liabilities arising under the Securities Act. We have
agreed to register the shares for sale under the Securities Act
and to indemnify the selling unitholders and each person who
participates as an underwriter in the offering of the units
against certain civil liabilities, including certain liabilities
under the Securities Act.
In connection with sales of the common units under this
prospectus, the selling unitholders may enter into hedging
transactions with broker-dealers, who may in turn engage in
short sales of the common units in the course of hedging the
positions they assume. The selling unitholders also may sell
common units short and deliver them to close out the short
positions, or loan or pledge the common units to broker-dealers
that in turn may sell them.
The selling unitholders and any underwriters, broker-dealers or
agents who participate in the distribution of the common units
may be deemed to be underwriters within the meaning
of the Securities Act. To the extent any of the selling
unitholders are broker-dealers, they are, according to SEC
interpretation, underwriters within the meaning of
the Securities Act. Underwriters are subject to the prospectus
delivery requirements under the Securities Act. If the selling
unitholders is deemed to be an underwriter, the selling
unitholders may be subject to certain statutory liabilities
under the Securities Act and the Securities Exchange Act of 1934.
There can be no assurances that the selling unitholders will
sell any or all of the common units offered under this
prospectus.
LEGAL
MATTERS
Vinson & Elkins L.L.P., Houston, Texas, will pass upon
the validity of the securities offered in this registration
statement.
EXPERTS
The (1) consolidated financial statements of Regency Energy
Partners LP and subsidiaries and (2) the consolidated
balance sheet of Regency GP LP incorporated in this prospectus
by reference from Regency Energy Partners LPs Annual
Report on Form 10K 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 their authority
as experts in accounting and auditing.
The consolidated financial statements of Pueblo Midstream Gas
Corporation and subsidiary as of and for the year ended
December 31, 2006 incorporated in this prospectus by
reference from the Regency Energy Partners LPs Current
Report on Form 8-K dated May 10, 2007 have been
audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
This prospectus, including any documents incorporated herein by
reference, constitutes a part of a registration statement on
Form S-3
that we filed with the SEC under the Securities Act. This
prospectus does not contain all the information set forth in the
registration statement. You should refer to the registration
statement and its related exhibits and schedules, and the
documents incorporated herein by reference, for further
information about our company and the securities offered in this
prospectus. Statements contained in this prospectus concerning
the provisions of any document are not necessarily complete and,
in each instance, reference is made to the copy of that document
filed as an exhibit to the registration statement or otherwise
filed with the SEC, and each such statement is qualified by this
reference. The registration statement and its
57
exhibits and schedules, and the documents incorporated herein by
reference, are on file at the offices of the SEC and may be
inspected without charge.
We file annual, quarterly, and current reports, proxy statements
and other information with the SEC. You can read and copy any
materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C.
20549. You can obtain information about the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains information that
we file electronically with the SEC, which you can access over
the Internet at http://www.sec.gov.
Our home page is located at http://www.mgglp.com. Our annual
reports on
Form 10-K,
our quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and other filings with the SEC are available free of charge
through our web site as soon as reasonably practicable after
those reports or filings are electronically filed or furnished
to the SEC. Information on our web site or any other web site is
not incorporated by reference in this prospectus and does not
constitute a part of this prospectus.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference in this prospectus information
that we file with the SEC, which means that we are disclosing
important information to you by referring you to those
documents. The information that we incorporate by reference is
an important part of this prospectus, and later information that
we file with the SEC automatically will update and supersede
this information. We incorporate by reference the documents
listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
excluding any information in those documents that is deemed by
the rules of the SEC to be furnished not filed, until we close
this offering:
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our Annual Report on
Form 10-K
for the year ended December 31, 2006; and
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our Current Reports on
Form 8-K
filed on January 26, 2007, February 16, 2007,
March 6, 2007, March 30, 2007, April 3, 2007,
April 27, 2007 and May 11, 2007.
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the description of our common units contained in our
registration statement on
Form 8-A
filed on January 24, 2006, and including any other
amendments or reports filed for the purpose of updating such
description.
|
You may request a copy of these filings, which we will provide
to you at no cost, by writing or telephoning us at the following
address and telephone number:
Regency GP LLC
1700 Pacific, Suite 2900
Dallas, Texas 75201
(214) 750-1771
Attention: Investor Relations
58
PART II
Information
not required in the Prospectus
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|
Item 14.
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Other
Expenses of Issuance and Distribution.
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The following table sets forth the estimated expenses in
connection with the distribution of the securities covered by
this registration statement of which this prospectus is a part.
We will bear all of these expenses.
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Registration fee under the
Securities Act
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$
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30,700
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Printing and engraving expenses*
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$
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30,000
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|
Legal fees and expenses*
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$
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85,000
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|
Accounting fees and expenses*
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$
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50,000
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|
Miscellaneous*
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$
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20,000
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|
|
|
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Total
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$
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215,700
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|
* |
|
Estimated solely for the purpose of this Item. Actual expenses
may be more or less. |
|
|
Item 15.
|
Indemnification
of Officers and Directors.
|
Regency
Energy Partners LP
The section of the prospectus entitled The Partnership
Agreement Indemnification discloses that we will
generally indemnify officers, directors and affiliates of the
general partner to the fullest extent permitted by the law
against all losses, claims, damages or similar events and is
incorporated herein by this reference. Subject to any terms,
conditions or restrictions set forth in the partnership
agreement,
Section 17-108
of the Delaware Revised Uniform Limited Partnership Act empowers
a Delaware limited partnership to indemnify and hold harmless
any partner or other persons from and against all claims and
demands whatsoever.
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Exhibit
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Number
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Description
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1
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.1**
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Form of Underwriting Agreement.
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4
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.1
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Form of Senior Indenture.
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4
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.2
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Form of Subordinated Indenture.
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4
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.3**
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Form of Debt.
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4
|
.4
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Fourth Amended and Restated
Agreement of Limited Partnership of Regency Energy Partners LP
dated as of February 15, 2006 (incorporated by reference to
Exhibit 3.1 to our current report on
Form 8-K
filed February 9, 2006).
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|
4
|
.5
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|
Amendment No. 1 to Amended
and Restated Agreement of Limited Partnership of Regency Energy
Partners LP (incorporated by reference to Exhibit 3.1 to our
current report on
Form 8-K
filed August 15, 2006).
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|
4
|
.6
|
|
Amendment No. 2 to Amended
and Restated Agreement of Limited Partnership of Regency Energy
Partners LP (incorporated by reference to Exhibit 3.1 to our
current report on
Form 8-K
filed September 22, 2006).
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|
4
|
.7
|
|
Form of Specimen Certificate
Evidencing Units Representing Limited Partnership Interests in
Regency Energy Partners LP (incorporated by reference to Exhibit
4.1 to our Registration Statement on
Form S-1/A
filed January 24, 2006, File No.
333-129623).
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4
|
.8
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Registration Rights Agreement,
dated as of September 21, 2006, among Regency Energy
Partners LP and Kayne Anderson MLP Investment Company, Lehman
Brothers MLP Partners, L.P., GPS Income Fund LP, GPS High Yield
Equities Fund LP, GPS Income Fund (Cayman) Ltd. and RCH Energy
MLP Fund, LP (incorporated by reference to Exhibit 4.1 to our
current report on
Form 8-K
filed September 22, 2006).
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II-1
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Exhibit
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Number
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|
Description
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4
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.9
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Registration Rights Agreement,
dated as of August 15, 2006, among Regency Energy Partners
LP and Flatrock Production Company, LLC, P. Scott Martin,
Phillip M. Mezey, Don E. Cole, Clay Y. Smith, Thomas H. Flowers,
Eric S. Friedrichs, Dorothy L. McCoppin, Mark A. Norville, David
S. ODell and the Estate of Martin H. Zolkoski.
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4
|
.10
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|
Stock Purchase Agreement, dated as
of April 2, 2007, by and among the Regency Energy Partners
LP, Pueblo Holdings, Inc., Bear Cub Investments, LLC, the
members of Bear Cub Investments, LLC and Robert J. Clark, as
Sellers Representative (incorporated by reference to
Exhibit 2.1 to our current report on
form 8-K
filed April 3, 2007).
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4
|
.11
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|
Registration Rights Agreement,
dated as of April 2, 2007, by and among Regency Energy
Partners LP and the members of Bear Cub Investments, LLC
(incorporated by reference to Exhibit 10.1 to our current report
on
form 8-K
filed April 3, 2007).
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5
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.1*
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Opinion of Vinson &
Elkins L.L.P. regarding the legality of certain securities.
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5
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.2*
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Opinion of Kean Miller Hawthorne
DArmond McCowan & Jarman, LLP regarding the legality
of certain guarantees.
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8
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.1
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Opinion of Vinson &
Elkins L.L.P. regarding tax matters.
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12
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.1
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Ratio of Earnings to Fixed Charges
(incorporated by reference to Exhibit 12.1 to our Annual Report
on
Form 10-K
for the year ended December 31, 2006).
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23
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.1*
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Consent of Deloitte &
Touche LLP.
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23
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.2*
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Consent of Vinson &
Elkins L.L.P. (included in Exhibit 5.1).
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23
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.3*
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Consent of Vinson &
Elkins L.L.P. (included in Exhibit 8.1).
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23
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.4*
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Consent of Kean Miller Hawthorne
DArmond McCowan & Jarman LLP (included in Exhibit
5.2).
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23
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.5*
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Consent of Deloitte & Touche
LLP.
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24
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.1
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Powers of Attorney (contained on
signature pages).
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25
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.1**
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Form T-1
Statement of Eligibility and Qualification respecting the Senior
Indenture.
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25
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.2**
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Form T-1
Statement of Eligibility and Qualification respecting the
Subordinated Indenture.
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Previously filed. |
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* |
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Filed herewith. |
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** |
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To be filed by amendment or as an exhibit to a current report on
Form 8-K
of the registrant. |
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:
(a) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(b) To reflect in the prospectus any facts or events
arising after the effective date of this 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 this registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
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 the
prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the Calculation of Registration Fee
table in the effective registration statement;
II-2
(c) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to the information
in this registration statement;
provided, however, that paragraphs A(l)(a) and A(l)(b)
above do not apply if the information required to be included in
a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each of the post-effective amendments
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the
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 securities being registered
which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under
the Securities Act to any purchaser:
(a) Each prospectus filed by the registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was
deemed part of and included in the registration
statement; and
(b) Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by
section 10(a) of the Securities Act shall be deemed to be
part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As
provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no statement
made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities, the undersigned
registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(a) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(b) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(c) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
II-3
(d) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
B. The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act,
each filing of its annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plans
annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of
the securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the provisions
described in Item 15 above, or otherwise, the registrant
has been advised that in the opinion of the SEC that
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against any liability (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 a director, officer, or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by
it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of the issue.
D. The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus or any prospectus supplement filed as part of this
registration statement in reliance on Rule 430A and
contained in a form of prospectus or prospectus supplement 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 or prospectus supplement shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 on
Form S-3
to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dallas, State of Texas, on the
14th day
of May, 2007.
REGENCY ENERGY
PARTNERS LP
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|
|
By:
|
Regency GP LP,
its general partner
|
|
|
By:
|
Regency GP LLC,
its general partner
|
|
|
By:
|
/s/ James
W. Hunt
|
Name: James W. Hunt
|
|
|
|
Title:
|
Chairman, President and Chief Executive
|
Officer
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 and the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ James
W. Hunt
James
W. Hunt
|
|
Chairman, President, Chief
Executive
Officer (Principal Executive Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Stephen
L. Arata
Stephen
L. Arata
|
|
Executive Vice President andChief
Financial Officer(Principal Financial Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Lawrence
B. Connors
Lawrence
B. Connors
|
|
Vice President, Finance and
Accounting (Principal Accounting Officer)
|
|
May 14, 2007
|
|
|
|
|
|
*
Joe
Colonnetta
|
|
Director
|
|
May 14, 2007
|
|
|
|
|
|
*
Jason
H. Downie
|
|
Director
|
|
May 14, 2007
|
|
|
|
|
|
*
A.
Dean Fuller
|
|
Director
|
|
May 14, 2007
|
|
|
|
|
|
*
Jack
D. Furst
|
|
Director
|
|
May 14, 2007
|
|
|
|
|
|
*
J.
Edward Herring
|
|
Director
|
|
May 14, 2007
|
II-5
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
*
Robert
D. Kincaid
|
|
Director
|
|
May 14, 2007
|
|
|
|
|
|
*
Gary
W. Luce
|
|
Director
|
|
May 14, 2007
|
|
|
|
|
|
*
J.
Otis Winters
|
|
Director
|
|
May 14, 2007
|
|
|
|
*By:
|
/s/ William
E. Joor III
|
|
William E. Joor III
Attorney-in-Fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY ENERGY
FINANCE CORP.
Name: James W. Hunt
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
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 and the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ James
W. Hunt
James
W. Hunt
|
|
Chairman, President, Chief
Executive
Officer (Principal Executive Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Stephen
L. Arata
Stephen
L. Arata
|
|
Vice President and Treasurer,
Director, (Principal Financial Officer and Principal Accounting
Officer)
|
|
May 14, 2007
|
|
|
|
|
|
Michael
L. Williams
|
|
Vice President, Director
|
|
May 14, 2007
|
|
|
|
|
|
/s/ William
E. Joor III
William
E. Joor III
|
|
Vice President, Secretary, Director
|
|
May 14, 2007
|
|
|
|
*By:
|
/s/ William
E. Joor III
|
|
William E. Joor III
Attorney-in-Fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY WAHA LP, LLC
REGENCY NGL GP, LLC
REGENCY GAS MARKETING GP LLC
REGENCY WAHA GP, LLC
REGENCY INTRASTATE GAS, LLC
REGENCY MIDCON GAS LLC
REGENCY LIQUIDS PIPELINE LLC
REGENCY GAS GATHERING AND PROCESSING LLC
GULF STATES TRANSMISSION CORPORATION
Name: James W. Hunt
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
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 and the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ James
W. Hunt
James
W. Hunt
|
|
Chairman and President
(Principal Executive Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Stephen
Arata
Stephen
Arata
|
|
Vice President, Director
(Principal Financial Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Lawrence
B. Connors
Lawrence
B. Connors
|
|
Treasurer
(Principal Accounting Officer)
|
|
May 14, 2007
|
II-8
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
Vice President, Director
(except, Gulf States Transmission
Corporation)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ William
E. Joor III
William
E. Joor III
|
|
Vice President and Secretary,
Director
|
|
May 14, 2007
|
|
|
|
*By:
|
/s/ William
E. Joor III
|
|
William E. Joor III
Attorney-in-Fact
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY FN GP LLC
REGENCY FS GP LLC
REGENCY GUARANTOR GP LLC
REGENCY GU GP LLC
REGENCY OPERATING GP LLC
REGENCY PIPELINE COMPANY INC.
REGENCY TGG LLC
REGENCY TS GP LLC
REGENCY TS ACQUISITION GP LLC
Name: James W. Hunt
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
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 and the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ James
W. Hunt
James
W. Hunt
|
|
Chairman and President
(Principal Executive Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Stephen
L. Arata
Stephen
L. Arata
|
|
Vice President, Director
(Principal Financial Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Lawrence
B. Connors
Lawrence
B. Connors
|
|
Vice President and Treasurer
(Principal Accounting Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ William
E. Joor III
William
E. Joor III
|
|
Vice President and Secretary,
Director
|
|
May 14, 2007
|
|
|
|
|
|
Michael
L. Williams
|
|
Vice President, Director
|
|
May 14, 2007
|
|
|
|
*By:
|
/s/ William
E. Joor III
|
|
William E. Joor III
Attorney-in-Fact
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
Name: James W. Hunt
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
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 and the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ James
W. Hunt
James
W. Hunt
|
|
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Stephen
L. Arata
Stephen
L. Arata
|
|
Executive Vice President and
Chief Financial Officer, Director
(Principal Financial Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ Lawrence
B. Connors
Lawrence
B. Connors
|
|
Vice President, Finance and
Chief Accounting Officer
(Principal Accounting Officer)
|
|
May 14, 2007
|
|
|
|
|
|
/s/ William
E. Joor III
William
E. Joor III
|
|
Executive Vice President, Chief
Legal and
Administrative Officer and Secretary,
Director
|
|
May 14, 2007
|
|
|
|
|
|
Michael
L. Williams
|
|
Executive Vice President and
Chief Operations Officer, Director
|
|
May 14, 2007
|
|
|
|
*By:
|
/s/ William
E. Joor III
|
|
William E. Joor III
Attorney-in-Fact
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY EASTEX NEWLINE LP
REGENCY EASTEX PROTREAT I LP
REGENCY EASTEX PROTREAT II LP
|
|
|
|
By:
|
REGENCY
OPERATING GP LLC, its General Partner
|
|
|
By:
|
/s/ James
W. Hunt
|
Name: James W. Hunt
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY FRIO NEWLINE LP
By: REGENCY FN GP LLC, its General Partner
Name: James W. Hunt
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
By: REGENCY FS GP LLC, its General Partner
Name: James W. Hunt
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
By: REGENCY GU GP LLC, its General Partner
Name: James W. Hunt
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
|
|
|
|
By:
|
REGENCY GUARANTOR GP LLC,
|
its General Partner
Name: James W. Hunt
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY FIELD
SERVICES LP
By: REGENCY TS GP LLC, its General Partner
Name: James W. Hunt
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
|
|
|
|
By:
|
REGENCY OPERATING GP LLC,
|
its General Partner
Name: James W. Hunt
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY TS
ACQUISITION LP
|
|
|
|
By:
|
REGENCY TS ACQUISITION GP LLC,
its General Partner
|
Name: James W. Hunt
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY GAS COMPANY LTD.
|
|
|
|
By:
|
REGENCY PIPELINE COMPANY INC.,
its General Partner
|
Name: James W. Hunt
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
|
|
|
|
By:
|
REGENCY NGL GP LLC, its General Partner
|
Name: James W. Hunt
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
|
|
|
|
By:
|
REGENCY GAS MARKETING GP LLC,
its General Partner
|
Name: James W. Hunt
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
|
|
|
|
By:
|
REGENCY OLP GP LLC, its General Partner
|
Name: James W. Hunt
|
|
|
|
Title:
|
President and Chief Executive Officer
|
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
REGENCY GAS SERVICES WAHA LP.
|
|
|
|
By:
|
REGENCY WAHA GP LLC, its General Partner
|
Name: James W. Hunt
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
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 Dallas, Texas, on May 14, 2007
PALAFOX JOINT VENTURE
|
|
|
|
By:
|
REGENCY PIPELINE COMPANY INC.,
|
its General Partner
|
|
|
|
By:
|
REGENCY GAS SERVICES GP LLC,
its General Partner
|
|
|
By:
|
REGENCY OLP GP LLC, its General Partner
|
Name: James W. Hunt
II-25
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement.
|
|
4
|
.1
|
|
Form of Senior Indenture.
|
|
4
|
.2
|
|
Form of Subordinated Indenture.
|
|
4
|
.3**
|
|
Form of Debt.
|
|
4
|
.4
|
|
Fourth Amended and Restated
Agreement of Limited Partnership of Regency Energy Partners LP
dated as of February 15, 2006 (incorporated by reference to
Exhibit 3.1 to our current report on
Form 8-K
filed February 9, 2006).
|
|
4
|
.5
|
|
Amendment No. 1 to Amended
and Restated Agreement of Limited Partnership of Regency Energy
Partners LP (incorporated by reference to Exhibit 3.1 to our
current report on
Form 8-K
filed August 15, 2006).
|
|
4
|
.6
|
|
Amendment No. 2 to Amended
and Restated Agreement of Limited Partnership of Regency Energy
Partners LP (incorporated by reference to Exhibit 3.1 to our
current report on
Form 8-K
filed September 22, 2006).
|
|
4
|
.7
|
|
Form of Specimen Certificate
Evidencing Units Representing Limited Partnership Interests in
Regency Energy Partners LP (incorporated by reference to Exhibit
4.1 to our Registration Statement on
Form S-1/A
filed January 24, 2006, File No.
333-129623).
|
|
4
|
.8
|
|
Registration Rights Agreement,
dated as of September 21, 2006, among Regency Energy
Partners LP and Kayne Anderson MLP Investment Company, Lehman
Brothers MLP Partners, L.P., GPS Income Fund LP, GPS High Yield
Equities Fund LP, GPS Income Fund (Cayman) Ltd. and RCH Energy
MLP Fund, LP (incorporated by reference to Exhibit 4.1 to our
current report on
Form 8-K
filed September 22, 2006).
|
|
4
|
.9
|
|
Registration Rights Agreement,
dated as of August 15, 2006, among Regency Energy Partners
LP and Flatrock Production Company, LLC, P. Scott Martin,
Phillip M. Mezey, Don E. Cole, Clay Y. Smith, Thomas H. Flowers,
Eric S. Friedrichs, Dorothy L. McCoppin, Mark A. Norville, David
S. ODell and the Estate of Martin H. Zolkoski.
|
|
4
|
.10
|
|
Stock Purchase Agreement, dated as
of April 2, 2007, by and among the Regency Energy Partners
LP, Pueblo Holdings, Inc., Bear Cub Investments, LLC, the
members of Bear Cub Investments, LLC and Robert J. Clark, as
Sellers Representative (incorporated by reference to
Exhibit 2.1 to our current report on
form 8-K
filed April 3, 2007).
|
|
4
|
.11
|
|
Registration Rights Agreement,
dated as of April 2, 2007, by and among Regency Energy
Partners LP and the members of Bear Cub Investments, LLC
(incorporated by reference to Exhibit 10.1 to our current report
on
form 8-K
filed April 3, 2007).
|
|
5
|
.1*
|
|
Opinion of Vinson &
Elkins L.L.P. regarding the legality of certain securities.
|
|
5
|
.2*
|
|
Opinion of Kean Miller Hawthorne
DArmond McCowan & Jarman, LLP regarding the
legality of certain guarantees.
|
|
8
|
.1
|
|
Opinion of Vinson &
Elkins L.L.P. regarding tax matters.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges
(incorporated by reference to Exhibit 12.1 to our Annual Report
on
Form 10-K
for the year ended December 31, 2006).
|
|
23
|
.1*
|
|
Consent of Deloitte &
Touche LLP.
|
|
23
|
.2*
|
|
Consent of Vinson &
Elkins L.L.P. (included in Exhibit 5.1).
|
|
23
|
.3
|
|
Consent of Vinson &
Elkins L.L.P. (included in Exhibit 8.1).
|
|
23
|
.4*
|
|
Consent of Kean Miller Hawthorne
DArmond McCowan & Jarman, LLP (included in
Exhibit 5.2).
|
|
23
|
.5*
|
|
Consent of Deloitte & Touche
LLP.
|
|
24
|
.1
|
|
Powers of Attorney (contained on
signature pages).
|
|
25
|
.1**
|
|
Form T-1
Statement of Eligibility and Qualification respecting the Senior
Indenture.
|
|
25
|
.2**
|
|
Form T-1
Statement of Eligibility and Qualification respecting the
Subordinated Indenture.
|
|
|
|
** |
|
To be filed by amendment or as an exhibit to a current report on
Form 8-K
of the registrant. |