As filed with the Securities and Exchange Commission on
October 14, 2009
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PLAINS ALL AMERICAN PIPELINE,
L.P.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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76-0582150
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer Identification
Number)
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333 Clay Street,
Suite 1600
Houston, Texas 77002
(713) 646-4100
(Address, Including Zip Code,
and Telephone Number, including Area Code, of Registrant’s
Principal Executive Offices)
Tim Moore
Vice President and General
Counsel
333 Clay Street,
Suite 1600
Houston, Texas 77002
(713) 646-4100
(Name, Address, Including Zip
Code, and Telephone Number, Including Area Code, of Agent for
Service)
Copy to:
D. Alan Beck, Jr.
Vinson & Elkins
L.L.P.
First City Tower
1001 Fannin Street, Suite
2500
Houston, Texas 77002
(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.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following
box.
þ
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
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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.
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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.
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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.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller reporting
company
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(Do
not check if a smaller reporting company)
CALCULATION OF REGISTRATION
FEE
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Title of Each Class of
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Amount to be
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Proposed Maximum
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Proposed Maximum
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Amount of
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Securities to be Registered
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Registered(1)
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Offering Price Per Unit
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Aggregate Offering Price(2)
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Registration Fee
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Common units representing limited partner interests
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1,907,305
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(3)
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$91,235,934.68
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$5,091
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(1)
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Pursuant to Rule 416(a), the
number of common units being registered shall be adjusted to
include any additional common units that may become issuable as
a result of any unit distribution, split, combination or similar
transaction.
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(2)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(c) of
the Securities Act on the basis of the average of the high and
low sales prices of the common units reported on the New York
Stock Exchange on October 8, 2009.
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(3)
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The proposed maximum offering price
per common unit will be determined from time to time by the
selling unitholders in connection with, and at the time of, the
sale by the selling unitholders of the securities registered
hereunder.
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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 Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. The selling unitholders may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these securities, and it is not soliciting an
offer to buy these securities in any state where the offer or
sale is not permitted.
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SUBJECT TO COMPLETION, DATED
OCTOBER 14, 2009
PROSPECTUS
1,907,305 Common
Units
Representing Limited Partner
Interests
Plains All American Pipeline,
L.P.
Up to 1,907,305 of our common units may be offered from time to
time by the selling unitholders named in this prospectus. The
selling unitholders may sell the common units at various times
and in various types of transactions, including sales in the
open market, sales in negotiated transactions and sales by a
combination of methods. We will not receive any proceeds from
the sale of common units by the selling unitholders.
Our common units are traded on the New York Stock Exchange under
the symbol “PAA.”
Investing in our common units involves risks. Limited
partnerships are inherently different from corporations. You
should carefully consider the factors described under “Risk
Factors” beginning on page 6 of this prospectus before
you make an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2009.
TABLE OF
CONTENTS
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.
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission using a
“shelf” registration process. Under this shelf
registration process, the selling unitholders may, over time,
offer and sell up to 1,907,305 of our common units. In
connection with certain sales of securities hereunder, a
prospectus supplement may accompany this prospectus. The
prospectus supplement may also add to, update or change
information contained in this prospectus. Before you invest in
our securities, you should carefully read this prospectus and
any prospectus supplement and the additional information
described under the heading “Where You Can Find More
Information.” To the extent information in this prospectus
is inconsistent with information contained in a prospectus
supplement, you should rely on the information in the prospectus
supplement. You should read both this prospectus and any
prospectus supplement, together with additional information
described under the heading “Where You Can Find More
Information,” and any additional information you may need
to make your investment decision.
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WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, that registers the
securities offered by this prospectus. The registration
statement, including the attached exhibits, contains additional
relevant information about us. The rules and regulations of the
SEC allow us to omit some information included in the
registration statement from this prospectus.
In addition, we file annual, quarterly and other reports and
other information with the SEC. You may read and copy any
document we file at the SEC’s public reference room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-732-0330
for further information on the operation of the SEC’s
public reference room. Our SEC filings are available on the
SEC’s web site at
http://www.sec.gov.
We also make available free of charge on our website, at
http://www.paalp.com,
all materials that we file electronically with the SEC,
including our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
Section 16 reports and amendments to these reports as soon
as reasonably practicable after such materials are
electronically filed with, or furnished to, the SEC.
The SEC allows us to “incorporate by reference” the
information we have filed with the SEC. This means that we can
disclose important information to you without actually including
the specific information in this prospectus by referring you to
other documents filed separately with the SEC. These other
documents contain important information about us, our financial
condition and results of operations. The information
incorporated by reference is an important part of this
prospectus. Information that we file later with the SEC will
automatically update and may replace information in this
prospectus and information previously filed with the SEC. We
incorporate by reference the documents listed below and any
future filings made by Plains All American Pipeline, L.P. with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (excluding any information
furnished and not filed with the SEC) until all offerings under
this shelf registration statement are completed or after the
date on which the registration statement that includes this
prospectus was initially filed with the SEC and before the
effectiveness of such registration statement:
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Annual Report on
Form 10-K
for the year ended December 31, 2008;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009;
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Current Report on
Form 8-K
filed with the SEC on February 25, 2009 (compensation
arrangements for certain of our executive officers);
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Current Report on
Form 8-K
filed with the SEC on March 12, 2009 (audited balance sheet
of PAA GP LLC as of December 31, 2008);
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Current Report on
Form 8-K
filed (other than Item 7.01, which was furnished) with the
SEC on March 18, 2009 (documentation related to equity
offering);
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Current Report on
Form 8-K
filed with the SEC on April 20, 2009 (documentation related
to debt offering);
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Current Report on
Form 8-K
filed (other than Items 7.01 and 9.01, which were
furnished) with the SEC on May 22, 2009 (election of
Christopher M. Temple to the board of directors of Plains All
American GP LLC);
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Current Report on
Form 8-K
filed with the SEC on July 7, 2009 (unaudited balance sheet
of PAA GP LLC as of March 31, 2009);
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Current Report on
Form 8-K
filed with the SEC on July 23, 2009 (documentation related
to debt offering);
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Current Report on
Form 8-K
filed (other than Items 7.01 and 9.01, which were
furnished) with the SEC on August 28, 2009 (unregistered
sale of equity securities);
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Current Report on
Form 8-K
filed with the SEC on September 3, 2009 (amendment of the
Limited Partnership Agreement of Plains All American Pipeline,
L.P.);
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Current Report on
Form 8-K
filed with the SEC on September 4, 2009 (documentation
related to debt offering);
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Current Report on
Form 8-K
filed (other than Item 7.01, which was furnished) with the
SEC on September 11, 2009 (documentation related to equity
offering);
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Current Report on
Form 8-K
filed with the SEC on September 28, 2009 (audited balance
sheet of PAA GP LLC as of June 30, 2009); and
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the description of our common units contained in our
Form 8-A/A
dated November 3, 1998 and any subsequent amendment thereto
filed for the purpose of updating such description.
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You may obtain any of the documents incorporated by reference in
this prospectus from the SEC through the SEC’s website at
the address provided above. You also may request a copy of any
document incorporated by reference in this prospectus (including
exhibits to those documents specifically incorporated by
reference in this document), at no cost, by visiting our
internet website at www.paalp.com, or by writing or calling us
at the following address:
Plains All American Pipeline, L.P.
333 Clay Street, Suite 1600
Houston, Texas 77002
Attention: Tim Moore
Telephone:
(713) 646-4100
2
FORWARD-LOOKING
STATEMENTS
All statements included or incorporated by reference in this
prospectus or the accompanying prospectus supplement, other than
statements of historical fact, are forward-looking statements,
including but not limited to statements identified by the words
“anticipate,” “believe,”
“estimate,” “expect,” “plan,”
“intend” and “forecast,” as well as similar
expressions and statements regarding our business strategy,
plans and objectives of our management for future operations.
The absence of these words, however, does not mean that the
statements are not forward-looking. These statements reflect our
current views with respect to future events, based on what we
believe are reasonable assumptions. Certain factors could cause
actual results to differ materially from results anticipated in
the forward-looking statements. These factors include, but are
not limited to:
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failure to implement or capitalize on planned internal growth
projects;
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maintenance of our credit rating and ability to receive open
credit from our suppliers and trade counterparties;
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continued creditworthiness of, and performance by, our
counterparties, including financial institutions and trading
companies with which we do business;
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the success of our risk management activities;
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environmental liabilities or events that are not covered by an
indemnity, insurance or existing reserves;
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abrupt or severe declines or interruptions in outer continental
shelf production located offshore California and transported on
our pipeline systems;
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shortages or cost increases of power supplies, materials or
labor;
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the availability of adequate third-party production volumes for
transportation and marketing in the areas in which we operate
and other factors that could cause declines in volumes shipped
on our pipelines by us and third-party shippers, such as
declines in production from existing oil and gas reserves or
failure to develop additional oil and gas reserves;
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fluctuations in refinery capacity in areas supplied by our
mainlines and other factors affecting demand for various grades
of crude oil, refined products and natural gas and resulting
changes in pricing conditions or transportation throughput
requirements;
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the availability of, and our ability to consummate, acquisition
or combination opportunities;
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our ability to obtain debt or equity financing on satisfactory
terms to fund additional acquisitions, expansion projects,
working capital requirements and the repayment or refinancing of
indebtedness;
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the successful integration and future performance of acquired
assets or businesses and the risks associated with operating in
lines of business that are distinct and separate from our
historical operations;
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unanticipated changes in crude oil market structure and
volatility (or lack thereof);
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the impact of current and future laws, rulings, governmental
regulations, accounting standards and statements and related
interpretations;
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the effects of competition;
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interruptions in service and fluctuations in tariffs or volumes
on third-party pipelines;
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increased costs or lack of availability of insurance;
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fluctuations in the debt and equity markets, including the price
of our units at the time of vesting under our long-term
incentive plans;
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the currency exchange rate of the Canadian dollar;
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weather interference with business operations or project
construction;
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risks related to the development and operation of natural gas
storage facilities;
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future developments and circumstances at the time distributions
are declared;
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general economic, market or business conditions and the
amplification of other risks caused by deteriorated financial
markets, capital constraints and pervasive liquidity
concerns; and
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other factors and uncertainties inherent in the transportation,
storage, terminalling and marketing of crude oil, refined
products and liquefied petroleum gas and other natural gas
related petroleum products.
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Other factors described herein or incorporated by reference, or
factors that are unknown or unpredictable, could also have a
material adverse effect on future results. Please read
“Risk Factors” beginning on page 6 of this
prospectus and in Item 1A. “Risk Factors” in our
Annual Report on
Form 10-K
for the year ended December 31, 2008. Except as required by
applicable securities laws, we do not intend to update these
forward-looking statements and information.
4
WHO WE
ARE
We are a Delaware limited partnership formed in September 1998.
Our operations are conducted directly and indirectly through our
primary operating subsidiaries. We are engaged in the
transportation, storage, terminalling and marketing of crude
oil, refined products and liquefied petroleum gas and other
natural gas-related petroleum products. We have an extensive
network of pipeline transportation, terminalling, storage and
gathering assets in key oil-producing basins and transportation
corridors, and at major market hubs in the United States and
Canada. We are also engaged in the development and operation of
natural gas storage facilities.
For purposes of this prospectus, unless the context clearly
indicates otherwise, “we,” “us,”
“our” and the “Partnership” refer to Plains
All American Pipeline, L.P. and its subsidiaries. References to
our “general partner,” as the context requires,
include any or all of PAA GP LLC, Plains AAP, L.P. and Plains
All American GP LLC.
Our executive offices are located at 333 Clay Street,
Suite 1600, Houston, Texas 77002 and our telephone number
is
(713) 646-4100.
For additional information as to our business, properties and
financial condition please refer to the documents cited in
“Where You Can Find More Information.”
5
RISK
FACTORS
An investment in our securities involves a high degree of risk.
You should carefully consider the risk factors and all of the
other information included in, or incorporated by reference
into, this prospectus, including those in Item 1A.
“Risk Factors” in our Annual Report on
Form 10-K
for the year ended December 31, 2008, in evaluating an
investment in our securities. If any of these risks were to
occur, our business, financial condition or results of
operations could be adversely affected. In that case, the
trading price of our common units 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.
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USE OF
PROCEEDS
We will not receive any proceeds from the sale of common units
by the selling unitholders.
7
DESCRIPTION
OF OUR COMMON UNITS
Generally, our common units represent limited partner interests
that entitle the holders to participate in our cash
distributions and to exercise the rights and privileges
available to limited partners under our partnership agreement.
For a description of the relative rights and preferences of
holders of common units and our general partner in and to cash
distributions. See “Cash Distribution Policy.”
Our outstanding common units are listed on the NYSE under the
symbol “PAA.” Any additional common units we issue
will also be listed on the NYSE.
The transfer agent and registrar for our common units is
American Stock Transfer & Trust Company.
Meetings/Voting
Each holder of common units is entitled to one vote for each
common unit on all matters submitted to a vote of the
unitholders.
Status as
Limited Partner or Assignee
Except as described below under “— Limited
Liability,” the common units will be fully paid, and
unitholders will not be required to make additional capital
contributions to us.
Each purchaser of common units offered by this prospectus must
execute a transfer application whereby the purchaser requests
admission as a substituted limited partner and makes
representations and agrees to provisions stated in the transfer
application. If this action is not taken, a purchaser will not
be registered as a record holder of common units on the books of
our transfer agent or issued a common unit certificate.
Purchasers may hold common units in nominee accounts.
An assignee, pending its admission as a substituted limited
partner, is entitled to an interest in us equivalent to that of
a limited partner with respect to the right to share in
allocations and distributions, including liquidating
distributions. Our general partner will vote and exercise other
powers attributable to common units owned by an assignee who has
not become a substituted limited partner at the written
direction of the assignee. A nominee or broker who has executed
a transfer application with respect to common units held in
street name or nominee accounts will receive distributions and
reports pertaining to its common units.
Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware
Revised Uniform Limited Partnership Act (the “Delaware
Act”) and that he otherwise acts in conformity with the
provisions of our partnership agreement, his liability under the
Delaware Act will be limited, subject to some possible
exceptions, generally to the amount of capital he is obligated
to contribute to us in respect of his units plus his share of
any undistributed profits and assets.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner to the extent that at the time of the
distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to
partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of
the assets of the limited partnership. For the purposes of
determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of
the property subject to liability of which recourse of creditors
is limited shall be included in the assets of the limited
partnership only to the extent that the fair value of that
property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was
in violation of the Delaware Act is liable to the limited
partnership for the amount of the distribution for three years
from the date of the distribution.
Reports
and Records
As soon as practicable, but in no event later than 120 days
after the close of each fiscal year, our general partner will
furnish or make available to each unitholder of record (as of a
record date selected by our general
8
partner) an annual report containing our audited financial
statements for the past fiscal year. These financial statements
will be prepared in accordance with generally accepted
accounting principles. In addition, no later than 45 days
after the close of each quarter (except the fourth quarter), our
general partner will furnish or make available to each
unitholder of record (as of a record date selected by our
general partner) a report containing our unaudited financial
statements and any other information required by law.
Our general partner will use all reasonable efforts to furnish
each unitholder of record information reasonably required for
tax reporting purposes within 90 days after the close of
each fiscal year. Our general partner’s ability to furnish
this summary tax information will depend on the cooperation of
unitholders in supplying information to our general partner.
Each unitholder will receive information to assist him in
determining his U.S. federal and state and Canadian federal
and provincial tax liability and filing his U.S. federal
and state and Canadian federal and provincial income tax returns.
A limited partner can, for a purpose reasonably related to the
limited partner’s 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 became a partner;
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copies of our partnership agreement, our certificate of limited
partnership, amendments to either of them and powers of attorney
which have been executed under our partnership agreement;
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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 and other information the
disclosure of which our general partner believes in good faith
is not in our best interest or which we are required by law or
by agreements with third parties to keep confidential.
9
CASH
DISTRIBUTION POLICY
Distributions
of Available Cash
General.
We will distribute to our
unitholders, on a quarterly basis, all of our available cash in
the manner described below.
Definition of Available Cash.
Available cash
generally means, for any quarter ending prior to liquidation,
all cash on hand at the end of that quarter less the amount of
cash reserves that are necessary or appropriate in the
reasonable discretion of the general partner to:
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provide for the proper conduct of our business;
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comply with applicable law or any partnership debt instrument or
other agreement; or
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provide funds for distributions to unitholders and the general
partner in respect of any one or more of the next four quarters.
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Operating
Surplus and Capital Surplus
General.
Cash distributions to our unitholders
will be characterized as either operating surplus or capital
surplus. We distribute available cash from operating surplus
differently than available cash from capital surplus. See
“— Quarterly Distributions of Available
Cash.”
Definition of Operating Surplus.
Operating
surplus refers generally to:
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our cash balances on the closing date of our initial public
offering; plus
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$25 million; plus
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all of our cash receipts from operations, excluding cash that is
capital surplus; less
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all of our operating expenses, debt service payments (but not
including payments required with the sale of assets or any
refinancing with the proceeds of new indebtedness or an equity
offering), maintenance capital expenditures and reserves
established for future operations.
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Definition of Capital Surplus.
Capital surplus
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 dispositions of assets for cash, other than
inventory, accounts receivable and other assets in the ordinary
course of business.
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We will treat all available cash distributed as coming from
operating surplus until the sum of all available cash
distributed since we began equals the operating surplus as of
the end of the quarter prior to the distribution. Any available
cash in excess of operating surplus, regardless of its source,
will be treated as capital surplus.
If we distribute available cash from capital surplus for each
common unit in an aggregate amount per common unit equal to the
initial public offering price of the common units, there will
not be a distinction between operating surplus and capital
surplus, and all distributions of available cash will be treated
as operating surplus. We do not anticipate that we will make
distributions from capital surplus.
Incentive
Distribution Rights
The 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. The target distribution levels are based on the
amounts of available cash from operating surplus distributed
above the payments made under the minimum quarterly
distribution, if any, and the related 2% distribution to the
general partner.
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Effect of
Issuance of Additional Units
We can issue additional common units or other equity securities
for consideration and under terms and conditions approved by our
general partner in its sole discretion and without the approval
of our unitholders. We may fund acquisitions through the
issuance of additional common units or other equity securities.
Holders of any additional common units that we issue will be
entitled to share equally with our then-existing unitholders in
distributions of available cash. In addition, the issuance of
additional interests may dilute the value of the interests of
the then-existing unitholders. If we issue additional
partnership interests, our general partner will be required to
make an additional capital contribution to us.
Quarterly
Distributions of Available Cash
We will make quarterly distributions to our partners prior to
our liquidation in an amount equal to 100% of our available cash
for that quarter. We expect to make distributions of all
available cash within approximately 45 days after the end
of each quarter to holders of record on the applicable record
date. The minimum quarterly distribution and the target
distribution levels are also subject to certain other
adjustments as described below under
“— Distributions from Capital Surplus” and
“— Adjustment to the Minimum Quarterly
Distribution and Target Distribution Levels.”
Distributions
From Operating Surplus
We will make distributions of available cash from operating
surplus in the following manner:
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First, 98% to all unitholders, pro rata, and 2% to the general
partner, until we distribute for each 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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Incentive
Distribution Rights
For any quarter that we distribute available cash from operating
surplus to the common unitholders in an amount equal to the
minimum quarterly distribution on all units, then we will
distribute any additional available cash from operating surplus
in that quarter among the unitholders and the general partner in
the following manner:
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First, 85% to all unitholders, pro rata, and 15% to the general
partner, until each unitholder receives a total of $0.495 for
that quarter for each outstanding unit (the “first target
distribution”);
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Second, 75% to all unitholders, pro rata, and 25% to the general
partner, until each unitholder receives a total of $0.675 for
that quarter for each outstanding unit (the “second target
distribution”); and
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Thereafter, 50% to all unitholders, pro rata, and 50% to the
general partner.
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Our distributions to the general partner above, other than in
its capacity as holders of units, that are in excess of its
aggregate 2% general partner interest represent the incentive
distribution rights. The right to receive incentive distribution
rights is not part of its general partner interest and may be
transferred separately from that interest, subject to certain
restrictions.
Adjustments
to Incentive Distribution Rights
In connection with acquisitions or similar transactions, we have
and may in the future modify the incentive distribution rights
to, among other reasons, accelerate the accretion or other
benefits of the transaction to limited partners.
Upon closing of the Pacific and Rainbow acquisitions, our
general partner agreed to reduce the amounts due it as incentive
distributions. The total reduction in incentive distributions
related to these acquisitions will be $75 million.
Following our distribution in August 2009, the remaining
incentive distribution reductions related to Pacific and Rainbow
totaled approximately $21.25 million.
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In connection with our acquisition of the remaining 50% indirect
member interest in PAA Natural Gas Storage LLC in September
2009, our general partner agreed to further reduce the amounts
due it as incentive distributions by an aggregate of
$8 million over the next two years. This reduction will be
effective upon our payment of a quarterly distribution of $0.92
per unit.
Distributions
from Capital Surplus
How Distributions from Capital Surplus Will Be
Made.
We will make distributions of available
cash from capital surplus in the following manner:
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First, 98% to all unitholders, pro rata, and 2% to the general
partner, until we distribute, for each common unit issued in
this offering, available cash from capital surplus in an
aggregate amount per common unit equal to the initial public
offering price; 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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Effect of a Distribution from Capital
Surplus.
Our partnership agreement treats a
distribution of available cash from capital surplus as the
repayment of the initial unit price. To show that repayment, the
minimum quarterly distribution and the target distribution
levels will be reduced by multiplying each amount by a fraction,
the numerator of which is the unrecovered capital of the common
units immediately after giving effect to that repayment and the
denominator of which is the unrecovered capital of the common
units immediately prior to that repayment.
When Payback Occurs.
When “payback”
of the reduced initial unit price has occurred, i.e., when the
unrecovered capital of the common units is zero, then
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the minimum quarterly distribution and the target distribution
levels will be reduced to zero for subsequent quarters;
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all distributions of available cash will be treated as operating
surplus; and
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the general partner will be entitled to receive 50% of
distributions of available cash in its capacities as general
partner and as holder of the incentive distribution rights.
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Distributions of available cash from capital surplus will not
reduce the minimum quarterly distribution or target distribution
levels for the quarter in which they are distributed.
Adjustment
to the Minimum Quarterly Distribution and Target Distribution
Levels
How We Adjust 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 (but not if we issue additional common units for cash or
property), 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 capital; and
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other amounts calculated on a per unit basis.
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For example, in the event of a two-for-one split of the common
units (assuming no prior adjustments), the minimum quarterly
distribution, each of the target distribution levels and the
unrecovered capital of the common units would each be reduced to
50% of its initial level.
If We Became Subject to Taxation.
If
legislation is enacted or if existing law is modified or
interpreted by the relevant governmental 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 adjust the minimum quarterly
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distribution and each of the target distribution levels,
respectively, to equal the product obtained by multiplying the
amount thereof by:
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one minus the sum of (x) the maximum effective federal
income tax rate to which we as an entity were subject plus
(y) any increase in state and local income taxes to which
we are subject for the taxable year of the event, after
adjusting for any allowable deductions for federal income tax
purposes for the payment of state and local income taxes.
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For example, assuming we were not previously subject to state
and local income tax, if we become taxable as an entity for
federal income tax purposes and became subject to a maximum
marginal federal, and effective state and local, income tax rate
of 38%, then the minimum quarterly distribution and the target
distribution levels would each be reduced to 62% of the amount
immediately prior to that adjustment.
Distribution
of Cash Upon Liquidation
General.
If we dissolve and liquidate, we will
sell our assets or otherwise dispose of our assets and we will
adjust the partners’ capital account balances to show any
resulting gain or loss. We will first apply the proceeds of
liquidation to the payment of our creditors in the order of
priority provided in our partnership agreement and by law and,
thereafter, distribute to the unitholders and the general
partner in accordance with their adjusted capital account
balances.
Manner of Adjustment.
If we liquidate, we
would allocate any loss to the general partner and each
unitholder as follows:
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First, 98% to the holders of common units who have positive
balances in their capital accounts in proportion to those
positive balances and 2% to the general partner, until the
capital accounts of the common unitholders have been reduced to
zero; and
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Thereafter, 100% to the general partner.
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Interim Adjustments to Capital Accounts.
If we
issued additional security interests or made distributions of
property, interim adjustments to capital accounts would also be
made. These adjustments would be based on the fair market value
of the interests or the property distributed and any gain or
loss would be allocated to the unitholders and the general
partner in the same way that a gain or loss is allocated upon
liquidation. If positive interim adjustments are made to the
capital accounts, any subsequent negative adjustments to the
capital accounts resulting from our issuance of additional
interests, distributions of property, or upon our liquidation,
would be allocated in a way that, to the extent possible, in the
capital account balances of the general partner equaling the
amount which would have been the general partner’s capital
account balances if no prior positive adjustments to the capital
accounts had been made.
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DESCRIPTION
OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. The following provisions of our
partnership agreement are summarized elsewhere in this
prospectus:
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distributions of our available cash are described under
“Cash Distribution Policy;”
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allocations of taxable income and other tax matters are
described under “Material Income Tax Considerations;”
and
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rights of holders of common units are described under
“Description of Our Common Units.”
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Purpose
Our purpose under our partnership agreement is to serve as a
partner of our operating partnerships and to engage in any
business activities that may be engaged in by our operating
partnerships or that are approved by our general partner. The
partnership agreements of our operating partnerships provide
that they may engage in any activity that was engaged in by our
predecessors at the time of our initial public offering or
reasonably related thereto and any other activity approved by
our general partner.
Power of
Attorney
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application,
grants to our general partner and, if appointed, a liquidator, a
power of attorney to, among other things, execute and file
documents required for our qualification, continuance or
dissolution. The power of attorney also grants the authority for
the amendment of, and to make consents and waivers under, our
partnership agreement.
Reimbursements
of Our General Partner
Our general partner does not receive any compensation for its
services as our general partner. It is, however, entitled to be
reimbursed for all of its costs incurred in managing and
operating our business. Our partnership agreement provides that
our general partner will determine the expenses that are
allocable to us in any reasonable manner determined by our
general partner in its sole discretion.
Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional limited partner interests and other equity
securities that are equal in rank with or junior to our common
units on terms and conditions established by our general partner
in its sole discretion without the approval of any limited
partners.
It is likely that we will fund acquisitions through the issuance
of additional common units or other equity securities. Holders
of any additional common units we issue will be entitled to
share equally with the then-existing holders of common units in
our cash distributions. In addition, the issuance of additional
partnership interests may dilute the value of the interests of
the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
interests that, in the sole discretion of our general partner,
may have special voting rights to which common units are not
entitled.
Our general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to
purchase common units or other equity securities whenever, and
on the same terms that, we issue those securities to persons
other than our general partner and its affiliates, to the extent
necessary to maintain their percentage interests in us that
existed immediately prior to the issuance. The holders of common
units will not have preemptive rights to acquire additional
common units or other partnership interests in us.
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Amendments
to Our Partnership Agreement
Amendments to our partnership agreement may be proposed only by
our general partner. Any amendment that materially and adversely
affects the rights or preferences of any type or class of
limited partner interests in relation to other types or classes
of limited partner interests or our general partner interest
will require the approval of at least a majority of the type or
class of limited partner interests or general partner interests
so affected. However, in some circumstances, more particularly
described in our partnership agreement, our general partner may
make amendments to our partnership agreement without the
approval of our limited partners or assignees.
Withdrawal
or Removal of Our General Partner
Our general partner has agreed not to withdraw voluntarily as
our general partner prior to December 31, 2008 without
obtaining the approval of the holders of a majority of our
outstanding common units, excluding those held by our general
partner and its affiliates, and furnishing an opinion of counsel
regarding limited liability and tax matters. On or after
December 31, 2008, our general partner may withdraw as
general partner without first obtaining approval of any
unitholder by giving 90 days’ written notice, and that
withdrawal will not constitute a violation of our partnership
agreement. In addition, our general partner may withdraw without
unitholder approval upon 90 days’ notice to our
limited partners if at least 50% of our outstanding common units
are held or controlled by one person and its affiliates other
than our general partner and its affiliates.
Upon the voluntary withdrawal of our general partner, the
holders of a majority of our outstanding common units, excluding
the common units held by the withdrawing general partner and its
affiliates, may elect a successor to the withdrawing general
partner. If a successor is not elected, or is elected but an
opinion of counsel regarding limited liability and tax matters
cannot be obtained, we will be dissolved, wound up and
liquidated, unless within 90 days after that withdrawal,
the holders of a majority of our outstanding units, excluding
the common units held by the withdrawing general partner and its
affiliates, agree to continue our business and to appoint a
successor general partner.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than two-thirds
of our outstanding units, including units held by our general
partner and its affiliates, and we receive an opinion of counsel
regarding limited liability and tax matters. Any removal of this
kind is also subject to the approval of a successor general
partner by the vote of the holders of a majority of our
outstanding common units, including those held by our general
partner and its affiliates.
While our partnership agreement limits the ability of our
general partner to withdraw, it allows the general partner
interest and incentive distribution rights to be transferred to
an affiliate or to a third party in conjunction with a merger or
sale of all or substantially all of the assets of our general
partner.
In addition, our partnership agreement expressly permits the
sale, in whole or in part, of the ownership of our general
partner. Our general partner may also transfer, in whole or in
part, the common units it owns.
Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the person authorized to wind up
our affairs (the liquidator) will, acting with all the powers of
our general partner that the liquidator deems necessary or
desirable in its good faith judgment, liquidate our assets. The
proceeds of the liquidation will be applied as follows:
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first, towards the payment of all of our creditors and the
creation of a reserve for contingent liabilities; and
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then, to all partners in accordance with the positive balance in
the respective capital accounts.
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Under some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of our assets
for a reasonable period of time. If the liquidator determines
that a sale would be impractical or would cause a loss to our
partners, our general partner may distribute assets in kind to
our partners.
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Change of
Management Provisions
Our partnership agreement contains the following specific
provisions that are intended to discourage a person or group
from attempting to remove our general partner or otherwise
change management:
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generally, if a person acquires 20% or more of any class of
units then outstanding other than from our general partner or
its affiliates, the units owned by such person cannot be voted
on any matter; and
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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.
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Limited
Call Right
If at any time our general partner and its affiliates own 80% or
more of the issued and outstanding limited partner interests of
any class, our general partner will have the right to purchase
all, but not less than all, of the outstanding limited partner
interests of that class that are held by non-affiliated persons.
The record date for determining ownership of the limited partner
interests would be selected by our general partner on at least
10 but not more than 60 days’ notice. The purchase
price in the event of a purchase under these provisions would be
the greater of (1) the current market price (as defined in
our agreement) of the limited partner interests of the class as
of the date three days prior to the date that notice is mailed
to the limited partners as provided in our partnership agreement
and (2) the highest cash price paid by our general partner
or any of its affiliates for any limited partner interest of the
class purchased within the 90 days preceding the date our
general partner mails notice of its election to purchase the
units.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify our general partner, its affiliates and their officers
and directors to the fullest extent permitted by law, from and
against all losses, claims or damages any of them may suffer by
reason of their status as general partner, officer or director,
as long as the person seeking indemnity acted in good faith and
in a manner reasonably believed to be in or (in the case of an
indemnitee other than the general partner) not opposed to our
best interest. Any indemnification under these provisions will
only be out of our assets. Our general partner shall not be
personally liable for, or have any obligation to contribute or
loan funds or assets to us to enable us to effectuate any
indemnification.
We are authorized to purchase insurance against liabilities
asserted against and expenses incurred by persons for our
activities, regardless of whether we would have the power to
indemnify the person against liabilities under our partnership
agreement.
Registration
Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units, or other partnership securities proposed
to be sold by our general partner or any of its affiliates or
their assignees if an exemption from the registration
requirements is not otherwise available. We are obligated to pay
all expenses incidental to the registration, excluding
underwriting discounts and commissions.
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MATERIAL
INCOME TAX CONSIDERATIONS
This section is a discussion 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 of 1986, as amended (the
“Internal Revenue Code”), existing and proposed
regulations promulgated under the Internal Revenue Code (the
“Treasury Regulations”), 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 Plains All American Pipeline, L.P.
The following discussion does not comment on all federal income
tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs) or mutual
funds. Accordingly, we urge each prospective unitholder to
consult, and depend on, his own tax advisor in analyzing the
federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of 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
counsel’s 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 our 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 see
“— 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 see
“— 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 see
“— 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 to the
partnership or to the partner unless the amount of cash
distributed is in excess of the partner’s adjusted basis in
his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
“Qualifying Income Exception,” exists
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with respect to publicly traded partnerships of which 90% or
more of the gross income for every taxable year consists of
“qualifying income.” Qualifying income includes income
and gains derived from the transportation, storage, terminalling
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. Moreover, recently enacted
legislation has modified Section 7704(d)(1)(E) of the
Internal Revenue Code to expand the definition of qualifying
income to include income from the storage and transportation of
certain alternative fuels and, among other things, the
transportation and marketing of industrial source carbon
dioxide. We estimate that less than 5% of our current gross
income is not qualifying income; however, this estimate could
change from time to time. Based upon and subject to this
estimate, the factual representations made by us and the general
partner and a review of the applicable legal authorities,
Vinson & Elkins L.L.P. is of the opinion that at least
90% of our current gross income constitutes qualifying income.
The portion of our income that is qualifying income may change
from time to time.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of the
operating partnerships for federal income tax purposes or
whether our operations generate “qualifying income”
under Section 7704 of the Internal Revenue Code. Instead,
we will rely on the opinion of 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 the operating partnerships will be treated as
partnerships or disregarded as entities 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 partnerships have elected
or will elect to be treated as a corporation;
(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; and
(c) Each hedging transaction that we treat as resulting in
qualifying income has been and will be appropriately identified
as a hedging transaction pursuant to applicable Treasury
Regulations, and has been and will be associated with oil, gas,
or products thereof that are held or to be held by us in
activities that Vinson & Elkins L.L.P. has opined or
will opine result in qualifying income.
We believe that these representations have been true in the past
and expect that these representations will be true in the future.
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 an association taxable as a corporation in
any taxable year, either as a result of a failure to meet the
Qualifying Income Exception or otherwise, our items of income,
gain, loss and deduction would be reflected only on our tax
return rather than being passed through to the unitholders, and
our net income would be taxed to us at corporate rates. In
addition, any distribution made to a unitholder would be treated
as either taxable dividend income, to the extent of our current
or accumulated earnings and profits, or, in the absence of
earnings and profits, a nontaxable return of capital, to the
extent of the unitholder’s tax basis
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in his common units, or taxable capital gain, after the
unitholder’s tax basis in his common units is reduced to
zero. Accordingly, taxation as a corporation would result in a
material reduction in a unitholder’s cash flow and
after-tax return and thus would likely result in a substantial
reduction of the value of the units.
The 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 Plains All
American Pipeline, L.P. will be treated as partners of Plains
All American Pipeline, L.P. for federal income tax purposes.
Also:
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assignees who have executed and delivered transfer applications,
and are awaiting admission as limited partners and
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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
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will be treated as partners of Plains All American Pipeline,
L.P. for federal income tax purposes. As there is no direct or
indirect controlling authority addressing assignees of common
units who are entitled to execute and deliver transfer
applications and thereby become entitled to direct the exercise
of attendant rights, but who fail to execute and deliver
transfer applications, Vinson & Elkins L.L.P.’s
opinion does not extend to these persons. Furthermore, a
purchaser or other transferee of common units who does not
execute and deliver a transfer application may not receive some
federal income tax information or reports furnished to record
holders of common units unless the common units are held in a
nominee or street name account and the nominee or broker has
executed and delivered a transfer application for those common
units.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please see
“— 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
Plains All American Pipeline, L.P.
The references to “unitholders” in the discussion that
follows are to persons who are treated as partners in Plains All
American Pipeline, L.P. for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-Through of Taxable Income.
We will not
pay any federal income tax. Instead, each unitholder will be
required to report on his income tax return his share of our
income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him.
Consequently, we may allocate income to a unitholder even if he
has not received a cash distribution. Each unitholder will be
required to include in income his allocable share of our income,
gains, losses and deductions for our taxable year ending with or
within his taxable year. Our taxable year ends on
December 31.
Treatment of Distributions.
Distributions by
us to a unitholder generally will not be taxable to the
unitholder for federal income tax purposes, 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 unitholder’s tax basis
generally will be considered to be gain from the sale or
exchange of our common units, taxable in accordance with the
rules described under “— Disposition of Common
Units.” Any reduction in a unitholder’s share of our
liabilities for which no partner, including the general partner,
bears the economic risk of loss, known as “nonrecourse
liabilities,” will be treated as a distribution of cash to
that unitholder. To the extent our distributions cause a
unitholder’s “at risk” amount to be less than
zero at the end of any taxable
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year, he must recapture any losses deducted in previous years.
Please see “— Limitations on Deductibility of
Losses.”
A decrease in a unitholder’s percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. This deemed
distribution may constitute a non-pro rata distribution. A
non-pro rata distribution of money or property may result in
ordinary income to a unitholder, regardless of his tax basis in
his common units, if the distribution reduces the
unitholder’s share of our “unrealized
receivables,” including depreciation recapture,
and/or
substantially appreciated “inventory items,” both as
defined in the Internal Revenue Code, and collectively,
“Section 751 Assets.” To that extent, he will be
treated as having been distributed his proportionate share of
the Section 751 Assets and then having exchanged those
assets with us in return for the non-pro rata portion of the
actual distribution made to him. This latter deemed exchange
will generally result in the unitholder’s realization of
ordinary income, which will equal the excess of (1) the
non-pro rata portion of that distribution over (2) the
unitholder’s tax basis (generally zero) for the share of
Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units.
A unitholder’s
initial tax basis for his common units will be the amount he
paid for our common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse
liabilities. That basis will be decreased, but not below zero,
by distributions from us, by the unitholder’s share of our
losses, by any decreases in his share of our nonrecourse
liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to
be capitalized. A unitholder will have no share of our debt that
is recourse to our general partner, but will have a share,
generally based on his share of profits, of our nonrecourse
liabilities. Please see “— Disposition of Common
Units — Recognition of Gain or Loss.”
Limitations on Deductibility of Losses.
The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder, estate, trust, or corporate unitholder
(if more than 50% of the value of the corporate
unitholder’s 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 common unitholder subject to these
limitations must recapture losses deducted in previous years to
the extent that distributions cause his at-risk amount to be
less than zero at the end of any taxable year. Losses disallowed
to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable as a deduction to the
extent that his at-risk amount is subsequently increased
provided such losses do not exceed such common unitholders’
tax basis in his common units. 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 loss previously suspended by the at-risk
limitation in excess of that gain would no longer be 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 unitholder’s at-risk amount will increase
or decrease as the tax basis of the unitholder’s units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
In addition to the basis and at-risk limitations on the
deductibility of losses, 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 taxpayer’s income
from those passive activities. The passive loss limitations are
applied separately with respect to each publicly traded
partnership. Consequently, any passive losses we generate will
only be available to offset our passive income generated in the
future and will not be available to offset income from other
passive activities or investments, including our
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investments or investments in other publicly traded
partnerships, or salary or active business income. Passive
losses that are not deductible because they exceed a
unitholder’s share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on
deductions, including the at-risk rules and the basis limitation.
A unitholder’s share of our net income may be offset by any
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 taxpayer’s
“investment interest expense” is generally limited to
the amount of that taxpayer’s “net investment
income.” Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholder’s investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment or qualified
dividend income. 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
unitholder’s share of our portfolio income will be treated
as investment income.
Entity-Level Collections.
If we are
required or elect under applicable law to pay any federal,
state, 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 partner
on whose behalf the payment was made. If the payment is made on
behalf of a person whose identity cannot be determined, we are
authorized to treat the payment as a distribution to all current
unitholders. We are authorized to amend 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 partner in which event the partner
would be required to file a claim in order to obtain a credit or
refund.
Allocation of Income, Gain, Loss and
Deduction.
In general, if we have a net profit,
our items of income, gain, loss and deduction will be allocated
among our general partner and the unitholders in accordance with
their percentage interests in us. At any time that distributions
are made to our 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, that loss will be allocated first to the general
partner and the unitholders in accordance with their percentage
interests in us to the extent of their positive capital accounts
and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for (i) any difference between the tax
basis and fair market value of our assets at the time of an
offering and (ii) any difference between the tax basis and
fair market value of any property contributed to us by the
general partner and its affiliates that exists at the time of
such contribution, together, 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 from us in an offering will
be essentially the same as if the tax basis of our assets were
equal to their fair market value at the time of such offering.
In the event we issue additional common units or
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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 immediately prior to such
other transactions 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
partner who was allocated the deduction giving rise to the
treatment of that gain as recapture income in order to minimize
the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital
accounts nevertheless result, items of our income and gain will
be allocated in an amount and manner as is needed to eliminate
the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partner’s
“book” capital account, credited with the fair market
value of Contributed Property, and “tax” capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the “Book-Tax
Disparity,” will generally be given effect for federal
income tax purposes in determining a partner’s share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partner’s share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon
liquidation.
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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 partner’s
share of an item of income, gain, loss or deduction.
Treatment of Short Sales.
A unitholder whose
units are loaned to a “short seller” to cover a short
sale of units may be considered as having disposed of those
units. If so, he would no longer be 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:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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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 borrowing
their units. The IRS has announced that it is actively studying
issues relating to the tax treatment of short sales of
partnership interests. Please also read
“— Disposition of Common Units —
Recognition of Gain or Loss.”
Alternative Minimum Tax.
Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax 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.
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Tax Rates.
Under current law, the highest
marginal U.S. federal income tax rate applicable to
ordinary income of individuals is 35% and the highest marginal
U.S. federal income tax rate applicable to long-term
capital gains (generally, capital gains on certain assets held
for more than 12 months) of individuals is 15%. However,
absent new legislation extending the current rates, beginning
January 1, 2011, the highest marginal U.S. federal
income tax rate applicable to ordinary income and long-term
capital gains of individuals will increase to 39.6% and 20%,
respectively. Moreover, these rates are subject to change by new
legislation at any time.
Section 754 Election.
We have made the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS. The election will generally permit us to adjust a common
unit purchaser’s tax basis in our assets (“inside
basis”) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholder’s inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (“common basis”) and (2) his
Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we have
generally adopted as to all of our 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 subject to depreciation under
Section 168 of the Internal Revenue Code whose book basis
is in excess of its tax basis to be depreciated over the
remaining cost recovery period for the property’s
unamortized Book-Tax Disparity. Under Treasury Regulation
Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. 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, the 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 see
“— Uniformity of Units.”
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 property’s unamortized Book-Tax Disparity,
or treat that portion as
non-amortizable
to the extent attributable to property 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. 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 see
“— Uniformity of Units.” A unitholder’s
tax basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individual’s income tax return) so that any position we
take that understates deductions will overstate the common
unitholder’s basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please see “— 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
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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
transferee’s tax basis in his units is higher than the
units’ share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation deductions and his share of any
gain or loss on a sale of our assets would be less. Conversely,
a Section 754 election is disadvantageous if the
transferee’s tax basis in his units is lower than those
units’ share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. 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 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 see “— 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 an offering will be borne by our
unitholders holding interests in us prior to any such offering.
Please see “— 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 subject
to these allowances 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 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 see “— 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,
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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 see “— Tax Consequences of
Unit Ownership — Allocation of Income, Gain, Loss and
Deduction” and “— Disposition of Common
Units — Recognition of Gain or Loss.”
The costs we incur 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 unitholder’s tax basis for the
units sold. A unitholder’s amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholder’s share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholder’s tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholder’s tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a “dealer” in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as long term 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%
through December 31, 2010 and 20% thereafter (absent new
legislation extending or adjusting the current rate). However, a
portion of this gain or loss, which will likely be substantial,
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 partner’s tax basis in his entire
interest in the
25
partnership as the value of the interest sold bears to the value
of the partner’s 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
Treasury Regulations, may designate specific common units sold
for purposes of determining the holding period of units
transferred. A unitholder electing to use the actual holding
period of common units transferred must consistently use that
identification method for all subsequent sales or exchanges of
common units. A unitholder considering the purchase of
additional units or a sale of common units purchased in separate
transactions is urged to consult his tax advisor as to the
possible consequences of this ruling and application of the
Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
“appreciated” partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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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 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.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations. Recently,
however, the Department of the Treasury and the IRS issued
proposed Treasury Regulations that provide a safe harbor
pursuant to which a publicly traded partnership may use a
similar monthly simplifying convention to allocate tax items
among transferor and transferee unitholders, although such tax
items must be prorated on a daily basis. Existing publicly
traded partnerships are entitled to rely on these proposed
Treasury Regulations; however, they are not binding on the IRS
and are subject to change until final Treasury Regulations are
issued. 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
unitholder’s 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.
26
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 are
sales or exchanges which, in the aggregate, constitute 50% or
more of the total interests in our capital and profits within a
twelve-month period. For purposes of measuring whether the 50%
threshold is reached, multiple sales of the same interest are
counted only once. 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. A constructive termination occurring on a date
other than December 31 will result in us filing two tax returns
(and common unitholders receiving two Schedules K-1) for one
fiscal year and the cost of the preparation of these returns
will be borne by all common unitholders. 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. The IRS has recently announced that it
plans to issue guidance regarding the treatment of constructive
terminations of publicly traded partnerships such as us. Any
such guidance may change the application of the rules discussed
above and may affect the tax treatment of a unitholder.
Uniformity
of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury Regulation
Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the units. Please see “— 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 property’s unamortized Book-Tax
Disparity, 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 see “— Tax Consequences of Unit
Ownership — Section 754 Election.” To the
extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation
and amortization position under which all purchasers acquiring
units in the same month would receive depreciation and
amortization deductions, whether attributable to a common basis
or Section 743(b) adjustment, based upon the same
applicable methods and lives 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
27
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 see
“— 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
non-U.S. persons
raises issues unique to those investors and, as described below,
may have substantially adverse tax consequences to them. If you
are a tax-exempt entity or a
non-U.S. person,
you should consult your tax advisor before investing in our
common units.
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 it.
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
non-U.S. unitholders.
Each
non-U.S. 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 corporation’s “U.S. net equity,”
which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
“qualified resident.” In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
A foreign unitholder who sells or otherwise disposes of a unit
will be subject to U.S. federal income tax on gain realized
from the sale or disposition of that unit to the extent the gain
is effectively connected with a U.S. trade or business of
the foreign unitholder. Under a ruling published by the IRS,
interpreting the scope of “effectively connected
income,” a foreign unitholder would be considered to be
engaged in a trade or business in the U.S. by virtue of the
U.S. activities of the partnership, and part or all of that
unitholder’s gain would be effectively connected with that
unitholder’s indirect U.S. trade or business.
Moreover, under the Foreign Investment in Real Property Tax Act,
a foreign unitholder generally will be subject to
U.S. federal income tax upon the sale or disposition of a
unit if (i) he owned (directly or constructively applying
certain attribution rules) more than 5% of our common units at
any time during the five-year period ending on the date of such
disposition and (ii) 50% or more of the fair market value
of all of our assets consisted of U.S. real property
interests at any time during the shorter of the period during
which such unitholder held the common units or the
5-year
period ending on the date of disposition. Currently, more than
50% of our assets consist of U.S. real property interests
and we do not expect that to change in the foreseeable future.
Therefore, foreign unitholders may be subject to federal income
tax on gain from the sale or disposition of their units.
28
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 unitholder’s
share of income, gain, loss and deduction. We cannot assure you
that those positions will in all cases 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 year’s tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholder’s return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the “Tax Matters Partner” for these
purposes. Our partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner has made and 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:
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the name, address and taxpayer identification number of the
beneficial owner and the nominee;
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whether the beneficial owner is:
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a person that is not a United States person;
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a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing; or
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a tax-exempt entity;
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the amount and description of units held, acquired or
transferred for the beneficial owner; and
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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.
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Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per failure, up
to a maximum of $100,000 per calendar year, is imposed by the
29
Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of
the units with the information furnished to us.
Accuracy-Related Penalties.
An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for that portion and that the taxpayer acted in good faith
regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to
penalty generally is reduced if any portion is attributable to a
position adopted on the return:
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for which there is, or was, “substantial authority;” or
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as to which there is a reasonable basis and the pertinent facts
of that position are disclosed on the return.
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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
or any of our investments, plans or arrangements.
A substantial valuation misstatement exists if (i) the
value of any property, or the tax basis of any property, claimed
on a tax return is 150% or more of the amount determined to be
the correct amount of the valuation or tax basis, (ii) the
price for any property or services (or for the use of property)
claimed on any such return with respect to any transaction
between persons described in Internal Revenue Code
Section 482 is 200% or more (or 50% or less) of the amount
determined under Internal Revenue Code Section 482 to be
the correct amount of such price or (iii) the
net Internal Revenue Code Section 482 transfer price
adjustment for the taxable year exceeds the lesser of
$5 million or 10% of the taxpayer’s gross receipts. No
penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds
$5,000 ($10,000 for a corporation other than an
S Corporation or a personal holding company). The penalty
is increased to 40% in the event of a gross valuation
misstatement.
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 6 successive tax years. Our participation in a
reportable transaction could increase the likelihood that our
federal income tax information return (and possibly your tax
return) would be audited by the IRS. Please see
“— 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.”
State,
Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you may 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
currently own property and do business in Canada and most states
of the United States. A unitholder may be required to file
Canadian federal income tax returns and pay Canadian federal and
provincial income taxes and to file state income tax returns and
to pay taxes in various states 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 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 unitholder’s 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 see “— Tax Consequences of Unit
Ownership — Entity-Level Collections.” Based
on current law and our estimate of our future operations, the
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.
31
SELLING
UNITHOLDERS
This prospectus covers the offering for resale of up to
1,907,305 common units by the selling unitholders identified
below. No offer or sale may occur unless the registration
statement that includes this prospectus has been declared
effective by the SEC, and remains effective at the time such
selling unitholder offers or sells such common units. We are
required (under certain circumstances) to update this prospectus
to reflect material developments in our business, financial
position and results of operations. The following table sets
forth information relating to the selling unitholders’
beneficial ownership of our common units as of October 8,
2009 and is based on information provided by the selling
unitholders:
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Common Units
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Owned Prior to
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Common Units
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Common Units Owned After Offering
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Selling Unitholders
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Offering
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being Offered
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Number of Units
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Percent
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Vulcan Capital Private Equity I LLC(1)
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3,706,044
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1,710,090
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1,995,954
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1.47
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Vulcan Capital Private Equity II LLC(1)
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197,215
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197,215
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0
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—
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(1)
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Mr. Paul Allen controls Vulcan Capital Private Equity I
LLC, which is the record holder of 3,706,044 common units, and
Vulcan Capital Private Equity II LLC, which is the record
holder of 197,215 common units. In addition, Mr. Allen owns
approximately 80% of the outstanding shares of common stock of
Vulcan Energy Corporation. Vulcan Energy Corporation is the sole
stockholder of Vulcan Energy GP Holdings Inc., which owns
approximately 50% of the equity of our general partner.
Mr. Allen disclaims any deemed beneficial ownership, beyond
his pecuniary interest, in any of our partner interests held by
Vulcan Capital Private Equity I LLC, Vulcan Capital Private
Equity II LLC, Vulcan Energy Corporation or Vulcan Energy
GP Holdings Inc.
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In the event a prospectus supplement is used to reflect the sale
of common units hereunder, it will set forth, with respect to
the selling unitholders:
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the name of the selling unitholders;
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the nature of the position, office or other material
relationship which the selling unitholders will have had within
the prior three years with us or any of our affiliates;
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the number of common units owned by the selling unitholders
prior to the offering;
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the amount of common units to be offered for the selling
unitholders’ account; and
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the amount and (if one percent or more) the percentage of common
units to be owned by the selling unitholders after the
completion of the offering.
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All expenses incurred with the registration of the common units
owned by the selling unitholders will be borne by us.
32
PLAN OF
DISTRIBUTION
We are registering the common units on behalf of the selling
unitholders. As used in this prospectus, “selling
unitholders” includes donees and pledgees selling common
units received from a named selling unitholder after the date of
this prospectus.
Under this prospectus, the selling unitholders 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.
|
The selling unitholders may price the common units offered from
time to time:
|
|
|
|
|
|
•
|
at market prices prevailing at the time of any sale under this
registration statement;
|
|
|
|
|
•
|
prices related to market prices; or
|
|
|
|
|
•
|
negotiated prices.
|
We will pay the costs and expenses of the registration and
offering of the common units offered hereby. We will not pay any
underwriting fees, discounts and selling commissions allocable
to each selling unitholder’s sale of its respective common
units, which will be paid by the selling unitholders.
Broker-dealers may act as agent or may purchase securities as
principal and thereafter resell the securities from time to time:
|
|
|
|
|
|
•
|
in or through one or more transactions (which may involve
crosses and block transactions) or distributions;
|
|
|
|
|
•
|
on the New York Stock Exchange;
|
|
|
|
|
•
|
in the over-the-counter market; or
|
|
|
|
|
•
|
in private transactions.
|
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 and the selling
unitholders 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.
In addition, the selling unitholders have advised us that they
may sell common units in compliance with Rule 144, if
available, or pursuant to other available exemptions from the
registration requirements under the Securities Act, rather than
pursuant to this prospectus.
The aggregate maximum compensation the underwriters will receive
in connection with the sale of any securities under this
prospectus and the registration statement of which it forms a
part will not exceed 10% of the gross proceeds from the sale.
Because FINRA views our common units as interests in a direct
participation program, any offering of common units under the
registration statement of which this prospectus forms a part
will be made in compliance with Rule 2310 of the FINRA
Rules.
33
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a specific plan of
distribution. The place and time of delivery for the securities
in respect of which this prospectus is delivered will be set
forth in the accompanying prospectus supplement.
In connection with offerings under this shelf registration and
in compliance with applicable law, underwriters, brokers or
dealers may engage in transactions which stabilize or maintain
the market price of the securities at levels above those which
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.
34
LEGAL
MATTERS
The validity of the common units will be passed upon for Plains
All American Pipeline by Vinson & Elkins L.L.P.,
Houston, Texas, offered in this registration statement. The
selling unitholders’ counsel and the underwriters’ own
legal counsel will advise them about other issues relating to
any offering in which they participate.
EXPERTS
The financial statements of Plains All American Pipeline, L.P.
and management’s assessment of the effectiveness of
internal control over financial reporting (which is included in
Management’s Report on Internal Control over Financial
Reporting) incorporated in this prospectus by reference to the
Annual Report on
Form 10-K
of Plains All American Pipeline, L.P. for the year ended
December 31, 2008, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The balance sheet as of December 31, 2008 of PAA GP LLC
incorporated in this prospectus by reference to the Current
Report on
Form 8-K
of Plains All American Pipeline, L.P. filed March 12, 2009
has been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
35
PART II
INFORMATION
REQUIRED IN THE REGISTRATION STATEMENT
|
|
|
|
Item 14.
|
Other
Expenses of Issuance and Distribution
|
Set forth below are the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered
hereby. With the exception of the Securities and Exchange
Commission registration fee, the amounts set forth below are
estimates.
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|
|
|
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|
SEC registration fee
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|
$
|
5,091
|
|
|
Legal fees and expenses
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|
|
100,000
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|
|
Accounting fees and expenses
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|
20,000
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|
|
Printing and engraving expenses
|
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15,000
|
|
|
Miscellaneous
|
|
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0
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|
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|
|
|
|
|
|
Total
|
|
$
|
140,091
|
|
|
|
|
|
Item 15.
|
Indemnification
of Officers and Members of Our Board of Directors
|
Section 17-108
of the Delaware Revised Limited Partnership Act empowers a
Delaware limited partnership to indemnify and hold harmless any
partner or other person from and against all claims and demands
whatsoever. The partnership agreement of Plains All American
Pipeline provides that Plains All American Pipeline will
indemnify the general partner, any departing partner, any person
who is or was an affiliate of the general partner or any
departing partner, and any person who is or was a member,
partner, officer, director, employee, agent or trustee of the
general partner or any departing partner or any affiliate of the
general partner or any departing partner, or any person who is
or was serving at the request of the general partner or any
departing partner or any affiliate of the general partner or any
departing partner as an officer, director, employee, member,
partner, agent, fiduciary or trustee of another person (each, an
“Indemnitee”), to the fullest extent permitted by law,
from and against any and all losses, claims, damages,
liabilities (joint and several), expenses (including, without
limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from
any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in
which any Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, by reason of its status as
any of the foregoing; provided that in each case the Indemnitee
acted in good faith and in a manner that such Indemnitee
reasonably believed to be in or not opposed to the best
interests of Plains All American Pipeline and, with respect to
any criminal proceeding, had no reasonable cause to believe his,
her or its conduct was unlawful. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
any Indemnitee pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
Any indemnification under these provisions will be only out of
the assets of Plains All American Pipeline, and the general
partner shall not be personally liable for, or have any
obligation to contribute or loan funds or assets to Plains All
American Pipeline to enable it to effectuate, such
indemnification. Plains All American Pipeline is authorized to
purchase (or to reimburse the general partner or its affiliates
for the cost of) insurance against liabilities asserted against
and expenses incurred by such persons in connection with Plains
All American Pipeline’s activities, regardless of whether
Plains All American Pipeline would have the power to indemnify
such person against such liabilities under the provisions
described above.
Section 18-108
of the Delaware Limited Liability Company Act provides that,
subject to such standards and restrictions, if any, as are set
forth in its limited liability company agreement, a Delaware
limited liability company may, and has the power to, indemnify
and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever. The limited
liability company agreement of Plains All American GP LLC
provides for the indemnification of (i) its members,
(ii) members of its Board of Directors, and (iii) its
officers (each, a “Company Affiliate”), from and
against any and all losses, claims, demands, costs, damages,
liabilities, expenses of any nature (including reasonable
attorneys’ fees and
II-1
disbursements), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative,
in which such person may be involved, or threatened to be
involved, as a party or otherwise, by reason of his, her or its
status as a Company Affiliate, regardless of whether a Company
Affiliate continues to be a Company Affiliate at the time any
such liability or expense is paid or incurred, if such Company
Affiliate acted in good faith and in a manner he, she or it
reasonably believed to be in, or not opposed to, the interests
of the Plains All American GP LLC and with respect to any
criminal proceeding, had no reason to believe his, her or its
conduct was unlawful. Expenses incurred by a Company Affiliate
in defending any such claim, demand, action, suit or proceeding
will, from time to time, be advanced by the Plains All American
GP LLC prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Plains All
American GP LLC of an undertaking by or on behalf of the Company
Affiliate to repay such amounts if it is ultimately determined
that the Company Affiliate is not entitled to be indemnified.
Plains All American GP LLC is authorized to purchase and
maintain insurance, on behalf of the members of its Board of
Directors, its officers and such other persons as the Board of
Directors may determine, against any liability that may be
asserted against or expense that may be incurred by such person
in connection with the activities of Plains All American GP LLC.
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|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
(a) Exhibits
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|
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1
|
.1+
|
|
—
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|
Form of Underwriting Agreement
|
|
|
4
|
.1*
|
|
—
|
|
Registration Rights Agreement by and between Plains All American
Pipeline, L.P. and Vulcan Gas Storage LLC dated
September 3, 2009
|
|
|
5
|
.1*
|
|
—
|
|
Opinion of Vinson & Elkins L.L.P. as to the legality
of the securities being registered
|
|
|
8
|
.1*
|
|
—
|
|
Opinion of Vinson & Elkins L.L.P. relating to tax
matters
|
|
|
23
|
.1*
|
|
—
|
|
Consent of PricewaterhouseCoopers LLP
|
|
|
23
|
.2*
|
|
—
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibits 5.1 and 8.1)
|
|
|
24
|
.1*
|
|
—
|
|
Powers of Attorney (included on the signature page)
|
|
|
|
|
|
*
|
|
Filed herewith.
|
|
|
|
+
|
|
To be filed as an exhibit to a report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 or in a post-effective amendment to this registration
statement.
|
Each of the undersigned registrants hereby undertakes:
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 Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement;
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 (l)(a), (l)(b) and (1)(c)
above do not apply if the information required to be included in
a post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the SEC 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, or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the
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
(d) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
II-3
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 plan’s
annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of
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.
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 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas on October 14, 2009.
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PAA GP LLC, its general partner
By: Plains AAP, L.P., its sole member
By: Plains All American GP LLC, its general partner
|
|
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|
By:
|
/s/
GREG
L. ARMSTRONG
|
Name: Greg L. Armstrong
|
|
|
|
|
|
Title:
|
Chairman of the Board and Chief Executive Officer
|
Power of
Attorney
Each person whose signature appears below appoints Al Swanson
and Tim Moore, and each of them, either of whom may act without
the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement and any Registration Statement (including any
amendment thereto) for this offering that is to be effective
upon filing pursuant to the Securities Act of 1933, as amended,
and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or would do in person,
hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them of their or his substitute and
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the
following persons in the capacities and on the dates indicated
below.
PLAINS ALL AMERICAN GP LLC, for itself and as the general
partner of PLAINS AAP, L.P., which is the sole member of PAA GP
LLC, which is the general partner of PLAINS ALL AMERICAN
PIPELINE, L.P.
|
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|
|
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|
|
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|
|
/s/ GREG
L. ARMSTRONG
Greg
L. Armstrong
|
|
Chairman of the Board, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ AL
SWANSON
Al
Swanson
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ TINA
L. VAL
Tina
L. Val
|
|
Vice President — Accounting and Chief Accounting
Officer (Principal Accounting Officer)
|
|
October 14, 2009
|
II-5
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
/s/ W.
LANCE CONN
W.
Lance Conn
|
|
Director
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ EVERARDO
GOYANES
Everardo
Goyanes
|
|
Director
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ GARY
R. PETERSEN
Gary
R. Petersen
|
|
Director
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ ROBERT
V. SINNOTT
Robert
V. Sinnott
|
|
Director
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ ARTHUR
L. SMITH
Arthur
L. Smith
|
|
Director
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ J.
TAFT SYMONDS
J.
Taft Symonds
|
|
Director
|
|
October 14, 2009
|
|
|
|
|
|
|
|
/s/ CHRISTOPHER
M. TEMPLE
Christopher
M. Temple
|
|
Director
|
|
October 14, 2009
|
II-6
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
|
|
|
1
|
.1+
|
|
—
|
|
Form of Underwriting Agreement
|
|
|
4
|
.1*
|
|
—
|
|
Registration Rights Agreement by and between Plains All American
Pipeline, L.P. and Vulcan Gas Storage LLC dated
September 3, 2009
|
|
|
5
|
.1*
|
|
—
|
|
Opinion of Vinson & Elkins L.L.P. as to the legality
of the securities being registered
|
|
|
8
|
.1*
|
|
—
|
|
Opinion of Vinson & Elkins L.L.P. relating to tax
matters
|
|
|
23
|
.1*
|
|
—
|
|
Consent of PricewaterhouseCoopers LLP
|
|
|
23
|
.2*
|
|
—
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibits 5.1 and 8.1)
|
|
|
24
|
.1*
|
|
—
|
|
Powers of Attorney (included on the signature page)
|
|
|
|
|
|
*
|
|
Filed herewith.
|
|
|
|
+
|
|
To be filed as an exhibit to a report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 or in a post-effective amendment to this registration
statement.
|
Exhibit 4.1
COMMON UNIT
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
PLAINS ALL AMERICAN PIPELINE, L.P.
AND
VULCAN GAS STORAGE LLC
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “
Agreement
”) is made and entered into as of
September 3, 2009, by and between PLAINS ALL AMERICAN PIPELINE, L.P., a Delaware limited
partnership (the “
Partnership
”) and Vulcan Gas Storage LLC, a Delaware limited liability
company (“
Gas Storage
”).
WHEREAS, the Partnership and Gas Storage are parties to that certain Membership Interest
Purchase Agreement, dated August 27, 2009 (the “
Purchase Agreement
”), pursuant to which
Plains Marketing, L.P., a Texas limited partnership and subsidiary of the Partnership, will
purchase from Gas Storage, all of Gas Storage’s Membership Interests in PAA/Vulcan Gas Storage,
LLC, a Delaware limited liability company (the “
Company
”), as further described therein;
WHEREAS, pursuant to the Purchase Agreement, a portion of the purchase price to be paid to Gas
Storage for all of Gas Storage’s Membership Interests in the Company shall be the Closing Common
Units; and
WHEREAS, the Partnership has agreed to provide the registration and other rights set forth in
this Agreement for the benefit of Gas Storage.
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and
for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by
each party hereto, the parties hereby agree as follows:
ARTICLE I
.
DEFINITIONS
Section 1.01
Definitions
. Capitalized terms used herein without definition shall have
the meanings given to them in the Purchase Agreement. The terms set forth below are used herein as
so defined:
“
Agreement
” has the meaning specified therefor in the Recitals of this Agreement.
“
Closing Common Units
” has the meaning specified therefor in the Purchase Agreement.
“
Commission
” means the United States Securities and Exchange Commission.
“
Common Units
” means the common units of the Partnership.
“
Company
” has the meaning specified therefor in the Recitals of this Agreement.
“
Effectiveness Period
” has the meaning specified therefore in Section 2.01(a) of this
Agreement.
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission promulgated thereunder.
“
Holder
” means the record holder of any Registrable Securities.
“
Gas Storage
” has the meaning specified therefor in the Recitals of this Agreement.
“
Losses
” has the meaning specified therefor in Section 2.06(a) of this Agreement.
“
Managing Underwriter
” means, with respect to any Underwritten Offering, the book
running lead manager of such Underwritten Offering.
“
Partnership
” has the meaning specified therefor in the Recitals of this Agreement.
“
Person
” means any individual, corporation, company, voluntary association,
partnership, joint venture, trust, limited liability company, unincorporated organization,
government or any agency, instrumentality or political subdivision thereof, or any other form of
entity.
“
Purchase Agreement
” has the meaning specified therefor in the Recitals of this
Agreement.
“
Registrable Securities
” means the Closing Common Units until such time as such
securities cease to be Registrable Securities pursuant to Section 1.02 hereof.
“
Registration Expenses
” has the meaning specified therefor in Section 2.05(a) of this
Agreement.
“
Securities Act
” means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
“
Selling Expenses
” has the meaning specified therefor in Section 2.05(a) of this
Agreement.
“
Selling Holder
” means a Holder who is selling Registrable Securities pursuant to a
registration statement.
“
Shelf Registration
” has the meaning specified therefor in Section 2.01(a) of this
Agreement.
“
Shelf Registration Statement
” has the meaning specified therefor in Section 2.01(a)
of this Agreement.
“
Underwritten Offering
” means an offering (including an offering pursuant to a Shelf
Registration Statement) in which Common Units are sold to an underwriter on a firm commitment basis
for reoffering to the public or an offering that is a “bought deal” with one or more investment
banks.
Section 1.02
Registrable Securities
. Any Registrable Security will cease to be a
Registrable Security when (a) a registration statement covering such Registrable Security has been
declared effective by the Commission and such Registrable Security has been sold or disposed of
pursuant to such effective registration statement; (b) such Registrable Security has
2
been disposed of pursuant to any section of Rule 144 (or any similar provision then in force
under the Securities Act); (c) such Registrable Security is held by the Partnership or one of its
subsidiaries; or (d) such Registrable Security becomes saleable under Rule 144 of the Securities
Act without regard to any volume limitation requirement under Rule 144 of the Securities Act.
ARTICLE II
.
REGISTRATION RIGHTS
Section 2.01
Shelf Registration
.
(a)
Shelf Registration
. As soon as practicable following the Closing of the purchase
of the Common Units pursuant to the terms of the Purchase Agreement, but in any event within 120
days of the Closing, the Partnership shall prepare and file a registration statement under the
Securities Act to permit the public resale of the Registrable Securities from time to time as
permitted by Rule 415 of the Securities Act (the “
Shelf Registration Statement
”). The
Partnership shall use its commercially reasonable efforts to cause the Shelf Registration Statement
to become effective no later than 240 days after the date of the Closing (the “
Shelf
Registration
”). The Shelf Registration Statement filed pursuant to this Section 2.01(a) shall
be on such appropriate registration form of the Commission as shall be selected by the Partnership;
provided
,
however
, that if a prospectus supplement will be used in connection with
the marketing of an Underwritten Offering from the Shelf Registration Statement and the Managing
Underwriter at any time shall notify the Partnership in writing that, in the sole judgment of such
Managing Underwriter, inclusion of detailed information to be used in such prospectus supplement is
of material importance to the success of the Underwritten Offering of such Registrable Securities,
the Partnership shall use its commercially reasonable efforts to include such information in the
prospectus. The Partnership will cause the Shelf Registration Statement filed pursuant to this
Section 2.01(a) to be continuously effective under the Securities Act until all Registrable
Securities covered by the Shelf Registration Statement have been distributed in the manner set
forth and as contemplated in the Shelf Registration Statement or there are no longer any
Registrable Securities outstanding (the “
Effectiveness Period
”). The Shelf Registration
Statement when declared effective (including the documents incorporated therein by reference) will
comply as to form with all applicable requirements of the Securities Act and the Exchange Act and
will not contain an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
(b)
Delay Rights
. Notwithstanding anything to the contrary contained herein, the
Partnership may, upon written notice to any Selling Holder whose Registrable Securities are
included in the Shelf Registration Statement, suspend such Selling Holder’s use of any prospectus
which is a part of the Shelf Registration Statement (in which event the Selling Holder shall
discontinue sales of the Registrable Securities pursuant to the Shelf Registration Statement) if
(i) the Partnership is pursuing an acquisition, merger, reorganization, disposition or other
similar transaction and the Partnership determines in good faith that the Partnership’s ability to
pursue or consummate such a transaction would be materially adversely affected by any required
disclosure of such transaction in the Shelf Registration Statement or (ii) the Partnership has
experienced some other material non-public event the disclosure of which would, in the good faith
judgment of the Partnership, be materially detrimental to the Partnership or its business
3
prospects. Upon disclosure of such information or the termination of the condition described
above, the Partnership shall provide prompt notice to the Selling Holders whose Registrable
Securities are included in the Shelf Registration Statement, and shall promptly terminate any
suspension of sales it has put into effect and shall take such other actions to permit registered
sales of Registrable Securities as contemplated in this Agreement.
Section 2.02
Underwritten Offering
.
(a)
Shelf Registration
. In the event that a Selling Holder elects to dispose of
Registrable Securities under the Shelf Registration Statement pursuant to an Underwritten Offering,
the Partnership shall enter into an underwriting agreement in customary form with the Managing
Underwriter or Underwriters, which shall include, among other provisions, indemnities to the effect
and to the extent provided in Section 2.06, and shall take all such other reasonable actions as are
requested by the Managing Underwriter in order to expedite or facilitate the registration and
disposition of the Registrable Securities;
provided
,
however
, the participation of
the Partnership’s management in connection with an Underwritten Offering for the benefit of Selling
Holders shall consist of not more than sixteen hours of teleconferences for the benefit of Gas
Storage annually; and provided further, that these marketing obligations are not transferable to
any other Holders other than Affiliates of Gas Storage, notwithstanding the provisions of Section
2.08 hereof.
(b)
General Procedures
. In connection with any Underwritten Offering under this
Agreement, the Partnership shall be entitled to select the Managing Underwriter or Underwriters.
In connection with an Underwritten Offering under Section 2.01 hereof, each Selling Holder and the
Partnership shall be obligated to enter into an underwriting agreement which contains such
representations, covenants, indemnities and other rights and obligations as are customary in
underwriting agreements for firm commitment offerings of securities. No Selling Holder may
participate in such Underwritten Offering unless such Selling Holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes and executes all
questionnaires, powers of attorney, indemnities and other documents reasonably required under the
terms of such underwriting agreement. Each Selling Holder may, at its option, require that any or
all of the representations and warranties by, and the other agreements on the part of, the
Partnership to and for the benefit of such underwriters also be made to and for such Selling
Holder’s benefit and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement also be conditions precedent to its obligations. No
Selling Holder shall be required to make any representations or warranties to or agreements with
the Partnership or the underwriters other than representations, warranties or agreements regarding
such Selling Holder and its ownership of the securities being registered on its behalf and its
intended method of distribution and any other representation required by law. If any Selling
Holder disapproves of the terms of an underwriting, such Selling Holder may elect to withdraw
therefrom by notice to the Partnership and the Managing Underwriter;
provided
,
however
, that such withdrawal must be made during the time period up to and including the
time of pricing of such offering to be effective. No such withdrawal or abandonment shall affect
the Partnership’s obligation to pay Registration Expenses.
Section 2.03
Registration Procedures
. In connection with its obligations contained in
Section 2.01, the Partnership will, as expeditiously as possible:
4
(a) prepare and file with the Commission such amendments and supplements to the Shelf
Registration Statement and the prospectus used in connection therewith as may be necessary to keep
the Shelf Registration Statement effective for the Effectiveness Period and as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition of all securities
covered by the Shelf Registration Statement;
(b) furnish to each Selling Holder (i) as far in advance as reasonably practicable before
filing the Shelf Registration Statement or any supplement or amendment thereto, upon request,
copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits
and each document incorporated by reference therein to the extent then required by the rules and
regulations of the Commission), and provide each such Selling Holder the opportunity to object to
any information pertaining to such Selling Holder and its plan of distribution that is contained
therein and make the corrections reasonably requested by such Selling Holder with respect to such
information prior to filing the Shelf Registration Statement or supplement or amendment thereto,
and (ii) such number of copies of the Shelf Registration Statement and the prospectus included
therein and any supplements and amendments thereto as such Persons may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities covered by such
Shelf Registration Statement or other registration statement;
(c) if applicable, use its commercially reasonable efforts to register or qualify the
Registrable Securities covered by the Shelf Registration Statement under the securities or blue sky
laws of such jurisdictions as the Selling Holders or, in the case of an Underwritten Offering, the
Managing Underwriter, shall reasonably request, provided that the Partnership will not be required
to qualify generally to transact business in any jurisdiction where it is not then required to so
qualify or to take any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(d) promptly notify each Selling Holder and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of (i) the filing of the
Shelf Registration Statement or any prospectus or prospectus supplement to be used in connection
therewith, or any amendment or supplement thereto, and, with respect to such Shelf Registration
Statement, when the same has become effective; and (ii) any written comments from the Commission
with respect to any filing referred to in clause (i) and any written request by the Commission for
amendments or supplements to the Shelf Registration Statement or any prospectus or prospectus
supplement thereto;
(e) immediately notify each Selling Holder and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of (i) the happening of any
event as a result of which the prospectus or prospectus supplement contained in the Shelf
Registration Statement, as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; (ii) the issuance or threat
of issuance by the Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement, or the initiation of any proceedings for that purpose; or (iii) the receipt
by the Partnership of any notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the applicable securities or blue sky laws of any
5
jurisdiction. Following the provision of such notice, the Partnership agrees to as promptly
as practicable amend or supplement the prospectus or prospectus supplement or take other
appropriate action so that the prospectus or prospectus supplement does not include an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the circumstances then
existing and to take such other action as is necessary to remove a stop order, suspension, threat
thereof or proceedings related thereto;
(f) furnish to each Selling Holder copies of any and all transmittal letters or other
correspondence with the Commission or any other governmental agency or self-regulatory body or
other body having jurisdiction (including any domestic or foreign securities exchange) relating to
such offering of Registrable Securities;
(g) in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel
for the Partnership, dated the effective date of the applicable registration statement or the date
of any amendment or supplement thereto, and a letter of like kind dated the date of the closing
under the underwriting agreement, and (ii) a “cold comfort” letter, dated the effective date of the
applicable registration statement or the date of any amendment or supplement thereto and a letter
of like kind dated the date of the closing under the underwriting agreement, in each case, signed
by the independent public accountants who have certified the Partnership’s financial statements
included or incorporated by reference into the applicable registration statement, and each of the
opinion and the “cold comfort” letter shall be in customary form and covering substantially the
same matters with respect to such registration statement (and the prospectus and any prospectus
supplement included therein) and as are customarily covered in opinions of issuer’s counsel and in
accountants’ letters delivered to the underwriters in Underwritten Offerings of securities, such
other matters as such underwriters may reasonably request;
(h) otherwise use its commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least 12 months, but not more than 18
months, beginning with the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 promulgated thereunder;
(i) make available to the appropriate representatives of the Managing Underwriter and Selling
Holders access to such information and Partnership personnel as is reasonable and customary to
enable such parties to establish a due diligence defense under the Securities Act; provided that
the Partnership need not disclose any information to any such representative unless and until such
representative has entered into a confidentiality agreement with the Partnership;
(j) cause all such Registrable Securities registered pursuant to this Agreement to be listed
on each securities exchange or nationally recognized quotation system on which similar securities
issued by the Partnership are then listed;
6
(k) use its commercially reasonable efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Partnership to enable the Selling Holders to
consummate the disposition of such Registrable Securities;
(l) provide a transfer agent and registrar for all Registrable Securities covered by such
registration statement not later than the effective date of such registration statement; and
(m) enter into customary agreements and take such other actions as are reasonably requested by
the Selling Holders or the underwriters, if any, in order to expedite or facilitate the disposition
of such Registrable Securities.
Each Selling Holder, upon receipt of notice from the Partnership of the happening of any event
of the kind described in subsection (e) of this Section 2.03, shall forthwith discontinue
disposition of the Registrable Securities until such Selling Holder’s receipt of the copies of the
supplemented or amended prospectus contemplated by subsection (e) of this Section 2.03 or until it
is advised in writing by the Partnership that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings incorporated by reference in the
prospectus, and, if so directed by the Partnership, such Selling Holder will, or will request the
managing underwriter or underwriters, if any, to deliver to the Partnership (at the Partnership’s
expense) all copies in their possession or control, other than permanent file copies then in such
Selling Holder’s possession, of the prospectus covering such Registrable Securities current at the
time of receipt of such notice.
Section 2.04
Cooperation by Holders
. The Partnership shall have no obligation to
include in the Shelf Registration Statement units of a Holder who has failed to timely furnish such
information which, in the opinion of counsel to the Partnership, is reasonably required in order
for the Shelf Registration Statement or any prospectus or prospectus supplement thereto, as
applicable, to comply with the Securities Act.
Section 2.05
Expenses
.
(a)
Certain Definitions
. “
Registration Expenses
” means all expenses incident
to the Partnership’s performance under or compliance with this Agreement to effect the registration
of Registrable Securities in a Shelf Registration, and the disposition of such securities,
including, without limitation, all registration, filing, securities exchange listing and NYSE fees,
all registration, filing, qualification and other fees and expenses of complying with securities or
blue sky laws, fees of the Financial Industry Regulatory Authority, transfer taxes and fees of
transfer agents and registrars, all word processing, duplicating and printing expenses, the fees
and disbursements of counsel and independent public accountants for the Partnership, including the
expenses of any special audits or “cold comfort” letters required by or incident to such
performance and compliance. Except as otherwise provided in Section 2.06 hereof, the Partnership
shall not be responsible for legal fees incurred by Holders in connection with the exercise of such
Holders’ rights hereunder. In addition, the Partnership shall not be responsible for any
“
Selling Expenses
,” which means all underwriting fees, discounts and selling commissions
allocable to the sale of the Registrable Securities.
7
(b)
Expenses
. The Partnership will pay all Registration Expenses in connection with
the Shelf Registration Statement filed pursuant to Section 2.01(a) of this Agreement, whether or
not the Shelf Registration Statement becomes effective or any sale is made pursuant to the Shelf
Registration Statement. Each Selling Holder shall pay all Selling Expenses in connection with any
sale of its Registrable Securities hereunder.
Section 2.06
Indemnification
.
(a)
By the Partnership
. In the event of a registration of any Registrable Securities
under the Securities Act pursuant to this Agreement, the Partnership will indemnify and hold
harmless each Selling Holder thereunder, its directors and officers, and each underwriter, pursuant
to the applicable underwriting agreement with such underwriter, of Registrable Securities
thereunder and each Person, if any, who controls such Selling Holder or underwriter within the
meaning of the Securities Act and the Exchange Act, against any losses, claims, damages, expenses
or liabilities (including reasonable attorneys’ fees and expenses) (collectively,
“
Losses
”), joint or several, to which such Selling Holder or underwriter or controlling
Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any material fact
contained in the Shelf Registration Statement, any preliminary prospectus or final prospectus
contained therein, or any “issuer free writing prospectus” (as defined in Securities Act Rule 433),
or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in light of the circumstances under which they
were made) not misleading, and will reimburse each such Selling Holder, its directors and officers,
each such underwriter and each such controlling Person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Loss or actions or
proceedings;
provided
,
however
, that the Partnership will not be liable in any such
case if and to the extent that any such Loss arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity with information
furnished by such Selling Holder, such underwriter or such controlling Person in writing
specifically for use in the Shelf Registration Statement or any prospectus contained therein or any
amendment or supplement thereof. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Selling Holder or any such director, officer or
controlling Person, and shall survive the transfer of such securities by such Selling Holder.
(b)
By Each Selling Holder
. Each Selling Holder agrees severally and not jointly to
indemnify and hold harmless the Partnership, its directors and officers, and each Person, if any,
who controls the Partnership within the meaning of the Securities Act or of the Exchange Act to the
same extent as the foregoing indemnity from the Partnership to the Selling Holders, but only with
respect to information regarding such Selling Holder furnished in writing by or on behalf of such
Selling Holder expressly for inclusion in the Shelf Registration Statement or any prospectus
contained therein or any amendment or supplement thereof relating to the Registrable Securities;
provided
,
however
, that the liability of each Selling Holder shall not be greater
in amount than the dollar amount of the proceeds (net of any Selling Expenses) received
8
by such Selling Holder from the sale of the Registrable Securities giving rise to such
indemnification.
(c)
Notice
. Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party other than under this Section 2.06. In any action brought
against any indemnified party, it shall notify the indemnifying party of the commencement thereof.
The indemnifying party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified
party and, after notice from the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 2.06 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected;
provided
,
however
, that, (i)
if the indemnifying party has failed to assume the defense and employ counsel or (ii) if the
defendants in any such action include both the indemnified party and the indemnifying party and
counsel to the indemnified party shall have concluded that there may be reasonable defenses
available to the indemnified party that are different from or additional to those available to the
indemnifying party, or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the indemnified party shall have the
right to select a separate counsel and to assume such legal defense and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such separate counsel and
other reasonable expenses related to such participation to be reimbursed by the indemnifying party
as incurred. Notwithstanding any other provision of this Agreement, no indemnified party shall
settle any action brought against it with respect to which it is entitled to indemnification
hereunder without the consent of the indemnifying party, unless the settlement thereof imposes no
liability or obligation on, and includes a complete and unconditional release from all liability
of, the indemnifying party.
(d)
Contribution
. If the indemnification provided for in this Section 2.06 is held by
a court or government agency of competent jurisdiction to be unavailable to the Partnership or any
Selling Holder or is insufficient to hold them harmless in respect of any Losses, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such Losses as between the Partnership on
the one hand and such Selling Holder on the other, in such proportion as is appropriate to reflect
the relative fault of the Partnership on the one hand and of such Selling Holder on the other in
connection with the statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations;
provided
,
however
, that in no event shall such
Selling Holder be required to contribute an aggregate amount in excess of the dollar amount of
proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable
Securities giving rise to such indemnification. The relative fault of the Partnership on the one
hand and each Selling Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact has been made by, or relates to, information supplied by such
party, and the parties’ relative intent, knowledge, access to
9
information and opportunity to correct or prevent such statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant to this paragraph
were to be determined by pro rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the first sentence of this paragraph.
The amount paid by an indemnified party as a result of the Losses referred to in the first sentence
of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any Loss which is the subject
of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of
such fraudulent misrepresentation.
(e)
Other Indemnification
. The provisions of this Section 2.06 shall be in addition
to any other rights to indemnification or contribution which an indemnified party may have pursuant
to law, equity, contract or otherwise.
Section 2.07
Rule 144 Reporting
. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the Registrable
Securities to the public without registration, the Partnership agrees to use its commercially
reasonable efforts to:
(a) Make and keep public information regarding the Partnership available, as those terms are
understood and defined in Rule 144 of the Securities Act, at all times from and after the date
hereof;
(b) File with the Commission in a timely manner all reports and other documents required of
the Partnership under the Securities Act and the Exchange Act at all times from and after the date
hereof; and
(c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon
request a copy of the most recent annual or quarterly report of the Partnership, and such other
reports and documents so filed as such Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing such Holder to sell any such securities without
registration.
Section 2.08
Transfer or Assignment of Registration Rights
. The rights to cause the
Partnership to register Registrable Securities granted to Gas Storage by the Partnership under this
Article II may be transferred or assigned by Gas Storage to one or more transferee(s) or
assignee(s) of such Registrable Securities, provided that (a) unless such transferee is an
Affiliate of Gas Storage, each such transferee or assignee, collectively with its or their
affiliates after giving effect to any transfer or assignment or series of transfers or assignments,
holds Registrable Securities representing at least 15% of the number of Closing Common Units sold
to Gas Storage pursuant to the terms of the Purchase Agreement, (b) the Partnership is given
written notice prior to any said transfer or assignment, stating the name and address of each such
transferee and identifying the securities with respect to which such registration rights are being
transferred or assigned, and (c) each such transferee assumes in writing responsibility for its
portion of the obligations of Gas Storage under this Agreement.
10
ARTICLE III
.
MISCELLANEOUS
Section 3.01
Communications
. All notices and other communications provided for or
permitted hereunder shall be made in writing by facsimile, courier service or personal delivery:
(a) if to Gas Storage, at the most current address given by Gas Storage to the Partnership in
accordance with the provisions of this Section 3.01, which addresses initially are, with respect to
Gas Storage, the address set forth in the Purchase Agreement,
(b) if to a transferee of Gas Storage, to such Holder at the address provided pursuant to
Section 2.08 above, and
(c) if to the Partnership, at 333 Clay Street, Suite 1600, Houston, Texas, 77002, Attention:
Tim Moore, with a copy which shall not constitute notice to D. Alan Beck, Jr., 1001 Fannin Street,
Suite 2500, Houston, Texas 77002, notice of which is given in accordance with the provisions of
this Section 3.01.
All such notices and communications shall be deemed to have been received at the time
delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile or
sent via Internet electronic mail; and when actually received, if sent by any other means.
Section 3.02
Successor and Assigns
. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including subsequent Holders of
Registrable Securities to the extent permitted herein.
Section 3.03
Assignment of Rights
. All or any portion of the rights and obligations
of Gas Storage under this Agreement may be transferred or assigned by Gas Storage in accordance
with Section 2.08 hereof.
Section 3.04
Recapitalization, Exchanges, etc. Affecting the Closing Common Units
.
The provisions of this Agreement shall apply to the full extent set forth herein with respect to
any and all units of the Partnership or any successor or assign of the Partnership (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange
for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for
combinations, recapitalizations and the like occurring after the date of this Agreement.
Section 3.05
Specific Performance
. Damages in the event of breach of this Agreement
by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed
that each such Person, in addition to and without limiting any other remedy or right it may have,
will have the right to an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions
hereof, and each of the parties hereto hereby waives any and all defenses it may have on the ground
of lack of jurisdiction or competence of the court to grant such an injunction or other equitable
relief. The existence of this right will not preclude any such Person from pursuing any other
rights and remedies at law or in equity which such Person may have.
11
Section 3.06
Counterparts
. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
Section 3.07
Headings
. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
Section 3.08
Governing Law
. The laws of the State of Delaware shall govern this
Agreement without regard to principles of conflict of laws.
Section 3.09
Severability of Provisions
. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting or impairing the validity or enforceability of such provision in any other
jurisdiction.
Section 3.10
Entire Agreement
. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the rights granted by the Partnership set forth herein.
This Agreement supersedes all prior agreements and understandings between the parties with respect
to such subject matter.
Section 3.11
Amendment
. This Agreement may be amended only by means of a written
amendment signed by the Partnership and the Holders of a majority of the then outstanding
Registrable Securities;
provided
,
however
, that no such amendment shall materially
and adversely affect the rights of any Holder hereunder without the consent of such Holder.
Section 3.12
No Presumption
. In the event any claim is made by a party relating to
any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or
persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the
request of a particular party or its counsel.
[The remainder of this page is intentionally left blank.]
12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.
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PLAINS ALL AMERICAN PIPELINE, LP.
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By:
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PAA GP LLC
its General Partner
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By:
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Plains AAP, L.P.,
its Sole Member
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By:
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Plains All American GP LLC,
its General Partner
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By:
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/s/ Greg L. Armstrong
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Name:
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Greg L. Armstrong
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Title:
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Chief Executive Officer
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VULCAN GAS STORAGE LLC
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By:
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Vulcan Capital Private Equity I LLC,
its Manager
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By:
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Vulcan Capital Private Equity Management I LLC,
its Manager
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By:
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Vulcan Capital Private Equity Inc.,
its Managing Member
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By:
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/s/ William L. McGrath
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Name:
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William L. McGrath
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Title:
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Vice President
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[Signature Page to Common Unit Registration Rights Agreement]
