e424b2
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell nor do they seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
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Filed
pursuant to Rule 424(b)(2)
Registration
No. 333-162475
Subject to Completion, dated
January 5, 2011
PRELIMINARY PROSPECTUS SUPPLEMENT
To prospectus dated October 14, 2009
Plains All American Pipeline,
L.P.
PAA Finance Corp.
$
% Senior Notes due
Plains All American Pipeline, L.P. and PAA Finance Corp. are
offering $ aggregate principal
amount of % Senior Notes
due (the
Notes).
We will pay interest on the Notes semi-annually in arrears
on
and
of each year, beginning
on ,
2011. The Notes will mature
on ,
unless redeemed prior to the maturity date.
We may, at our option, redeem the Notes at any time in whole or
from time to time in part, prior to maturity, at the redemption
prices as described herein under Description of
Notes Optional redemption.
The Notes will be our unsecured senior obligations. Initially,
the Notes will be fully and unconditionally guaranteed by all of
our existing subsidiaries other than (i) PAA Finance Corp.,
the co-issuer of the Notes, (ii) PNGS GP LLC, PAA Natural
Gas Storage, L.P. and their respective subsidiaries,
(iii) subsidiaries regulated by the California Public
Utilities Commission and (iv) subsidiaries that are minor.
Subsidiaries acquired in the future may or may not become
guarantors, but any subsidiary that guarantees other
indebtedness of ours or another subsidiary must also guarantee
the Notes. The guarantees are also subject to release in certain
circumstances. The Notes and the guarantees will rank equally
with any other unsecured senior indebtedness of Plains All
American Pipeline, L.P., PAA Finance Corp. and the subsidiary
guarantors from time to time outstanding.
Investing in the Notes involves risks. See Risk
Factors on
page S-7
of this prospectus supplement and beginning on page 6 of
the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per Note
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Total
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Public offering price(1)
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%
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$
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Underwriting discount
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%
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$
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Proceeds, before expenses, to Plains All American Pipeline,
L.P.(1)
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%
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$
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(1) |
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Plus accrued interest, if any, from January ,
2011 if settlement occurs after that date. |
The Notes will not be listed on any securities exchange.
Currently, there is no public market for the Notes.
The underwriters expect to deliver the Notes in book-entry form
only through facilities of The Depository Trust Company for
the account of its participants, including Clearstream Banking,
société anonyme, and Euroclear Bank S.A./N.V., as
operator of the Euroclear System, against payment in New York,
New York on or about January , 2011, the
seventh trading day after the date of this prospectus.
Joint Book-Running Managers
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J.P. Morgan |
SunTrust
Robinson Humphrey |
Wells Fargo Securities |
BofA
Merrill
Lynch DnB
NOR Markets
The date of this prospectus supplement is
January , 2011.
TABLE OF
CONTENTS
Prospectus
Supplement
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S-ii
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S-1
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S-4
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S-7
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S-10
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S-11
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S-12
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S-14
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S-33
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S-36
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S-36
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S-36
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Prospectus
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S-i
IMPORTANT
NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is the
prospectus supplement, which describes our business and the
specific terms of this offering. The second part is the
accompanying prospectus, which gives more general information
and includes disclosures regarding the Notes and additional
disclosures that would pertain if at some time in the future we
were to offer other series of our debt securities or our common
units. Accordingly, the accompanying prospectus may contain
information that does not apply to this offering. Generally,
when we refer only to the prospectus, we are
referring to both parts combined.
If the description of the offering in this prospectus
supplement varies from statements in the accompanying
prospectus, you should rely on the information in this
prospectus supplement.
You should rely only on the information contained in or
incorporated by reference in this prospectus or any free writing
prospectus relating to this offering of Notes. Neither we nor
the underwriters have authorized anyone to provide you with
different information. We are not, and the underwriters are not,
making an offer of the Notes in any jurisdiction where the offer
is not permitted. You should not assume that the information
contained in this prospectus, any free writing prospectus or in
the documents incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of
those documents. Our business, financial condition, results of
operations and prospects may have changed since those dates.
The information in this prospectus supplement is not
complete. You should review carefully all of the detailed
information appearing in this prospectus supplement, the
accompanying prospectus and the documents we have incorporated
by reference before making any investment decision.
We expect delivery of the notes will be made against payment
therefor on or about January ,
2011, which is the seventh business day following the date of
pricing of the notes (such settlement being referred to as
T+7). Under
Rule 15c6-1
of the Securities Exchange Act of 1934, trades in the secondary
market generally are required to settle in three business days
unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the notes on the date
of pricing of the notes or the next succeeding three business
days will be required, by virtue of the fact that the notes
initially will settle in T+7, to specify an alternate settlement
cycle at the time of any such trade to prevent failed settlement
and should consult their own advisers.
FORWARD-LOOKING
STATEMENTS
All statements included or incorporated by reference in this
prospectus supplement, other than statements of historical fact,
are forward-looking statements, including but not limited to
statements incorporating the words anticipate,
believe, estimate, expect,
plan, intend and forecast,
as well as similar expressions and statements regarding our
business strategy, plans and objectives 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 to be 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 effectiveness 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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S-ii
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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, grade
differentials 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 volatile 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 S-7
of this prospectus supplement, beginning on page 6 of the
accompanying prospectus and in Item 1A. Risk
Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (File
No. 001-14569),
which is incorporated in this prospectus supplement by
reference. Except as required by applicable securities laws, we
do not intend to update these forward-looking statements and
information.
S-iii
SUMMARY
This summary highlights information contained in or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. It does not contain all of the
information that you should consider before making an investment
decision. You should read this entire prospectus supplement, the
accompanying prospectus and the documents incorporated herein by
reference for a more complete understanding of this offering of
Notes. Please read Risk Factors beginning on
page S-7
of this prospectus supplement, on page 6 of the
accompanying prospectus and in Item 1A. Risk
Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (File
No. 001-14569),
which is incorporated into this prospectus supplement by
reference, for information regarding risks you should consider
before making a decision to purchase any Notes in this
offering.
For purposes of this prospectus supplement and the
accompanying prospectus, except as set forth in
Description of Notes and 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.
Plains
All American Pipeline, L.P.
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 refer to liquefied
petroleum gas and other natural gas-related petroleum products
collectively as LPG. We are also engaged in the
development and operation of natural gas storage facilities
through our direct and indirect ownership of PAA Natural Gas
Storage, L.P. (PNG), which is a fee-based,
growth-oriented Delaware limited partnership engaged in the
ownership, acquisition, development, operation and commercial
management of natural gas storage facilities. We own PNGs
general partner, PNGS GP LLC (PNGS GP), which holds
a 2.0% general partner interest in PNG and all of its incentive
distributions rights. We also currently own an approximate 74.8%
limited partner interest in PNG.
We are one of the largest midstream crude oil companies in North
America. 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 manage our
operations through three primary operating segments:
(i) transportation, (ii) facilities and
(iii) supply and logistics.
Business
strategy
Our principal business strategy is to provide competitive and
efficient midstream transportation, terminalling, storage and
supply and logistics services to our producer, refiner and other
customers. Toward this end, we endeavor to address regional
supply and demand imbalances for crude oil, refined products,
LPG and natural gas in the United States and Canada by combining
the strategic location and capabilities of our transportation,
terminalling and storage assets with our extensive supply,
logistics and distribution expertise.
We believe successful execution of this strategy will enable us
to generate sustainable earnings and cash flow. We intend to
grow our business by:
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optimizing our existing assets and realizing cost efficiencies
through operational improvements;
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developing and implementing internal growth projects that
(i) address evolving crude oil, refined products and LPG
needs in the midstream transportation and infrastructure sector
and (ii) are well-positioned to benefit from long-term
industry trends and opportunities;
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utilizing our assets along the Gulf, West and East Coasts, along
with our terminals and leased assets, to optimize our presence
in the waterborne importation of foreign crude oil;
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S-1
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capitalizing on the anticipated long-term growth in demand for
natural gas storage services in North America by owning and
operating high-quality natural gas storage facilities and
providing our current and future customers reliable, competitive
and flexible natural gas storage and related services;
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selectively pursuing strategic and accretive acquisitions of
crude oil, refined products and LPG transportation,
terminalling, storage and marketing assets and businesses that
complement our existing asset base and distribution
capabilities; and
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using our terminalling and storage assets in conjunction with
our supply and logistic activities to capitalize on inefficient
energy markets and to address physical market imbalances,
mitigate inherent risks and increase margin.
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We believe PNGs natural gas storage assets are also
well-positioned to benefit from long-term industry trends and
opportunities. PNGs growth strategies are to develop and
implement internal growth projects and to selectively pursue
strategic and accretive natural gas storage projects and
facilities. Through the execution of such growth strategies, we
intend to expand the scale and scope of our natural gas storage
business. We may also prudently and economically leverage our
asset base, knowledge base and skill sets to participate in
other energy-related businesses that have characteristics and
opportunities similar to, or that otherwise complement, our
existing activities.
Ongoing
acquisition activities
Consistent with our business strategy, we are continuously
engaged in discussions with potential sellers regarding the
possible purchase of assets and operations that we believe are
strategic and complementary to our existing operations. Targeted
assets and operations might include crude oil, refined products,
LPG or natural gas storage related assets. Such acquisition
efforts involve our participation in processes that have been
made public, involve a number of potential buyers and are
commonly referred to as auction processes, as well
as situations where we believe we are the only party or one of a
very limited number of potential buyers in negotiations with the
potential seller. These acquisition efforts often involve assets
which, if acquired, would have a material effect on our
financial condition and results of operations. Past experience
has demonstrated that any discussions
and/or
negotiations regarding potential acquisitions could advance or
terminate in a short period of time. Accordingly, we can give no
assurance that our current or future acquisition efforts will be
successful. Although we expect acquisitions we make to be
accretive in the long term, we can provide no assurance that our
expectations will ultimately be realized.
Recent
developments
New Revolving Credit Facility. On
January 3, 2011, we closed a new $500 million,
364-day
credit facility, which is available to fund our financing
arrangements in connection with the Southern Pines acquisition
described below. This credit facility may also be used for other
partnership purposes.
Southern Pines Acquisition. On
December 28, 2010, PNG executed a definitive agreement with
SGR Holdings, L.L.C. and Southern Pines Energy Investment Co.,
LLC to acquire SG Resources Mississippi, L.L.C., which owns the
Southern Pines Energy Center natural gas storage facility (the
Southern Pines Acquisition). Total consideration to
be paid at closing is estimated at approximately
$750 million, subject to adjustment as provided in the
definitive agreement. Subject to regulatory approval and other
customary closing conditions, the Southern Pines Acquisition is
expected to close during the first quarter of 2011. There is no
assurance that the acquisition will be completed or that the
anticipated benefits of the acquisition will be realized. This
offering is not conditioned on the closing of the Southern Pines
Acquisition.
The Southern Pines Energy Center is a FERC-regulated,
high-performance, salt-cavern natural gas storage facility
located in Greene County, Mississippi. The facilitys
permits allow for 40 billion cubic feet (BCF) of working
capacity from four storage caverns. The facility commenced
service in 2008 and three caverns are currently in operation. A
fourth cavern is currently being drilled and the facility has
the capacity for further expansion if warranted by market demand
and subject to availability of additional permits.
S-2
The Partnership is a party to the Southern Pines Acquisition
agreement for the limited purpose of providing certain
indemnities regarding PNGs obligation to fund the purchase
price at closing. PNG has arranged financing of
$800 million to fund the purchase price, closing costs, and
the first 18 months of expected expansion capital. This
financing is composed of $600 million of equity,
approximately $262 million of which will be provided by a
private placement by PNG of approximately 12.2 million of
its common units to funds managed by Kayne Anderson Capital
Advisors, Tortoise Capital, ClearBridge Advisors and other
investors. The closing of the private placement is conditioned
on the closing of the Southern Pines Acquisition. We will
provide the remaining $338 million of equity capital
through the purchase of approximately 15 million common
units of PNG and a proportionate general partner capital
contribution of approximately $12 million. The obligation
of PNG to consummate the Southern Pines Acquisition is not
conditioned on the receipt of any of the financing described in
this paragraph. As a result of the Southern Pines Acquisition,
our aggregate limited partnership interest in PNG is expected to
decrease to 68.1% from 74.8% prior to the transaction. We will
continue to own 100% of PNGs general partner and
PNGs incentive distribution rights. We will also provide
debt financing to PNG in the form of a $200 million
three-year senior unsecured loan that is expected to bear
interest at between 5 to 5.5%.
Sale of General Partner Interest and Resulting Changes to
Board of Directors. In December 2010, Vulcan
Energy Corporation (VEC) completed the sale of its
50.1% equity interest in our general partner, consisting of
50.1% of the Class A units in Plains AAP, L.P.
(Plains AAP), the sole member of PAA GP LLC
(GP LLC), which is our general partner, and a 50.1%
member interest in Plains All American GP LLC, the general
partner of Plains AAP. Substantially all of the interests were
acquired by existing owners of our general partner or their
affiliates.
As a result of the transaction described above, Vicky Sutil and
John Raymond have been appointed to our general partners
board of directors (the Board), and Geoff McKay and
Arthur L. Smith both stepped down from the Board effective
December 23rd. After giving effect to these changes, the
Board includes Greg L. Armstrong, Everardo Goyanes, Gary R.
Petersen, John T. Raymond, Robert V. Sinnott, Vicky Sutil, J.
Taft Symonds and Christopher M. Temple.
Nexen Acquisition. On December 30, 2010,
we completed the acquisition from Nexen Holdings U.S.A. Inc. of
certain entities that hold crude oil gathering and
transportation assets that primarily service Bakken area
producers in North Dakota (the Nexen Acquisition).
Total consideration paid at closing, which is subject to
post-closing adjustments, was approximately $223 million,
including approximately $170 million for the business and
physical assets and approximately $53 million for
approximately 450,000 barrels of inventory and other
working capital adjustments. We believe this acquisition is
consistent with our strategy to expand and strengthen our
presence in long-lived, growing producing regions and is
complementary to our existing Bakken area assets and activities,
including our recently proposed Bakken North Pipeline project.
Additional
information
For additional information about us, including our partnership
structure and management, please see our Annual Report on
Form 10-K
for the year ended December 31, 2009, our Quarterly Reports
on
Form 10-Q
for the quarters ended March 31, 2010, June 30, 2010
and September 30, 2010 and our Current Reports on
Form 8-K.
Please refer to the section in this prospectus supplement
entitled Where You Can Find More Information.
S-3
THE
OFFERING
The summary below describes the principal terms of the Notes.
Certain of the terms described below are subject to important
limitations and exceptions. The Description of Notes
section of this prospectus supplement and the Description
of Our Debt Securities section of the accompanying
prospectus contain a more detailed description of the terms of
the Notes.
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Issuers |
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Plains All American Pipeline, L.P. and PAA Finance Corp. |
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PAA Finance Corp., a Delaware corporation, is a wholly owned
subsidiary of Plains All American Pipeline, L.P. that has been
organized for the purpose of co-issuing our existing notes, the
Notes offered hereby and the notes issued in any future
offerings. PAA Finance Corp. does not have operations of any
kind and will not have any revenue other than as may be
incidental to its activities as a co-issuer of our debt
securities. |
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Guarantees |
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Initially, all payments with respect to the Notes (including
principal and interest) will be fully and unconditionally
guaranteed, jointly and severally, by all of our existing
subsidiaries other than (i) PAA Finance Corp., the
co-issuer of the Notes, (ii) PNGS GP, PNG and their
respective subsidiaries, (iii) subsidiaries regulated by
the California Public Utilities Commission and
(iv) subsidiaries that are minor. Subsidiaries acquired in
the future may or may not become guarantors, but any subsidiary
that guarantees other indebtedness of ours or another subsidiary
must also guarantee the Notes. The guarantees are also subject
to release in certain circumstances. The guarantees of the Notes
are general unsecured obligations of the subsidiary guarantors
and rank equally with any existing and future senior unsecured
indebtedness of the subsidiary guarantors. See Description
of Notes The guarantees. |
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Notes offered |
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$ aggregate principal amount
of % Senior Notes
due . |
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Maturity date |
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, . |
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Interest rate |
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%. |
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Interest payment dates |
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We will pay interest on the Notes semi-annually in arrears
on and
of each year, beginning
on ,
2011. |
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Optional redemption |
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We may redeem the Notes, in whole or in part, at any time and
from time to time prior to maturity. If we redeem the Notes
before a date that is 90 days prior to their maturity date,
the Notes may be redeemed at a price equal to the greater of
(i) 100% of the principal amount of the Notes to be
redeemed or (ii) the sum of the present values of the
remaining scheduled payments of principal of and interest on the
Notes to be redeemed, discounted to the redemption date on a
semiannual basis at the Adjusted Treasury Rate (as defined
herein) plus basis points,
together with accrued interest to the date of redemption. If we
redeem the Notes on or after a date that is 90 days prior
to their maturity date, the redemption price will equal 100% of
the principal amount of the Notes to be redeemed plus accrued
interest to the redemption date. See Description of
Notes Optional redemption. |
S-4
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Ranking |
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The Notes will be general senior unsecured obligations of the
issuers and will rank equally in right of payment with the
existing and future senior indebtedness of the issuers. |
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Certain covenants |
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The Notes will be issued under an indenture containing covenants
for your benefit. These covenants restrict our ability, with
certain exceptions, to: |
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incur liens on principal properties to secure debt;
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engage in sale-leaseback transactions; and
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merge or consolidate with another entity or sell,
lease or transfer substantially all of our properties or assets
to another entity.
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See Description of Notes Covenants. |
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Use of proceeds |
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We expect the net proceeds of this offering to be approximately
$ million after deducting the
underwriters discounts and commissions and our estimated
offering expenses. We expect to use the net proceeds from this
offering to repay outstanding borrowings under our credit
facilities and for general partnership purposes. |
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Amounts repaid under our credit facilities may be reborrowed, as
necessary, to fund our ongoing expansion capital program, future
acquisitions, retirement of other long-term debt, investments in
PNG, including for purposes of financing the Southern Pines
Acquisition, or for general partnership purposes. |
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Book entry, delivery and form |
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The Notes will be represented by one or more permanent global
certificates in fully registered form deposited with a custodian
for, and registered in the name of, a nominee of The Depository
Trust Company. |
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Further issuances |
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We may create and issue additional Notes ranking equally and
ratably with the Notes offered by this prospectus supplement in
all respects, so that such additional Notes will be consolidated
and form a single series with the Notes and will have the same
terms, as to status, redemption or otherwise except for the
issue date, the initial interest payment date, if applicable,
and the payment of interest accruing prior to the issue date of
such additional notes. |
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No listing |
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The Notes will not be listed on any securities exchange.
Currently, there is no public market for the Notes. See
Risk Factors Your ability to transfer the
Notes may be limited by the absence of an organized trading
market. |
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Governing law |
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New York. |
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Trustee |
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U.S. Bank National Association. |
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Risk factors |
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Investing in the Notes involves risks. You should consider
carefully all of the information in this prospectus supplement,
the accompanying prospectus and the documents incorporated by
reference herein and therein. In particular, you should consider
carefully the specific risks set forth in Risk
Factors beginning on
page S-7
of this prospectus supplement and beginning on page 6 of
the accompanying prospectus. |
S-5
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Conflicts of interest |
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Affiliates of each of the underwriters are lenders under our
credit facilities. These affiliates may receive their respective
share of any repayment by us of amounts outstanding under our
credit facilities from the proceeds of this offering. Each of
the underwriters whose affiliates will receive at least 5% of
the net proceeds is considered by the Financial Industry
Regulatory Authority, Inc. to have a conflict of interest with
us in regards to this offering. However, the appointment of a
qualified independent underwriter is not necessary in connection
with the offering because the offering is of a class of
securities that are investment grade rated. See Use of
Proceeds and Underwriting Conflicts of
interest. |
S-6
RISK
FACTORS
Before making an investment in the Notes offered hereby, you
should carefully consider the risk factors included below, as
well as the risk factors beginning on page 6 of the
accompanying prospectus and those included in Item 1A.
Risk Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (File
No. 001-14569),
which is incorporated into this prospectus supplement by
reference, together with all of the other information included
or incorporated by reference in this prospectus. If any of these
risks were to occur, our business, financial condition or
results of operations could be materially adversely affected. In
such case, the value of the Notes could decline, and you could
lose all or part of your investment.
Risks
related to the Notes
Your
right to receive payments on the Notes and subsidiary guarantees
is unsecured and will be effectively subordinated to our and our
subsidiary guarantors existing and future secured
indebtedness as well as to any existing and future indebtedness
of our subsidiaries that do not guarantee the
Notes.
The Notes are effectively subordinated to claims of our secured
creditors, and the guarantees are effectively subordinated to
the claims of our secured creditors as well as the secured
creditors of our subsidiary guarantors. As of September 30,
2010, on an adjusted basis as described under
Capitalization, and as further adjusted to give
effect to this offering and the application of the net proceeds
therefrom as described under Use of Proceeds, the
Notes and the guarantees would have been effectively
subordinated to $ million of
short-term secured indebtedness.
Although our subsidiaries other than (i) PAA Finance Corp.,
the co-issuer of the Notes, (ii) PNGS GP, PNG and their
respective subsidiaries, (iii) subsidiaries regulated by
the California Public Utilities Commission and (iv) minor
subsidiaries, will initially guarantee the Notes, the guarantees
are subject to release under certain circumstances and in the
future we may have other subsidiaries that are not guarantors.
The Notes will be effectively subordinated to the claims of all
creditors, including trade creditors and tort claimants, of our
subsidiaries that are not guarantors. In the event of the
insolvency, bankruptcy, liquidation, reorganization, dissolution
or winding up of the business of a subsidiary that is not a
guarantor, creditors of that subsidiary would generally have the
right to be paid in full before any distribution is made to us
or the holders of the Notes.
Our
leverage may limit our ability to borrow additional funds,
comply with the terms of our indebtedness or capitalize on
business opportunities.
Our leverage is significant in relation to our partners
capital. As of September 30, 2010, on an adjusted basis as
described under Capitalization, and as further
adjusted to give effect to this offering and the application of
the net proceeds therefrom as described under Use of
Proceeds, our total outstanding long-term debt, including
the portion of our revolving credit facility classified as
short-term, was approximately
$ billion. See
Capitalization. Various limitations in our credit
facilities and other debt instruments may reduce our ability to
incur additional debt, to engage in some transactions and to
capitalize on business opportunities. Any subsequent refinancing
of our current indebtedness or any new indebtedness could have
similar or greater restrictions.
Our leverage could have important consequences to investors in
the Notes. We will require substantial cash flow to meet our
principal and interest obligations with respect to the Notes and
our other consolidated indebtedness. Our ability to make
scheduled payments, to refinance our obligations with respect to
our indebtedness or our ability to obtain additional financing
in the future will depend on our financial and operating
performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors. We
believe that we will have sufficient cash flow from operations
and available borrowings under our bank credit facility to
service our indebtedness, although the principal amount of the
Notes will likely need to be refinanced at maturity in whole or
in part. A significant downturn in the hydrocarbon industry or
other development adversely affecting our cash flow could
materially impair our ability to service our indebtedness. If
our cash flow and capital resources are insufficient to fund our
debt service obligations, we may be forced to refinance all or a
portion of our debt or sell assets. We can give no assurance
that we
S-7
would be able to refinance our existing indebtedness or sell
assets on terms that are commercially reasonable. In addition,
if one or more rating agencies were to lower our debt ratings,
we could be required by some of our counterparties to post
additional collateral, which would reduce our available
liquidity and cash flow.
Our leverage may adversely affect our ability to fund future
working capital, capital expenditures and other general
partnership requirements, future acquisition, construction or
development activities, or to otherwise fully realize the value
of our assets and opportunities because of the need to dedicate
a substantial portion of our cash flow from operations to
payments on our indebtedness or to comply with any restrictive
terms of our indebtedness. Our leverage may also make our
results of operations more susceptible to adverse economic and
industry conditions by limiting our flexibility in planning for,
or reacting to, changes in our business and the industry in
which we operate and may place us at a competitive disadvantage
as compared to our competitors that have less debt.
A
court may use fraudulent conveyance considerations to avoid or
subordinate the subsidiary guarantees.
Various applicable fraudulent conveyance laws have been enacted
for the protection of creditors. A court may use fraudulent
conveyance laws to subordinate or avoid the subsidiary
guarantees of the Notes issued by any of our subsidiary
guarantors. It is also possible that under certain circumstances
a court could hold that the direct obligations of a subsidiary
guaranteeing the Notes could be superior to the obligations
under that guarantee.
A court could avoid or subordinate the guarantee of the Notes by
any of our subsidiaries in favor of that subsidiarys other
debts or liabilities to the extent that the court determined
either of the following were true at the time the subsidiary
issued the guarantee:
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that subsidiary incurred the guarantee with the intent to
hinder, delay or defraud any of its present or future creditors
or that subsidiary contemplated insolvency with a design to
favor one or more creditors to the total or partial exclusion of
others; or
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that subsidiary did not receive fair consideration or reasonable
equivalent value for issuing the guarantee and, at the time it
issued the guarantee, that subsidiary:
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was insolvent or rendered insolvent by reason of the issuance of
the guarantee;
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was engaged or about to engage in a business or transaction for
which the remaining assets of that subsidiary constituted
unreasonably small capital; or
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured.
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The measure of insolvency for purposes of the foregoing will
vary depending upon the law of the relevant jurisdiction.
Generally, however, an entity would be considered insolvent for
purposes of the foregoing if the sum of its debts, including
contingent liabilities, were greater than the fair saleable
value of all of its assets at a fair valuation, or if the
present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and matured.
Among other things, a legal challenge of a subsidiarys
guarantee of the Notes on fraudulent conveyance grounds may
focus on the benefits, if any, realized by that subsidiary as a
result of our issuance of the Notes. To the extent a
subsidiarys guarantee of the Notes is avoided as a result
of fraudulent conveyance or held unenforceable for any other
reason, the note holders would cease to have any claim in
respect of that guarantee.
Your
ability to transfer the Notes may be limited by the absence of
an organized trading market.
The Notes will be new securities for which currently there is no
organized trading market. We do not currently intend to apply
for listing of the Notes on any securities exchange or other
market. Although certain
S-8
of the underwriters have informed us that they currently intend
to make a market in the Notes, they are not obligated to do so.
In addition, the underwriters may discontinue any such market
making at any time without notice. The liquidity of any market
for the Notes will depend on the number of holders of the Notes,
the interest of securities dealers in making a market in those
Notes and other factors. Accordingly, we can give no assurance
as to the development, continuation or liquidity of any market
for the Notes.
We
have a holding company structure in which our subsidiaries
conduct our operations and own our operating
assets.
We are a holding company, and our subsidiaries conduct all of
our operations and own all of our operating assets. We have no
significant assets other than the ownership interests in our
subsidiaries. As a result, our ability to make required payments
on the Notes depends on the performance of our subsidiaries and
their ability to distribute funds to us. The ability of our
subsidiaries to make distributions to us may be restricted by,
among other things, credit facilities and applicable state
partnership laws and other laws and regulations. Pursuant to our
credit facilities, we may be required to establish cash reserves
for the future payment of principal and interest on the amounts
outstanding under our credit facilities. If we are unable to
obtain the funds necessary to pay the principal amount at
maturity of the Notes, we may be required to adopt one or more
alternatives, such as a refinancing of the Notes. We cannot
assure you that we would be able to refinance the Notes.
We do
not have the same flexibility as other types of organizations to
accumulate cash, which may limit cash available to service the
Notes or to repay them at maturity.
Unlike a corporation, our partnership agreement requires us to
distribute, on a quarterly basis, 100% of our available cash to
our unitholders of record and our general partner. Available
cash is generally all of our cash receipts adjusted for cash
distributions and net changes to reserves. Our general partner
will determine the amount and timing of such distributions and
has broad discretion to establish and make additions to our
reserves or the reserves of our operating partnerships in
amounts the general partner determines in its reasonable
discretion to be necessary or appropriate:
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to provide for the proper conduct of our business and the
businesses of our operating partnerships (including reserves for
future capital expenditures and for our anticipated future
credit needs);
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to provide funds for distributions to our unitholders and the
general partner for any one or more of the next four calendar
quarters; or
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to comply with applicable law or any of our loan or other
agreements.
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Although our payment obligations to our unitholders are
subordinate to our payment obligations to you, the value of our
units will decrease in direct correlation with decreases in the
amount we distribute per unit. Accordingly, if we experience a
liquidity problem in the future, we may not be able to issue
equity to recapitalize.
S-9
USE OF
PROCEEDS
We expect the net proceeds of this offering to be approximately
$ million after deducting the
underwriters discounts and commissions and our estimated
offering expenses. We expect to use the net proceeds from this
offering to repay outstanding borrowings under our credit
facilities and for general partnership purposes. Amounts repaid
under our credit facilities may be reborrowed, as necessary, to
fund our ongoing expansion capital program, future acquisitions,
retirement of other long-term debt, investments in PNG,
including for purposes of financing the Southern Pines
Acquisition, or for general partnership purposes.
Affiliates of each of the underwriters are lenders under our
credit facilities, and accordingly, may receive a portion of the
proceeds from this offering pursuant to the repayment of
borrowings under such facilities. Please read
Underwriting Conflicts of interest in
this prospectus supplement for further information.
As of December 31, 2010, we had approximately
$1.6 billion of debt outstanding under our credit
facilities with a weighted average interest rate of
approximately 1.6%. Substantially all of the borrowings we
expect to repay were incurred for working capital requirements.
S-10
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated on a consolidated historical
basis. For purposes of computing the ratio of earnings to fixed
charges, earnings consist of pre-tax income from
continuing operations before income from equity investees plus
fixed charges (excluding capitalized interest), distributed
income of equity investees and amortization of capitalized
interest. Fixed charges represent interest incurred
(whether expensed or capitalized), amortization of debt expense
(including discounts and premiums relating to indebtedness) and
the portion of rental expense on operating leases deemed to be
the equivalent of interest.
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Nine
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Months
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Ended
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September 30,
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Years Ended December 31,
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2010
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2009
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2008
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2007
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2006
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2005
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Ratio of Earnings to Fixed Charges(1)
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2.48
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x
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3.00
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x
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2.60
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x
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2.45
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x
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2.83
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x
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3.34
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x
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(1) |
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Includes interest costs attributable to borrowings for inventory
stored in a contango market of $24 million,
$49 million, $44 million, $21 million and
$11 million for each of the years ended December 31,
2005, 2006, 2007, 2008 and 2009, respectively, and
$13 million for the nine months ended September 30,
2010. |
S-11
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2010:
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on a historical basis;
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on an adjusted basis to give effect to (i) the application
of the net proceeds (including our general partners
proportionate capital contribution) of our November 2010
offering of a total of 4,780,000 common units (including 580,000
common units issued in December 2010 pursuant to the exercise of
the underwriters over-allotment option) to reduce
outstanding indebtedness under our credit facilities,
(ii) the Nexen Acquisition (See Summary
Recent Developments Nexen Acquisition),
(iii) the Southern Pines Acquisition and related financing
(See Summary Recent Developments
Southern Pines Acquisition) and (iv) our new
$500 million,
364-day
credit facility (See Summary Recent
Developments New Revolving Credit
Facility); and
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on a further adjusted basis to give effect to the sale of the
Notes offered hereby and the application of the net proceeds
therefrom as described under Use of Proceeds in this
prospectus supplement.
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This table should also be read in conjunction with our financial
statements and the notes thereto that are incorporated by
reference into this prospectus supplement. As of
December 31, 2010, we had approximately $1.6 billion
of debt outstanding under our credit facilities with a weighted
average interest rate of approximately 1.6%. See Use of
Proceeds.
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As of September 30, 2010
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As Adjusted
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As Further Adjusted
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Historical
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(as described above)
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for this Offering
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(In millions)
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CASH AND CASH EQUIVALENTS
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$
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13
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$
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13
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$
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SHORT-TERM DEBT
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Hedged inventory facility
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$
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400
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$
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400
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$
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Working capital borrowings(1)
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493
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493
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Other
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2
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2
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Total short-term debt
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$
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895
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$
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895
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$
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LONG-TERM DEBT
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Long-term debt under credit facilities and other(2)
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$
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231
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$
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621
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$
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4.25% Senior Notes due 2012(3)
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500
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500
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500
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7.75% Senior Notes due 2012
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200
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200
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200
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5.63% Senior Notes due 2013
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250
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250
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250
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5.25% Senior Notes due 2015
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150
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150
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150
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3.95% Senior Notes due 2015
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400
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400
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400
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5.88% Senior Notes due 2016
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175
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175
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175
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6.13% Senior Notes due 2017
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400
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400
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400
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6.50% Senior Notes due 2018
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600
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600
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600
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8.75% Senior Notes due 2019
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350
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350
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350
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5.75% Senior Notes due 2020
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500
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500
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500
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6.70% Senior Notes due 2036
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250
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250
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250
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6.65% Senior Notes due 2037
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600
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600
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600
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Senior Notes offered hereby
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Unamortized discount
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(13
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)
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(13
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Total long-term debt
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$
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4,593
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$
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4,983
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$
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PARTNERS CAPITAL
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Total partners capital
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$
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4,343
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$
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4,900
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$
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4,900
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Total capitalization
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$
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8,936
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$
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9,883
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$
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S-12
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(1) |
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We classify as short term our borrowings under our senior
unsecured revolving credit facility. These borrowings are
designated as working capital borrowings, must be repaid within
one year and are primarily for hedged LPG and crude oil
inventory purchases and NYMEX and ICE margin deposits. |
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(2) |
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In April 2010, our consolidated subsidiary PNG entered into a
three year, $400 million senior unsecured revolving credit
facility that matures in May 2013. This credit facility, which
bears interest based on LIBOR plus an applicable margin (as
defined by the credit agreement), may be expanded to
$600 million, subject to additional lender commitments and
with approval of the administrative agent for the credit
facility. As of December 31, 2010, borrowings of
approximately $260 million were outstanding under this
facility. |
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(3) |
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These notes were issued in July 2009 and the proceeds are being
used to supplement capital available from our hedged inventory
facility. At September 30, 2010, approximately
$500 million had been used to fund hedged inventory and
would be classified as short-term debt if funded on our credit
facilities. |
S-13
DESCRIPTION
OF NOTES
We will issue the Notes under an indenture (the Base
Indenture) dated as of September 25, 2002, among us,
the subsidiary guarantors and U.S. Bank National
Association, as successor trustee, and a supplemental indenture
thereto to be dated as
of ,
2011 (such supplemental indenture, together with the Base
Indenture, the Indenture). The Notes will constitute
a new series of debt securities under the Indenture, and twelve
other series are now outstanding under the Base Indenture, each
issued under a separate supplemental indenture.
As used in this description, the terms we,
us and our refer to Plains All American
Pipeline, L.P. and PAA Finance Corp. as co-issuers of the Notes
and not to any of their subsidiaries or affiliates, and
references to Plains All American Pipeline are to
Plains All American Pipeline, L.P. Other capitalized terms that
are used in this section of the prospectus supplement have the
meanings assigned to them in the Indenture, and we have included
some of those definitions at the end of this section. See
Definitions. Also, in this section, the
term holders means The Depository Trust Company
or its nominee and not the persons who own beneficial interests
in the Notes through participants in The Depository
Trust Company. Please review the special considerations
that apply to beneficial owners under Book Entry, Delivery
and Form.
The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended. We urge you to
read the Indenture because it, and not this description, defines
your rights as a holder of Notes. You may request copies of the
Indenture from us as set forth under Where You Can Find
More Information.
This description is intended to be an overview of the material
provisions of the Notes and is intended to supplement and, to
the extent of any inconsistency, replace the description of the
general terms and provisions of the debt securities set forth in
the accompanying prospectus, to which we refer you. Since this
description is only a summary, you should refer to the Indenture
for a complete description of our obligations and your rights.
General
description of the Notes and the guarantees
The Notes will be:
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our senior unsecured indebtedness ranking equally in right of
payment with all of our existing and future unsubordinated debt;
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unconditionally guaranteed by the subsidiary guarantors;
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a new series of debt securities issued under the Indenture;
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non-recourse to our general partner;
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senior in right of payment to any of our future subordinated
debt;
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effectively junior to any of our existing and future secured
debt, to the extent of the security for that debt; and
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effectively junior to any existing and future debt of our
subsidiaries that do not guarantee the Notes.
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Initially our obligations under the Notes will be jointly and
severally guaranteed by all of the existing subsidiaries of
Plains All American Pipeline other than (i) PAA Finance
Corp., (ii) PNGS GP and PNG and their respective
subsidiaries, (iii) subsidiaries regulated by the
California Public Utilities Commission and
(iv) subsidiaries that are minor, which we sometimes refer
to collectively as the non-guarantor subsidiaries.
Each guarantee by a subsidiary guarantor of the Notes
will be:
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a general unsecured obligation of that subsidiary guarantor;
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equal in right of payment with all other existing and future
unsubordinated debt of that subsidiary guarantor;
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S-14
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senior in right of payment to any future subordinated debt of
that subsidiary guarantor; and
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effectively junior to any secured debt of that subsidiary
guarantor, to the extent of the security for that debt.
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As of September 30, 2010, on an adjusted basis as described
under Capitalization, and as further adjusted to
give effect to this offering and the application of the net
proceeds therefrom as described under Use of
Proceeds, the Notes and the guarantees would have been
effectively subordinated to
$ million of short-term
secured indebtedness. See Risk Factors Risks
related to the Notes Your right to receive payments
on the Notes and subsidiary guarantees is unsecured and will be
effectively subordinated to our and our subsidiary
guarantors existing and future secured indebtedness as
well as to any existing and future indebtedness of our
subsidiaries that do not guarantee the Notes.
The Indenture does not limit the aggregate principal amount of
debt securities that may be issued thereunder and provides that
debt securities may be issued thereunder from time to time in
one or more series. Except to the extent described under
Covenants, the Indenture does not limit
our ability or the ability of our subsidiaries to incur either
secured or unsecured additional indebtedness.
Further
issuances
We may, from time to time, without notice to or the consent of
the holders of the Notes, create and issue additional notes
ranking equally and ratably with the Notes offered hereby in all
respects, so that such additional notes form a single series
with the Notes and have the same terms as to status, redemption
or otherwise as the Notes (except for the issue date, the
initial payment date, if applicable, and the payment of interest
accruing prior to the issue date of such additional notes).
Principal,
maturity and interest
We will issue the Notes in an initial aggregate principal amount
of $ . The Notes will mature
on .
The Notes will bear interest at the annual rate
of %. Interest on the Notes will
accrue from January , 2011 and will
be payable semi-annually in arrears
on
and
of each year,
beginning ,
2011. We will make each interest payment to the holders of
record at the close of business on
the
and
preceding such interest payment dates. Interest will be computed
on the basis of a
360-day year
consisting of twelve
30-day
months. We will issue the Notes in minimum denominations of
$2,000 and integral multiples of $1,000.
No
liability of general partner
Plains All American Pipelines general partner and its
directors, officers, employees and member (in their capacities
as such) will not have any liability for our obligations under
the Notes. In addition, the Managing General Partner, and its
directors, officers, employees and members, will not have any
liability for our obligations under the Notes. By accepting the
Notes, each holder waives and releases all such liability. The
waiver and release are part of the consideration for the
issuance of the Notes. This waiver may not be effective,
however, to waive liabilities under the federal securities laws,
and it is the view of the SEC that such a waiver is against
public policy.
The
guarantees
Initially, our payment obligations under the Notes will be
jointly and severally guaranteed by all of the existing
Subsidiaries of Plains All American Pipeline other than the
non-guarantor subsidiaries. The obligations of each subsidiary
guarantor under its guarantee will be limited to the maximum
amount that will, after giving effect to all other contingent
and fixed liabilities of the subsidiary guarantor and to any
collections from or payments made by or on behalf of any other
subsidiary guarantor in respect of the obligations of the other
subsidiary guarantor under its guarantee, result in the
obligations of the subsidiary guarantor under the guarantee not
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law.
S-15
Provided that no default shall have occurred and shall be
continuing under the Indenture, a subsidiary guarantor will be
unconditionally released and discharged from its guarantee:
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upon any sale or other disposition of all or substantially all
of the assets of that subsidiary guarantor, including by way of
merger, consolidation or otherwise, to any person that is not
our affiliate (provided such sale or other disposition is not
prohibited by the Indenture);
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upon any sale or other disposition of all of our direct or
indirect equity interests in that subsidiary guarantor to any
person that is not our affiliate; or
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following delivery of a written notice of the release from the
guarantee by us to the trustee, upon the release of all
guarantees by the subsidiary guarantor of any debt of ours and
any Subsidiary of Plains All American Pipeline (other than debt
securities issued under the Indenture).
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If at any time after the issuance of the Notes, including
following any release of a subsidiary guarantor from its
guarantee under the Indenture, a Subsidiary of Plains All
American Pipeline (including any future Subsidiary) guarantees
any of our debt or any debt of Plains All American
Pipelines other Subsidiaries, we will cause such
Subsidiary to guarantee the Notes in accordance with the
Indenture by simultaneously executing and delivering a
supplemental indenture.
Optional
redemption
The Notes will be redeemable, in whole or in part, at our option
at any time and from time to time prior to maturity. If we
redeem the Notes before a date that is 90 days prior to
their maturity date, the Notes may be redeemed at a redemption
price equal to the greater of (a) 100% of the principal
amount of the Notes to be redeemed, and (b) as determined
by the Quotation Agent, the sum of the present values of the
remaining scheduled payments of principal and interest on the
Notes to be redeemed (not including any portion of those
payments of interest accrued as of the date of redemption)
discounted to the date of redemption on a semiannual basis
(assuming
360-day
years, each consisting of twelve
30-day
months), at the Adjusted Treasury Rate
plus
basis points, in each case together with accrued interest to the
date of redemption.
If we redeem the Notes on or after a date that is 90 days
prior to their maturity date, the redemption price will equal
100% of the principal amount of the Notes to be redeemed plus
accrued interest to the redemption date.
Adjusted Treasury Rate means, with respect to
any date of redemption, the rate per annum equal to the
semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for the date of redemption.
Comparable Treasury Issue means the United
States Treasury security selected by the Quotation Agent as
having a maturity comparable to the remaining term of the Notes
to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity
to the remaining term of those Notes.
Comparable Treasury Price means, with respect
to any date of redemption (a) the average of the Reference
Treasury Dealer Quotations for the date of redemption, after
excluding the highest and lowest Reference Treasury Dealer
Quotations, or (b) if the trustee obtains fewer than four
Reference Treasury Dealer Quotations, the average of all such
Reference Treasury Dealer Quotations.
Quotation Agent means a Primary Treasury
Dealer (as defined below) appointed by us.
Reference Treasury Dealer means each of
(i) J.P. Morgan Securities LLC, a Primary Treasury Dealer
(as defined below) selected by SunTrust Robinson Humphrey, Inc.,
and a Primary Treasury Dealer (as defined below) selected by
Wells Fargo Securities, LLC, and each of their successors,
provided, however, that if any of the foregoing shall cease to
be a primary U.S. government securities dealer in the United
States (a Primary Treasury Dealer), we shall
substitute another Primary Treasury Dealer; and (ii) one
other dealer selected by us that is a Primary Treasury Dealer.
S-16
Reference Treasury Dealer Quotations means,
with respect to each Reference Treasury Dealer and any date of
redemption, the average, as determined by the trustee, of the
bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount)
quoted in writing to the trustee by that Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third
business day preceding that date of redemption.
Unless we default in payment of the redemption price, on and
after the date of redemption, interest will cease to accrue on
the Notes or portions thereof called for redemption.
On or before a redemption date, we will deposit with a paying
agent (or with the trustee) sufficient money to pay the
redemption price and accrued interest on the Notes to be
redeemed.
If less than all of the Notes are to be redeemed at any time,
the trustee will select Notes (or any portion of Notes in
integral multiples of $1,000) for redemption as follows:
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if the Notes are listed, in compliance with the requirements of
the principal national securities exchange on which the Notes
are listed; or
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if the Notes are not so listed or there are no such
requirements, on a pro rata basis, by lot or by such method as
the trustee shall deem fair and appropriate.
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However, no Note with a principal amount of $2,000 or less will
be redeemed in part. Notice of optional redemption will be
mailed by first class mail at least 30 days but not more
than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any note is
to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal
amount of that note to be redeemed.
Events of
Default
Each of the following is an Event of Default with
respect to the Notes:
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default in payment when due of the principal of or any premium
on any Note at maturity, upon redemption or otherwise;
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default for 60 days in the payment when due of interest on
any Note;
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failure by us or, so long as the Notes are guaranteed by a
subsidiary guarantor, by such subsidiary guarantor, for
90 days after receipt of notice from the trustee or the
holders to comply with any other term, covenant or warranty in
the Indenture or the Notes (provided that notice need not be
given, and an Event of Default will occur, 90 days after
any breach of the covenants described under
Consolidation, merger or sale);
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default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or
evidenced any debt for money borrowed of us or any of the
Subsidiaries of Plains All American Pipeline (or the payment of
which is guaranteed by Plains All American Pipeline or any of
its Subsidiaries), whether such debt or guarantee now exists or
is created after the Issue Date, if (a) that default
(x) is caused by a failure to pay principal of or premium,
if any, or interest on such debt prior to the expiration of any
grace period provided in such debt (a Payment
Default), or (y) results in the acceleration of the
maturity of such debt to a date prior to its originally stated
maturity, and, (b) in each case described in
clause (x) or (y) above, the principal amount of any
such debt, together with the principal amount of any other such
debt under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates
$25 million or more; provided that if any such default is
cured or waived or any such acceleration rescinded, or such debt
is repaid, within a period of 30 days from the continuation
of such default beyond the applicable grace period or the
occurrence of such acceleration, as the case may be, such Event
of Default and any consequential acceleration of the Notes shall
be automatically rescinded, so long as such rescission does not
conflict with any judgment or decree;
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S-17
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specified events in bankruptcy, insolvency or reorganization of
us or, so long as the Notes are guaranteed by a subsidiary
guarantor, by such subsidiary guarantor; or
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so long as the Notes are guaranteed by a subsidiary guarantor:
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the guarantee by such subsidiary guarantor ceases to be in full
force and effect, except as otherwise provided in the Indenture;
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the guarantee by such subsidiary guarantor is declared null and
void in a judicial proceeding; or
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such subsidiary guarantor denies or disaffirms its obligations
under the Indenture or its guarantee.
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An Event of Default regarding the Notes will not necessarily
constitute an Event of Default for any other series of debt
securities that may be issued under the Base Indenture. In the
case of an Event of Default arising from certain events of
bankruptcy, insolvency or reorganization involving us, but not
any subsidiary guarantor, all outstanding Notes will become due
and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing with respect to
the Notes, the trustee or the holders of at least 25% in
principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately.
Within five days after any of our officers becomes aware of the
occurrence of any Default (meaning an event that is, or after
the giving of notice or passage of time or both would be, an
Event of Default) or Event of Default with respect to the Notes,
we are required to give an officers certificate to the
trustee specifying the Default or Event of Default and what
action we are taking or propose to take to cure it. In addition,
we and the subsidiary guarantors are required to deliver to the
trustee, within 90 days after the end of each fiscal year,
an officers certificate indicating that we have complied
with all covenants contained in the Indenture or whether any
Default or Event of Default has occurred during the previous
year.
If a Default with respect to the Notes occurs and is continuing
and is known to the trustee, the trustee must mail to each
holder a notice of the Default within 90 days after the
Default occurs. Except in the case of a Default in the payment
of principal, premium, if any, or interest with respect to the
Notes, the trustee may withhold such notice, but only if and so
long as a committee of responsible officers of the trustee in
good faith determines that withholding such notice is in the
interests of the holders.
Consolidation,
merger or sale
We will not merge, amalgamate or consolidate with or into any
other Person or sell, convey, lease, transfer or otherwise
dispose of all or substantially all of our assets to any Person,
whether in a single transaction or series of related
transactions, except in accordance with the provisions of the
partnership agreement of Plains All American Pipeline, and
unless:
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we are the surviving Person in the case of a merger, or the
surviving Person:
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is a partnership, limited liability company or corporation
organized under the laws of the United States, a state
thereof or the District of Columbia, provided that PAA Finance
Corp. may not merge, amalgamate or consolidate with or into
another Person other than a corporation satisfying such
requirement for so long as Plains All American Pipeline is not a
corporation; and
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expressly assumes, by supplemental indenture in form reasonably
satisfactory to the trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the Notes,
and the due and punctual performance or observance of all the
other obligations under the Indenture to be performed or
observed by us;
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immediately after giving effect to the transaction or series of
transactions, no Default or Event of Default has occurred and is
continuing;
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if we are not the surviving Person, then each subsidiary
guarantor, unless such subsidiary guarantor is the Person with
which we have consummated a transaction under this provision,
shall have confirmed that its guarantee of the Notes shall
continue to apply to the obligations under the Notes and the
Indenture; and
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S-18
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we have delivered to the trustee an officers certificate
and opinion of counsel, each stating that the merger,
amalgamation, consolidation, sale, conveyance, transfer, lease
or other disposition, and if a supplemental indenture is
required, the supplemental indenture, comply with the Indenture
and all other conditions precedent to the transaction have been
complied with.
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Thereafter, the surviving Person will be substituted for us
under the Indenture. If we sell or otherwise dispose of (except
by lease) all or substantially all of our assets and the above
stated requirements are satisfied, we will be released from all
our liabilities and obligations under the Indenture. If we lease
all or substantially all of our assets, we will not be so
released from our obligations under the Indenture.
Modification
of the Indenture
Generally, we, the subsidiary guarantors and the trustee may
amend or supplement the Indenture, the guarantees and the Notes
with the written consent of the holders of at least a majority
in principal amount of the then outstanding Notes. However,
without the consent of each holder affected, an amendment,
supplement or waiver may not (with respect to any Notes held by
a nonconsenting holder):
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reduce the principal amount of Notes whose holders must consent
to an amendment, supplement or waiver;
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reduce the principal of or change the fixed maturity of any Note;
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reduce or waive the premium payable upon redemption or alter or
waive the other provisions with respect to the redemption of any
Notes;
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reduce the rate of or change the time for payment of interest on
any Note;
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waive a Default or an Event of Default in the payment of
principal of or premium, if any, or interest on, any Notes
(except a rescission of acceleration of the Notes by the holders
of at least a majority in aggregate principal amount and a
waiver of the payment default that resulted from such
acceleration);
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release any security that may have been granted with respect to
the Notes;
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make any note payable in currency other than that stated in the
Notes;
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make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or premium, if any, or interest
on the Notes;
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waive a redemption payment with respect to any Note;
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except as otherwise permitted in the Indenture, release any
subsidiary guarantor from its obligations under its guarantee or
the Indenture or change any guarantee in any manner that would
adversely affect the rights of holders; or
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make any change in the preceding amendment, supplement and
waiver provisions (except to increase any percentage set forth
therein).
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Notwithstanding the preceding, without the consent of any holder
of Notes, we, the subsidiary guarantors, and the trustee may
amend or supplement the Indenture or the Notes:
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to cure any ambiguity, defect or inconsistency;
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to provide for uncertificated Notes in addition to or in place
of certificated Notes;
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to provide for the assumption of our or the confirmation of a
subsidiary guarantors obligations to holders of Notes in
the case of a merger or consolidation or sale of all or
substantially all of our assets;
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to add or release subsidiary guarantors as permitted pursuant to
the terms of the Indenture (see The
guarantees);
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to make any changes that would provide any additional rights or
benefits to the holders of Notes that do not, taken as a whole,
adversely affect the rights under the Indenture of any holder of
the Notes;
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S-19
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to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the
Trust Indenture Act;
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to evidence or provide for the acceptance of appointment under
the Indenture of a successor trustee;
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to add any additional Events of Default;
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to secure the Notes
and/or the
guarantees; or
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to establish the form or terms of any other series of debt
securities under the Base Indenture.
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Covenants
Limitations
on liens
We will not, nor will we permit any Subsidiary to, create,
assume, incur or suffer to exist any lien upon any Principal
Property or upon any Capital Interests of any Restricted
Subsidiary, whether owned or leased or hereafter acquired, to
secure any of our debt or any debt of any other Person (other
than debt securities issued under the Indenture), without in any
such case making effective provision whereby all of the Notes
shall be secured equally and ratably with, or prior to, such
debt so long as such debt shall be so secured. The following are
excluded from this restriction:
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Permitted Liens;
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any lien upon any property or assets created at the time of
acquisition of such property or assets by us or any Restricted
Subsidiary or within one year after such time to secure all or a
portion of the purchase price for such property or assets or
debt incurred to finance such purchase price, whether such debt
was incurred prior to, at the time of or within one year after
the date of such acquisition;
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any lien upon any property or assets to secure all or part of
the cost of construction, development, repair or improvements
thereon or to secure debt incurred prior to, at the time of, or
within one year after completion of such construction,
development, repair or improvements or the commencement of full
operations thereof (whichever is later), to provide funds for
any such purpose;
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any lien upon any property or assets existing thereon at the
time of the acquisition thereof by us or any Restricted
Subsidiary (whether or not the obligations secured thereby are
assumed by us or any Restricted Subsidiary); provided, however,
that such lien only encumbers the property or assets so acquired;
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any lien upon any property or assets of a Person existing
thereon at the time such Person becomes a Restricted Subsidiary
by acquisition, merger or otherwise; provided, however, that
such lien only encumbers the property or assets of such Person
at the time such Person becomes a Restricted Subsidiary;
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any lien upon any of our property or assets or the property or
assets of any Restricted Subsidiary in existence on
December 10, 2003 or provided for pursuant to agreements
existing on December 10, 2003;
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liens imposed by law or order as a result of any proceeding
before any court or regulatory body that is being contested in
good faith, and liens which secure a judgment or other court
ordered award or settlement as to which we or the applicable
Restricted Subsidiary has not exhausted its appellate rights;
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any extension, renewal, refinancing, refunding or replacement,
or successive extensions, renewals, refinancings, refundings or
replacements of liens, in whole or in part, referred to above;
provided, however, that any such extension, renewal,
refinancing, refunding or replacement lien shall be limited to
the property or assets covered by the lien extended, renewed,
refinanced, refunded or replaced and that the obligations
secured by any such extension, renewal, refinancing, refunding
or replacement lien shall be in an amount not greater than the
amount of the obligations secured by the lien extended, renewed,
refinanced, refunded or replaced and any of our expenses and the
expenses of the Restricted
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S-20
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Subsidiaries (including any premium) incurred in connection with
such extension, renewal, refinancing, refunding or
replacement; or
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any lien resulting from the deposit of moneys or evidence of
indebtedness in trust for the purpose of defeasing our debt or
debt of any Restricted Subsidiary.
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Notwithstanding the preceding, we may, and may permit any
Restricted Subsidiary to, create, assume, incur, or suffer to
exist any lien upon any Principal Property or Capital Interests
of a Restricted Subsidiary to secure our debt or debt of any
Person (other than debt securities issued under the Indenture),
that is not excepted above without securing the Notes, provided
that the aggregate principal amount of all debt then outstanding
secured by such lien and all other liens not excepted above,
together with all Attributable Indebtedness from Sale-leaseback
Transactions, excluding Sale-leaseback Transactions permitted in
the first paragraph under Limitations on
sale-leasebacks, does not exceed 10% of Consolidated Net
Tangible Assets.
Limitations
on sale-leasebacks
We will not, and will not permit any Subsidiary to, engage in a
Sale-leaseback Transaction, unless:
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such Sale-leaseback Transaction occurs within one year from the
date of completion of the acquisition of the Principal Property
subject thereto or the date of the completion of construction,
development or substantial repair or improvement, or
commencement of full operations on such Principal Property,
whichever is later;
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the Sale-leaseback Transaction involves a lease for a period,
including renewals, of not more than three years;
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the Attributable Indebtedness from that Sale-leaseback
Transaction is an amount equal to or less than the amount that
we or such Subsidiary would be allowed to incur as debt secured
by a lien on the Principal Property subject thereto without
equally and ratably securing the Notes; or
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we or such Subsidiary, within a one-year period after such
Sale-leaseback Transaction, applies or causes to be applied an
amount not less than the net sale proceeds from such
Sale-leaseback Transaction to (A) the prepayment,
repayment, redemption, reduction or retirement of any Pari Passu
Debt of us or any Subsidiary, or (B) the expenditure or
expenditures for Principal Property used or to be used in the
ordinary course of the business of Plains All American Pipeline
or that of its Subsidiaries.
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Notwithstanding the preceding, we may, and may permit any
Subsidiary of Plains All American Pipeline to, effect any
Sale-leaseback Transaction that is not excepted above, provided
that the Attributable Indebtedness from such Sale-leaseback
Transaction, together with the aggregate principal amount of
then outstanding debt (other than debt securities issued under
the Indenture) secured by liens upon Principal Properties not
excepted in the first paragraph under
Limitations on liens, do not exceed 10%
of Consolidated Net Tangible Assets.
SEC
reports
Regardless of whether Plains All American Pipeline is required
to remain subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, it will
electronically file with the SEC, so long as the Notes are
outstanding, the annual, quarterly and other periodic reports
that it is required to file (or would otherwise be required to
file) with the SEC pursuant to Sections 13 and 15(d) of the
Exchange Act, and such documents will be filed with the SEC on
or prior to the respective dates (the Required Filing
Dates) by which it is required to file (or would otherwise
be required to file) such documents, unless, in each case, such
filings are not then permitted by the SEC.
If such filings are not then permitted by the SEC, or such
filings are not generally available on the Internet free of
charge, we will provide the trustee with, and the trustee will
mail to any holder of Notes requesting in writing to the trustee
copies of, such annual, quarterly and other periodic reports
specified in Sections 13 and 15(d) of the Exchange Act
within 15 days after its Required Filing Date.
S-21
Defeasance
and discharge
At any time we may terminate all our obligations under the
Indenture as they relate to the Notes (legal
defeasance), except for certain obligations, including
those respecting the defeasance trust and timely payments
therefrom and obligations to register the transfer of or
exchange the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent for
the Notes.
Also, at any time we may terminate our obligations under
covenants described in the last paragraph of
The guarantees, under
Covenants and under
SEC reports with respect to the Notes
(covenant defeasance), and thereafter our failure to
comply with any of such covenants would not constitute an Event
of Default.
We may exercise our legal defeasance option notwithstanding our
prior exercise of our covenant defeasance option. If we exercise
our legal defeasance option, each guarantee obligation will be
deemed to have been discharged with respect to the Notes.
In order to exercise either defeasance option, we must
irrevocably deposit in trust (the defeasance trust)
with the trustee money, U.S. Government Obligations (as
defined in the Indenture) or a combination thereof for the
payment of principal, premium, if any, and interest on the Notes
to redemption or stated maturity, as the case may be, and must
comply with certain other conditions, including delivery to the
trustee of an opinion of counsel to the effect that holders of
the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance had not occurred. In the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal
income tax law.
In the event of any legal defeasance, holders of the Notes would
be entitled to look only to the trust for payment of principal
of and any premium and interest on their Notes until maturity.
Although the amount of money and U.S. Government
Obligations on deposit with the trustee would be intended to be
sufficient to pay amounts due on the defeased Notes at the time
of their stated maturity, if we exercise our covenant defeasance
option for the Notes and the Notes are declared due and payable
because of the occurrence of an Event of Default, such amount
may not be sufficient to pay amounts due on the Notes at the
time of the acceleration resulting from such Event of Default.
We would remain liable for such payments, however.
In addition, we may satisfy and discharge all our obligations
under the Indenture with respect to the Notes, other than
certain obligations to the trustee and our obligation to
register the transfer of or exchange the Notes, provided that we
either:
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deliver all outstanding Notes to the trustee for
cancellation; or
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all Notes not so delivered for cancellation have either become
due and payable or will become due and payable at their stated
maturity within one year or are to be called for redemption
within one year, and in the case of this bullet point we have
irrevocably deposited with the trustee in trust an amount of
cash or U.S. Government Obligations or a combination
thereof sufficient to pay the entire indebtedness of the Notes,
including interest and premium, if any, to the stated maturity
or applicable redemption date;
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and comply with the other requirements of the Indenture in
relation to satisfaction and discharge.
Definitions
Attributable Indebtedness, when used with
respect to any Sale-leaseback Transaction, means, as at the time
of determination, the present value, discounted at the rate set
forth or implicit in the terms of the lease included in such
transaction, of the total obligations of the lessee for rental
payments, other than amounts required to be paid on account of
property taxes, maintenance, repairs, insurance, assessments,
utilities, operating and labor costs and other items that do not
constitute payments for property rights during the remaining
term of the lease included in such Sale-leaseback Transaction
including any period for which such
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lease has been extended. In the case of any lease that is
terminable by the lessee upon the payment of a penalty or other
termination payment, such amount shall be the lesser of the
amount determined assuming termination upon the first date such
lease may be terminated, in which case the amount shall also
include the amount of the penalty or termination payment, but no
rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated,
or the amount determined assuming no such termination.
Board of Directors means (a) with
respect to Plains All American Pipeline, the board of directors
of the Managing General Partner, and (b) with respect to
PAA Finance Corp., its board of directors or, in each case, with
respect to any determination or resolution permitted to be made
under the Indenture, any authorized committee or subcommittee of
such board.
Capital Interests means any and all shares,
interests, participations, rights or other equivalents (however
designated) of capital stock, including, without limitation,
with respect to partnerships, partnership interests (whether
general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits
and losses of, or distributions of assets of, such Person.
Consolidated Net Tangible Assets means, at
any date of determination, the total amount of assets after
deducting therefrom:
(1) all current liabilities excluding:
(a) any current liabilities that by their terms are
extendible or renewable at the option of the obligor thereon to
a time more than 12 months after the time as of which the
amount thereof is being computed; and
(b) current maturities of long-term debt; and
(2) the amount, net of any applicable reserves, of all
goodwill, trade names, trademarks, patents and other like
intangible assets,
all as set forth on the consolidated balance sheet of Plains All
American Pipeline for its most recently completed fiscal
quarter, prepared in accordance with generally accepted
accounting principles.
Exchange Act means the Securities Exchange
Act of 1934, as amended.
Funded Debt means all debt maturing one year
or more from the date of the creation thereof, all debt directly
or indirectly renewable or extendible, at the option of the
debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the
date of the creation thereof, and all debt under a revolving
credit or similar agreement obligating the lender or lenders to
extend credit over a period of one year or more.
Issue Date means the date on which the Notes
are initially issued.
Managing General Partner means
(i) Plains All American GP LLC, a Delaware limited
liability company (and its successors and permitted assigns), as
general partner of Plains AAP, L.P., a Delaware limited
partnership (and its successors and permitted assigns), as sole
member of PAA GP LLC (and its successors and permitted assigns),
as general partner of Plains All American Pipeline or
(ii) the business entity with the ultimate authority to
manage the business and operations of Plains All American
Pipeline.
Pari Passu Debt means any of our Funded Debt,
whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless, in the case of any particular
Funded Debt, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides
that such Funded Debt shall be subordinated in right of payment
to the Notes.
Permitted Liens means:
(1) Liens upon
rights-of-way
for pipeline purposes;
(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics, repairmens,
materialmens, suppliers, carriers,
landlords, warehousemens or similar lien incurred in
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the ordinary course of business which is not yet due or which is
being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction,
development, improvement or repair;
(3) the right reserved to, or vested in, any municipality
or public authority by the terms of any right, power, franchise,
grant, license, permit or by any provision of law, to purchase
or recapture or to designate a purchaser of any property;
(4) liens of taxes and assessments which are: (a) for
the then current year, (b) not at the time delinquent, or
(c) delinquent but the validity of which is being contested
at the time by us or any Restricted Subsidiary in good faith;
(5) liens of, or to secure performance of, leases, other
than capital leases;
(6) any lien upon, or deposits of, any assets in favor of
any surety company or clerk of court for the purpose of
obtaining indemnity or stay of judicial proceedings;
(7) any lien upon property or assets acquired or sold by us
or any Restricted Subsidiary resulting from the exercise of any
rights arising out of defaults on receivables;
(8) any lien incurred in the ordinary course of business in
connection with workers compensation, unemployment
insurance, temporary disability, social security, retiree health
or similar laws or regulations or to secure obligations imposed
by statute or governmental regulations;
(9) any lien in favor of us or any Restricted Subsidiary;
(10) any lien in favor of the United States of America or
any state thereof, or any department, agency or instrumentality
or political subdivision of the United States of America or any
state thereof, to secure partial, progress, advance, or other
payments pursuant to any contract or statute, or any debt
incurred by us or any Restricted Subsidiary for the purpose of
financing all or any part of the purchase price of, or the cost
of constructing, developing, repairing or improving, the
property or assets subject to such lien;
(11) any lien securing industrial development, pollution
control or similar revenue bonds;
(12) any lien securing our debt or debt of any Restricted
Subsidiary, all or a portion of the net proceeds of which are
used, substantially concurrently with the funding thereof (and
for purposes of determining such substantial
concurrence, taking into consideration, among other
things, required notices to be given to holders of outstanding
debt securities under the Indenture (including the Notes) in
connection with such refunding, refinancing or repurchase, and
the required corresponding durations thereof), to refinance,
refund or repurchase all outstanding debt securities under the
Indenture (including the Notes), including the amount of all
accrued interest thereon and reasonable fees and expenses and
premium, if any, incurred by us or any Restricted Subsidiary in
connection therewith;
(13) liens in favor of any Person to secure obligations
under the provisions of any letters of credit, bank guarantees,
bonds or surety obligations required or requested by any
governmental authority in connection with any contract or
statute;
(14) any lien upon or deposits of any assets to secure
performance of bids, trade contracts, leases or statutory
obligations;
(15) any lien or privilege vested in any grantor, lessor or
licensor or permittor for rent or other charges due or for any
other obligations or acts to be performed, the payment of which
rent or other charges or performance of which other obligations
or acts is required under leases, easements,
rights-of-way,
licenses, franchises, privileges, grants or permits, so long as
payment of such rent or the performance of such other
obligations or acts is not delinquent or the requirement for
such payment or performance is being contested in good faith by
appropriate proceedings;
(16) easements, exceptions or reservations in any property
of Plains All American Pipeline or any property of any of its
Restricted Subsidiaries granted or reserved for the purpose of
pipelines, roads, the
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removal of oil, gas, coal or other minerals, and other like
purposes for the joint or common use of real property,
facilities and equipment, which are incidental to, and do not
materially interfere with, the ordinary conduct of its business
or the business of Plains All American Pipeline and its
Subsidiaries, taken as a whole;
(17) liens arising under operating agreements, joint
venture agreements, partnership agreements, oil and gas leases,
farmout agreements, division orders, contracts for sale,
transportation or exchange of oil and natural gas, unitization
and pooling declarations and agreements, area of mutual interest
agreements and other agreements arising in the ordinary course
of Plains All American Pipelines or any Restricted
Subsidiarys business that are customary in the business of
marketing, transportation and terminalling of crude oil
and/or
marketing of liquefied petroleum gas; or
(18) any obligations or duties to any municipality or
public authority with respect to any lease, easement,
right-of-way,
license, franchise, privilege, permit or grant.
Person means any individual, corporation,
partnership, joint venture, limited liability company,
association, joint stock company, trust, other entity,
unincorporated organization or government or any agency or
political subdivision thereof.
Principal Property means, whether owned or
leased on the Issue Date or thereafter acquired:
(1) any of the pipeline assets of Plains All American
Pipeline or the pipeline assets of any Subsidiary of Plains All
American Pipeline, including any related facilities employed in
the transportation, distribution, terminalling, gathering,
treating, processing, marketing or storage of crude oil or
refined petroleum products, natural gas, natural gas liquids,
fuel additives or petrochemicals; and
(2) any processing or manufacturing plant or terminal owned
or leased by Plains All American Pipeline or any Subsidiary of
Plains All American Pipeline; except, in either case above:
(a) any such assets consisting of inventories, furniture,
office fixtures and equipment, including data processing
equipment, vehicles and equipment used on, or useful with,
vehicles, and (b) any such assets, plant or terminal which,
in the good faith opinion of the Board of Directors, is not
material in relation to the activities of Plains All American
Pipeline or the activities of Plains All American Pipeline and
its Subsidiaries, taken as a whole.
Restricted Subsidiary means any Subsidiary of
Plains All American Pipeline owning or leasing, directly or
indirectly through ownership in another Subsidiary, any
Principal Property.
Sale-leaseback Transaction means the sale or
transfer by us or any Subsidiary of Plains All American Pipeline
of any Principal Property to a Person (other than us or a
Subsidiary of Plains All American Pipeline) and the taking back
by us or any Subsidiary of Plains All American Pipeline, as the
case may be, of a lease of such Principal Property.
Securities Act means the Securities Act of
1933, as amended.
Subsidiary means, with respect to any Person:
(1) any other Person of which more than 50% of the total
voting power of shares or other Capital Interests entitled,
without regard to the occurrence of any contingency, to vote in
the election of directors, managers or trustees (or equivalent
persons) thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof; or
(2) in the case of a partnership, more than 50% of the
partners Capital Interests, considering all partners
Capital Interests as a single class, is at the time owned or
controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person or a combination
thereof.
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BOOK
ENTRY, DELIVERY AND FORM
We will issue the Notes in the form of one or more fully
registered global notes, without coupons, each of which we refer
to as a Global Note. Each such Global Note will be
registered in the name of a depositary or a nominee of a
depositary and held through one or more international and
domestic clearing systems, principally the book-entry systems
operated by The Depository Trust Company, or DTC, in the
United States and by Euroclear Bank S.A./N.V., or the Euroclear
Operator, as an operator of the Euroclear System, or Euroclear,
and Clearstream Banking, société anonyme, or
Clearstream, in Europe. Unless and until definitive notes are
issued, all references to actions by holders of Notes issued in
global form refer to actions taken by DTC, Euroclear or
Clearstream, as the case may be, upon instructions from their
respective participants, and all references to payments and
notices to the holders refer to payments and notices to DTC, its
nominee, Euroclear or Clearstream, as the case may be, as the
registered holder of the Notes. Electronic notes and payment
transfer, processing, depositary and custodial links have been
established among these systems and others, either directly or
indirectly, which enable Global Notes to be issued, held and
transferred among these clearing systems through these links.
Although DTC, Euroclear and Clearstream have agreed to the
procedures described below in order to facilitate transfers of
Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or continue
to perform these procedures, and these procedures may be
modified or discontinued at any time. Neither we nor the Trustee
or any registrar and transfer agent with respect to the Notes
will have any responsibility for the performance by DTC,
Euroclear, Clearstream or any of their respective direct or
indirect participants of their respective obligations under the
rules and procedures governing DTCs, Euroclears or
Clearstreams operations.
The Notes in the form of one or more Global Notes will be
registered in the name of DTC or a nominee of DTC. Where
appropriate, links will be established among DTC, Euroclear and
Clearstream to facilitate the initial issuance of any Notes sold
outside the United States and cross-market transfers of the
Notes associated with secondary market trading. Although the
following information concerning DTC, Euroclear and Clearstream
and their respective book-entry systems has been obtained from
sources that we believe to be reliable, we take no
responsibility for the accuracy of that information.
Depository
procedures
DTC has advised us that DTC is a limited purpose trust company
organized under the New York Banking Law, a banking
organization within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code, and a clearing agency registered
pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participating
organizations (collectively, the Participants) and
to facilitate the clearance and settlement of securities
transactions in those securities between the Participants
through electronic book-entry changes in accounts of the
Participants thereby eliminating the need for physical movement
of securities certificates. The Participants include securities
brokers and dealers (including the underwriters), banks, trust
companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Participants and
by the New York Stock Exchange, Inc., the NYSE Alternext LLC and
the Financial Regulatory Authority, Inc. Access to DTCs
system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the Indirect
Participants). Persons who are not Participants or
Indirect Participants may beneficially own securities held by or
on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on
behalf of DTC is recorded on the records of the Participants and
the Indirect Participants.
DTC has also advised us that pursuant to procedures established
by it, (a) upon deposit of the Global Notes, DTC will
credit the accounts of Participants designated by the
underwriters with portions of the principal amount of the Global
Notes and (b) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with
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respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system,
or indirectly through organizations (including Euroclear and
Clearstream) which are Participants in such system. Euroclear
and Clearstream will hold any interests in the Global Notes on
behalf of their participants through their respective
depositories, which in turn will hold such interests on the
books of DTC. All interests in a Global Note, including any held
through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Any interests held through
Euroclear or Clearstream may also be subject to the procedures
and requirements of such system.
The laws of some jurisdictions may require that certain persons
take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect
Participants and certain banks, the ability of a person having
beneficial interests in a Global Note to pledge such interests
to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests,
may be affected by the lack of a physical certificate evidencing
such interests. For certain other restrictions on the
transferability of the Notes, see Exchange of
book entry Notes for certificated Notes.
Except as described below, owners of interests in the Global
Notes will not have Notes registered in their names, will not
receive physical delivery of Notes in certificated form and will
not be considered the registered owners or holders thereof under
the Indenture for any purpose.
Payments in respect of the principal of (and premium, if any)
and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC or its nominee in its
capacity as the registered holder under the Indenture. Under the
terms of the Indenture, we and the trustee will treat the
persons in whose names the Notes, including the Global Notes,
are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes
whatsoever. Consequently, neither we nor the underwriters, the
trustee nor any of our or their agents has or will have any
responsibility or liability for (1) any aspect or accuracy
of DTCs records or any Participants or Indirect
Participants records relating to the beneficial ownership
or (2) any other matter relating to the actions and
practices of DTC or any of the Participants or the Indirect
Participants.
DTC has advised us that its current practice, upon receipt of
any payment in respect of securities such as the Notes
(including principal and interest), is to credit the accounts of
the relevant Participants with the payment on the payment date,
in amounts proportionate to their respective interests in the
principal amount of the relevant security as shown on the
records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of notes will be governed
by standing instructions and customary practices and will not be
the responsibility of DTC, the trustee or us. Neither we nor the
trustee will be liable for any delay by DTC or any of the
Participants in identifying the beneficial owners of the Notes,
and we and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as
the registered owner of the Global Notes for all purposes.
Except for trades involving only Euroclear and Clearstream
participants, secondary market trading activity in interests in
the Global Notes will settle in
same-day
funds, subject in all cases to the rules and procedures of DTC
and the Participants. Transfers between accountholders in
Euroclear and Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating
procedures.
Cross-market transfers between the accountholders in DTC, on the
one hand, and directly or indirectly through Euroclear or
Clearstream accountholders, on the other hand, will be effected
through DTC in accordance with DTCs rules on behalf of
Euroclear or Clearstream, as the case may be, by its depository;
however, such cross-market transactions will require delivery of
instructions to Euroclear or Clearstream, as the case may be, by
the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time)
of such system. Euroclear or Clearstream, as the case may be,
will, if
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the transaction meets its settlement requirements, deliver
instructions to its depository to take action to effect final
settlement on its behalf by delivering or receiving interests in
the relevant Global Note in DTC, and making or receiving payment
in accordance with normal procedures for
same-day
funds settlement applicable to DTC. Euroclear and Clearstream
accountholders may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
Because of time zone differences, the securities account of a
Euroclear or Clearstream accountholder purchasing an interest in
a Global Note from an accountholder in DTC will be credited, and
any such crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear or
Clearstream) immediately following the settlement date of DTC.
Cash received in Euroclear or Clearstream as a result of sales
of interests in a Global Note by or through a Euroclear or
Clearstream accountholder to a Participant in DTC will be
received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream
following DTCs settlement date.
DTC has advised us that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more
Participants to whose account with DTC interests in the Global
Notes are credited and only in respect of such portion of the
aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction.
However, if any of the events described under
Exchange of book entry Notes for certificated
Notes occurs, DTC reserves the right to exchange the
Global Notes for Notes in certificated form and to distribute
such Notes to its Participants.
Neither we, the underwriters, the trustee nor any of our
respective agents will have any responsibility for the
performance by DTC, Euroclear or Clearstream or their respective
participants, indirect participants or accountholders of their
respective obligations under the rules and procedures governing
their operations.
Exchange
of book entry Notes for certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form if (1) DTC (a) notifies us that it
is unwilling or unable to continue as depository for the Global
Note or (b) has ceased to be a clearing agency registered
under the Exchange Act, and (2) we fail to appoint a
successor depository within 90 days. In all cases,
certificated notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by or on
behalf of DTC (in accordance with its customary procedures).
S-28
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material
U.S. federal income tax consequences that may be relevant
to the purchase, ownership and disposition of the Notes. The
discussion is based on the Internal Revenue Code of 1986, as
amended (the Code), Treasury Regulations issued
thereunder, and judicial decisions and administrative
interpretations now in effect, all of which are subject to
change, possibly on a retroactive basis, or are subject to
different interpretations. There can be no assurance that the
Internal Revenue Service (the IRS) will take a
similar view of such consequences, and we have not obtained, nor
do we intend to obtain, a ruling from the IRS with respect to
the U.S. federal income tax consequences of the purchase,
ownership or disposition of the Notes. This discussion is
limited to initial beneficial owners who purchase the Notes for
cash at their issue price (the first price at which a
substantial amount of the Notes is sold for money to investors,
not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement
agents or wholesalers) and who hold the Notes as capital assets
(generally property held for investment).
In this discussion, we do not purport to address all tax
considerations that may be important to a particular holder in
light of the holders special circumstances, or to certain
categories of holders that may be subject to special rules,
such as:
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dealers in securities or currencies;
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traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
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banks, insurance companies, or other financial institutions;
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certain former citizens or long-term residents of the United
States;
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tax-exempt organizations;
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regulated investment companies;
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real estate investment trusts;
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holders subject to the alternative minimum tax;
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persons holding Notes as part of a straddle transaction, hedging
transaction, conversion transaction or other synthetic
security or integrated transaction;
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U.S. Holders (as defined below) whose functional currency
is not the U.S. dollar; or
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partnerships and other pass-through entities and holders of
interests therein.
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In addition, the discussion does not consider the effect of U.S.
federal estate or gift tax laws or of any applicable foreign,
state, local or other tax laws or income tax treaties.
If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes is a beneficial owner of
Notes, the treatment of a partner in the partnership will
generally depend upon the status of the partner and upon the
activities of the partnership. Partners in partnerships
acquiring Notes should consult their tax advisors.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS
WITH REGARD TO THE APPLICATION OF THE TAX CONSEQUENCES DISCUSSED
BELOW TO THEIR PARTICULAR SITUATIONS, AS WELL AS THE APPLICATION
OF U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS OR INCOME TAX TREATIES.
As used herein, a U.S. Holder means a
beneficial owner of a Note that is:
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an individual who is a citizen or resident of the United States;
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a corporation or other entity treated as a corporation for
U.S. federal income tax purposes created or organized in or
under the laws of the United States or any political subdivision
thereof;
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an estate the income of which is subject to U.S. federal
income tax regardless of its source; or
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a trust, if (i) a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more United States persons have the authority
to control all substantial decisions of the trust, or
(ii) the trust has a valid election in effect under
applicable U.S. Treasury Regulations to be treated as a
United States person.
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As used herein, a
Non-U.S. Holder
means a beneficial owner of a Note that is an individual,
corporation, estate or trust and is not a U.S. Holder.
U.S.
federal income taxation of U.S. Holders
Payments
of interest
Interest paid on a Note generally will be taxable to a
U.S. Holder as ordinary income at the time it accrues or is
received in accordance with the U.S. Holders regular
method of accounting for U.S. federal income tax purposes.
In certain circumstances (see Description of
Notes Optional redemption), we may pay amounts
in excess of the stated interest and principal on the Notes. We
intend to take the position that the possibility that such
additional amounts will be paid does not cause the Notes to be
treated as contingent payment debt instruments. Our
determination is binding on a U.S. Holder, unless such
holder explicitly discloses a contrary position to the IRS in
the manner prescribed by applicable Treasury regulations. Our
determination is not binding on the IRS. It is possible that the
IRS might take a different position, in which case, the timing,
character and amount of taxable income in respect of the Notes
may be different from that described herein.
Disposition
of Notes
Upon the sale, retirement, redemption or other taxable
disposition of a Note, a U.S. Holder will generally
recognize capital gain or loss equal to the difference between
the amount realized on the disposition (not including any amount
attributable to accrued but unpaid interest which is taxable as
ordinary interest income to the extent not previously included
in income) and such holders adjusted tax basis in the
Note. The amount realized by a U.S. Holder will include the
amount of any cash and the fair market value of any other
property received for the Note. A U.S. Holders
adjusted tax basis in a Note will generally equal the purchase
price paid by such holder for the Note.
In general, gain or loss realized on the sale, retirement,
redemption or other taxable disposition of a Note by a
U.S. Holder will be long-term capital gain or loss if, at
the time of disposition, the U.S. Holder has held the Note
for more than one year. The long-term capital gains of
individuals, estates and trusts currently are subject to a
reduced rate of U.S. federal income tax. The deductibility
of capital losses is subject to certain limitations.
Information
reporting and backup withholding
Information reporting will apply to payments of interest on, and
the proceeds of the sale, retirement, redemption or other
disposition of, Notes held by a U.S. Holder, and backup
withholding may apply unless the U.S. Holder provides the
appropriate intermediary with a taxpayer identification number,
certified under penalties of perjury, as well as certain other
information or otherwise establishes an exemption from backup
withholding. Any amount withheld under the backup withholding
rules is allowable as a credit against the
U.S. Holders U.S. federal income tax liability,
if any, and a refund may be obtained if the amounts withheld
exceed the U.S. Holders actual U.S. federal
income tax liability and the U.S. Holder provides the
required information or appropriate claim form to the IRS.
New
legislation
For taxable years beginning after December 31, 2012, newly
enacted legislation is scheduled to impose a 3.8% tax on the
net investment income of certain U.S. citizens
and resident aliens, and on the undistributed
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net investment income of certain estates and trusts.
Among other items, net investment income would
generally include gross income from interest and net gain from
the sale, retirement, redemption or other taxable disposition of
a Note, less certain deductions.
Prospective investors should consult their own tax advisors with
respect to the tax consequences of the new legislation described
above.
U.S.
federal income taxation of
Non-U.S.
Holders
Payments
of interest
The payment to a
Non-U.S. Holder
of interest on a Note generally will be exempt from
U.S. federal withholding tax under the portfolio
interest exemption provided that interest on the Note is
not effectively connected with a U.S. trade or business
conducted by the
Non-U.S. Holder
and the
Non-U.S. Holder:
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does not actually or constructively own 10% or more of our
capital or profits interests;
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is not a controlled foreign corporation for U.S. federal
income tax purposes that is related directly or indirectly to
us; and
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is not a bank whose receipt of interest on the Note is in
connection with an extension of credit made pursuant to a loan
agreement entered into in the ordinary course of business.
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The portfolio interest exemption and several of the special
rules for
Non-U.S. Holders
described below generally apply only if a
Non-U.S. Holder
appropriately certifies as to his foreign status. A
Non-U.S. Holder
can generally meet this certification requirement by providing a
properly executed IRS
Form W-8BEN
or appropriate substitute form to us, or our paying agent.
If a
Non-U.S. Holder
holds the Notes through a financial institution or other agent
acting on his behalf, that
Non-U.S. Holder
may be required to provide appropriate certifications to the
agent. That agent will then generally be required to provide
appropriate certifications to us or our paying agent, either
directly or through other intermediaries. Special rules apply to
foreign partnerships, estates and trusts, and in certain
circumstances certifications as to foreign status of partners,
trust owners or beneficiaries may have to be provided to us or
our paying agent. In addition, special rules apply to qualified
intermediaries that enter into withholding agreements with the
IRS.
If a
Non-U.S. Holder
cannot satisfy the requirements described in the preceding
paragraphs, payments of interest made to the
Non-U.S. Holder
will be subject to a 30% U.S. federal withholding tax,
unless the
Non-U.S. Holder
provides us with a properly executed (1) IRS
Form W-8BEN
(or successor form) claiming an exemption from or reduction in
the rate of withholding under the benefit of an income tax
treaty or (2) IRS
Form W-8ECI
(or successor form) stating that the interest paid on the Note
is not subject to withholding tax because it is effectively
connected with the
Non-U.S. Holders
conduct of a trade or business in the United States (and if
required by an applicable income tax treaty, is treated as
attributable to a permanent establishment maintained by the
Non-U.S. Holder
in the United States). See Income or gain
effectively connected with a U.S. trade or business.
Disposition
of Notes
Generally, a
Non-U.S. Holder
will not be subject to U.S. federal income tax with respect
to gain realized on the sale, retirement, redemption or other
disposition of a Note unless:
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the gain is effectively connected with the conduct by the
Non-U.S. Holder
of a trade or business in the United States (and if an
applicable income tax treaty so requires, is attributable to a
permanent establishment maintained by the
Non-U.S. Holder
in the United States); or
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in the case of a
Non-U.S. Holder
who is a nonresident alien individual, such individual is
present in the United States for 183 days or more in the
taxable year of disposition and certain other conditions are met.
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S-31
If you are a
Non-U.S. Holder
described in the first bullet point above, you generally will be
subject to U.S. federal income tax in the manner described
below under Income or gain effectively
connected with a U.S. trade or business. If you are a
Non-U.S. Holder
described in the second bullet point above, you will be subject
to a flat 30% U.S. federal income tax on the gain derived
from the sale or other disposition, which may be offset by
U.S. source capital losses.
Income
or gain effectively connected with a U.S. trade or
business
If a
Non-U.S. Holder
of a Note is engaged in a trade or business in the United States
and interest on the Note is effectively connected with the
conduct of such trade or business, then the income or gain from
the Note will generally be subject to U.S. federal income
tax in the same manner as if that
Non-U.S. Holder
were a U.S. Holder, unless the
Non-U.S. Holder
can claim an exemption under the benefits of an income tax
treaty. If a
Non-U.S. Holder
is eligible for the benefits of an income tax treaty between the
United States and his country of residence, any
effectively connected income or gain will generally
be subject to U.S. federal income tax only if it is also
attributable to a permanent establishment maintained by that
Non-U.S. Holder
in the United States. In addition, if such
Non-U.S. Holder
is a foreign corporation, it may be subject to a branch profits
tax equal to 30% (or lower applicable treaty rate) of its
earnings and profits for the taxable year, subject to
adjustments, that are effectively connected with its conduct of
a trade or business in the United States. A
Non-U.S. Holder
can generally meet the certification requirements by providing a
properly executed IRS
Form W-8ECI
(or IRS
Form W-8BEN
claiming exemption under an applicable income tax treaty) or
appropriate substitute form to us, or our paying agent.
Information
reporting and backup withholding
Payments to a
Non-U.S. Holder
of interest on a Note, and amounts withheld from such payments,
if any, generally will be required to be reported to the IRS and
to the
Non-U.S. Holder.
United States backup withholding tax generally will not apply to
payments of interest and principal on a Note to a
Non-U.S. Holder
if the statement described in Payments of
interest is duly provided by the holder or the holder
otherwise establishes an exemption, provided that we do not have
actual knowledge or reason to know that the holder is a United
States person.
Payment of the proceeds of a sale of a Note effected by the
U.S. office of a U.S. or foreign broker will be
subject to information reporting requirements and backup
withholding unless the
Non-U.S. Holder
properly certifies under penalties of perjury as to his foreign
status and certain other conditions are met or the Non-U.S.
Holder otherwise establishes an exemption. Information reporting
requirements and backup withholding generally will not apply to
any payment of the proceeds of the sale of a Note effected
outside the United States by a foreign office of a broker.
However, unless such a broker has documentary evidence in its
records that the holder is a
Non-U.S. Holder
and certain other conditions are met, or the
Non-U.S. Holder
otherwise establishes an exemption, information reporting will
apply to a payment of the proceeds of the sale of a Note
effected outside the United States by such a broker if the
broker is:
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a United States person;
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a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in
the United States;
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a controlled foreign corporation for U.S. federal income
tax purposes; or
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a foreign partnership that, at any time during its taxable year,
has more than 50% of its income or capital interests owned by
United States persons or is engaged in the conduct of a
U.S. trade or business.
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Any amount withheld from payments to a
Non-U.S. Holder
under the backup withholding rules may be credited against such
holders U.S. federal income tax liability, if any,
and any excess may be refundable if the proper information is
provided to the IRS.
S-32
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated the date of this prospectus supplement, between
us and the underwriters named below, we have agreed to sell to
each of the underwriters, and the underwriters have agreed,
severally and not jointly, to purchase, the principal amount of
the Notes set forth opposite their respective names below:
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Underwriter
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Principal Amount
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J.P. Morgan Securities LLC
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$
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SunTrust Robinson Humphrey, Inc.
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Wells Fargo Securities, LLC
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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DnB NOR Markets, Inc.
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Total
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$
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The underwriting agreement provides that the obligations of the
several underwriters to purchase the Notes included in this
offering are subject to approval of legal matters by counsel and
to other conditions. Under the terms of the underwriting
agreement, the underwriters are committed to purchase all of the
Notes if any are purchased.
Commissions
and discounts
The underwriters propose initially to offer the Notes to the
public at the public offering price set forth on the cover page
of this prospectus supplement and may offer the Notes to certain
dealers at such price less a concession not in excess
of % of the principal amount of the
Notes. The underwriters may allow a discount not in excess
of % of the principal amount of the
Notes on sales to certain other brokers and dealers. After this
initial public offering, the public offering price, concession
and discount may be changed.
The following table summarizes the compensation to be paid by us
to the underwriters.
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Per Note
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Total
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Underwriting discount paid by us
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%
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$
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We estimate that our share of the total expenses of the
offering, excluding underwriting discounts and commissions, will
be approximately $ .
New issue
of Notes
We do not intend to apply for listing of the Notes on a national
securities exchange. We have been advised by the underwriters
that the underwriters intend to make a market in the Notes but
are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to whether
or not a trading market for the Notes will develop or as to the
liquidity of any trading market for the Notes which may develop.
Stabilization
and short positions
In connection with the offering of the Notes, the underwriters
may engage in transactions that stabilize, maintain or otherwise
affect the price of the Notes. Specifically, the underwriters
may overallot in connection with the offering of the Notes,
creating a syndicate short position. In addition, the
underwriters may bid for, and purchase, Notes in the open market
to cover syndicate short positions or to stabilize the price of
the Notes. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing the Notes in the
offering of the Notes, if the syndicate repurchases previously
distributed Notes in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above
independent market levels. The underwriters are not required to
engage in any of these activities and may end any of them at any
time. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
Notes. In addition, neither we nor the underwriters make any
representation that the underwriters will engage in such
transactions or that such transactions, once commenced, will not
be discontinued without notice.
S-33
Settlement
We expect delivery of the notes will be made against payment
therefor on or about January ,
2011, which is the seventh business day following the date of
pricing of the notes (such settlement being referred to as
T+7). Under Rule 15c6-1 of the Securities
Exchange Act of 1934, trades in the secondary market generally
are required to settle in three business days unless the parties
to any such trade expressly agree otherwise. Accordingly,
purchasers who wish to trade the notes on the date of pricing of
the notes or the next succeeding three business days will be
required, by virtue of the fact that the notes initially will
settle in T+7, to specify an alternate settlement cycle at the
time of any such trade to prevent failed settlement and should
consult their own advisers.
Selling
restrictions
European
Economic Area
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date), an offer of Notes may not be made to
the public in that Relevant Member State prior to the
publication of a prospectus in relation to the Notes that has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that, with effect from and including the Relevant
Implementation Date, an offer of Notes may be made to the public
in that Relevant Member State at any time:
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to legal entities that are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 100,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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in any other circumstances that do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of Notes to the public in relation to any
Notes in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the Notes, so as to enable an investor to
decide to purchase or subscribe the Notes, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
United
Kingdom
With respect the United Kingdom, the underwriters:
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may only communicate or cause to be communicated any invitation
or inducement to engage in investment activity (within the
meaning of Section 21 of the Financial Services and Markets
Act 2000 (FSMA)) received by it in connection with
the issue or sale of the Notes in circumstances in which
Section 21(1) of the FSMA does not apply to us; and
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must comply with all applicable provisions of the FSMA with
respect to anything done by it in relation to the Notes in, from
or otherwise involving the United Kingdom.
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Conflicts
of interest
The underwriters and their respective affiliates have, from time
to time, performed, and may in the future perform, various
financial advisory, commercial banking and investment banking
services for us and our affiliates, for which they received or
will receive customary fees and expense reimbursement.
Affiliates of
S-34
each of the underwriters are lenders under our credit
facilities. These affiliates may receive their respective share
of any repayment by us of amounts outstanding under our credit
facilities from the proceeds of this offering. Each of the
underwriters whose affiliates will receive at least 5% of the
net proceeds is considered by the Financial Industry Regulatory
Authority, Inc. to have a conflict of interest with us in
regards to this offering. However, the appointment of a
qualified independent underwriter is not necessary in connection
with the offering because the offering is of a class of
securities that are investment grade rated.
Indemnification
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make because of any of those liabilities.
S-35
LEGAL
MATTERS
Certain legal matters in connection with the Notes being offered
hereby will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas and for the underwriters by Baker Botts
L.L.P., Houston, Texas.
EXPERTS
The financial statements of Plains All American Pipeline, L.P.
and managements assessment of the effectiveness of
internal control over financial reporting (which is included in
Managements Report on Internal Control over Financial
Reporting) incorporated in this prospectus supplement by
reference to the Annual Report on
Form 10-K
for the year ended December 31, 2009, have been
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, 2009 of PAA GP LLC
incorporated in this prospectus supplement by reference to
Plains All American Pipeline, L.P.s Current Report on
Form 8-K
filed March 12, 2010, 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.
WHERE YOU
CAN FIND MORE INFORMATION
We are incorporating by reference into this
prospectus supplement information we file with the SEC. This
procedure means that we can disclose important information to
you by referring you to documents filed with the SEC. The
information we incorporate by reference is part of this
prospectus supplement and later information that we file with
the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed
below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
(excluding any information furnished and not filed pursuant to
any Current Report on
Form 8-K)
until the offering, sale and initial resale of the Notes
contemplated by this prospectus supplement are complete:
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Annual Report on
Form 10-K
for the year ended December 31, 2009;
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Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010;
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Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010;
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Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2010;
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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 February 22, 2010 (board of
director changes, compensation arrangements for certain
executive officers);
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Current Report on
Form 8-K
filed with the SEC on March 12, 2010 (audited balance sheet
of PAA GP LLC as of December 31, 2009);
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Current Report on
Form 8-K
filed with the SEC on June 17, 2010 (unaudited balance
sheet of PAA GP LLC as of March 31, 2010);
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Current Report on
Form 8-K
filed with the SEC on July 13, 2010 (documentation related
to debt offering);
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Current Report on
Form 8-K
filed with the SEC on August 19, 2010 (departure and
appointment of certain executive officers);
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Current on
Form 8-K
filed with the SEC on September 10, 2010 (compensation
arrangements for certain executive officers);
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Current Report on
Form 8-K
filed with the SEC on October 28, 2010 (Second Amendment to
Second Restated Credit Agreement);
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S-36
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Current Report on
Form 8-K
filed (other than Item 7.01, which was furnished) with the
SEC on November 18, 2010 (documentation relating to equity
offering);
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Current Report on
Form 8-K
filed (other than Item 7.01, which was furnished) with the
SEC on December 30, 2010 (general partner ownership
changes, board of director changes, and amendments to
partnership agreement of Plains AAP, L.P. and limited liability
company agreement of Plains All American GP LLC); and
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Current Report on
Form 8-K
filed (other than Item 7.01, which was furnished) with the
SEC on December 30, 2010 (entry into definitive agreement
for acquisition of Southern Pines Energy Center by PAA Natural
Gas Storage, L.P. and related financing).
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You may request a copy of these filings (other than any exhibits
unless specifically incorporated by reference into this
prospectus supplement and the accompanying prospectus) at no
cost by making written or telephone requests for copies to:
Plains All American Pipeline, L.P.
333 Clay Street, Suite 1600
Houston, Texas 77002
Attention: Tim Moore
Telephone:
(713) 646-4100
Additionally, you may read and copy any materials that we have
filed with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy
and information statements, and other information regarding us.
The SECs website address is
www.sec.gov.
You should rely only on the information incorporated by
reference or provided in this prospectus supplement. We have
not, and the underwriters have not, authorized anyone else to
provide you with any information. You should not assume that the
information incorporated by reference or provided in this
prospectus supplement or the accompanying prospectus is accurate
as of any date other than its date.
S-37
PROSPECTUS
Plains All American Pipeline,
L.P.
PAA Finance Corp.
Common Units
Debt Securities
We may offer and sell the common units, representing limited
partner interests of Plains All American Pipeline, L.P., and,
together with PAA Finance Corp., debt securities described in
this prospectus from time to time in one or more classes or
series and in amounts, at prices and on terms to be determined
by market conditions at the time of our offerings. PAA Finance
Corp. may act as co-issuer of the debt securities, and other
subsidiaries of Plains All American Pipeline, L.P. may guarantee
the debt securities.
We may offer and sell these securities to or through one or more
underwriters, dealers and agents, or directly to purchasers, on
a continuous or delayed basis. This prospectus describes the
general terms of these common units and debt securities and the
general manner in which we will offer the common units and debt
securities. The specific terms of any common units and debt
securities we offer will be included in a supplement to this
prospectus. The prospectus supplement will also describe the
specific manner in which we will offer the common units and debt
securities.
Investing in our common units
and the debt securities involves risks. Limited partnerships are
inherently different from corporations. You should carefully
consider the risk factors described under Risk
Factors beginning on page 6 of this prospectus before
you make an investment in our securities.
Our common units are traded on the New York Stock Exchange under
the symbol PAA. We will provide information in the
prospectus supplement for the trading market, if any, for any
debt securities we may offer.
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 October 14, 2009.
TABLE OF
CONTENTS
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1
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3
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5
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6
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7
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8
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9
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17
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19
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23
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26
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41
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41
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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 and
PAA Finance Corp. have filed with the Securities and Exchange
Commission using a shelf registration process. Under
this shelf registration process, we may, over time, offer and
sell any combination of the securities described in this
prospectus in one or more offerings. This prospectus generally
describes Plains All American Pipeline, L.P. and the securities.
Each time we sell securities with this prospectus, we will
provide you with a prospectus supplement that will contain
specific information about the terms of that offering. The
prospectus supplement may also add to, update or change
information in this prospectus. 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.
i
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 SECs 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 SECs
public reference room. Our SEC filings are available on the
SECs 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 SECs 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.
PAA Finance Corp. was incorporated under the laws of the State
of Delaware in May 2004, is wholly owned by Plains All American
Pipeline, and has no material assets or any liabilities other
than as a co-issuer of debt securities. Its activities are
limited to co-issuing debt securities and engaging in other
activities incidental thereto.
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 or value of our debt
securities could decline and you could lose all or part of your
investment. When we offer and sell any securities pursuant to a
prospectus supplement, we may include additional risk factors
relevant to such securities in the prospectus supplement.
6
USE OF
PROCEEDS
Unless otherwise indicated to the contrary in an accompanying
prospectus supplement, we will use the net proceeds from the
sale of securities covered by this prospectus for general
partnership purposes, which may include repayment of
indebtedness, the acquisition of businesses and other capital
expenditures and additions to working capital.
Any specific allocation of the net proceeds of an offering of
securities to a specific purpose will be determined at the time
of the offering and will be described in a prospectus supplement.
7
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our historical consolidated ratio
of earnings to fixed charges for the periods indicated. For
purposes of computing the ratio of earnings to fixed charges,
earnings consist of pretax income from continuing
operations before income from equity investees plus fixed
charges (excluding capitalized interest), distributed income of
equity investees and amortization of capitalized interest.
Fixed charges represent interest incurred (whether
expensed or capitalized), amortization of debt expense
(including discounts and premiums relating to indebtedness), and
that portion of rental expense on operating leases deemed to be
the equivalent of interest.
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Six Months
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Ended
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June 30,
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Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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2004
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Ratio of Earnings to Fixed Charges(1)
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3.55
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2.60
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2.45
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x
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2.83
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x
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3.34
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x
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3.37
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x
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(1) |
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Includes interest costs attributable to borrowings for inventory
stored in a contango market of $5 million,
$21 million, $44 million, $49 million,
$24 million and $2 million for the six months ended
June 30, 2009 and each of the years ended December 31,
2008, 2007, 2006, 2005 and 2004, respectively. |
8
DESCRIPTION
OF OUR DEBT SECURITIES
General
The debt securities will be:
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our direct general obligations;
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either senior debt securities or subordinated debt
securities; and
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issued under separate indentures (which may be existing
indentures) among us, the guarantors and U.S. Bank National
Association, as Trustee.
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Plains All American Pipeline may issue debt securities in one or
more series, and PAA Finance may be a co-issuer of one or more
series of debt securities. PAA Finance was incorporated under
the laws of the State of Delaware in May 2004, is wholly-owned
by Plains All American Pipeline, and has no material assets or
any liabilities other than as a co-issuer of debt securities.
Its activities are limited to co-issuing debt securities and
engaging in other activities incidental thereto. When used in
this section Description of the Debt Securities, the
terms we, us, our and
issuers refer jointly to Plains All American
Pipeline and PAA Finance, and the terms Plains All
American Pipeline and PAA Finance refer
strictly to Plains All American Pipeline, L.P. and PAA Finance
Corp., respectively.
If we offer senior debt securities, we will issue them under a
senior indenture. If we issue subordinated debt securities, we
will issue them under a subordinated indenture. A form of each
indenture is filed as an exhibit to the latest registration
statement of which this prospectus is a part. We have not
restated either indenture in its entirety in this description.
You should read the relevant indenture because it, and not this
description, controls your rights as holders of the debt
securities. Capitalized terms used in the summary have the
meanings specified in the indentures.
Specific
Terms of Each Series of Debt Securities in the Prospectus
Supplement
A prospectus supplement and a supplemental indenture or
authorizing resolutions relating to any series of debt
securities being offered will include specific terms relating to
the offering. These terms will include some or all of the
following:
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whether PAA Finance will be a co-issuer of the debt securities;
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the guarantors of the debt securities, if any;
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whether the debt securities are senior or subordinated debt
securities;
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the title of the debt securities;
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the total principal amount of the debt securities;
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the assets, if any, that are pledged as security for the payment
of the debt securities;
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whether we will issue the debt securities in individual
certificates to each holder in registered form, or in the form
of temporary or permanent global securities held by a depository
on behalf of holders;
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the prices at which we will issue the debt securities;
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the portion of the principal amount that will be payable if the
maturity of the debt securities is accelerated;
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the currency or currency unit in which the debt securities will
be payable, if not U.S. dollars;
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the dates on which the principal of the debt securities will be
payable;
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the interest rate that the debt securities will bear and the
interest payment dates for the debt securities;
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any conversion or exchange provisions;
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any optional redemption provisions;
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
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any changes to or additional events of default or
covenants; and
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any other terms of the debt securities.
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We may offer and sell debt securities, including original issue
discount debt securities, at a substantial discount below their
principal amount. The prospectus supplement will describe
special U.S. federal income tax and any other
considerations applicable to those securities. In addition, the
prospectus supplement may describe certain special
U.S. federal income tax or other considerations applicable
to any debt securities that are denominated in a currency other
than U.S. dollars.
Guarantees
If specified in the prospectus supplement respecting a series of
debt securities, the subsidiaries of Plains All American
Pipeline specified in the prospectus supplement will
unconditionally guarantee to each holder and the Trustee, on a
joint and several basis, the full and prompt payment of
principal of, premium, if any, and interest on the debt
securities of that series when and as the same become due and
payable, whether at maturity, upon redemption or repurchase, by
declaration of acceleration or otherwise. If a series of debt
securities is guaranteed, such series will be guaranteed by all
of the subsidiaries of Plains All American Pipeline, L.P. other
than the non-guarantor subsidiaries. The prospectus supplement
will describe any limitation on the maximum amount of any
particular guarantee and the conditions under which guarantees
may be released.
The guarantees will be general obligations of the guarantors.
Guarantees of subordinated debt securities will be subordinated
to the Senior Indebtedness of the guarantors on the same basis
as the subordinated debt securities are subordinated to the
Senior Indebtedness of Plains All American Pipeline.
Consolidation,
Merger or Asset Sale
Each indenture will, in general, allow us to consolidate or
merge with or into another domestic entity. It will also allow
each issuer to sell, lease, transfer or otherwise dispose of all
or substantially all of its assets to another domestic entity.
If this happens, the remaining or acquiring entity must assume
all of the issuers responsibilities and liabilities under
the indenture including the payment of all amounts due on the
debt securities and performance of the issuers covenants
in the indenture.
However, each indenture will impose certain requirements with
respect to any consolidation or merger with or into an entity,
or any sale, lease, transfer or other disposition of all or
substantially all of an issuers assets, including:
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the remaining or acquiring entity must be organized under the
laws of the United States, any state or the District of
Columbia; provided that PAA Finance may not merge, amalgamate or
consolidate with or into another entity other than a corporation
satisfying such requirement for so long as Plains All American
Pipeline is not a corporation;
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the remaining or acquiring entity must assume the issuers
obligations under the indenture; and
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immediately after giving effect to the transaction, no Default
or Event of Default (as defined under Events
of Default and Remedies below) may exist.
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The remaining or acquiring entity will be substituted for the
issuer in the indenture with the same effect as if it had been
an original party to the indenture, and the issuer will be
relieved from any further obligations under the indenture.
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No
Protection in the Event of a Change of Control
Unless otherwise set forth in the prospectus supplement, the
debt securities will not contain any provisions that protect the
holders of the debt securities in the event of a change of
control of us or in the event of a highly leveraged transaction,
whether or not such transaction results in a change of control
of us.
Modification
of Indentures
We may supplement or amend an indenture if the holders of a
majority in aggregate principal amount of the outstanding debt
securities of all series issued under the indenture affected by
the supplement or amendment consent to it. Further, the holders
of a majority in aggregate principal amount of the outstanding
debt securities of any series may waive past defaults under the
indenture and compliance by us with our covenants with respect
to the debt securities of that series only. Those holders may
not, however, waive any default in any payment on any debt
security of that series or compliance with a provision that
cannot be supplemented or amended without the consent of each
holder affected. Without the consent of each outstanding debt
security affected, no modification of the indenture or waiver
may:
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reduce the principal amount of debt securities whose holders
must consent to an amendment, supplement or waiver;
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reduce the principal of or change the fixed maturity of any debt
security;
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reduce or waive the premium payable upon redemption or alter or
waive the provisions with respect to the redemption of the debt
securities (except as may be permitted in the case of a
particular series of debt securities);
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reduce the rate of or change the time for payment of interest on
any debt security;
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waive a Default or an Event of Default in the payment of
principal of or premium, if any, or interest on the debt
securities (except a rescission of acceleration of the debt
securities by the holders of at least a majority in aggregate
principal amount of the debt securities and a waiver of the
payment default that resulted from such acceleration);
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except as otherwise permitted under the indenture, release any
security that may have been granted with respect to the debt
securities;
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make any debt security payable in currency other than that
stated in the debt securities;
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in the case of any subordinated debt security, make any change
in the subordination provisions that adversely affects the
rights of any holder under those provisions;
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make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of debt
securities to receive payments of principal of or premium, if
any, or interest on the debt securities;
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waive a redemption payment with respect to any debt security
(except as may be permitted in the case of a particular series
of debt securities);
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except as otherwise permitted in the indenture, release any
guarantor from its obligations under its guarantee or the
indenture or change any guarantee in any manner that would
adversely affect the rights of holders; or
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make any change in the preceding amendment, supplement and
waiver provisions (except to increase any percentage set forth
therein).
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We may supplement or amend an indenture without the consent of
any holders of the debt securities in certain circumstances,
including:
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to establish the form of terms of any series of debt securities;
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to cure any ambiguity, defect or inconsistency;
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to provide for uncertificated notes in addition to or in place
of certified notes;
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to provide for the assumption of an issuers or
guarantors obligations to holders of debt securities in
the case of a merger or consolidation or disposition of all or
substantially all of such issuers or guarantors
assets;
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in the case of any subordinated debt security, to make any
change in the subordination provisions that limits or terminates
the benefits applicable to any holder of Senior Indebtedness of
Plains All American Pipeline;
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to add or release guarantors pursuant to the terms of the
indenture;
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to make any changes that would provide any additional rights or
benefits to the holders of debt securities or that do not, taken
as a whole, adversely affect the rights under the indenture of
any holder of debt securities;
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to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the
Trust Indenture Act;
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to evidence or provide for the acceptance of appointment under
the indenture of a successor Trustee;
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to add any additional Events of Default; or
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to secure the debt securities
and/or the
guarantees.
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Events of
Default and Remedies
Event of Default, when used in an indenture, will
mean any of the following with respect to the debt securities of
any series:
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failure to pay when due the principal of or any premium on any
debt security of that series;
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failure to pay, within 60 days of the due date, interest on
any debt security of that series;
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failure to pay when due any sinking fund payment with respect to
any debt securities of that series;
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failure on the part of the issuers to comply with the covenant
described under Consolidation, Merger or Asset
Sale;
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failure to perform any other covenant in the indenture that
continues for 30 days after written notice is given to the
issuers;
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certain events of bankruptcy, insolvency or reorganization of an
issuer; or
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any other Event of Default provided under the terms of the debt
securities of that series.
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An Event of Default for a particular series of debt securities
will not necessarily constitute an Event of Default for any
other series of debt securities issued under an indenture. The
Trustee may withhold notice to the holders of debt securities of
any default (except in the payment of principal, premium, if
any, or interest) if it considers such withholding of notice to
be in the best interests of the holders.
If an Event of Default for any series of debt securities occurs
and continues, the Trustee or the holders of at least 25% in
aggregate principal amount of the debt securities of the series
may declare the entire principal of, and accrued interest on,
all the debt securities of that series to be due and payable
immediately. If this happens, subject to certain conditions, the
holders of a majority in the aggregate principal amount of the
debt securities of that series can rescind the declaration.
Other than its duties in case of a default, a Trustee is not
obligated to exercise any of its rights or powers under either
indenture at the request, order or direction of any holders,
unless the holders offer the Trustee reasonable security or
indemnity. If they provide this reasonable security or
indemnification, the holders of a majority in aggregate
principal amount of any series of debt securities may direct the
time, method and place
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of conducting any proceeding or any remedy available to the
Trustee, or exercising any power conferred upon the Trustee, for
that series of debt securities.
No Limit
on Amount of Debt Securities
Neither indenture will limit the amount of debt securities that
we may issue, unless we indicate otherwise in a prospectus
supplement. Each indenture will allow us to issue debt
securities of any series up to the aggregate principal amount
that we authorize.
Registration
of Notes
We will issue debt securities of a series only in registered
form, without coupons, unless otherwise indicated in the
prospectus supplement.
Minimum
Denominations
Unless the prospectus supplement states otherwise, the debt
securities will be issued only in principal amounts of $1,000
each or integral multiples of $1,000.
No
Personal Liability
None of the past, present or future partners, incorporators,
managers, members, directors, officers, employees, unitholders
or stockholders of either issuer, the general partner of Plains
All American Pipeline or any guarantor will have any liability
for the obligations of the issuers or any guarantors under
either indenture or the debt securities or for any claim based
on such obligations or their creation. Each holder of debt
securities by accepting a debt security waives and releases all
such liability. The waiver and release are part of the
consideration for the issuance of the debt securities. The
waiver may not be effective under federal securities laws,
however, and it is the view of the SEC that such a waiver is
against public policy.
Payment
and Transfer
The Trustee will initially act as paying agent and registrar
under each indenture. The issuers may change the paying agent or
registrar without prior notice to the holders of debt
securities, and the issuers or any of their subsidiaries may act
as paying agent or registrar.
If a holder of debt securities has given wire transfer
instructions to the issuers, the issuers will make all payments
on the debt securities in accordance with those instructions.
All other payments on the debt securities will be made at the
corporate trust office of the Trustee, unless the issuers elect
to make interest payments by check mailed to the holders at
their addresses set forth in the debt security register.
The Trustee and any paying agent will repay to us upon request
any funds held by them for payments on the debt securities that
remain unclaimed for two years after the date upon which that
payment has become due. After payment to us, holders entitled to
the money must look to us for payment as general creditors.
Exchange,
Registration and Transfer
Debt securities of any series will be exchangeable for other
debt securities of the same series, the same total principal
amount and the same terms but in different authorized
denominations in accordance with the indenture. Holders may
present debt securities for exchange or registration of transfer
at the office of the registrar. The registrar will effect the
transfer or exchange when it is satisfied with the documents of
title and identity of the person making the request. We will not
charge a service charge for any registration of transfer or
exchange of the debt securities. We may, however, require the
payment of any tax or other governmental charge payable for that
registration.
We will not be required to:
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issue, register the transfer of, or exchange debt securities of
a series either during a period beginning 15 business days prior
to the selection of debt securities of that series for
redemption and ending on the
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close of business on the day of mailing of the relevant notice
of redemption or repurchase, or between a record date and the
next succeeding interest payment date; or
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register the transfer of or exchange any debt security called
for redemption or repurchase, except the unredeemed portion of
any debt security we are redeeming or repurchasing in part.
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Provisions
Relating only to the Senior Debt Securities
The senior debt securities will rank equally in right of payment
with all of our other senior and unsubordinated debt. The senior
debt securities will be effectively subordinated, however, to
all of our secured debt to the extent of the value of the
collateral for that debt. We will disclose the amount of our
secured debt in the prospectus supplement.
Provisions
Relating only to the Subordinated Debt Securities
Subordinated
Debt Securities Subordinated to Senior
Indebtedness
The subordinated debt securities will rank junior in right of
payment to all of the Senior Indebtedness of Plains All American
Pipeline. Senior Indebtedness will be defined in a
supplemental indenture or authorizing resolutions respecting any
issuance of a series of subordinated debt securities, and the
definition will be set forth in the prospectus supplement.
Payment
Blockages
The subordinated indenture will provide that no payment of
principal, interest and any premium on the subordinated debt
securities may be made in the event:
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we or our property is involved in any voluntary or involuntary
liquidation or bankruptcy;
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we fail to pay the principal, interest, any premium or any other
amounts on any Senior Indebtedness of Plains All American
Pipeline within any applicable grace period or the maturity of
such Senior Indebtedness is accelerated following any other
default, subject to certain limited exceptions set forth in the
subordinated indenture; or
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any other default on any Senior Indebtedness of Plains All
American Pipeline occurs that permits immediate acceleration of
its maturity, in which case a payment blockage on the
subordinated debt securities will be imposed for a maximum of
179 days at any one time.
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No
Limitation on Amount of Senior Debt
The subordinated indenture will not limit the amount of Senior
Indebtedness that Plains All American Pipeline may incur, unless
otherwise indicated in the prospectus supplement.
Book
Entry, Delivery and Form
The debt securities of a particular series may be issued in
whole or in part in the form of one or more global certificates
that will be deposited with the Trustee as custodian for The
Depository Trust Company, New York, New York
(DTC). This means that we will not issue
certificates to each holder. Instead, one or more global debt
securities will be issued to DTC, who will keep a computerized
record of its participants (for example, your broker) whose
clients have purchased the debt securities. The participant will
then keep a record of its clients who purchased the debt
securities. Unless it is exchanged in whole or in part for a
certificated debt security, a global debt security may not be
transferred, except that DTC, its nominees and their successors
may transfer a global debt security as a whole to one another.
Beneficial interests in global debt securities will be shown on,
and transfers of global debt securities will be made only
through, records maintained by DTC and its participants.
DTC has provided us the following information: DTC is a
limited-purpose trust company organized under the New York
Banking Law, a banking organization within the
meaning of the New York Banking Law, a
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member of the United States Federal Reserve System, a
clearing corporation within the meaning of the New
York Uniform Commercial Code and a clearing agency
registered under the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds securities that its
participants (Direct Participants) deposit with DTC.
DTC also records the settlement among Direct Participants of
securities transactions, such as transfers and pledges, in
deposited securities through computerized records for Direct
Participants accounts. This eliminates the need to
exchange certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations.
DTCs book-entry system is also used by other organizations
such as securities brokers and dealers, banks and trust
companies that work through a Direct Participant. The rules that
apply to DTC and its participants are on file with the SEC.
DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., The American Stock Exchange, Inc.
and the Financial Industry Regulatory Authority.
We will wire all payments on the global debt securities to
DTCs nominee. We and the Trustee will treat DTCs
nominee as the owner of the global debt securities for all
purposes. Accordingly, we, the Trustee and any paying agent will
have no direct responsibility or liability to pay amounts due on
the global debt securities to owners of beneficial interests in
the global debt securities.
It is DTCs current practice, upon receipt of any payment
on the global debt securities, to credit Direct
Participants accounts on the payment date according to
their respective holdings of beneficial interests in the global
debt securities as shown on DTCs records. In addition, it
is DTCs current practice to assign any consenting or
voting rights to Direct Participants whose accounts are credited
with debt securities on a record date, by using an omnibus
proxy. Payments by participants to owners of beneficial
interests in the global debt securities, and voting by
participants, will be governed by the customary practices
between the participants and owners of beneficial interests, as
is the case with debt securities held for the account of
customers registered in street name. However,
payments will be the responsibility of the participants and not
of DTC, the Trustee or us.
Debt securities represented by a global debt security will be
exchangeable for certificated debt securities with the same
terms in authorized denominations only if:
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DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under applicable law and in either event a successor depositary
is not appointed by us within 90 days; or
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we determine not to require all of the debt securities of a
series to be represented by a global debt security.
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Satisfaction
and Discharge; Defeasance
Each indenture will be discharged and will cease to be of
further effect as to all outstanding debt securities of any
series issued thereunder, when:
(a) either:
(1) all outstanding debt securities of that series that
have been authenticated (except lost, stolen or destroyed debt
securities that have been replaced or paid and debt securities
for whose payment money has theretofore been deposited in trust
and thereafter repaid to us) have been delivered to the Trustee
for cancellation; or
(2) all outstanding debt securities of that series that
have not been delivered to the Trustee for cancellation have
become due and payable by reason of the giving of a notice of
redemption or otherwise or will become due and payable at their
stated maturity within one year or are to be called for
redemption within one year under arrangements satisfactory to
the Trustee and in any case we have irrevocably deposited or
caused to be irrevocably deposited with the Trustee as trust
funds in trust cash in U.S. dollars, non-callable
U.S. Government Obligations or a combination thereof, in
such amounts as will be sufficient,
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without consideration of any reinvestment of interest, to pay
and discharge the entire indebtedness of such debt securities
not delivered to the Trustee for cancellation, for principal,
premium, if any, and accrued interest to the date of such
deposit (in the case of debt securities that have been due and
payable) or the stated maturity or redemption date;
(b) we have paid or caused to be paid all other sums
payable by us under the indenture; and
(c) we have delivered an officers certificate and an
opinion of counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
The debt securities of a particular series will be subject to
legal or covenant defeasance to the extent, and upon the terms
and conditions, set forth in the prospectus supplement.
The
Trustee
U.S. Bank National Association is the Trustee under the
senior indenture and will be the initial Trustee under the
subordinated indenture. We maintain a banking relationship in
the ordinary course of business with U.S. Bank National
Association and some of its affiliates.
Resignation
or Removal of Trustee
If the Trustee has or acquires a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee must either
eliminate its conflicting interest or resign, to the extent and
in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and the applicable indenture. Any
resignation will require the appointment of a successor trustee
under the applicable indenture in accordance with the terms and
conditions of such indenture.
The Trustee may resign or be removed by us with respect to one
or more series of debt securities and a successor Trustee may be
appointed to act with respect to any such series. The holders of
a majority in aggregate principal amount of the debt securities
of any series may remove the Trustee with respect to the debt
securities of such series.
Limitations
on Trustee if it is a Creditor
Each indenture will limit the right of the Trustee thereunder,
in the event that it becomes a creditor of an issuer or
guarantor, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such
claim as security or otherwise.
Certificates
and Opinions to be Furnished to Trustee
Each indenture will provide that, in addition to other
certificates or opinions that may be specifically required by
other provisions of the indenture, every application by us for
action by the Trustee must be accompanied by a certificate of
certain of our officers and an opinion of counsel (who may be
our counsel) stating that, in the opinion of the signers, all
conditions precedent to such action have been complied with by
us.
Governing
Law
Each indenture and all of the debt securities will be governed
by the laws of the State of New York.
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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
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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 partners 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 partners 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.
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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 partners 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
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
may not be sustained by a court if contested by the IRS. Any
contest of this sort with the IRS may materially and adversely
impact the market for 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 partners adjusted basis in
his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists
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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 unitholders tax basis
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in his common units, or taxable capital gain, after the
unitholders tax basis in his common units is reduced to
zero. Accordingly, taxation as a corporation would result in a
material reduction in a unitholders cash flow and
after-tax return and thus would likely result in a substantial
reduction of the value of the units.
The discussion below is based on Vinson & Elkins
L.L.P.s opinion that we will be classified as a
partnership for federal income tax purposes.
Limited
Partner Status
Unitholders who have become limited partners of 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 unitholders 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 unitholders share of our
liabilities for which no partner, including the general partner,
bears the economic risk of loss, known as nonrecourse
liabilities, will be treated as a distribution of cash to
that unitholder. To the extent our distributions cause a
unitholders at risk amount to be less than
zero at the end of any taxable
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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 unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. 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
unitholders share of our unrealized
receivables, including depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in the Internal Revenue Code, and collectively,
Section 751 Assets. To that extent, he will be
treated as having been distributed his proportionate share of
the Section 751 Assets and 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 unitholders realization of
ordinary income, which will equal the excess of (1) the
non-pro rata portion of that distribution over (2) the
unitholders tax basis (generally zero) for the share of
Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units. A unitholders
initial tax basis for his common units will be the amount he
paid for 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 unitholders share of our
losses, by any decreases in his share of our nonrecourse
liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to
be capitalized. A unitholder will have no share of our debt that
is recourse to our general partner, but will have a share,
generally based on his share of profits, of our nonrecourse
liabilities. Please 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
unitholders stock is owned directly or indirectly by or
for five or fewer individuals) or some tax-exempt organizations,
to the amount for which the unitholder is considered to be
at risk with respect to our activities, if that is
less than his tax basis. A 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 unitholders at-risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
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 taxpayers income
from those passive activities. The passive loss limitations are
applied separately with respect to each publicly traded
partnership. Consequently, any passive losses we generate will
only be available to offset our passive income generated in the
future and will not be available to offset income from other
passive activities or investments, including our
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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
unitholders share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on
deductions, including the at-risk rules and the basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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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 unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment 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
unitholders 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 partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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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 partners
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.
31
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 purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we have
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 propertys
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 propertys 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 unitholders
tax basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please 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
32
uniformity of the units. If such a challenge were sustained, the
gain from the sale of units might be increased without the
benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation deductions and his share of any
gain or loss on a sale of our assets would be less. Conversely,
a Section 754 election is disadvantageous if the
transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in
loss immediately after the transfer, or if we distribute
property and have a substantial basis reduction. Generally a
built-in loss or a basis reduction is substantial if it exceeds
$250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally nonamortizable or amortizable over a longer period of
time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make
will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
Tax
Treatment of Operations
Accounting Method and Taxable Year. We use the
year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who
has a taxable year ending on a date other than December 31 and
who disposes of all of his units following the close of our
taxable year but before the close of his taxable year 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,
33
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 unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as 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 partners tax basis in his entire
interest in the
34
partnership as the value of the interest sold bears to the value
of the partners entire interest in the partnership.
Treasury Regulations under Section 1223 of the Internal
Revenue Code allow a selling unitholder who can identify common
units transferred with an ascertainable holding period to elect
to use the actual holding period of the common units
transferred. Thus, according to the ruling, a common unitholder
will be unable to select high or low basis common units to sell
as would be the case with corporate stock, but, according to the
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
unitholders interest, our taxable income or losses might
be reallocated among the unitholders. We are authorized to
revise our method of allocation between transferor and
transferee unitholders, as well as unitholders whose interests
vary during a taxable year, to conform to a method permitted
under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
35
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 propertys 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
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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 corporations 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
unitholders gain would be effectively connected with that
unitholders 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.
37
Administrative
Matters
Information Returns and Audit Procedures. We
intend to furnish to each unitholder, within 90 days after
the close of each calendar year, specific tax information,
including a
Schedule K-1,
which describes his share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have
been mentioned earlier, to determine each unitholders
share of income, gain, loss and deduction. We cannot assure you
that those positions will 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 years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Our partnership agreement names 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
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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 taxpayers 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 unitholders income tax liability to
the jurisdiction, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return.
Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please 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.
Tax
Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of
the acquisition, ownership and disposition of debt securities
will be set forth in the prospectus supplement relating to the
offering of debt securities.
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.
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LEGAL
MATTERS
The validity of the securities offered in this prospectus will
be passed upon for us by Vinson & Elkins L.L.P.,
Houston, Texas. Vinson & Elkins L.L.P. will also
render an opinion on the material federal income tax
considerations regarding the securities. If certain legal
matters in connection with an offering of the securities made by
this prospectus and a related prospectus supplement are passed
on by counsel for the underwriters of such offering, that
counsel will be named in the applicable prospectus supplement
related to that offering.
EXPERTS
The financial statements of Plains All American Pipeline, L.P.
and managements assessment of the effectiveness of
internal control over financial reporting (which is included in
Managements 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.
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$
% Senior
Notes due
PROSPECTUS SUPPLEMENT
J.P. Morgan
SunTrust Robinson Humphrey
Wells Fargo Securities
BofA Merrill Lynch
DnB NOR Markets
January , 2011