Filed Pursuant to Rule 424(B)(5)
Registration No. 333-206301
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities
to be Registered
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Amount to be
Registered (1)
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Proposed Maximum
Offering Price Per
Unit
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Proposed Maximum
Aggregate Offering
Price
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Amount of
Registration Fee
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Common units representing limited partner interests
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62,100,000
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$18.65
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$1,158,165,000
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$134,231.33(2)
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(1)
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Includes common units issuable upon exercise of the underwriters option to purchase additional units.
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(2)
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The filing fee, calculated in accordance with Rule 457(r), has been transmitted to the SEC in connection with the securities offered from Registration Statement File
No. 333-206301
by means of this prospectus supplement.
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Prospectus Supplement
(To Prospectus dated August 11, 2015)
54,000,000 Common Units
Energy Transfer Partners, L.P.
Representing Limited Partner Interests
We are selling 54,000,000 common units representing limited partner interests in Energy Transfer Partners, L.P., including 1,000,000 of our common units to Kelcy L. Warren, Chief Executive Officer and Chairman of
the Board of Directors of Energy Transfer Partners, L.L.C. Our common units are listed on the New York Stock Exchange under the symbol ETP. The last reported sales price of our common units on the New York Stock Exchange on
August 14, 2017 was $19.63 per common unit.
Investing in our common units involves risk. See
Risk
Factors
beginning on page
S-7
of this prospectus supplement and on page 6 of the accompanying prospectus.
We have granted the underwriters a
30-day
option to purchase up to an additional 8,100,000 common units from us on the same terms and conditions as set forth above.
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Per Common
Unit
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Total
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Public offering price
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$
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18.65
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$
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1,007,100,000
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Underwriting discounts and commissions
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$
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0.185
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$
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9,990,000
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Proceeds to Energy Transfer Partners, L.P. (before expenses)
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$
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18.465
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$
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997,110,000
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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 are truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the common units on or about August 18, 2017.
Barclays
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Morgan Stanley
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UBS Investment Bank
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Wells Fargo Securities
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Prospectus Supplement dated August 14, 2017.
This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of
this offering of common units. The second part is the accompanying prospectus, which gives more general information, some of which may not apply to this offering of common units. Generally, when we refer only to the prospectus, we are
referring to both parts combined. If the information about the common unit offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.
This prospectus supplement, the accompanying prospectus and any free writing prospectus that we prepare or authorize contain and incorporate by reference
information that you should consider when making your investment decision. We and the underwriters have not authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent
information, you should not rely on it. We are offering to sell the common units, and seeking offers to buy the common units, only in jurisdictions where offers and sales are permitted. You should not assume that the information included in this
prospectus supplement, the accompanying prospectus or any free writing prospectus is accurate as of any date other than the dates shown in these documents or that any information we have incorporated by reference is accurate as of any date other
than the date of the document incorporated by reference. Our business, financial condition, results of operations and prospects may have changed since such dates.
TABLE OF CONTENTS
S-i
EXPLANATORY NOTE
On April 28, 2017, Sunoco Logistics Partners L.P. (SXL), Energy Transfer Partners, L.P. (Legacy ETP) and
certain of their affiliates completed the transactions contemplated by a merger agreement dated November 20, 2016, as amended on December 16, 2016 (as so amended, the merger agreement), pursuant to which SXL Acquisition Sub LP,
a wholly owned subsidiary of SXL, merged with Legacy ETP, with Legacy ETP continuing as the surviving entity and becoming a wholly owned subsidiary of SXL (the merger). Concurrently with the merger, Sunoco Partners LLC, the general
partner of SXL (SXL GP), merged with Energy Transfer Partners GP, L.P., the general partner of Legacy ETP (ETP GP), with ETP GP continuing as the surviving entity and becoming the general partner of SXL (the GP
merger and, together with the merger, the mergers).
Concurrently with the closing of the mergers, SXL
changed its name to Energy Transfer Partners, L.P. and changed its ticker symbol to ETP, and Legacy ETP changed its name to Energy Transfer, LP. Prior to the completion of the mergers, we filed a registration statement with the
Securities and Exchange Commission (SEC) that registers the securities offered by this prospectus supplement. As the registration statement prospectus became effective before we changed our name in connection with the mergers, the
accompanying prospectus forming a part of the registration statement refers to us as SXL.
S-ii
FORWARD-LOOKING STATEMENTS
Certain statements, other than statements of historical fact, included or incorporated by reference into this prospectus supplement, the accompanying
prospectus and the documents we incorporate by reference constitute forward-looking statements. These forward-looking statements discuss our goals, intentions and expectations as to future trends, plans, events, results of operations or
financial condition, or state other information relating to us, based on the current beliefs of our management as well as assumptions made by, and information currently available to, our management. Words such as may,
anticipates, believes, expects, estimates, planned, intends, projects, scheduled or similar phrases or expressions identify forward-looking statements.
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus supplement, the accompanying prospectus and the documents we incorporate by reference.
Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions, any or all of which may ultimately
prove to be inaccurate. These statements are also subject to numerous assumptions, uncertainties and risks that may cause future results to be materially different from the results projected, forecasted, estimated or budgeted, including, but not
limited to, the following:
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the volumes transported on our pipelines and gathering systems;
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the level of throughput in our processing and treating facilities;
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the fees we charge and the margins we realize for our gathering, treating, processing, storage and transportation services;
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changes in the supply of, or demand for crude oil, natural gas, natural gas liquids, or NGLs, and refined products that impact demand for our services;
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energy prices generally;
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the prices of crude oil, natural gas and NGLs compared to the price of alternative and competing fuels;
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the general level of petroleum product demand and the availability and price of NGL supplies;
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the availability of imported crude oil, natural gas and NGLs;
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changes in the general economic conditions in the United States;
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actions taken by foreign oil and gas producing nations;
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the political and economic stability of petroleum producing nations;
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global and domestic economic repercussions, including disruptions in the crude oil, natural gas, NGLs and refined products markets, from terrorist
activities, international hostilities and other events, and the governments response thereto;
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the effect of weather conditions on demand for crude oil, natural gas and NGLs;
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availability of local, intrastate and interstate transportation systems;
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the continued ability to find and contract for new sources of natural gas supply;
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availability and marketing of competitive fuels;
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the impact of energy conservation efforts;
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improvements in energy efficiency and development of technology resulting in decreased demand for natural gas or refined petroleum products;
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governmental regulation and taxation;
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changes to, and the application of, federal or state regulation of our tariff rates and operational requirements related to our assets;
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S-1
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changes in the level of operating expenses and hazards related to operating our facilities (including equipment malfunction, explosions, fires, spills
and the effects of severe weather conditions);
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the occurrence of operational hazards or unforeseen interruptions for which we may not be adequately insured;
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competition encountered by our pipelines, terminals and other operations;
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loss of key natural gas producers or the providers of fractionation services;
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reductions in the capacity or allocations of third-party pipelines that connect with our pipelines and facilities;
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the effectiveness of risk-management policies and procedures, including the use of derivative financial instruments to hedge commodity risks, and the
ability of our liquids marketing counterparties to satisfy their financial commitments;
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the nonpayment or nonperformance by, or disputes with our customers, suppliers or other business partners;
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regulatory, environmental, political and legal uncertainties that may affect the timing and cost of our internal growth projects, such as our
construction of additional pipeline systems and other facilities;
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risks associated with the construction of new facilities or additions to our existing facilities, including difficulties in obtaining permits and
rights-of-way or other regulatory approvals and the performance by third-party contractors;
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changes in the expected level of capital, operating, or remediation spending related to environmental matters;
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risks related to labor relations and workplace safety;
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the availability and cost of capital and our ability to access certain capital sources;
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a deterioration of the credit and capital markets;
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changes in our or Energy Transfer Equity, L.P.s credit ratings, as assigned by ratings agencies;
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risks associated with the assets and operations of entities in which we own less than a controlling interests, including risks related to management
actions at such entities that we may not be able to control or exert influence;
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the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to
successfully integrate acquired businesses;
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our ability to manage growth and control costs;
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changes in laws and regulations to which we are subject, including tax, environmental, transportation and employment regulations or new interpretations
by regulatory agencies concerning such laws and regulations; and
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the costs and effects of legal and administrative proceedings.
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These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or
unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement, whether as a result of new information or future events.
S-2
SUMMARY
This summary highlights information contained elsewhere 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 the entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference for a more complete understanding of this offering.
Please read Risk Factors on page
S-7
of this prospectus supplement and page 6 of the accompanying prospectus for more information about important risks that you should consider before buying our
common units. Unless the context otherwise indicates, the information included in this prospectus supplement assumes that the underwriters do not exercise their option to purchase additional common units.
As used in this prospectus supplement, unless the context otherwise indicates, all references in this prospectus supplement to we,
us, Energy Transfer, ETP, the Partnership and our refer to Energy Transfer Partners, L.P., and its operating partnerships and their subsidiaries, including Energy Transfer, LP and Sunoco
Logistics Partners Operations L.P. (SXL Operating Partnership). With respect to the cover page and in the sections entitled SummaryThe Offering and Underwriting, we, our and
us refer only to Energy Transfer Partners, L.P. and not to any of its subsidiaries. References to ETP GP, our general partner or the general partner refer to Energy Transfer Partners GP, L.P.
References to ETP LLC refer to Energy Transfer Partners, L.L.C., the general partner of our general partner. References to ETE refer to Energy Transfer Equity, L.P., the owner of ETP LLC.
THE PARTNERSHIP
Overview
We are one of the largest publicly traded master limited partnerships in the United States in terms of equity market capitalization
(approximately $22.0 billion as of August 9, 2017). We are managed by our general partner, ETP GP, and ETP GP is managed by its general partner, ETP LLC, which is owned by ETE, another publicly traded master limited partnership. The primary
activities in which we are engaged, and operating subsidiaries through which we conduct those activities, all of which are in the United States, are as follows:
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Natural gas operations, including the following:
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natural gas midstream and intrastate transportation and storage; and
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interstate natural gas transportation and storage through Energy Transfer Interstate Holdings, LLC (ET Interstate), and Panhandle Eastern
Pipe Line Company, LP and its subsidiaries (Panhandle). ET Interstate is the parent company of Transwestern Pipeline Company, LLC, ETC Fayetteville Express Pipeline, LLC, ETC Tiger Pipeline, LLC, CrossCountry Energy, LLC, ETC
Midcontinent Express Pipeline, LLC and ET Rover Pipeline LLC. Panhandle is the parent company of the Trunkline Gas Company, LLC and Sea Robin Pipeline Company, LLC transmission systems.
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Liquids operations, including NGL transportation, storage and fractionation services.
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Complementary pipeline, terminalling and acquisition and marketing assets, which are used to facilitate the purchase and sale of crude oil, NGLs and
refined products.
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Recent Developments
Rover Contribution Agreement
In July 2017, we entered into a contribution agreement with a
fund managed by Blackstone Energy Partners and Blackstone Capital Partners, whereby such fund will contribute up to approximately $1.57 billion to us in
S-3
exchange for a 49.9% interest in the holding company that owns 65% of the Rover pipeline. Upon completion, the Rover pipeline will be an approximately 700-mile pipeline designed to transport 3.25
billion cubic feet of natural gas per day from the Marcellus and Utica Shale production areas to markets across the United States as well as into Union Gas Dawn Hub in Ontario, Canada. The transaction is expected to close in October 2017, subject to
customary closing conditions.
Our Principal Executive Offices
We are a limited partnership formed under the laws of the State of Delaware. Our principal executive offices are located at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and our telephone number
at that location is
(214) 981-0700.
We maintain a website at
http://www.energytransfer.com
that provides information about our business and operations. Information contained on this website,
however, is not incorporated into or otherwise a part of this prospectus supplement or the accompanying prospectus.
S-4
OUR OWNERSHIP, STRUCTURE AND MANAGEMENT
The following chart depicts the ownership of us and our subsidiaries after giving effect to this offering, assuming the underwriters do not exercise their option to purchase additional common units and
that our general partner does not make a capital contribution to maintain its current general partner interest.
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Percentage
Interest
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Ownership of Energy Transfer Partners, L.P.
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Public Common Units
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99.7
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%
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General Partner Interest
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0.3
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%
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Total
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100.0
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%
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S-5
THE OFFERING
Common units offered by us
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54,000,000 common units.
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62,100,000 common units if the underwriters exercise their option to purchase an additional 8,100,000 common units in full.
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Common units outstanding before this offering
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1,101,433,568 common units.
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Common units outstanding after this offering
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1,155,433,568 common units (or 1,163,533,568 common units if the underwriters exercise their option to purchase additional common units in full).
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Use of proceeds
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We intend to use the net proceeds from this common unit offering, including the net proceeds from any exercise of the underwriters option to purchase additional common units to repay
amounts outstanding under SXL Operating Partnerships revolving credit facility and/or Legacy ETPs revolving credit facility (collectively our revolving credit facilities), to fund capital expenditures and for general
partnership purposes. Please read Use of Proceeds.
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Affiliates of each of the underwriters are lenders under our revolving credit facilities and as such may receive a portion of the proceeds from this offering pursuant
to any repayment of borrowings under such facilities. Please read Underwriting.
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Cash distributions
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Under our Fourth Amended and Restated Agreement of Limited Partnership (our partnership agreement), we must distribute all of our cash on hand as of the end of each quarter after
payment of fees and expenses, including payments to our general partner, less reserves established by our general partner in its reasonable discretion. We refer to this cash as available cash, and we define it in our partnership
agreement. We expect that the first quarterly distribution payable to purchasers of the common units offered by this prospectus supplement will be paid in November 2017.
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For a description of our cash distribution policy, please read Cash Distributions.
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New York Stock Exchange symbol
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ETP.
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S-6
RISK FACTORS
An investment in our common units involves risks. You should carefully consider all of the information contained in this prospectus supplement, the
accompanying prospectus and the documents incorporated by reference as provided under Incorporation by Reference, including our Annual Report on Form
10-K
for the year ended December 31, 2016
and the risk factors described under Risk Factors therein, as updated by our subsequent Quarterly Reports on Form
10-Q
for the quarters ended March 31, 2017 and June 30, 2017 and our current report
on Form
8-K
filed on May 8, 2017 that include risk factors related to the business of Legacy ETP. This prospectus supplement, the accompanying prospectus and the documents incorporated by reference also
contain forward-looking statements that involve risks and uncertainties. Please read Forward-Looking Statements. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain
factors, including the risks described elsewhere in this prospectus supplement, in the accompanying prospectus and in the documents incorporated by reference. If any of these risks occur, our business, financial condition or results of operation
could be adversely affected.
S-7
USE OF PROCEEDS
We will receive net proceeds of approximately $997 million from the sale of the 54,000,000 common units we are offering after deducting the
underwriting discounts but before offering expenses. We intend to use the net proceeds from this common unit offering, including the net proceeds from any exercise of the underwriters option to purchase additional common units, to repay
amounts outstanding under our revolving credit facilities, to fund capital expenditures and for general partnership purposes.
As of
August 10, 2017, there were $1.6 billion of outstanding borrowings under SXL Operating Partnerships $2.50 billion revolving credit facility (including $86 million of commercial paper issued as of such date) at a weighted average
interest rate of 2.5% and $2.4 billion of outstanding borrowings under Legacy ETPs revolving credit facility (including $2.3 billion of commercial paper), at a weighted average interest rate of 2.1%. SXL Operating Partnerships revolving
credit facility matures in March 2020. Legacy ETPs revolving credit facility matures in November 2019.
Affiliates of each of the
underwriters are lenders under our revolving credit facilities and, accordingly, may receive a portion of the net proceeds of this offering through any repayment of borrowings under such facilities. Please read Underwriting.
S-8
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2017, on an actual basis and as adjusted to give
effect to the sale of the common units offered by this prospectus supplement and the application of the net proceeds therefrom in the manner described under Use of Proceeds.
This table should be read together with our historical financial statements and the accompanying notes incorporated by reference into this prospectus supplement and the accompanying prospectus. This table
does not reflect the issuance of up to 8,100,000 common units that may be sold to the underwriters upon exercise of their option to purchase additional common units, the proceeds of which will be used in the manner described under Use of
Proceeds.
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June 30, 2017
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Actual
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As Adjusted
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(in millions)
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Cash and cash equivalents
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$
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272
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$
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272
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Debt:
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Credit Facilities
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Our revolving credit facilities(1)
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3,214
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2,217
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Legacy ETP Subsidiaries revolving credit facility(2)
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2,648
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2,648
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Senior Notes
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Our senior notes
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5,350
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5,350
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Legacy ETPs senior notes
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20,540
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20,540
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Legacy ETP Subsidiaries senior notes
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1,731
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1,731
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Unamortized premiums, net of discounts and fair value adjustments
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94
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94
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Less deferred debt issuance costs
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(183
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)
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(183
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Total debt
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33,394
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32,397
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Equity:
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Limited partners
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25,389
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26,386
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General partner
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220
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220
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Accumulated Other Comprehensive Income
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7
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7
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Total Energy Transfer Partners, L.P. Equity
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25,616
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26,613
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Noncontrolling interests
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3,799
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3,799
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Total equity
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29,415
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30,412
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Total capitalization
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$
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62,809
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$
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62,809
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(1)
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Includes $241 million and $1.54 billion of commercial paper outstanding at June 30, 2017 under SXL Operating Partnerships $2.5 billion revolving credit
facility and the Legacy ETP $3.75 billion revolving credit facility, respectively. As of August 10, 2017, SXL Operating Partnership had $1.6 billion outstanding under its $2.50 billion revolving credit facility (including $86 million of
commercial paper issued as of such date) and Legacy ETP had $2.4 billion outstanding under its $3.75 billion revolving credit facility (including $2.3 billion of commercial paper issued as of such date).
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(2)
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Includes $2.5 billion outstanding under Dakota Access, LLCs revolving credit facility, as well as $148 million outstanding under PennTexs
revolving credit facility, at June 30, 2017. As of August 10, 2017, Dakota Access, LLC had $2.5 billion outstanding under its revolving credit facility. The PennTex revolving credit facility was repaid and terminated on August 7, 2017.
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S-9
PRICE RANGE OF COMMON UNITS AND DISTRIBUTIONS
At the close of business on August 12, 2017, there were approximately 10,700 holders of record of our common units. Our common units are traded on
the New York Stock Exchange under the symbol ETP.
The following table sets forth, for the periods indicated, the high and low
sales prices for our common units, as reported on the New York Stock Exchange Composite Transactions Tape, and quarterly cash distributions paid or to be paid to our unitholders. The last reported sales price of our common units on the New York
Stock Exchange on August 14, 2017 was $19.63 per common unit.
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Common Unit Price Ranges
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Cash
Distributions
per Unit(1)
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High
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Low
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2017
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Third Quarter (through August 14, 2017)
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$
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21.68
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$
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19.15
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$
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N/A
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(2)
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Second Quarter
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24.71
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18.31
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0.55
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First Quarter
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26.73
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22.90
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0.535
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2016
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Fourth Quarter
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$
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28.61
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$
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22.07
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$
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0.5200
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Third Quarter
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31.49
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26.88
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0.5100
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Second Quarter
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29.77
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22.63
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0.5000
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First Quarter
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28.72
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15.43
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0.4890
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2015
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Fourth Quarter
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$
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32.89
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$
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21.41
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$
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0.4790
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Third Quarter
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38.65
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25.44
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0.4580
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Second Quarter
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44.90
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37.10
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0.4380
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|
First Quarter
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46.72
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36.62
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0.4190
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(1)
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Represents cash distributions attributable to the quarter and declared and paid within 45 days after quarter end.
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(2)
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Cash distributions attributable to the third quarter of 2017 have not yet been declared.
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S-10
CASH DISTRIBUTIONS
Distributions of Available Cash
General
. Our partnership agreement provides that we will distribute all of our available cash to unitholders of record on the applicable record
date within 45 days after the end of each quarter. We intend to make distributions of available cash to the holders of common units and our other classes of units on a quarterly basis, to the extent we have sufficient cash from our operations after
establishment of cash reserves and payment of fees and expenses, as described below. However, there is no guarantee that we will pay quarterly distributions on the common units in any quarter, and we will be prohibited from making any distributions
to unitholders if it would cause an event of default, or an event of default is existing, under our credit facilities or debt securities.
Definition of Available Cash
. Available cash generally means, for any calendar quarter, all cash on hand at the end of such quarter:
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less
the amount of cash that our general partner determines in good faith is necessary or appropriate to:
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provide for the proper conduct of business;
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comply with applicable law, any of our debt instruments or other agreements; or
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provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;
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plus
all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the
end of the quarter.
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Working capital borrowings are generally borrowings that are made under our credit facilities and in
all cases are used solely for working capital purposes or to pay distributions to partners.
Operating Surplus and Capital Surplus
General
. All cash distributed to unitholders will be characterized as either operating surplus or capital
surplus. We distribute available cash from operating surplus differently than available cash from capital surplus.
Definition of
Operating Surplus
. Operating surplus for any period generally means:
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our cash balance on the closing date of our initial public offering;
plus
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$15.0 million (as described below);
plus
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all of our cash receipts after the closing of our initial public offering, excluding cash from borrowings that are not working capital borrowings,
sales of equity and other debt securities and sales or other dispositions of assets outside the ordinary course of business;
plus
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working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter;
plus
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an amount equal to the accumulated and undistributed operating surplus of Legacy ETP immediately prior to the closing of the merger between us and
Legacy ETP (including $10.0 million of cash received from
non-operating
sources that Legacy ETP may distribute as operating surplus under the Legacy ETP partnership agreement in effect immediately prior
to the merger);
less
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all of our operating expenditures after the closing of our initial public offering, including the repayment of working capital borrowings, but not the
repayment of other borrowings, and including maintenance capital expenditures;
less
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the amount of cash reserves established by our general partner in good faith to provide funds for future operating expenditures.
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S-11
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 current assets sold in the ordinary course of
business or as part of normal retirements or replacements of assets.
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Characterization of Cash Distributions
. We will
treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since we began operations equals the operating surplus as of the most recent date of determination of available cash. We will treat
any amount distributed in excess of operating surplus, regardless of its source, as capital surplus.
Distributions of Available Cash from
Operating Surplus
We will make distributions of available cash from operating surplus for any quarter in the following manner:
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First
, 100% to all holders of our common units, Class E units and Class G units and the general partner, in accordance with their percentage
interests, until such unitholders have received $0.075 per unit for such quarter, also known as the minimum quarterly distribution;
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Second
, 100% to all holders of our common units, Class E units and Class G units and the general partner, in accordance with their respective
percentage interests, until such unitholders unit have received $0.0833 per unit for such quarter, also known as the first target distribution; and
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Thereafter
, in the manner described in Incentive Distribution Rights below.
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Notwithstanding the foregoing, the distributions on our Class E units may not exceed $1.41 per year and distributions on our Class G units may
not exceed $3.75 per year. In addition, the distributions to the holders of the incentive distribution rights will not exceed the amount such holders would otherwise receive if the available cash for distribution were reduced to the extent it
constitutes amounts previously distributed with respect to our Class G units.
Our partnership agreement also provides that our Class I
units and Class K units do not have a percentage interest and holders are not entitled to receive distributions of cash from operating surplus or capital surplus. However, each Class K unit is entitled to a quarterly cash distribution in
an amount equal to $0.67275 per Class K unit, which distribution must be made prior to any distribution of available cash to any class of units.
Our partnership agreement also provides that no portion of any partnership cash distribution attributable to (i) any distribution or dividend received by us from ETP Holdco Corporation, a Delaware
corporation (ETP Holdco), or the proceeds of any sale of the capital stock of ETP Holdco or (ii) any interest payments received by the Partnership with respect to the indebtedness of ETP Holdco or its subsidiaries, will be
distributed to our Class E units, Class G units or Class K units.
Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus
after the minimum quarterly distribution has been paid. Our general partner currently holds all of the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in the
partnership agreement.
If for any quarter we have distributed available cash from operating surplus to the unitholders in an amount equal to
the minimum quarterly distribution, then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and the general partner in the following manner:
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First
, (i) to the general partner in accordance with its percentage interest, (ii) 13% to the holders of the incentive distribution rights,
pro rata, and (iii) to all of our common unitholders, Class E unitholders and
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S-12
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Class G unitholders, pro rata, a percentage equal to 100% less the percentages applicable to the general partner and holders of the incentive distribution rights, until each common unit has
received $0.0958 per unit for such quarter, also known as the second target distribution;
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Second
, (i) to the general partner in accordance with its percentage interest, (ii) 35% to the holders of the incentive distribution
rights, pro rata, and (iii) to all of our common unitholders, Class E unitholders and Class G unitholders, pro rata, a percentage equal to 100% less the percentages applicable to the general partner and holders of the incentive
distribution rights, until each common unit has received $0.2638 per unit for such quarter, also known as the third target distribution; and
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Thereafter
, (i) to the general partner in accordance with its percentage interest, (ii) 48% to the holders of the incentive distribution
rights, pro rata, and (iii) to all of our common unitholders, Class E unitholders and Class G unitholders, pro rata, a percentage equal to 100% less the percentages applicable to the general partner and holders of the incentive
distribution rights.
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Our general partner has agreed to relinquish its right to the following amounts of incentive
distributions in future periods, including distributions on the Class I Units:
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Total Year
(in
millions)
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2017
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$
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656
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2018
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153
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2019
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128
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Each year beyond 2019
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33
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Percentage Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of the additional available cash from operating surplus between our unitholders and our general
partner up to the various target distribution levels.
The amounts set forth under Marginal Percentage Interest in Distributions
are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column Total Quarterly Distribution Target Amount,
until available cash from operating surplus we distribute reaches the next target distribution level, if any.
The percentage interests shown
for the unitholders and the general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.
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Total Quarterly
Distribution Target
Amount
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Marginal Percentage
Interest
in Distributions
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Unitholders
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General Partner
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Minimum Quarterly Distribution
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$0.0750
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99.67
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%
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0.33
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%
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First Target Distribution
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up to $0.0833
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99.67
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%
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0.33
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%
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Second Target Distribution
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up to $0.0958
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86.67
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%
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13.33
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%(1)
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Third Target Distribution
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up to $0.2638
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64.67
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%
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35.33
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%(1)
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Thereafter
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above $0.2638
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51.67
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%
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48.33
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%(1)
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(1)
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Assumes the general partner maintains its approximate 0.3% general partner interest.
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S-13
Distributions from Capital Surplus
We will make distributions of available cash from capital surplus, if any, in the following manner:
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First
, to all unitholders and our general partner, in accordance with their respective percentage interests, until we distribute for each
outstanding common unit, an amount of available cash from capital surplus equal to the initial public offering price of our common units; and
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Thereafter
, we will make all distributions of available cash from capital surplus as if they were from operating surplus.
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The partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from the
initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the unrecovered initial unit price.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
If we combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
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the minimum quarterly distribution;
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target distribution levels; and
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the unrecovered initial unit price.
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For example, if a
two-for-one
split of the common units should occur, the minimum quarterly distribution, the target
distribution levels and the unrecovered initial unit price would each be reduced to 50% of its initial level. We will not make any adjustment by reason of the issuance of additional units for cash or property.
In addition, if legislation is enacted or if existing law is modified or interpreted in a manner that causes us to become taxable as a corporation or
otherwise subject to taxation as an entity for federal, state or local income tax purposes, we will reduce the minimum quarterly distribution and the target distribution levels by multiplying the same by one minus the sum of the highest marginal
federal corporate income tax rate that could apply and any increase in the effective overall state and local income tax rates.
Distributions of Cash upon Liquidation
General
. If we dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called
liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders, in accordance with their capital account balances, as adjusted to reflect any gain or loss
upon the sale or other disposition of our assets in liquidation.
Manner of Adjustments for Gain
. The manner of the adjustment for gain
is set forth in our partnership agreement. We generally allocate any gain to the partners in the following manner:
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First
, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion
to any such negative balances;
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Second
, to the unitholders and our general partner, in accordance with their percentage interests, until the capital account for each common
unit is equal to the sum of:
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the unrecovered initial unit price; and
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the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;
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S-14
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Third
, to the unitholders and our general partner, in accordance with their percentage interests, until we allocate under this paragraph an
amount per unit equal to:
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the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence;
less
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the cumulative amount per unit of any distributions from operating surplus in excess of the minimum quarterly distribution per unit for each quarter of
our existence that we distributed to the unitholders and to our general partner in accordance with their percentage interests;
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Fourth
, 13% to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in
accordance with their percentage interests, pro rata, until we allocate under this paragraph an amount per unit equal to:
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the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence;
less
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the cumulative amount per unit of any distributions from operating surplus in excess of the first target distribution per unit for each quarter of our
existence distributed 13% to the holders of the incentive distribution rights, pro rata, and the remainder to our unitholders and to our general partner in accordance with their percentage interests, pro rata;
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Fifth
, 23% to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in
accordance with their percentage interests, pro rata, until we allocate under this paragraph an amount per unit equal to:
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the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence;
less
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the cumulative amount per unit of any distributions from operating surplus in excess of the second target distribution per unit for each quarter of our
existence distributed to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in accordance with their percentage interests, pro rata; and
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Thereafter
, 48% to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in
accordance with their percentage interests, pro rata.
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Adjustments to Capital Accounts upon the Issuance of Partnership
Interests
We will make adjustments to capital accounts upon the issuance of additional partnership interests. In doing so, we will
allocate any unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to the unitholders and our general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive
adjustments to the capital accounts upon the issuance of additional partnership interests, we will allocate any later negative adjustments to the capital accounts resulting from the issuance of additional partnership interests or upon our
liquidation in a manner that results, to the extent possible, in our general partners capital account balances equaling the amount that they would have been if no earlier positive adjustments to the capital accounts had been made.
S-15
DESCRIPTION OF THE COMMON UNITS
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 rights of holders of our common units to cash distributions, please read Cash Distributions in this prospectus supplement. We urge you to
read our partnership agreement, as our partnership agreement, and not this description, governs our common units.
Number of Common Units
As of August 14, 2017, we had 1,101,433,568 common units outstanding, 1,073,898,441 of which are held by the public and 27,535,127 of
which are held by ETE, which is the controlling owner of our general partner.
Timing of Distributions
We pay distributions no later than 45 days after March 31, June 30, September 30 and December 31 to holders of record on the
applicable record date. For additional information, please read Cash Distributions.
Issuance of Additional Partnership
Securities; Preemptive Rights
Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities
and options, rights, warrants and appreciation rights relating to the partnership securities for any partnership purpose at any time and from time to time to such persons, for such consideration and on such terms and conditions as our general
partner determines, all without the approval of any limited partners.
It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional common units we issue will be entitled to share equally with the then existing holders of common units in our distributions of available cash. In addition, the issuance of
additional partnership interests may dilute (i) the percentage interests of the then-existing holders of common units in our net assets and (ii) the voting rights of the then-existing holders of common units under our partnership agreement.
In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership securities that
have special voting rights to which the common units are not entitled.
Upon issuance of additional partnership securities, our general
partner will have the right to make additional capital contributions to the extent necessary to maintain its then-current general partner interest in us; provided, however, that the capital contributions of our general partner will be offset to the
extent contributions received by us in exchange for the issuance of additional partnership securities are used by us concurrently with such contributions to redeem or repurchase from any person outstanding partnership securities of the same class as
the partnership securities that were issued. Moreover, our general partner will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units or other partnership securities whenever,
and on the same terms that, we issue those securities to persons other than our general partner and its affiliates, to the extent necessary to maintain its percentage interest, including its interest represented by common units, that existed
immediately prior to each issuance.
The holders of our common units do not have preemptive rights to acquire additional common units or other
partnership securities.
Voting Rights
Except as described below regarding a person or group owning 20% or more of our common units then outstanding, holders of our common units or assignees who are record holders of our common units on the
record
S-16
date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited. Common units that are owned by an assignee who
is a record holder, but who has not yet been admitted as a limited partner, will be voted by the general partner at the written direction of the record holder.
Absent direction of this kind, the common units will not be voted, except that, in the case of common units held by our general partner on behalf of non-citizen assignees, our general partner will
distribute the votes on those common units in the same ratios as the votes of limited partners on other common units are cast.
Any action
that is required or permitted to be taken by the holders of our common units may be taken either at a meeting of the holders of our common units or without a meeting if consents in writing describing the action so taken are signed by holders of the
number of units necessary to authorize or take that action at a meeting.
Meetings of the holders or our common units may be called by the
general partner or by holders owning at least 20% of the outstanding common units. Holders of our common units may vote either in person or by proxy at meetings. The holders of a majority of the outstanding common units, represented in person or by
proxy, will constitute a quorum unless any action by the holders of common units requires approval by holders of a greater percentage of our common units, in which case the quorum will be the greater percentage.
Each record holder of a common unit has a vote according to its percentage interest in us, although additional limited partner interests having special
voting rights could be issued. Please read Issuance of Additional Partnership Securities; Preemptive Rights above. However, if at any time any person or group, other than the general partner and its affiliates, or a direct or
subsequently approved transferee of the general partner or its affiliates, acquires, in the aggregate, beneficial ownership of 20% or more of our common units then outstanding, that person or group will lose voting rights on all of its common units
and the common units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of holders of our common units, calculating required votes, determining the presence of a quorum or for other similar
purposes.
Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the
instructions of the beneficial owner unless the arrangement between the beneficial owner and its nominee provides otherwise. Any notice, demand, request, report or proxy material required or permitted to be given or made to record holders of common
units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.
Holders of common units have
very limited voting rights and may vote on the following matters:
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a sale or exchange of all or substantially all of our assets;
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the election of a successor general partner in connection with the withdrawal or removal of our general partner;
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dissolution or reconstitution of our partnership;
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a merger of our partnership;
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issuance of limited partner interests in some circumstances; and
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some amendments to the partnership agreement, including any amendment that would cause us to be treated as an association taxable as a
corporation.
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Removal of our general partner requires:
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a 66 2/3% vote of all outstanding common units; and
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the election of a successor general partner by the holders of a majority of our common units.
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S-17
Limited Call Right
If at any time our general partner and its affiliates hold more than 80% of the total limited partner interests of any class then outstanding, our general partner will then have the right, which right it
may assign and transfer in whole or in part to us or any affiliate of our general partner, exercisable at its option, to purchase all, but not less than all, of such limited partner interests of such class then outstanding held by persons other than
our general partner and its affiliates, at the greater of:
(1) the current market price as of the date three days prior to the date that
notice of the election to purchase is mailed; and
(2) the highest price paid by our general partner or any of its affiliates for any such
limited partner interest of such class purchased during the 90-day period preceding the date that notice of the election to purchase is mailed.
As a result of our general partners right to purchase outstanding limited partner interests, a holder of limited partner interests may have his
limited partner interests purchased at an undesirable time or at a price that may be lower than market prices at various times prior to such purchase or lower than a unitholder may anticipate the market price to be in the future. The tax
consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his common units in the market.
Exchange Listing
Our common units are
listed on the New York Stock Exchange under the symbol ETP.
Transfer Agent and Registrar Duties
American Stock Transfer & Trust Company serves as registrar and transfer agent for our common units. We pay all fees charged by the transfer
agent for transfers of common units, except the following that must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
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special charges for services requested by a holder of common units; and
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other similar fees or charges.
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There is no charge to unitholders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and each of their stockholders, directors, officers and employees against
all claims and losses that may arise out of acts performed or omitted for its activities as transfer agent, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.
Transfer of Common Units
Any transfers
of a common unit will not be recorded by the transfer agent or recognized by us unless the transferee executes and delivers a transfer application. By executing and delivering a transfer application, the transferee of common units:
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becomes the record holder of the common units and is an assignee until admitted as a substituted limited partner;
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automatically requests admission as a substituted limited partner;
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agrees to comply with and be bound by and to have executed our partnership agreement;
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represents and warrants that such transferee has the right, power and authority and, if an individual, the capacity to enter into our partnership
agreement;
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S-18
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grants the powers of attorney set forth in our partnership agreement; and
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gives the consents and approvals and makes the waivers contained in our partnership agreement.
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An assignee will become a substituted limited partner for the transferred common units upon the consent of our general partner and the recording of the
name of the assignee on our books and records. Our general partner may withhold its consent in its sole discretion.
A transferees
broker, agent or nominee may complete, execute and deliver a transfer application. We are entitled to treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holders rights are limited solely to those that
it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are
securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired upon admission as a substituted limited partner for the transferred common units, a purchaser or transferee of common units
who does not execute and deliver a transfer application obtains only:
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the right to assign the common units to a purchaser or other transferee; and
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the right to transfer the right to seek admission as a substituted limited partner for the transferred common units.
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Thus, a purchaser or transferee of common units who does not execute and deliver a transfer application:
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will not receive cash distributions or federal income tax allocations, unless the common units are held in a nominee or street name account
and the nominee or broker has executed and delivered a transfer application; and
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may not receive some federal income tax information or reports furnished to record holders of common units.
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The transferor of common units has a duty to provide the transferee with all information that may be necessary to transfer the common units. The
transferor does not have a duty to insure the execution of the transfer application by the transferee and has no liability or responsibility if the transferee neglects or chooses not to execute and forward the transfer application to the transfer
agent.
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the common unit as the
absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.
S-19
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The tax consequences to you of an investment in our common units will depend in part on your own tax circumstances. This section should
be read in conjunction with Tax Risks to Our Common Unitholders in our most recent Annual Report on Form 10-K. This section is a summary of the material U.S. federal income tax consequences that may be relevant to prospective unitholders
who are individual citizens or residents of the United States and, unless otherwise noted in the following discussion, is the opinion of Latham & Watkins LLP, counsel to our general partner and us, insofar as it relates to legal conclusions
with respect to matters of U.S. 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 Treasury regulations promulgated
under the Internal Revenue Code (the Treasury Regulations) and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary
substantially from the consequences described below. Unless the context otherwise requires, references in this section to us or we are references to Energy Transfer Partners, L.P. and our operating subsidiaries.
The following discussion does not comment on all federal income tax matters affecting us or our unitholders and does not describe the application of the
alternative minimum tax that may be applicable to certain 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, entities
treated as partnerships for U.S. federal income tax purposes, trusts, nonresident aliens, U.S. expatriates and former citizens or long-term residents of the United States or other unitholders subject to specialized tax treatment, such as banks,
insurance companies and other financial institutions, tax-exempt institutions, foreign persons (including, without limitation, controlled foreign corporations, passive foreign investment companies and foreign persons eligible for the benefits of an
applicable income tax treaty with the United States), individual retirement accounts (IRAs), real estate investment trusts (REITs) or mutual funds, dealers in securities or currencies, traders in securities, U.S. persons whose functional
currency is not the U.S. dollar, persons holding their units as part of a straddle, hedge, conversion transaction or other risk reduction transaction, and persons deemed to sell their units under the
constructive sale provisions of the Internal Revenue Code. In addition, the discussion only comments, to a limited extent, on state, local, and foreign tax consequences. Accordingly, we encourage each prospective unitholder to consult his own tax
advisor in analyzing the state, local and foreign tax consequences particular to him of the ownership or disposition of common units and potential changes in applicable laws.
No ruling has been requested from the Internal Revenue Service (the IRS) regarding our characterization as a partnership for tax purposes. Instead, we will rely on opinions of
Latham & Watkins LLP. 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, including the prices at which our 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.
All statements as to matters of federal income tax law and legal conclusions with respect thereto, but not as to factual matters, contained in this
section, unless otherwise noted, are the opinion of Latham & Watkins LLP and are based on the accuracy of the representations made by us and our general partner.
Notwithstanding the above, and for the reasons described below, Latham & Watkins LLP has not rendered an opinion with respect to the following specific federal income tax issues: (i) the
treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read Tax Consequences of Unit OwnershipTreatment of Short Sales); (ii) whether all aspects of our
method for
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allocating taxable income and losses is permitted by existing Treasury Regulations (please read Disposition of Common UnitsAllocations Between Transferors and
Transferees); and (iii) whether our method for taking into account Section 743 adjustments is sustainable in certain cases (please read Tax Consequences of Unit OwnershipSection 754 Election and
Uniformity of Units).
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 the
partner unless the amount of cash distributed to him is in excess of the partners adjusted basis in his partnership interest. Section 7704 of the Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be
taxed as corporations. However, an exception, referred to as the Qualifying Income Exception, exists with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of
qualifying income. Qualifying income includes income and gains derived from the transportation, storage and processing of certain minerals and natural resources, including crude oil, natural gas and other products of a type that are
produced in a petroleum refinery or natural gas processing plant, the retail and wholesale marketing of propane, the transportation of propane and natural gas liquids, certain related hedging activities, certain activities that are intrinsic to
other qualifying activities, and our allocable share of our subsidiaries income from these sources. Other types of qualifying income include interest (other than from a financial business), dividends, gains from the sale of real property and
gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes qualifying income. We estimate that less than 3% of our current gross income is not qualifying income; however, this estimate
could change from time to time. Based upon and subject to this estimate, the factual representations made by us and our general partner and a review of the applicable legal authorities, Latham & Watkins LLP 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.
The IRS has made no determination as to our status or the status of our operating subsidiaries for federal income tax purposes. Instead, we will rely on the opinion of Latham & Watkins LLP on
such matters. It is the opinion of Latham & Watkins LLP that, based upon the Internal Revenue Code, its regulations, published revenue rulings and court decisions and the representations described below that:
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We will be classified as a partnership for federal income tax purposes;
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Each of our operating subsidiaries will, except as otherwise identified to Latham & Watkins LLP, be disregarded as an entity separate from us
or will be treated as a partnership for federal income tax purposes; and
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Each commodity 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 Latham & Watkins LLP has opined or will opine result in
qualifying income.
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In rendering its opinion, Latham & Watkins LLP has relied on factual representations made by us
and our general partner. The representations made by us and our general partner upon which Latham & Watkins LLP has relied include:
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Neither we nor any of our partnership or limited liability company subsidiaries, other than those identified as such to Latham & Watkins LLP,
have elected or will elect to be treated as a corporation for U.S. federal income tax purposes; and
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For each taxable year, more than 90% of our gross income has been and will be income of the type that Latham & Watkins LLP has opined or will
opine is qualifying income within the meaning of Section 7704(d) of the Internal Revenue Code.
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We believe that these representations have been true in the past and expect that these representations will
continue to 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 our unitholders, and our net income would be taxed
to us at corporate rates. In addition, any distribution made to a unitholder would be treated as taxable dividend income, to the extent of our current and accumulated earnings and profits, or, in the absence of earnings and profits, a nontaxable
return of capital, to the extent of the unitholders tax basis in his common units, or taxable capital gain, after the unitholders tax basis in his common units is reduced to zero. Accordingly, taxation as a corporation would result in a
material reduction in a unitholders cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.
The discussion below is based on Latham & Watkins LLPs opinion that we will be classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders of
Energy Transfer Partners, L.P. will be treated as partners of Energy Transfer Partners, L.P. for federal income tax purposes. Also, unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee
in the exercise of all substantive rights attendant to the ownership of their common units will be treated as partners of Energy Transfer Partners, L.P. for federal income tax purposes.
A beneficial owner of common units whose units have been transferred to a short seller to complete a short sale would appear to lose his status as a partner with respect to those units for federal income
tax purposes. Please read Tax Consequences of Unit OwnershipTreatment of Short Sales.
Income, gains, losses or
deductions 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 tax advisors with respect to the tax consequences to them of holding common units in Energy Transfer Partners, L.P. The references to unitholders in the
discussion that follows are to persons who are treated as partners in Energy Transfer Partners, L.P. for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-Through of Taxable Income
Subject to the discussion below under Entity-Level Collections, we will not pay any federal income tax. Instead, each unitholder will be required to report on his income tax return his
share of our income, gains, losses and deductions without regard to whether we make cash distributions to him. Consequently, we may allocate income to a unitholder even if he has not received a cash distribution. Each unitholder will be required to
include in income his allocable share of our income, gains, losses and deductions for our taxable year ending with or within his taxable year. Our taxable year ends on December 31.
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Treatment of Distributions
Distributions by us to a unitholder generally will not be taxable to the unitholder for federal income tax purposes, except to the extent the amount of any such cash distribution exceeds his tax basis in
his common units immediately before the distribution. Our cash distributions in excess of a unitholders tax basis generally will be considered to be gain from the sale or exchange of the common units, taxable in accordance with the rules
described under Disposition of Common Units. 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 by us of cash to that unitholder. To the extent our distributions cause a unitholders at-risk amount to be less than zero at the end of any taxable year, he must recapture any
losses deducted in previous years. Please read Limitations on Deductibility of Losses.
A decrease in a unitholders
percentage interest in us because of our issuance of additional common units will decrease his share of our nonrecourse liabilities, and thus will result in a corresponding deemed distribution of cash. 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, depletion recapture and/or substantially appreciated inventory items, each as defined in the Internal Revenue Code, and collectively, Section 751
Assets. To that extent, the unitholder 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 (i) the non-pro rata portion of that distribution over (ii) the
unitholders tax basis (often 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 the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his share of our income and by any increases in his share of our nonrecourse liabilities. That basis will be decreased, but not below zero, by distributions from us, by the unitholders
share of our losses, by any decreases in his share of our nonrecourse liabilities and by his share of our expenditures that are not deductible in computing taxable income and are not required to be capitalized. A unitholder will have no share of our
debt that is recourse to our general partner to the extent of the general partners net value as defined in Treasury Regulations promulgated under Section 752 of the Internal Revenue Code, but will have a share, generally based
on his share of profits, of our nonrecourse liabilities. Please read Disposition of Common UnitsRecognition 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 common 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
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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 investments or a unitholders investments in other publicly traded partnerships, or the
unitholders salary, active business or other 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 (if applicable) 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 unitholder on whose behalf the payment was made. If the payment is made on behalf of a person whose identity cannot be determined, we are authorized to treat the payment as a distribution to all
current unitholders. We are authorized to amend our partnership agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of units and
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to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under our partnership agreement is
maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in order to obtain a credit or
refund.
Allocation of Income, Gain, Loss and Deduction
After giving effect to special allocation provisions with respect to our other classes of units, our items of income, gain, loss and deduction generally will be allocated amongst our common unitholders
and our general partner in accordance with their percentage interests in us. At any time that incentive distributions are made to our general partner, gross income will be allocated to the recipients to the extent of such distributions.
Specified items of our income, gain, loss and deduction will be allocated to account for any difference between the tax basis and fair market value of
any property contributed to us that exists at the time of such contribution, referred to in this discussion as the 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 bases of our assets were equal to their fair market values at the time of the offering. In the event we issue additional common units or engage in certain
other transactions in the future, reverse Section 704(c) Allocations, similar to the Section 704(c) Allocations described above, will be made to the general partner and all of our unitholders immediately prior to such issuance
or 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 such issuance or future transaction. In addition,
items of recapture income will be allocated to the extent possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize the recognition of ordinary income by some
unitholders. Finally, although we do not expect that our operations will result in the creation of negative capital accounts (subject to certain adjustments), if negative capital accounts (subject to certain adjustments) nevertheless result, items
of our income and gain will be allocated in an amount and manner sufficient to eliminate such 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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Latham & Watkins LLP is of the opinion that, with the exception of the issues described in Section 754 Election and
Disposition of Common UnitsAllocations 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
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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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while not entirely free from doubt, all of these distributions would appear to be ordinary income.
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Because there is no direct or indirect controlling authority on the issue relating to partnership interests, Latham & Watkins LLP has not
rendered an opinion regarding the tax treatment of a unitholder whose 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 consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their units. The IRS has
previously announced that it is studying issues relating to the tax treatment of short sales of partnership interests. Please also read Disposition of Common UnitsRecognition of Gain or Loss.
Tax Rates
Currently, the highest
marginal U.S. federal income tax rate applicable to ordinary income of individuals is 39.6% 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
twelve months) of individuals is 20%. Such rates are subject to change by new legislation at any time.
In addition, a 3.8% Medicare tax
(NIIT) is imposed on certain net investment income earned by individuals, estates and trusts. For these purposes, net investment income generally includes a unitholders allocable share of our income and gain realized by a unitholder from a
sale of units. In the case of an individual, the tax will be imposed on the lesser of (i) the unitholders net investment income or (ii) the amount by which the unitholders modified adjusted gross income exceeds $250,000 (if the
unitholder is married and filing jointly or a surviving spouse), $125,000 (if the unitholder is married and filing separately) or $200,000 (in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of
(i) undistributed net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins for such taxable year. The U.S. Department of the
Treasury and the IRS have issued Treasury Regulations that provide guidance regarding the NIIT. Prospective unitholders are urged to consult with their tax advisors as to the impact of the NIIT on an investment in our common units.
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 unless there is a constructive termination of the partnership. Please read Disposition of
Common UnitsConstructive Termination. The election generally permits 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 with respect 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, the inside
basis in our assets with respect to a unitholder will be considered to have two components: (i) his share of our tax basis in our assets (common basis) and (ii) his Section 743(b) adjustment to that basis.
We have adopted the remedial allocation method as to all our properties. Where the remedial allocation method is adopted, 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 that is subject to depreciation under
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Section 168 of the Internal Revenue Code and 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.
Under our partnership agreement, our general partner is authorized to take a position to preserve the uniformity of units even if that position is not
consistent with these and any other Treasury Regulations. Please read Uniformity of Units.
We 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 that 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 read
Uniformity of Units. A unitholders tax basis for his common units is reduced by his share of our deductions (whether or not such deductions were claimed on an individuals income tax return) so that any position we take
that understates deductions will overstate such unitholders basis in his common units, which may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read Disposition of Common
UnitsRecognition of Gain or Loss. Latham & Watkins LLP is unable to opine as to whether our method for taking into account Section 743 adjustments is sustainable for property subject to depreciation under Section 167
of the Internal Revenue Code or if we use an aggregate approach as described above, as there is no direct or indirect controlling authority addressing the validity of these positions. Moreover, the IRS may challenge our position with respect to
depreciating or amortizing the Section 743(b) adjustment we take to preserve the uniformity of the units. If such a challenge were sustained, the gain from the sale of units might be increased without the benefit of additional deductions.
A Section 754 election is advantageous if the transferees tax basis in his units is higher than the units share of the
aggregate tax basis of our assets immediately prior to the transfer. 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
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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 twelve months of our income, gain, loss and deduction. Please read Disposition of Common UnitsAllocations Between Transferors and Transferees.
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 read Tax Consequences of Unit OwnershipAllocation of Income, Gain, Loss and Deduction.
To the extent allowable, we may elect to use the depreciation and cost recovery methods, including bonus depreciation to the extent
available, that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. Please read Uniformity of Units. Property we subsequently acquire or construct may
be depreciated using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable or depletable property by sale,
foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation and depletion previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather
than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own will likely be required to recapture some or all of those deductions as ordinary income upon a sale of his interest in
us. Please read Tax Consequences of Unit OwnershipAllocation of Income, Gain, Loss and Deduction and Disposition of Common UnitsRecognition 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.
Coal Income
Section 631 of the Code provides special rules by which gains or losses on the sale of coal may be treated, in whole or in part, as gains or losses from the sale of property used in a trade or
business under Section 1231 of the Code. Specifically, if the owner of coal held for more than one year disposes of that coal under a contract by virtue of which the owner retains an economic interest in the coal under Section 631(c) of
the Code, the gain or loss realized will be treated under Section 1231 of the Code as gain or loss from property used in a trade or business. Section 1231 gains and losses may be treated as capital gains and losses. Please read
Sales of Coal Reserves or Timberland. In computing such gain or loss, the amount realized is reduced by the adjusted depletion basis in the coal, determined as described in Coal Depletion.
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For purposes of Section 631(c), coal generally is deemed to be disposed of on the day on which the coal
is mined. Further, Treasury Regulations promulgated under Section 631 provide that advance royalty payments may also be treated as proceeds from sales of coal to which Section 631 applies and, therefore, such payment may be treated as
capital gain under Section 1231. However, if the right to mine the related coal expires or terminates under the contract that provides for the payment of advance royalty payments or such right is abandoned before the coal has been mined, we
may, pursuant to the Treasury Regulations, file an amended return that reflects the payments attributable to unmined coal as ordinary income and not as received from the sale of coal under Section 631.
Our royalties from coal leases generally will be treated as proceeds from sales of coal to which Section 631 applies. Accordingly, the difference
between the royalties paid to us by the lessees and the adjusted depletion basis in the extracted coal generally will be treated as gain from the sale of property used in a trade or business, which may be treated as capital gain under Section 1231.
Please read Sales of Coal Reserves or Timberland. Our royalties that do not qualify under Section 631(c) generally will be taxable as ordinary income in the year of sale.
Coal Depletion
In general, we
are entitled to depletion deductions with respect to coal mined from the underlying mineral property. Subject to the limitations on the deductibility of losses discussed above, we generally are entitled to the greater of cost depletion limited to
the basis of the property or percentage depletion. The percentage depletion rate for coal is 10%. If Section 631(c) applies to the disposition of the coal, however, we are not eligible for percentage depletion. Please read Coal
Income.
Depletion deductions we claim generally will reduce the tax basis of the underlying mineral property. Depletion deductions can,
however, exceed the total tax basis of the mineral property. The excess of our percentage depletion deductions over the adjusted tax basis of the property at the end of the taxable year is subject to tax preference treatment in computing the
alternative minimum tax, the consequences of which are not addressed herein. In addition, a corporate unitholders allocable share of the amount allowable as a percentage depletion deduction for any property will be reduced by 20% of the
excess, if any, of that partners allocable share of the amount of the percentage depletion deductions for the taxable year over the adjusted tax basis of the mineral property as of the close of the taxable year.
Oil and Natural Gas Depletion
Subject to the limitations on deductibility of losses discussed above (please read Tax Consequences of Unit OwnershipLimitations on
Deductibility of Losses), unitholders may be entitled to depletion deductions with respect to our oil and natural gas royalty interests. The deduction is equal to the greater of cost depletion limited to the basis of the property or (if
otherwise allowable) percentage depletion.
Percentage depletion is generally available with respect to unitholders who qualify under the
independent producer exemption contained in Section 613A(c) of the Code. For this purpose, an independent producer is a person not directly or indirectly involved in the retail sale of oil, natural gas or derivative products or the operation of
a major refinery. Percentage depletion is calculated as an amount generally equal to 15% of the unitholders gross income from the oil and gas property for the taxable year. A unitholder generally may deduct percentage depletion only to the
extent the unitholders average daily production of domestic crude oil, or the natural gas equivalent, does not exceed 1,000 barrels. A limitation equal to the lower of 65% of taxable income or 100% of taxable income from the property further
limits the deduction for the taxable year.
All or a portion of any gain recognized by a unitholder as a result of either the disposition by
us of some or all of our oil and natural gas interests or the disposition by the unitholder of some or all of his units may be taxed as ordinary income to the extent of recapture of oil and gas depletion.
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Although the Code requires each unitholder to compute his own depletion allowance and maintain records of
his share of the adjusted tax basis of the underlying property for depletion and other purposes, we intend to furnish each of our unitholders with information relating to this computation for federal income tax purposes. Each unitholder, however,
remains responsible for calculating his own depletion allowance and maintaining records of his share of the adjusted tax basis of the underlying property for depletion and other purposes.
Timber Income
Section 631 of the Code provides special rules by which gains or
losses on the sale of timber may be treated, in whole or in part, as gains or losses from the sale of property used in a trade or business under Section 1231 of the Code. Specifically, if the owner of timber (including a holder of a contract
right to cut timber) held for more than one year disposes of that timber under any contract by virtue of which the owner retains an economic interest in the timber under Section 631(b) of the Code, the gain or loss realized will be treated
under Section 1231 of the Code as gain or loss from property used in a trade or business. Section 1231 gains and losses may be treated as capital gains and losses. Please read Sales of Coal Reserves or Timberland. In
computing such gain or loss, the amount realized is reduced by the adjusted basis in the timber, determined as described in Timber Depletion. For purposes of Section 631(b), the timber generally is deemed to be disposed of on
the day on which the timber is cut (which is generally deemed to be the date when, in the ordinary course of business, the quantity of the timber cut is first definitely determined).
Proceeds we receive from standing timber sales generally will be treated as sales of timber to which Section 631 applies. Accordingly, the difference between those proceeds and the adjusted basis in
the timber sold generally will be treated as gain from the sale of property used in a trade or business, which may be treated as capital gain under Section 1231. Please read Sales of Coal Reserves and Timberland. Gains from
sale of timber by us that do not qualify under Section 631 generally will be taxable as ordinary income in the year of sale.
Timber Depletion
Timber is
subject to cost depletion and is not subject to accelerated cost recovery, depreciation or percentage depletion. Timber depletion is determined with respect to each separate timber account (containing timber located in a timber block)
and is equal to the product obtained by multiplying the units of timber cut by a fraction, the numerator of which is the aggregate adjusted basis of all timber included in such account and the denominator of which is the total number of timber units
in such timber account. The depletion allowance so calculated for the timber cut in a particular period represents the adjusted tax basis of such cut timber for purposes of determining gain or loss on its disposition. The tax basis of the remaining
timber in each timber account is reduced by the depletion allowance for cut timber from such account.
Sales of Coal Reserves or
Timberland
If any coal reserves or timberland are sold or otherwise disposed of in a taxable transaction, we will recognize gain or
loss measured by the difference between the amount realized (including the amount of any indebtedness assumed by the purchaser upon such disposition or to which such property is subject) and the adjusted tax basis of the property sold. Generally,
the character of any gain or loss recognized upon that disposition will depend upon whether our coal reserves or the particular tract of timberland sold are held by us:
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for sale to customers in the ordinary course of business (i.e., we are a dealer with respect to that property);
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for use in a trade or business within the meaning of Section 1231 of the Code; or
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as a capital asset within the meaning of Section 1221 of the Code.
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In determining dealer status with respect to coal reserves, timberland and other types of real estate, the courts have identified a number of factors for distinguishing between a particular property held
for sale in the ordinary course of business and one held for investment. Any determination must be based on all the facts and circumstances surrounding the particular property and sale in question.
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We intend to hold its coal reserves and timberland for the purposes of generating cash flow from coal
royalties and periodic harvesting and sale of timber and achieving long-term capital appreciation. Although we may consider strategic sales of coal reserves and timberland consistent with achieving long-term capital appreciation, we do not
anticipate frequent sales, nor significant marketing, improvement or subdivision activity in connection with any strategic sales. Thus, our general partner does not believe that we will be viewed as a dealer. In light of the factual nature of this
question, however, there is no assurance that our purposes for holding our properties will not change and that our future activities will not cause it to be a dealer in coal reserves or timberland.
If we are not a dealer with respect to its coal reserves or its timberland and we have held the disposed property for more than a one-year period
primarily for use in our trade or business, the character of any gain or loss realized from a disposition of the property will be determined under Section 1231 of the Code. If we have not held the property for more than one year at the time of
the sale, gain or loss from the sale will be taxable as ordinary income.
A unitholders distributive share of any Section 1231 gain
or loss generated by us will be aggregated with any other gains and losses realized by that unitholder from the disposition of property used in the trade or business, as defined in Section 1231(b) of the Code, and from the involuntary
conversion of such properties and of capital assets held in connection with a trade or business or a transaction entered into for profit for the requisite holding period. If a net gain results, all such gains and losses will be long-term capital
gains and losses; if a net loss results, all such gains and losses will be ordinary income and losses. Net Section 1231 gains will be treated as ordinary income to the extent of prior net Section 1231 losses of the taxpayer or predecessor
taxpayer for the five most recent prior taxable years to the extent such losses have not previously been offset against Section 1231 gains. Losses are deemed recaptured in the chronological order in which they arose.
If we are not a dealer with respect to our coal reserves or a particular tract of timberland, and that property is not used in a trade or business, the
property will be a capital asset within the meaning of Section 1221 of the Code. Gain or loss recognized from the disposition of that property will be taxable as capital gain or loss, and the character of such capital gain or loss
as long-term or short-term will be based upon our holding period in such property at the time of its sale. The requisite holding period for long-term capital gain is more than one year.
Upon a disposition of coal reserves or timberland, a portion of the gain, if any, equal to the lesser of (i) the depletion deductions that reduced the tax basis of the disposed mineral property plus
deductible development and mining exploration expenses, or (ii) the amount of gain recognized on the disposition, will be treated as ordinary income to us.
Valuation and Tax Basis of Our Properties
The U.S. 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
determinations of 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
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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 that in the aggregate were in excess of cumulative net taxable income for a common unit and, therefore, 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 will
generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of units held for more than twelve months will generally be taxed at the U.S. federal income tax rate applicable to long-term capital gains. 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 unrealized receivables,
including potential recapture items such as depreciation recapture and depletion recapture, or to inventory items we own. Ordinary income attributable to unrealized receivables and inventory items 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. 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. Both ordinary income and capital gain recognized on a sale of units may be subject to the NIIT in
certain circumstances. Please read Tax Consequences of Unit OwnershipTax Rates.
The IRS has ruled that a partner who
acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax
basis must be allocated to the interests sold using an equitable apportionment method, which generally means that the tax basis allocated to the interest sold equals an amount that bears the same relation to the partners tax basis
in his entire interest in the partnership as the value of the interest sold bears to the value of the partners entire interest in the partnership. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an ascertainable holding period to elect to use the actual holding period of the common units transferred. Thus, according to the ruling discussed above, 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, he 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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an offsetting notional principal contract; or
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a futures or forward contract;
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in each case, with respect to the partnership interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect
to the partnership interest, the taxpayer will be treated as having sold that
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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 in proportion to the number of days in each month and will be subsequently apportioned among our 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 supplement 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 our unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction
realized after the date of transfer.
The U.S. Department of Treasury and the IRS have issued Treasury Regulations that permit publicly traded
partnerships to use a monthly simplifying convention that is similar to ours, but they do not specifically authorize all aspects of the proration method we have adopted. Accordingly, Latham & Watkins LLP 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, 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.
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 through the month of disposition but will not be entitled to receive that cash distribution.
Notification Requirements
A
unitholder who sells any of his units is generally required to notify us in writing of that sale within 30 days after the sale (or, if earlier, January 15 of the year following the sale). A purchaser of units who purchases units from
another unitholder is also generally required to notify us in writing of that purchase within 30 days after the purchase. Upon receiving such notifications, we are required to notify the IRS of that transaction and to furnish specified information
to the transferor and transferee. Failure to notify us of a purchase may, in some cases, lead to the imposition of penalties. However, these reporting requirements do not apply to a sale by an individual who is a citizen of the United States and who
effects the sale or exchange through a broker who will satisfy such requirements.
Constructive Termination
We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the
total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would, among other
things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two Schedules K-1 if relief was not available, as described below) for one fiscal year and
could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also
result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but
instead we would be treated as a new partnership for federal income tax purposes. If treated as a
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new partnership, we must make new tax elections, including a new election under Section 754 of the Internal Revenue Code, and could be subject to penalties if we are unable to determine that
a termination occurred. The IRS has announced a publicly traded partnership technical termination relief program whereby, if a publicly traded partnership that technically terminated requests publicly traded partnership technical termination relief
and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years.
Uniformity of Units
Because we cannot
match transferors and transferees of units, we must maintain uniformity of the economic and tax characteristics of the units to a purchaser of these units. In the absence of uniformity, we may be unable to completely comply with a number of federal
income tax requirements, both statutory and regulatory. A lack of uniformity can result from a literal application of Treasury Regulation Section 1.167(c)-1(a)(6). Any non-uniformity could have a negative impact on the value of the units.
Please read Tax Consequences of Unit OwnershipSection 754 Election. We 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. Please read Tax Consequences of Unit OwnershipSection 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 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. If this position is adopted, it may result in lower annual depreciation and amortization deductions than would otherwise be
allowable to some unitholders and risk the loss of depreciation and amortization deductions not taken in the year that these deductions are otherwise allowable. This position will not be adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on the unitholders. If we choose not to utilize this aggregate method, we may use any other reasonable depreciation and amortization method to preserve the uniformity of the intrinsic tax
characteristics of any units that would not have a material adverse effect on the unitholders. In either case, and as stated above under Tax Consequences of Unit OwnershipSection 754 Election, Latham & Watkins
LLP has not rendered an opinion with respect to these methods. Moreover, the IRS may challenge any method of depreciating the Section 743(b) adjustment described in this paragraph. If this challenge were sustained, the uniformity of units might
be affected, and the gain from the sale of units might be increased without the benefit of additional deductions. Please read Disposition of Common UnitsRecognition of Gain or Loss.
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident aliens, foreign corporations and other foreign persons raises issues unique to those investors and, as described
below to a limited extent, may have substantially adverse tax consequences to them. If you are a tax-exempt entity or a foreign 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 IRAs 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
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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, our quarterly distribution to foreign unitholders will be subject to withholding at the highest applicable effective tax rate. Each foreign unitholder must obtain a taxpayer identification number from the
IRS and submit that number to our transfer agent on a
Form W-8BEN,
W-8BEN-E 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 U.S. trade or
business, that corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our earnings and profits, as adjusted for changes in the foreign corporations U.S. net
equity, that is effectively connected with the conduct of a U.S. 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 common 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 United States 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. However, in a recent
decision, the United States Tax Court declined to follow this ruling and held that such gain is not effectively connected with a foreign unitholders United States trade or business and would only be taxable to the extent attributable to such
unitholders share of the partnerships United States real property interests. As this decision is still subject to appeal, its exact impact on foreign unitholders is uncertain. Prospective unitholders should consult their own tax advisors
regarding the potential impact of this decision on their investment in our common units. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign common unitholder (other than certain qualified foreign pension funds (or
an entity all of the interests of which are held by such a qualified foreign pension fund), which generally are entities or arrangements that are established and regulated by foreign law to provide retirement or other pension benefits to employees,
do not have a single participant or beneficiary that is entitled to more than 5% of the assets or income of the entity or arrangement and are subject to certain preferential tax treatment under the laws of the applicable foreign country), generally
will be subject to U.S. federal income tax upon the sale or disposition of a common 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 five-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. Recent changes in law may affect certain foreign unitholders. Please read Administrative MattersAdditional Withholding Requirements.
Administrative Matters
Information Returns and Audit Procedures
We intend to furnish to each unitholder, within 90 days after the close of each calendar year, specific tax information, including a Schedule K-1, which describes his share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each unitholders
share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the Internal Revenue Code, Treasury Regulations or administrative
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interpretations of the IRS. Neither we nor Latham & Watkins LLP 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.
Pursuant to the Bipartisan Budget Act of 2015, for taxable years beginning
after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. Similarly,
for such taxable years, if the IRS makes audit adjustments to income tax returns filed by an entity in which we are a member or partner, it may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment
directly from such entity. Generally, we expect to elect to have our general partner and unitholders take any such audit adjustment into account in accordance with their interests in us during the taxable year under audit, but there can be no
assurance that such election will be effective in all circumstances. With respect to audit adjustments as to an entity in which we are a member or partner, the Joint Committee of Taxation has stated that we would not be able to have our general
partner and its unitholders take such audit adjustment into account. If we are unable to have our general partner and its unitholders take such audit adjustment into account in accordance with their interests in us during the taxable year under
audit, our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own our common units during the taxable year under audit. If, as a result of any such audit adjustment,
we are required to make payments of taxes, penalties, and interest, our cash available for distribution to our common unitholders might be substantially reduced. These rules are not applicable to us for taxable years beginning on or prior to
December 31, 2017.
Additionally, pursuant to the Bipartisan Budget Act of 2015, the Internal Revenue Code will no longer require that we
designate a Tax Matters Partner. Instead, for taxable years beginning after December 31, 2017, we will be required to designate a partner, or other person, with a substantial presence in the United States as the partnership representative
(Partnership Representative). The Partnership Representative will have the sole authority to act on our behalf for purposes of, among other things, U.S. federal income tax audits and judicial review of administrative adjustments by
the IRS. If we do not make such a designation, the IRS can select any
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person as the Partnership Representative. We currently anticipate that we will designate our general partner as the Partnership Representative. Further, any actions taken by us or by the
Partnership Representative on our behalf with respect to, among other things, U.S. federal income tax audits and judicial review of administrative adjustments by the IRS, will be binding on us and all of the unitholders. These rules are not
applicable to us for taxable years beginning on or prior to December 31, 2017.
Additional Withholding Requirements
Withholding taxes may apply to certain types of payments made to foreign financial institutions (as specially defined in
the Internal Revenue Code) and certain other foreign entities. Specifically, a 30% withholding tax may be imposed on interest, dividends and other fixed or determinable annual or periodical gains, profits and income from sources within the United
States (FDAP Income), or gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends from sources within the United States (Gross Proceeds), paid to a foreign financial
institution or to a non-financial foreign entity (as specially defined in the Internal Revenue Code), unless (i) the foreign financial institution undertakes certain diligence and reporting, (ii) the non-financial foreign
entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for
an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (i) above, it must enter into an agreement with the U.S. Department of the Treasury requiring,
among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to noncompliant foreign financial
institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these requirements may be subject to different rules.
These rules generally apply to payments of FDAP Income currently and generally will apply to payments of relevant Gross Proceeds made on or after
January 1, 2019. Thus, to the extent we have FDAP Income or have Gross Proceeds on or after January 1, 2019 that are not treated as effectively connected with a U.S. trade or business (please read Tax-Exempt Organizations and
Other Investors), unitholders who are foreign financial institutions or certain other foreign entities, or persons that hold their common units through such foreign entities, may be subject to withholding on distributions they receive from us,
or their distributive share of our income, pursuant to the rules described above.
Prospective unitholders should consult their own tax
advisors regarding the potential application of these withholding provisions to their investment in our common units.
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 U.S. 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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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 dispositions.
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Brokers and financial institutions are required to furnish additional information, including whether they
are U.S. persons and specific information on units they acquire, hold or transfer for their own account. A penalty of $250 per failure, up to a maximum of $3,000,000 per calendar year, is imposed by the Internal Revenue Code for failure to report
that information to us. The nominee is required to supply the beneficial owner of the units with the information furnished to us.
Accuracy-Related Penalties
Certain penalties may be imposed on taxpayers as a result of an underpayment of tax that is attributable to one or more specified causes, including:
(i) negligence or disregard of rules or regulations, (ii) substantial understatements of income tax, (iii) substantial valuation misstatements and (iv) the disallowance of claimed tax benefits by reason of a transaction lacking
economic substance or failing to meet the requirements of any similar rule of law. Except with respect to the disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any
similar rule of law, however, no penalty will be imposed for any portion of any such underpayment if it is shown that there was a reasonable cause for the underpayment of that portion and that the taxpayer acted in good faith regarding the
underpayment of that portion. With respect to substantial understatements of income tax, the amount of any understatement subject to penalty generally is reduced by that portion of the understatement which is attributable to a position adopted on
the return (A) for which there is, or was, substantial authority or (B) as to which there is a reasonable basis and the relevant facts of that position are adequately disclosed on the return. If any item of income, gain, loss
or deduction included in the distributive shares of unitholders might result in that kind of an understatement of income for which no substantial authority exists, we must adequately disclose the relevant 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.
Recent Legislative Developments
The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at
any time. For example, from time to time, members of Congress and the President propose and consider substantive changes to the existing federal income tax laws that affect the tax treatment of publicly traded partnerships. Any modification to the
federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for federal income tax purposes. Please read
Partnership Status. We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an investment
in our common units.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you will likely 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 or do business in many states. Several of these states impose a personal income tax on individuals; certain of these states also impose an income tax on corporations and other entities. We
may also own property or do business in other jurisdictions in the future. Although you may not be required to file a return and pay taxes in some jurisdictions because your income from that jurisdiction falls below the filing and payment
requirement, you will be required to file income tax returns and to pay income taxes in many of these jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. In some
jurisdictions, tax losses may not produce a tax benefit in the year incurred and may not be available to offset income in subsequent taxable years. Some of the
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jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount
of which may be greater or less than a particular unitholders income tax liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. Amounts withheld will be treated as
if distributed to unitholders for purposes of determining the amounts distributed by us. Please read Tax Consequences of Unit OwnershipEntity-Level Collections. Based on current law and our estimate of our future operations,
our general partner anticipates that any amounts required to be withheld will not be material.
It is the responsibility of each unitholder
to investigate the legal and tax consequences, under the laws of pertinent states, localities and foreign jurisdictions, of his investment in us. Accordingly, each prospective unitholder is urged to consult his own 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 U.S. federal tax returns, that may be required of him. Latham & Watkins LLP has not rendered an opinion on the
state tax, local tax, alternative minimum tax or foreign tax consequences of an investment in us.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting agreement, we have agreed to sell to the underwriters named
below, for whom Barclays Capital Inc. is acting as representative, and such underwriters have agreed to purchase from us, the following respective numbers of common units at a price of $18.465 per common unit, which will result in approximately $997
million of net proceeds to us (before offering expenses). Additionally, Kelcy L. Warren will purchase 1,000,000 of our common units in this offering directly from the underwriters at a price equal to the public offering price.
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Underwriters
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Number of
Common Units
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Barclays Capital Inc.
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43,783,785
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Morgan Stanley & Co. LLC
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3,405,405
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UBS Securities LLC
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3,405,405
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Wells Fargo Securities, LLC
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3,405,405
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Total
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54,000,000
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The underwriting agreement provides that the underwriters obligations to purchase the common units depends on the
satisfaction of the conditions contained in the underwriting agreement including:
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the obligation to purchase all of the common units offered hereby (other than those common units covered by their option to purchase additional common
units as described below), if any of the common units are purchased;
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the representations and warranties made by us to the underwriters are true;
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there is no material change in our business or the financial markets; and
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we deliver customary closing documents to the underwriters.
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Commissions and Expenses
The following table shows the per common unit and total public
offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase up to an additional 8,100,000 common units.
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Total
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Per Common Unit
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No Exercise
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Full Exercise
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Public offering price
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$
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18.65
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$
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1,007,100,000
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$
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1,158,165,000
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Underwriting discounts and commissions to be paid by us
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$
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0.185
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$
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9,990,000
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$
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11,488,500
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Proceeds, before expenses, to us
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$
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18.465
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$
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997,110,000
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$
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1,146,676,500
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The underwriters have advised us that the underwriters propose to offer the common units directly to the public at the
public offering price listed above and to selected dealers, which may include affiliates of the underwriters, at such offering price less a selling concession not in excess of $0.10 per common unit. After the offering, the underwriters may
change the offering price and other selling terms.
The expenses of the offering that are payable by us are estimated to be approximately
$300,000 (excluding underwriting discounts and commissions).
Option to Purchase Additional Common Units
We have granted the underwriters an option, exercisable for 30 days after the date of the underwriting agreement, to purchase up to 8,100,000 additional
common units at the public offering price, less underwriting discounts and
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commissions. Any common units issued or sold under the option will be issued and sold on the same terms and conditions as the other common units that are subject to this offering.
Lock-Up
Agreements
We, our general partner, and all of the directors and executive officers of our general partner have agreed that, without the prior written consent of Barclays Capital Inc., we and they will not, directly
or indirectly, (1) offer for sale, sell, pledge, or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of)
any common units or securities convertible into or exercisable or exchangeable for common units (other than (A) common units issued pursuant to employee benefit plans, qualified unit option plans or other employee compensation plans existing on
the date of the underwriting agreement (B) common units issued in connection with any acquisition; provided that in connection with such issuance, the seller(s) agrees in writing to be bound by the
lock-up
provisions set forth in the underwriting agreement, (C) pursuant to currently outstanding options, warrants or rights or (D) pursuant to our Distribution Reinvestment Plan), or sell or grant
options, rights or warrants with respect to any common units or securities convertible into or exchangeable for common units (other than the grant of options pursuant to option plans existing on the date of this prospectus supplement) or (2) enter
into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of the common units or securities convertible into or exchangeable for common units, (3) file or
cause to be filed, or make any demand for or exercise any right to file or cause to be filed, a registration statement, including any amendments thereto, to register any common units or securities convertible, exercisable or exchangeable into common
units or any of our other securities (other than any registration statement on Form
S-8),
or (4) publicly disclose the intention to do any of the foregoing, in each case, for a period of no more than 45
days after the date of this prospectus supplement.
Barclays Capital Inc. in its sole discretion, may release the common units subject to
lock-up
agreements in whole or in part at any time with or without notice. When determining whether or not to release common units from
lock-up
agreements, Barclays Capital
Inc. will consider, among other factors, our or the unitholders reasons for requesting the release, the number of common units for which the release is being requested, and market conditions at the time.
Indemnification
We and our general
partner have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments that the underwriters may be required to make for these liabilities.
Stabilization, Short Positions and Penalty Bids
The underwriters may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common units, in accordance with Regulation M under the Securities Exchange Act of 1934.
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Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
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A short position involves a sale by the underwriters of common units in excess of the number of common units the underwriters are obligated to purchase
in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of common units involved in the sales made by the underwriters
in excess of the number of common units they are obligated to purchase is not greater than the number of common units that they may purchase by exercising their option to purchase additional common units. In a naked short position, the number of
common units involved is greater than the number of common units in its option to
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purchase additional common units. The underwriters may close out any short position by either exercising their option to purchase additional common units and/or purchasing common units in the
open market. In determining the source of common units to close out the short position, the underwriters will consider, among other things, the price of common units available for purchase in the open market as compared to the price at which they
may purchase common units through their option to purchase additional common units. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common units in the
open market after pricing that could adversely affect investors who purchase in the offering.
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Syndicate covering transactions involve purchases of the common units in the open market after the distribution has been completed in order to cover
syndicate short positions.
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Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the common units originally sold by the syndicate
member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
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These
stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common units or preventing or retarding a decline in the market price of the common units. As a result,
the price of the common units may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued 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 common units. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be
discontinued without notice.
Electronic Distribution
A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by the underwriters and/or selling group members participating in this offering,
or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the online services, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a
specific number of common units for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations.
Other than the prospectus in electronic format, the information on the underwriters or any selling group members web site and any information
contained in any other web site maintained by the underwriters or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us, the underwriters
or any selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
Relationships/FINRA Conduct Rules
The
underwriters and their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research,
principal investment, hedging, financing and brokerage activities. In the ordinary course of business, the underwriters and their affiliates have from time to time performed and may in the future perform various financial advisory, commercial
banking, investment banking, asset leasing and treasury services for us and our affiliates, for which they received, or will continue to receive, customary fees or compensation. In particular, affiliates of each of the underwriters are lenders under
our revolving credit facilities and, accordingly, may receive a portion of the net proceeds of this offering through our repayment of borrowings under such facilities.
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In the ordinary course of their various business activities, the underwriters and their affiliates may make
or hold a broad array of investments and actively trade debt and equity securities and financial instruments for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and
instruments. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates.
Because the
Financial Industry Regulatory Authority, or FINRA, views the common units offered hereby as interests in a direct participation program, the offering is being made in compliance with Rule 2310 of the FINRA Conduct Rules. Investor suitability with
respect to the common units should be judged similarly to the suitability with respect to other securities that are listed for trading on a national securities exchange.
Selling Restrictions
Hong Kong
The common units may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within
the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or
(iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the common units may
be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if
permitted to do so under the laws of Hong Kong) other than with respect to common units which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities
and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or
material in connection with the offer or sale, or invitation for subscription or purchase, of the common units may not be circulated or distributed, nor may the common units be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant
person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the common units are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is
not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited
investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, common units, debentures and units of common units and debentures of that corporation or the beneficiaries rights and interest in that trust
shall not be transferable for six months after that corporation or that trust has acquired the common units under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any
person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The common units have not
been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each sales agent has agreed that it will not offer or
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sell any common units, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise
in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
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LEGAL
The validity of the common units will be passed upon for us by our counsel, Latham & Watkins LLP, Houston, Texas. Certain legal matters relating
to the offering of the common units will be passed upon for the underwriters by Andrews Kurth Kenyon LLP, Washington, D.C. and Houston, Texas.
EXPERTS
The consolidated financial statements of Energy
Transfer Partners, L.P. and subsidiaries (the Partnership) as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016 included in the Partnerships Current Report on Form 8-K filed on
August 14, 2017, managements assessment of the effectiveness of internal control over financial reporting of Energy Transfer Partners, L.P. as of December 31, 2016 included in the Partnerships Current Report on Form 8-K filed on May 8,
2017, and managements assessment of the effectiveness of internal control over financial reporting of Sunoco Logistics Partners L.P. as of December 31, 2016 included in the Partnerships Annual Report on Form 10-K for the year ended
December 31, 2016, all incorporated by reference in this prospectus supplement and elsewhere in the registration statement have been so incorporated by reference in reliance upon the reports of Grant Thornton LLP, independent registered public
accountants, upon the authority of said firm as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities Act that registers the securities
offered by this prospectus supplement. The registration statement, including the attached exhibits, contains additional relevant information about us. 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., Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-732-0330
for further information on their public reference room. Our SEC filings are also available at the SECs web site at http://www.sec.gov. You can also obtain information about us at
the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005.
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INCORPORATION BY REFERENCE
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 supplement or the accompanying prospectus by referring you to those documents. These other documents contain important information about us, our financial
condition and our results of operations. The information incorporated by reference is an important part of this prospectus supplement and the accompanying prospectus. Information that we file later with the SEC and that is deemed to be
filed with the SEC will automatically update and supersede information contained in this prospectus supplement, the accompanying prospectus and in the other documents previously filed with the SEC, and may replace information contained
in this prospectus supplement and the accompanying prospectus.
We incorporate the documents listed below and any of our future filings with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any information furnished under Items 2.02 or 7.01 on any Current Report on Form
8-K)
after the date of this prospectus
supplement and until the termination of this offering. These reports contain important information about us, our financial condition and our results of operations.
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Our annual report on Form
10-K
for the year ended December 31, 2016;
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Our quarterly reports on Form
10-Q
for the quarters ended March 31, 2017 and June 30, 2017; and
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Our current reports on Form
8-K
filed on January 5, 2017, January 27, 2017, March 27, 2017,
April 26, 2017, April 28, 2017, May 8, 2017, May 10, 2017, May 31, 2017, August 2, 2017 and August 14, 2017.
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We make available free of charge on or through our Internet website, www.energytransfer.com, our Annual Reports on Form
10-K
and Quarterly Reports on Form
10-Q
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. Information contained on our Internet website is not part of this prospectus supplement or the accompanying prospectus (unless specifically incorporated by reference into this prospectus supplement or the accompanying prospectus as described
above).
You may request a copy of any document incorporated by reference into this prospectus, at no cost, by writing or calling us at the
following address:
Energy Transfer Partners, L.P.
8111 Westchester Drive, Suite 600
Dallas, TX 75225
Attention: James M. Wright, Jr.
Telephone: (214)
981-0700
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PROSPECTUS
Sunoco Logistics Partners L.P.
Common Units
Representing Limited Partner Interests
Sunoco
Logistics Partners Operations L.P.
Debt Securities
Fully and Unconditionally Guaranteed by
Sunoco Logistics Partners L.P.
Sunoco Logistics
Partners L.P. or selling unitholders may offer and sell, in one or more offerings from time to time, common units representing limited partner interests in Sunoco Logistics Partners L.P. Sunoco Logistics Partners L.P.s common units are listed
for trading on the New York Stock Exchange under the symbol SXL.
Sunoco Logistics Partners Operations L.P. may offer and sell,
in one or more offerings from time to time, debt securities issued by Sunoco Logistics Partners Operations L.P., which will be fully and unconditionally guaranteed by Sunoco Logistics Partners L.P., and may be guaranteed by one or more of Sunoco
Logistics Partners L.P.s subsidiaries. We will provide information in the related prospectus supplement regarding the trading market, if any, for any debt securities Sunoco Logistics Partners Operations L.P. may offer.
We or selling unitholders may offer and sell these securities in amounts, at prices and on terms to be determined by market conditions and
other factors at the time of our offerings. This prospectus describes only the general terms of these securities and the general manner in which we or selling unitholders will offer the securities. The specific terms of any securities that we or
selling unitholders offer will be included in a supplement to this prospectus. The prospectus supplement will describe the specific manner in which we or selling unitholders will offer the securities, and also may add, update or change information
contained in this prospectus. We or selling unitholders will sell these securities through underwriters on a firm commitment basis. The names of any underwriters and the specific terms of a plan of distribution will be stated in a supplement to this
prospectus. Selling unitholders that are affiliates of Sunoco Logistics Partners L.P. may be deemed to be underwriters within the meaning of the Securities Act of 1933, as amended, and, as a result, may be deemed to be offering
securities, indirectly, on our behalf. We will not receive any of the proceeds from the sale of common units by selling unitholders.
You
should carefully read this prospectus and the applicable prospectus supplement before you invest in any of our securities. You also should read the documents to which we have referred you in the Where You Can Find More Information
section of this prospectus for additional information about us and our financial statements. This prospectus may not be used to consummate sales of our securities unless it is accompanied by a prospectus supplement.
Investing in our securities involves risks. Limited partnerships are inherently different from corporations. You should carefully consider
the risk factors described under
Risk Factors
on page 6 of this prospectus and in the applicable prospectus supplement before you make an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this
prospectus is August 11, 2015.
TABLE OF CONTENTS
i
ii
In making your investment decision, you should rely only on the information contained or incorporated by reference into this prospectus,
the applicable prospectus supplement and any free writing prospectus relating to such offering. We have not authorized anyone else to provide you with any other information. If anyone provides you with additional, different or inconsistent
information, you should not rely on it.
We are not offering to sell these securities or seeking offers to buy these securities in
any jurisdiction where the offer or sale is not permitted.
You should not assume that the information contained in this
prospectus, the applicable prospectus supplement or any related free writing prospectus is accurate as of any date other than the date on the front cover of those documents. You should not assume that the information contained in the documents
incorporated by reference into this prospectus, the applicable prospectus supplement or any related free writing prospectus is accurate as of any date other than the respective dates of those documents. Our business, financial condition, results of
operations, cash flows and prospects may have changed since those dates. We will disclose any material changes regarding those matters in an amendment to this prospectus, a prospectus supplement or a future filing with the Securities and Exchange
Commission (the SEC) that is incorporated by reference into this prospectus.
iii
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we have filed with the SEC using a shelf registration
process. Under this shelf registration process, Sunoco Logistics Partners L.P. (Sunoco Logistics Partners) or selling unitholders may offer and sell, in one or more offerings from time to time, common units representing limited partner
interests in Sunoco Logistics Partners (the common units), or Sunoco Logistics Partners Operations L.P. (the Operating Partnership) may offer and sell, in one or more offerings from time to time, debt securities issued by the
Operating Partnership (the debt securities), as described in this prospectus. The debt securities will be fully and unconditionally guaranteed by Sunoco Logistics Partners and may be guaranteed by one or more of Sunoco Logistics
Partners subsidiaries (other than the Operating Partnership).
This prospectus contains a general description of us, the common
units, the debt securities and the guarantees of the debt securities. Each time we or selling unitholders, as applicable, offer and sell common units or debt securities with this prospectus, we or selling unitholders, as applicable, will provide a
prospectus supplement that will contain specific information about the terms of that offering and the securities offered by us or selling unitholders in that offering. The prospectus supplement also may add to, update or change information contained
in this prospectus. The information in this prospectus is accurate as of its date. You should carefully read this prospectus and the applicable prospectus supplement before you invest in any of our securities. You also should carefully read the
documents to which we have referred you in the Where You Can Find More Information section of this prospectus for additional information about us and our financial statements. To the extent information in this prospectus is inconsistent
with information contained in the applicable prospectus supplement, you should rely on the information in the prospectus supplement.
As
used in this prospectus, we, us and our and similar terms mean Sunoco Logistics Partners and its subsidiaries, except that those terms, when used in this prospectus in connection with the common units described
herein, shall mean Sunoco Logistics Partners, and when used in connection with the debt securities described herein, shall mean the Operating Partnership, unless the context indicates otherwise. References to our general partner mean
Sunoco Partners LLC, the general partner of Sunoco Logistics Partners. Occasionally, in this prospectus, we refer to Sunoco Logistics Partners as the Guarantor. The Guarantor will fully and unconditionally guarantee the Operating
Partnerships payment obligations under any series of debt securities offered by this prospectus.
1
SUNOCO LOGISTICS PARTNERS L.P. AND
SUNOCO LOGISTICS PARTNERS OPERATIONS L.P.
Sunoco Logistics Partners is a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of crude
oil, refined products and natural gas liquids (NGL) pipelines, terminalling and storage assets, and crude oil, products and NGL acquisition and marketing assets. The Operating Partnership, a Delaware limited partnership, is a direct
wholly owned subsidiary of Sunoco Logistics Partners that owns the operating subsidiaries of Sunoco Logistics Partners. We conduct our business activities in 35 states located throughout the United States.
Sunoco Partners LLC, a Pennsylvania limited liability company and the general partner of Sunoco Logistics Partners, is a controlled subsidiary
of Energy Transfer Partners, L.P., a publicly traded Delaware limited partnership (ETP). Our general partner holds no assets other than its investment in Sunoco Logistics Partners and notes receivable and other amounts receivable from
affiliates of ETP.
Our principal executive offices are located at 1818 Market Street, Suite 1500, Philadelphia, Pennsylvania 19103, and
our phone number is 866-248-4344.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities Act of 1933, as amended (the Securities Act), that
registers the offer and sale of 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.
Sunoco Logistics Partners files annual, quarterly and other
reports and other information with the SEC. You may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-732-0330. The SEC maintains an Internet site
(http://www.sec.gov)
that contains reports, proxy and information statements and other information regarding issuers that file electronically with the
SEC. Our SEC filings also are available on the SECs website. You also can obtain information about us at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
3
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference the information Sunoco Logistics Partners has 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 our results of operations. The information incorporated by reference is an important part of this prospectus. Information that Sunoco Logistics Partners later provides to the SEC, and which is deemed to be filed
with the SEC, will automatically update and supersede information contained in this prospectus and in the other documents previously filed with the SEC, and may replace information contained in this prospectus. Therefore, before you decide to invest
in any securities offered by this prospectus, you should always check for, and carefully read, any reports and other documents that we may have filed with the SEC after the date of this prospectus.
We incorporate by reference into this prospectus the documents listed below filed by Sunoco Logistics Partners:
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Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 26, 2015;
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Quarterly Reports on Form 10-Q for the quarters ended March 31, 2015, filed on May 7, 2015, and June 30, 2015, filed on August 6, 2015;
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Current Reports on Form 8-K filed on January 28, 2015, February 5, 2015, March 6, 2015, March 16, 2015, March 24, 2015, March 25, 2015, April 29,
2015, May 4, 2015, May 14, 2015 and July 23, 2015; and
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the description of our common units contained in Sunoco Logistics Partners registration statement on Form 8-A, filed on January 28, 2002, as amended by Amendment No. 1 thereto filed on May 13, 2005,
Amendment No. 2 thereto filed on January 29, 2010, Amendment No. 3 thereto filed on November 29, 2012 and any subsequent amendment thereto filed for the purpose of updating such description.
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In addition, all documents subsequently filed by Sunoco Logistics Partners with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the Exchange Act) (excluding any information furnished and not filed with the SEC on any Current Report on Form 8-K, unless otherwise noted), prior to the completion or
termination of the applicable offering under this prospectus and the related prospectus supplement, shall be deemed to be incorporated by reference into this prospectus.
We make available free of charge on or through our Internet website,
www.sunocologistics.com
, our Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. Information contained on our Internet website is not a part of this prospectus and is not incorporated by reference into this prospectus (unless specifically incorporated by reference into this prospectus as described above).
You may obtain any of the documents incorporated by reference into this prospectus from the SEC through the SECs website at the address
provided above. We will provide to each person, including any beneficial owner, to whom this prospectus is delivered a copy of any or all of the information that is incorporated by reference into this prospectus (excluding any exhibit to those
documents, unless the exhibit is specifically incorporated by reference into such documents), at no cost, by visiting our internet website at
www.sunocologistics.com
, or by writing or calling us at the following address:
Investor Relations
Sunoco
Logistics Partners L.P.
1818 Market Street, Suite 1500
Philadelphia, Pennsylvania 19103
Telephone: (866) 248-4344
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In making your investment decision, you should rely only on the information contained or
incorporated by reference into this prospectus, the applicable prospectus supplement and any free writing prospectus relating to such offering. We have not authorized anyone else to provide you with any other information. If anyone provides you with
additional, different or inconsistent information, you should not rely on it. You should not assume that the information contained in this prospectus, the applicable prospectus supplement or any related free writing prospectus is accurate as of any
date other than the date on the front cover of those documents. You should not assume that the information contained in the documents incorporated by reference into this prospectus, the applicable prospectus supplement or any related free writing
prospectus is accurate as of any date other than the respective dates of those documents.
5
RISK FACTORS
Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we
are subject are similar to those that would be faced by a corporation engaged in a similar business. An investment in our securities involves risks. Before you invest in our securities, you should carefully consider the risk factors included in our
most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, which are incorporated herein by reference, and those risk factors that may be included in the applicable prospectus supplement,
together with all of the other information contained in or incorporated by reference into this prospectus or any prospectus supplement as provided under Incorporation by Reference. This prospectus also contains forward-looking statements
that involve risks and uncertainties. Please read Forward-Looking Statements.
If any of these risks were to materialize, our
business, financial condition, results of operations, cash flows or prospects could be adversely affected. In that case, our ability to make distributions to our unitholders or pay interest on, or the principal of, any debt securities may be
reduced, the trading price of our securities could decline and you could lose all or part of your investment.
6
FORWARD-LOOKING STATEMENTS
Certain statements, other than statements of historical fact, included or incorporated by reference into this prospectus and any accompanying
prospectus supplement constitute forward-looking statements. These forward-looking statements discuss our goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other
information relating to us, based on the current beliefs of our management as well as assumptions made by, and information currently available to, our management. Words such as may, anticipates, believes,
expects, estimates, planned, intends, projects, scheduled or similar phrases or expressions identify forward-looking statements. When considering forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in this prospectus, any accompanying prospectus supplement and the documents we incorporate by reference.
Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions, any or all of which may
ultimately prove to be inaccurate. These statements are also subject to numerous assumptions, uncertainties and risks that may cause future results to be materially different from the results projected, forecasted, estimated or budgeted, including,
but not limited to, the following:
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Our ability to successfully consummate announced acquisitions or expansions and integrate them into our existing business operations;
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Delays related to construction of, or work on, new or existing facilities and the issuance of applicable permits;
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Changes in the supply of, or demand for crude oil, refined products and NGLs that impact demand for our pipeline, terminalling and storage services;
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Changes in the short-term and long-term demand for crude oil, refined products and NGLs we buy and sell;
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An increase in the competition encountered by our terminals, pipelines and acquisition and marketing operations;
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Changes in the financial condition or operating results of joint ventures or other holdings in which we have an equity ownership interest;
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Changes in the general economic conditions in the United States;
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Changes in laws and regulations to which we are subject, including federal, state and local tax, safety, environmental and employment laws;
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Changes in regulations governing the composition of the products that we transport, terminal and store;
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Improvements in energy efficiency and development of technology resulting in reduced demand for refined petroleum products;
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Our ability to manage growth and/or control costs;
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The effect of changes in accounting principles and tax laws, and interpretations of both;
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Global and domestic economic repercussions, including disruptions in the crude oil, refined petroleum products and NGL markets, from terrorist activities, international hostilities and other events, and the
governments response thereto;
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Changes in the level of operating expenses and hazards related to operating our facilities (including equipment malfunction, explosions, fires, spills and the effects of severe weather conditions);
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The occurrence of operational hazards or unforeseen interruptions for which we may not be adequately insured;
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The age of, and changes in the reliability and efficiency of our operating facilities;
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Changes in the expected level of capital, operating, or remediation spending related to environmental matters;
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Changes in insurance markets resulting in increased costs and reductions in the level and types of coverage available;
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Risks related to labor relations and workplace safety;
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Non-performance by or disputes with major customers, suppliers or other business partners;
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Changes in our tariff rates implemented by federal and/or state government regulators;
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The amount of our debt, which could make us vulnerable to adverse general economic and industry conditions, limit our ability to borrow additional funds, place us at competitive disadvantages compared to competitors
that have less debt, or have other adverse consequences;
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Restrictive covenants in our credit agreements;
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Changes in our or our general partners credit ratings, as assigned by ratings agencies;
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The condition of the debt capital markets and equity capital markets in the United States, and our ability to raise capital in a cost-effective way;
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Performance of financial institutions impacting our liquidity, including those supporting our credit facilities;
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The effectiveness of our risk management activities, including the use of derivative financial instruments to hedge commodity risks;
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Changes in interest rates on our outstanding debt, which could increase the costs of borrowing; and
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The costs and effects of legal and administrative claims and proceedings against us or any entity in which we have an ownership interest, and changes in the status of, or the initiation of new litigation, claims or
proceedings, to which we, or any entity in which we have an ownership interest, are a party.
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These factors are not
necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future
results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events.
8
USE OF PROCEEDS
Unless we specify otherwise in any prospectus supplement, we will use the net proceeds (after the payment of offering expenses and
underwriting discounts and commissions) from our sale of securities for general partnership purposes, which may include, among other things:
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paying or refinancing all or a portion of our indebtedness outstanding at the time; and
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funding working capital, capital expenditures or acquisitions (which may consist of acquisitions of discrete assets or businesses).
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The actual application of proceeds from the sale of any particular offering of securities using this prospectus will be described in the
applicable prospectus supplement relating to such offering. The precise amount and timing of the application of these proceeds will depend upon our funding requirements and the availability and cost of other funds.
We will not receive any of the proceeds from the sale of common units by selling unitholders.
9
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for both Sunoco Logistics Partners and the Operating Partnership for each of the periods indicated is
as follows:
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Predecessor
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Successor
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Year Ended
December 31,
2010
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Year Ended
December 31,
2011
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Period from
January 1,
2012 to
October 4,
2012
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Period from
Acquisition
(October 5,
2012) to
December 31,
2012)
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Year Ended
December 31,
2013
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Year Ended
December 31,
2014
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Six Months
Ended June 30,
2015
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Ratio of Earnings to Fixed Charges
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5.2
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4.3
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6.0
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8.5
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5.5
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2.5
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3.6
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For purposes of calculating the ratio of earnings to fixed charges:
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fixed charges represent interest expense (including amounts capitalized), amortization of debt costs and the portion of rental expense representing the interest factor; and
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earnings represent the aggregate of income from continuing operations (before adjustment for minority interest, extraordinary loss and equity earnings), fixed charges and distributions from equity
investments, less capitalized interest.
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10
DESCRIPTION OF THE COMMON UNITS
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 Third Amended and Restated Agreement of Limited Partnership, as amended by Amendment No. 1, Amendment No. 2, Amendment No. 3 and Amendment No. 4 thereto (as amended,
our partnership agreement). For a description of the rights of holders of our common units to cash distributions, please read Cash Distributions in this prospectus. For a description of the rights and privileges of limited
partners under our partnership agreement, including voting rights, please read Description of Our Partnership Agreement in this prospectus. We urge you to read our partnership agreement, as our partnership agreement, and not this
description, governs our common units.
References in this Description of the Common Units to we, us
and our mean Sunoco Logistics Partners L.P.
Number of Common Units
As of August 1, 2015, we had 253,107,536 common units outstanding, of which 186,046,262 are held by the public and 67,061,274 are held by
ETP, which is the controlling owner of our general partner. The common units represent an aggregate 98.3% limited partner interest in us and the general partner interest held by our general partner represents an approximately 1.7% general partner
interest in us.
Timing of Distributions
We pay distributions no later than 45 days after March 31, June 30, September 30 and December 31 to holders of
record on the applicable record date. For additional information, please read Cash Distributions.
Issuance of
Additional Partnership Securities; Preemptive Rights
In general, we may issue additional partnership securities for any partnership
purpose at any time and from time to time to such persons for such consideration and on such terms and conditions as shall be established by our general partner in its sole discretion, all without the approval of any limited partners. The holders of
our common units do not have preemptive rights to acquire additional common units or other partnership securities. For additional information, please read Description of Our Partnership AgreementIssuance of Additional Partnership
Securities; Preemptive Rights.
Voting Rights
Unlike the holders of common stock in a corporation, our limited partners have only limited voting rights on matters affecting our business.
Our limited partners have no right to elect our general partner or the directors of our general partner on an annual or other continuing basis. Our general partner may not be removed except by the vote of the holders of at least 66
2
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3
% of the outstanding common units, including common units owned by our general partner and its affiliates. Each holder of common units is entitled to one vote
for each common unit on all matters submitted to a vote of the unitholders. For additional information, please read Description of Our Partnership AgreementMeetings; Voting.
Limited Call Right
If at any time our general partner and its affiliates hold more than 80% of the total limited partner interests of any class then outstanding,
our general partner will then have the right, which right it may assign and transfer in whole or in part to us or any affiliate of our general partner, exercisable at its option, to purchase all, but not less than all, of such limited partner
interests of such class then outstanding held by persons other than our general partner and its affiliates. For additional information, please read Description of Our Partnership AgreementLimited Call Right.
11
Exchange Listing
Our common units are listed on the New York Stock Exchange under the symbol SXL.
Transfer Agent and Registrar Duties
American Stock Transfer & Trust Company serves as registrar and transfer agent for our common units. We pay all fees charged by the
transfer agent for transfers of common units, except the following that must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
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special charges for services requested by a holder of common units; and
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other similar fees or charges.
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There is no charge to unitholders for disbursements of our
cash distributions. We will indemnify the transfer agent, its agents and each of their stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities as transfer
agent, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.
Transfer of Common Units
Any transfers of a common unit will not be recorded by the transfer agent or recognized by us unless the transferee executes and delivers a
transfer application. By executing and delivering a transfer application, the transferee of common units:
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becomes the record holder of the common units and is an assignee until admitted as a substituted limited partner;
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automatically requests admission as a substituted limited partner;
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agrees to comply with and be bound by and to have executed our partnership agreement;
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represents and warrants that such transferee has the right, power and authority and, if an individual, the capacity to enter into our partnership agreement;
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grants the powers of attorney set forth in our partnership agreement; and
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gives the consents and approvals and makes the waivers contained in our partnership agreement.
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An assignee will become a substituted limited partner for the transferred common units upon the consent of our general partner and the
recording of the name of the assignee on our books and records. Our general partner may withhold its consent in its sole discretion.
A
transferees broker, agent or nominee may complete, execute and deliver a transfer application. We are entitled to treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holders rights are limited
solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired
upon admission as a substituted limited partner for the transferred common units, a purchaser or transferee of common units who does not execute and deliver a transfer application obtains only:
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the right to assign the common units to a purchaser or other transferee; and
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the right to transfer the right to seek admission as a substituted limited partner for the transferred common units.
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Thus, a purchaser or transferee of common units who does not execute and deliver a transfer
application:
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will not receive cash distributions or federal income tax allocations, unless the common units are held in a nominee or street name account and the nominee or broker has executed and delivered a transfer
application; and
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may not receive some federal income tax information or reports furnished to record holders of common units.
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The transferor of common units has a duty to provide the transferee with all information that may be necessary to transfer the common units.
The transferor does not have a duty to insure the execution of the transfer application by the transferee and has no liability or responsibility if the transferee neglects or chooses not to execute and forward the transfer application to the
transfer agent.
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the
common unit as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.
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CASH DISTRIBUTIONS
References in this Cash Distributions section to we, us and our mean Sunoco Logistics Partners
L.P.
Distributions of Available Cash
General
. Our partnership agreement provides that we will distribute all of our available cash to unitholders of record on the applicable
record date within 45 days after the end of each quarter.
Definition of Available Cash
. Available cash generally means, for each
fiscal quarter:
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all cash on hand at the end of the quarter;
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less
the amount of cash reserves that our general partner establishes to:
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provide for the proper conduct of our business;
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comply with applicable law, any of our debt instruments or other agreements; or
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provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;
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plus
all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter.
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Working capital borrowings are generally borrowings that are made under our credit facilities and in all cases are used solely for working
capital purposes or to pay distributions to partners.
Intent to Distribute the Minimum Quarterly Distribution.
We intend to
distribute to the holders of common units on a quarterly basis at least the minimum quarterly distribution of $0.075 per unit, or $0.30 per year, to the extent we have sufficient cash from our operations after establishment of cash reserves and
payment of fees and expenses, including payments to our general partner. However, there is no guarantee that we will pay the quarterly distribution in this amount, or the minimum quarterly distribution on the common units in any quarter, and we will
be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default is existing, under our credit facilities or the debt securities.
Operating Surplus and Capital Surplus
General
. All cash distributed to 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.
Definition of
Operating Surplus
. Operating surplus for any period generally means:
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our cash balance on the closing date of our initial public offering; plus
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$15.0 million (as described below); plus
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all of our cash receipts after the closing of our initial public offering, excluding cash from borrowings that are not working capital borrowings, sales of equity and debt securities and sales or other dispositions of
assets outside the ordinary course of business; plus
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working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter; less
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all of our operating expenditures after the closing of our initial public offering, including the repayment of working capital borrowings, but not the repayment of other borrowings, and including maintenance capital
expenditures; less
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the amount of cash reserves established by our general partner in good faith to provide funds for future operating expenditures.
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Definition of Capital Surplus
. Generally, capital surplus will be generated only by:
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borrowings other than working capital borrowings;
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sales of debt and equity securities; and
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sales or other disposition of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or as part of normal retirements or replacements of assets.
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Characterization of Cash Distributions
. We will treat all available cash distributed as coming from operating
surplus until the sum of all available cash distributed since we began operations equals the operating surplus as of the most recent date of determination of available cash. We will treat any amount distributed in excess of operating surplus,
regardless of its source, as capital surplus. As reflected above, operating surplus includes $15.0 million in addition to our cash balance on the closing date of our initial public offering, cash receipts from our operations and cash from working
capital borrowings. This amount does not reflect actual cash on hand that is available for distribution to our unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to $15.0 million of cash
we receive in the future from non-operating sources, such as asset sales, issuances of securities and long-term borrowings, that would otherwise be distributed as capital surplus. We do not anticipate that we will make any distributions from capital
surplus.
Distributions of Available Cash from Operating Surplus
We will make distributions of available cash from operating surplus for any quarter in the following manner:
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First
, to all unitholders and our general partner, in accordance with their percentage interests, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that
quarter; and
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Thereafter
, in the manner described in Incentive Distribution Rights below.
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Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing percentage of quarterly
distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds all of the incentive distribution rights, but may transfer
these rights separately from its general partner interest, subject to restrictions in our partnership agreement.
If for any quarter we
have distributed available cash from operating surplus to the unitholders in an amount equal to the minimum quarterly distribution, then we will distribute any additional available cash from operating surplus for that quarter among the unitholders
and our general partner in the following manner:
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First,
to all unitholders and our general partner, in accordance with their percentage interests, until each unitholder receives a total of $0.0833 per unit for that quarter (the first target
distribution);
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Second
, (i) to our general partner in accordance with its percentage interest, (ii) 13% to the holders of the incentive distribution rights, pro rata, and (iii) to all unitholders, pro rata, a
percentage equal to 100% less the percentages applicable to our general partner and the holders of the incentive distribution rights, until each unitholder receives a total of $0.0958 per unit for that quarter (the second target
distribution);
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Third
, (i) to our general partner in accordance with its percentage interest, (ii) 35% to the holders of the incentive distribution rights, pro rata, and (iii) to all unitholders, pro rata, a
percentage equal to 100% less the percentages applicable to our general partner and the holders of the incentive distribution rights, until each unitholder receives a total of $0.2638 per unit for that quarter (the third target
distribution); and
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Thereafter
, (i) to our general partner in accordance with its percentage interest, (ii) 48% to the holders of the incentive distribution rights, pro rata, and (iii) to all unitholders, pro rata, a
percentage equal to 100% less the percentages applicable to our general partner and the holders of the incentive distribution rights.
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Percentage Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of the
additional available cash from operating surplus between the unitholders and our general partner up to the various target distribution levels, assuming our general partner continues to hold all of our incentive distribution rights and its current
approximately 1.7% general partner interest in us.
The amounts set forth under Marginal Percentage Interest in Distributions
are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column Total Quarterly Distribution Target Amount,
until available cash from operating surplus we distribute reaches the next target distribution level, if any.
The percentage interests
shown for the unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.
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Total Quarterly
Distribution
Target Amount
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Marginal Percentage
Interest in Distributions
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Unitholders
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General
Partner
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Minimum Quarterly Distribution
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up to $0.075
above $0.075
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98.3
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%
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1.7
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%
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First Target Distribution
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up to $0.0833
above $0.0833
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98.3
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%
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1.7
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%
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Second Target Distribution
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up to $0.0958
above $0.0958
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85.3
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%
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14.7
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%(1)
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Third Target Distribution
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up to $0.2638
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63.3
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%
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36.7
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%(1)
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Thereafter
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above $0.2638
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50.3
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%
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49.7
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%(1)
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(1)
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Includes current approximately 1.7% general partner interest.
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Distributions
from Capital Surplus
We will make distributions of available cash from capital surplus, if any, in the following manner:
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First
, to all unitholders and our general partner, in accordance with their percentage interests, until a hypothetical holder of a common unit acquired in our initial public offering has received with respect to
such common unit, during the period since our initial public offering through such date, distributions of available cash that are deemed to be capital surplus in an aggregate amount 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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Our partnership agreement treats a distribution of capital surplus as the repayment of the
initial unit price from the initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the unrecovered initial unit price. Each time a
distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. Because distributions of
capital surplus will reduce the minimum quarterly distribution, after any of these distributions are made, it may be easier for our general partner to receive incentive distributions. However, any distribution of capital surplus before the
unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.
Once we distribute capital surplus on a unit in an amount equal to the initial unit price, we will reduce the minimum quarterly distribution
and the target distribution levels to zero. We will then make all future distributions from operating surplus, with 48% to the holders of the incentive distribution rights and the remainder to all unitholders and our general partner in accordance
with their percentage interests, pro rata.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
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the minimum quarterly distribution;
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target distribution levels; and
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the unrecovered initial unit price.
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For example, if a two-for-one split of the common units
should occur, the minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced to 50% of its initial level. We will not make any adjustment by reason of the issuance of additional units
for cash or property.
In addition, if legislation is enacted or if existing law is modified or interpreted in a manner that causes us to
become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, we will reduce the minimum quarterly distribution and the target distribution levels by multiplying the same by one minus
the sum of the highest marginal federal corporate income tax rate that could apply and any increase in the effective overall state and local income tax rates. For example, if we became subject to a maximum marginal federal and effective state and
local income tax rate of 38%, then the minimum quarterly distribution and the target distribution levels would each be reduced to 62% of their previous levels.
Distributions of Cash Upon Liquidation
General.
If we dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process
called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and our general partner, in accordance with their capital account balances, as adjusted
to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.
Manner of Adjustments for Gain.
The
manner of the adjustment for gain is set forth in our partnership agreement. After January 26, 2010 (the date of our Third Amended and Restated Agreement of Limited Partnership), we generally allocate any gain to the partners in the following
manner:
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First
, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to any such negative balances;
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Second
, to the unitholders and our general partner, in accordance with their percentage interests, until the capital account for each common unit is equal to the sum of:
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the unrecovered initial unit price; and
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the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs.
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Third
, to the unitholders and our general partner, in accordance with their percentage interests, until we allocate under this paragraph an amount per unit equal to:
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the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less
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the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit for each quarter of our existence that we distributed to the
unitholders and to our general partner in accordance with their percentage interests;
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Fourth
, 13% to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in accordance with their percentage interests, pro rata, until we allocate
under this paragraph an amount per unit equal to:
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the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less
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the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit for each quarter of our existence that we distributed 13% to the holders
of the incentive distribution rights, pro rata, and the remainder to our unitholders and to our general partner in accordance with their percentage interests, pro rata;
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Fifth
, 35% to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in accordance with their percentage interests, pro rata, until we allocate
under this paragraph an amount per unit equal to:
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the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less
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the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit for each quarter of our existence that we distributed 35% to the holders
of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in accordance with their percentage interests, pro rata; and
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Thereafter
, 48% to the holders of the incentive distribution rights, pro rata, and the remainder to the unitholders and our general partner in accordance with their percentage interests, pro rata.
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Adjustments to Capital Accounts upon the Issuance of Partnership Interests
We will make adjustments to capital accounts upon the issuance of additional partnership interests. In doing so, we will allocate any
unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to the unitholders and our general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive adjustments to
the capital accounts upon the issuance of additional partnership interests, we will allocate any later negative adjustments to the capital accounts resulting from the issuance of additional partnership interests or upon our liquidation in a manner
that results, to the extent possible, in our general partners capital account balances equaling the amount that they would have been if no earlier positive adjustments to the capital accounts had been made.
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DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
This description 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 Distributions;
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allocations of taxable income and other tax matters are described under Material U.S. Federal Income Tax Consequences; and
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a general description of our common units is contained under Description of the Common Units.
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The description of our partnership agreement contained herein does not purport to be complete and is qualified in its entirety by reference to
the complete text of our Third Amended and Restated Agreement of Limited Partnership, a copy of which is filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on January 28, 2010, as amended by Amendment No. 1 thereto,
a copy of which is filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on July 5, 2011, Amendment No. 2 thereto, a copy of which is filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on
November 28, 2011, Amendment No. 3 thereto, a copy of which is filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on June 17, 2014, and Amendment No. 4 thereto, a copy of which is filed as Exhibit 3.1 to
our Current Report on Form 8-K filed with the SEC on August 4, 2014, each of which is incorporated by reference into this prospectus. We urge you to read our partnership agreement, as our partnership agreement, and not this description, governs
our common units.
References in this Description of Our Partnership Agreement to we, us and
our mean Sunoco Logistics Partners L.P.
Organization and Duration
We were organized on October 15, 2001 and will continue in existence until we are dissolved pursuant to our partnership agreement and our
certificate of limited partnership is cancelled.
Purpose
Under our partnership agreement, the purpose and nature of the business to be conducted by us is to:
(a) serve as a partner of the Operating Partnership and, in connection therewith, to exercise all the rights and powers conferred upon us as a
partner of the Operating Partnership pursuant to the Operating Partnerships partnership agreement (the Operating Partnership Agreement) or otherwise;
(b) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that the Operating Partnership is permitted to engage in by the Operating Partnership Agreement or that its subsidiaries are permitted to engage in by their limited liability company or partnership
agreements and, in connection therewith, to exercise all of the rights and powers conferred upon us pursuant to the agreements relating to such business activity;
(c) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by our general partner and which lawfully may be conducted by a limited partnership organized pursuant to the Delaware Revised Uniform Limited Partnership Act (the Delaware
Act) and, in connection therewith, to exercise all of the rights and powers conferred upon us pursuant to the agreements relating to such business activity; provided, however, that our general partner determines, as of the date of the
acquisition or commencement of such activity, that such activity (i) generates qualifying income (as such term is defined pursuant to Section 7704 of the Internal Revenue Code of 1986, as amended (the Code)) or a
subsidiary or our activity that generates qualifying income or (ii) enhances the operations of an activity of the Operating Partnership; and
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(d) do anything necessary or appropriate to the foregoing, including the making of capital
contributions or loans to a member of the partnership group.
Under the Operating Partnership Agreement, the purpose and nature of the
business to be conducted by the Operating Partnership is to (a) acquire, manage, operate and sell the assets or properties now or hereafter acquired by the Operating Partnership, (b) engage directly in, or enter into or form any
corporation, partnership, joint venture, limited liability company or other arrangement to engage indirectly in, any business activity that the Operating Partnership is permitted to engage in, and, in connection therewith, to exercise all of the
rights and powers conferred upon the Operating Partnership pursuant to the agreements relating to such business activity, (c) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or
other arrangement to engage indirectly in, any business activity that is approved by the Operating Partnerships general partner and that lawfully may be conducted by a limited partnership organized pursuant to the Delaware Act and, in
connection therewith, to exercise all of the rights and powers conferred upon the Operating Partnership pursuant to the agreements relating to such business activity;
provided, however,
that the Operating Partnerships general partner
reasonably determines, as of the date of the acquisition or commencement of such activity, that such activity (i) generates qualifying income (as such term is defined pursuant to Section 7704 of the Code) or (ii) enhances
the operations of an activity of the Operating Partnership that generates qualifying income, and (d) do anything necessary or appropriate to the foregoing, including the making of capital contributions or loans to a member of the partnership
group, Sunoco Logistics Partners or any subsidiary of Sunoco Logistics Partners.
Our general partner has no duty or obligation to propose
or approve, and may decline to propose or approve, the conduct by us of any business free of any fiduciary duty or obligation whatsoever to us, any limited partner or assignee and, in declining to so propose or approve, is not required to act in
good faith or pursuant to any other standard imposed by our partnership agreement, any governing agreement of a member of the partnership group, any other agreement contemplated by our partnership agreement or under the Delaware Act or any other
law, rule or regulation.
Board of Directors
Our general partner manages our operations and activities on our behalf through its directors and officers. Our general partner is not elected
by our common unitholders and will not be subject to re-election in the future. Common unitholders will not be entitled to elect the directors of our general partner on an annual or other continuing basis. The board of directors of our general
partner is chosen by ETP and ETE Common Holdings, LLC, a Delaware limited liability company (ETE Common Holdings), its sole members, and only ETP and ETE Common Holdings have the right to remove directors.
Power of Attorney
Each limited partner, and each person who acquires a common 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 our general partner the
authority to amend, and to make consents and waivers under, our partnership agreement.
Capital Contributions
Except as described below under Limited Liability, the common units will be fully paid, and common unitholders will not be
required to make additional capital contributions to us.
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that it
otherwise acts in conformity with the provisions of our partnership agreement, the
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limited partners liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital such limited partner is obligated to contribute to us for its
common units plus such limited partners share of any undistributed profits and assets and any funds wrongfully distributed to it as described below. If it were determined, however, that the right, or exercise of the right, by our limited
partners as a group:
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to remove or replace our general partner;
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to approve certain amendments to our partnership agreement; or
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to take any other action under our partnership agreement;
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constituted participation in the
control of our business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of Delaware, to the same extent as our general partner. This liability would extend to
persons who transact business with us who reasonably believe that a limited partner is a general partner based on such limited partners conduct. Neither our partnership agreement nor the Delaware Act specifically provides for legal recourse
against our general partner if a limited partner were to lose limited liability through any fault of our general partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim
in Delaware case law.
Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution,
all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the limited partnership, would exceed the
fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors
is limited will 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 will be liable to the limited partnership for the amount of the distribution;
provided, however,
that such limited partner will have no liability for the
amount of the distribution after the expiration of three years from the date of the distribution. Under the Delaware Act, an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations of its assignor to
make contributions to the limited partnership, excluding any obligations of the assignor with respect to wrongful distributions, as described above, except the assignee is not obligated for liabilities unknown to it at the time it became a limited
partner and that could not be ascertained from the partnership agreement.
Our subsidiaries conduct business in multiple states.
Maintenance of our limited liability as a limited partner or member of our subsidiaries formed as limited partnerships or limited liability companies, respectively, may require compliance with legal requirements in the jurisdictions in which such
subsidiaries conduct business, including qualifying our subsidiaries to do business there. Limitations on the liability of a limited partner or member for the obligations of a limited partnership or limited liability company, respectively, have not
been clearly established in many jurisdictions. If it were determined that we were, by virtue of our limited partner interest or limited liability company interest in our subsidiaries or otherwise, conducting business in any state without compliance
with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by our limited partners as a group to remove or replace our general partner, to approve certain amendments to our partnership
agreement or to take other action under our partnership agreement constituted participation in the control of our business for purposes of the statutes of any relevant jurisdiction, then our limited partners could be held personally
liable for our obligations under the law of that jurisdiction to the same extent as our general partner under the circumstances. We will operate in a manner that our general partner considers reasonable and necessary or appropriate to preserve the
limited liability of the limited partners.
Issuance of Additional Partnership Securities; Preemptive Rights
Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities and options, rights, warrants and
appreciation rights relating to the partnership securities for any partnership
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purpose at any time and from time to time to such persons, for such consideration and on such terms and conditions as our general partner determines, all without the approval of any limited
partners.
It is possible that we will fund acquisitions through the issuance of additional common units or other equity securities.
Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available cash. In addition, the issuance of additional partnership interests may dilute
(i) the percentage interests of the then-existing holders of common units in our net assets and (ii) the voting rights of the then-existing holders of common units under our partnership agreement.
In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership securities that have
special voting rights to which the common units are not entitled.
Upon issuance of additional partnership securities, our general partner
will have the right to make additional capital contributions to the extent necessary to maintain its then-current general partner interest in us; provided, however, that the capital contributions of our general partner will be offset to the extent
contributions received by us in exchange for the issuance of additional partnership securities are used by us concurrently with such contributions to redeem or repurchase from any person outstanding partnership securities of the same class as the
partnership securities that were issued. Moreover, our general partner will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units or other partnership securities whenever, and on
the same terms that, we issue those securities to persons other than our general partner and its affiliates, to the extent necessary to maintain its percentage interest, including its interest represented by common units, that existed immediately
prior to each issuance.
The holders of our common units do not have preemptive rights to acquire additional common units or other
partnership securities.
Amendment of the Partnership Agreement
General
Amendments to our
partnership agreement may be proposed only by our general partner. Our general partner has no duty or obligation to propose any amendment to our partnership agreement and may decline to do so free of any fiduciary duty or obligation whatsoever to
us, any limited partner or assignee and, in declining to propose an amendment, is not required to act in good faith or pursuant to any other standard imposed by our partnership agreement, any governing agreement of a member of the partnership group,
any other agreement contemplated under our partnership agreement or under the Delaware Act or any other law, rule or regulation. A proposed amendment will be effective upon its approval by the holders of a majority of the outstanding common units (a
unit majority), unless a greater or different percentage is required under our partnership agreement or by Delaware law. Each proposed amendment that requires the approval of the holders of a specified percentage of outstanding units
will be set forth in a writing that contains the text of the proposed amendment. If such an amendment is proposed, our general partner will seek the written approval of the requisite percentage of outstanding units or call a meeting of the
unitholders to consider and vote on such proposed amendment. Our general partner will notify all record holders upon final adoption of any such proposed amendments.
Restrictions on Certain Amendments
Our partnership agreement provides that:
(1) no provision of our partnership agreement that establishes a percentage of outstanding units (including units deemed owned by our general
partner) required to take any action shall be amended, altered, changed, repealed or rescinded in any respect that would have the effect of reducing such voting percentage unless such amendment is approved by the written consent or the affirmative
vote of holders of outstanding units whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced;
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(2) no amendment to our partnership agreement may (a) enlarge the obligations of any limited
partner without its consent, unless such shall be deemed to have occurred as a result of an amendment approved pursuant to clause (3) below, (b) enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any
way the amounts distributable, reimbursable or otherwise payable to, our general partner or any of its affiliates without its consent, which consent may be given or withheld at its option, (c) change the provision of our partnership agreement
providing for our dissolution upon an election to dissolve our partnership by our general partner that is approved by a unit majority (the election to dissolve provision), or (d) change the term of our partnership or, except as set
forth in the election to dissolve provision, give any person the right to dissolve our partnership;
(3) except for mergers or
consolidations approved pursuant to the partnership agreement, and without limitation of our general partners authority to adopt amendments to our partnership agreement described below under No Unitholder Approval, any
amendment that would have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of partnership interests must be approved by the holders of not less than a majority of the
outstanding partnership interests of the class affected;
(4) except for amendments described below under No Unitholder
Approval and except in connection with unitholder approval of a merger or consolidation, no amendments shall become effective without the approval of the holders of at least 90% of the outstanding units voting as a single class unless we
obtain an opinion of counsel to the effect that such amendment will not affect the limited liability of any limited partner under applicable law; and
(5) except for amendments described below under No Unitholder Approval, the provisions set forth in clauses (1) through
(4) above may only be amended with the approval of the holders of at least 90% of the outstanding units.
No Unitholder Approval
Our general partner, without the approval of any limited partner, may amend any provision of our partnership agreement to reflect:
(1) a change in our name, the location of our principal place of business, our registered agent or our registered office;
(2) admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
(3) a change that our general partner determines to be necessary or appropriate to qualify or continue the qualification of our partnership as
a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that the members of the partnership group will not be treated as associations taxable as corporations or otherwise
taxed as entities for federal income tax purposes;
(4) a change that our general partner determines (a) does not adversely affect
the limited partners (including any particular class of partnership interests as compared to other classes of partnership interests) in any material respect, (b) to be necessary or appropriate to (i) satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute (including the Delaware Act) or (ii) facilitate the trading of our
units (including the division of any class or classes of outstanding units into different classes to facilitate uniformity of tax consequences within such classes of units) or comply with any rule, regulation, guideline or requirement of any
national securities exchange on which the units are or will be listed for trading, (c) to be necessary or appropriate in connection with action taken by our general partner pursuant to the provisions of our partnership agreement governing
distributions, subdivisions and combinations of partnership securities or (d) is required to effect the intent of the provisions of our partnership agreement or is otherwise contemplated by our partnership agreement;
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(5) a change in our fiscal year or taxable year and any other changes that our general partner
determines to be necessary or appropriate as a result of a change in our fiscal year or taxable year, including, if our general partner shall so determine, a change in the definition of Quarter under our partnership agreement and the
dates on which distributions are to be made by us;
(6) an amendment that is necessary, in the opinion of counsel, to prevent us, or our
general partner or its directors, officers, trustees or agents from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or plan asset
regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor;
(7) subject to certain limitations, an amendment that our general partner determines to be necessary or appropriate in connection with the
authorization of issuance of any class or series of partnership securities pursuant to our partnership agreement;
(8) any amendment
expressly permitted in our partnership agreement to be made by our general partner acting alone;
(9) an amendment effected, necessitated
or contemplated by a merger agreement approved in accordance with the provisions of our partnership agreement;
(10) an amendment that our
general partner determines to be necessary or appropriate to reflect and account for the formation by us of, or investment by us in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the
conduct by us of activities permitted by the terms of our partnership agreement;
(11) a merger or conveyance pursuant to which
(a) our general partner has received an opinion of counsel that the conversion, merger or conveyance, as the case may be, would not result in the loss of the limited liability of any limited partner or any member of the partnership group or
cause us or any member of the partnership group to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not previously treated as such), (b) the sole purpose
of such conversion, merger or conveyance is to effect a mere change in the legal form of us into another limited liability entity and (c) the governing instruments of the new entity provide the limited partners and our general partner with the
same rights and obligations as are contained in our partnership agreement; or
(12) any other amendments substantially similar to the
foregoing.
Action Relating to the Operating Partnership Agreement
Without the approval of holders of a unit majority, our general partner may not, on our behalf as a limited partner of the Operating
Partnership, consent to any amendment to the Operating Partnership Agreement or, except as expressly permitted by our partnership agreement, take any action permitted to be taken by a partner of the Operating Partnership, in either case, that would
adversely affect our limited partners (including any particular class of partnership interests as compared to any other class of partnership interests) in any material respect.
Merger, Sale or Other Disposition of Assets
Our partnership agreement generally prohibits our general partner, without the prior approval of a unit majority, from causing us to, among
other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, including by way of merger, consolidation or other combination, or approving on our behalf the
sale, exchange or other disposition of all or substantially all of the assets of the Operating Partnership. The general partner may, however, mortgage, pledge, hypothecate or
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grant a security interest in all or substantially all of our assets or the Operating Partnerships assets without the approval of a unit majority. The general partner may also sell all or
substantially all of our assets or the Operating Partnerships assets under a foreclosure or other realization upon those encumbrances without the approval of a unit majority.
If certain conditions specified in our partnership agreement are satisfied and without the prior approval of our limited partners, our general
partner may convert us or any of our subsidiaries into a limited liability entity, merge us or any of our subsidiaries into, or convey some or all of our assets to, a newly formed entity if the sole purpose of that merger or conveyance is to change
our legal form into another limited liability entity.
Our unitholders are not entitled to dissenters rights of appraisal under the
partnership agreement or applicable Delaware law in the event of a merger or consolidation, a sale of substantially all of our assets, or any other transaction or event.
Reimbursement of Our General Partner
Our general partner is not compensated for its services as a general partner or managing member of any member of the partnership group. Our
general partner is reimbursed on a monthly basis, or such other basis as our general partner may determine, for (i) all direct and indirect expenses it incurs or payments it makes on our behalf (including salary, bonus, incentive compensation
and other amounts paid to any person including affiliates of our general partner to perform services for us or for our general partner in the discharge of its duties to us), and (ii) all other expenses allocable to us or otherwise incurred by
our general partner in connection with operating our business (including expenses allocated to our general partner by its affiliates). Our general partner determines the expenses that are allocable to us.
Withdrawal or Removal of Our General Partner
Our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days notice to our
unitholders, and that withdrawal will not constitute a breach of our partnership agreement. In addition, our partnership agreement permits our general partner in some instances to sell or otherwise transfer all of its general partner interest in us
without the approval of the unitholders.
If our general partner gives a notice of withdrawal, the holders of a unit majority, may, prior
to the effective date of such withdrawal, elect a successor general partner. The person so elected as successor general partner will automatically become the successor general partner or managing member, to the extent applicable, of the other
members of the partnership group of which our general partner is a general partner or a managing member. If, prior to the effective date of our general partners withdrawal, a successor is not selected by our unitholders or we do not receive a
withdrawal opinion of counsel regarding limited liability and tax matters, our partnership will be dissolved in accordance with our partnership agreement.
Our general partner may be removed if such removal is approved by our unitholders holding at least
66
2
⁄
3
% of the outstanding units (including units held by our general partner and its affiliates). The right of the holders of outstanding units to remove our
general partner may not be exercised unless we have received a withdrawal opinion of counsel regarding limited liability and tax matters. The ownership of more than 33
1
⁄
3
% of our outstanding units by our general partner and its affiliates would give it the practical ability to prevent its removal.
We will be required to reimburse the departing general partner for all amounts due the departing general partner, including, without
limitation, all employee-related liabilities, including severance liabilities, incurred in connection with the termination of any employees employed by the departing general partner or its affiliates for the benefit of us or the other members of the
partnership group.
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Dissolution and Liquidation
We will continue as a limited partnership until dissolved under our partnership agreement. We will dissolve upon:
(1) the withdrawal, removal, bankruptcy or dissolution of our general partner, unless a successor general partner is elected prior to or on the
effective date of such withdrawal, removal, bankruptcy or dissolution and a withdrawal opinion of counsel is received by us;
(2) an
election to dissolve us by our general partner that is approved by the holders of a unit majority;
(3) the entry of a decree of judicial
dissolution of us pursuant to the provisions of the Delaware Act; or
(4) the sale, exchange or other disposition of all or substantially
all of the assets and properties of the partnership group.
Upon (a) our dissolution following the withdrawal or removal of our
general partner and the failure of the partners to select a successor general partner, then within 90 days thereafter, or (b) our dissolution upon the bankruptcy or dissolution of our general partner, then, to the maximum extent permitted by
law, within 180 days thereafter, the holders of a unit majority may elect to reconstitute us and continue our business on the same terms and conditions set forth in our partnership agreement by forming a new limited partnership on terms identical to
those set forth in our partnership agreement and having as the successor general partner a person approved by the holders of a unit majority. Unless such an election is made within the applicable time period as set forth above, we shall conduct only
activities necessary to wind up our affairs.
Transfer of the General Partners General Partner Interest
Our general partner may transfer all or any of its general partner interest without unitholder approval. As a condition to such transfer,
(i) the transferee must agree to assume the rights and duties of the general partner under our partnership agreement and to be bound by the provisions of our partnership agreement, (ii) we must receive an opinion of counsel that such
transfer would not result in the loss of limited liability of any limited partner or of any limited partner of the Operating Partnership or cause us or the Operating Partnership to be treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes (to the extent not already so treated or taxed) and (iii) such transferee must also agree to purchase all (or the appropriate portion thereof, if applicable) of the partnership or
membership interest of our general partner as the general partner or managing member, if any, of each other member of the partnership group.
Transfer of Ownership Interests in Our General Partner
At any time, the members of our general partner may sell or transfer all or
part of their membership interests in our general partner to an affiliate or a third party without the approval of our unitholders.
Transfer of Incentive Distribution Rights
Our general partner or any other holder of our incentive distribution rights may
transfer any or all of its incentive distribution rights without unitholder approval. As a condition to such transfer, the transferee must agree to be bound by the provisions of our partnership agreement.
Change of Management Provisions
Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove Sunoco
Partners LLC as our general partner or otherwise change management. If at any time any person or group (other than our general partner or its affiliates) beneficially owns 20% or more of any outstanding partnership securities of any class then
outstanding, all partnership securities owned by such
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person or group shall not be voted on any matter and shall not be considered to be outstanding when sending notices of a meeting of limited partners to vote on any matter (unless otherwise
required by law), calculating required votes, determining the presence of a quorum or for other similar purposes under our partnership agreement. The foregoing limitation does not apply (i) to any person or group who acquired 20% or more of any
outstanding partnership securities of any class then outstanding directly from our general partner or its affiliates, (ii) to any person or group who acquired 20% or more of any outstanding partnership securities of any class then outstanding
directly or indirectly from a person or group described in clause (i) provided that our general partner has notified such person or group in writing that such limitation will not apply, or (iii) to any person or group who acquired 20% or
more of any partnership securities issued by us with the prior approval of the board of directors of our general partner.
Limited Call Right
If at any time our general partner and its affiliates hold more than 80% of the total limited partner interests of any class then outstanding,
our general partner will then have the right, which right it may assign and transfer in whole or in part to us or any affiliate of our general partner, exercisable at its option, to purchase all, but not less than all, of such limited partner
interests of such class then outstanding held by persons other than our general partner and its affiliates, at the greater of:
(1) the
current market price as of the date three days prior to the date that notice of the election to purchase is mailed; and
(2) the highest
price paid by our general partner or any of its affiliates for any such limited partner interest of such class purchased during the 90-day period preceding the date that notice of the election to purchase is mailed.
Meetings; Voting
Except as described above under Change of Management Provisions, unitholders or assignees who are record holders of units on
the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited. Units that are owned by an assignee who is a record holder, but who has not yet been
admitted as a limited partner, will be voted by the general partner at the written direction of the record holder.
Absent direction of
this kind, the units will not be voted, except that, in the case of units held by our general partner on behalf of non-citizen assignees, our general partner will distribute the votes on those common units in the same ratios as the votes of limited
partners on other units are cast.
Any action that is required or permitted to be taken by the unitholders may be taken either at a
meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting.
Meetings of the unitholders may be called by the general partner or by unitholders owning at least 20% of the outstanding units of the class
for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will
constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.
Each record holder of a unit has a vote according to its percentage interest in us, although additional limited partner interests having
special voting rights could be issued. Please read Issuance of Additional Partnership Securities; Preemptive Rights above. However, if at any time any person or group, other than the general partner and its affiliates, or a direct
or subsequently approved transferee of the general partner or its affiliates, acquires,
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in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on
any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. Please read Change of Management
Provisions above. Units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instructions of the beneficial owner unless the arrangement between the beneficial owner and its nominee
provides otherwise.
Any notice, demand, request, report or proxy material required or permitted to be given or made to record holders of
units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.
Holders of common units have
very limited voting rights and may vote on the following matters:
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a sale or exchange of all or substantially all of our assets;
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the election of a successor general partner in connection with the withdrawal or removal of our general partner;
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dissolution or reconstitution of our partnership;
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a merger of our partnership;
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issuance of limited partner interests in some circumstances; and
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some amendments to the partnership agreement, including any amendment that would cause us to be treated as an association taxable as a corporation.
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Removal of our general partner requires:
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a 66
2
⁄
3
% vote of all outstanding units; and
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the election of a successor general partner by the holders of a unit majority.
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Status as Limited Partner or Assignee
An assignee of a common unit, after executing and delivering a transfer application, but pending its admission as a substituted limited
partner, is entitled to an interest equivalent to that of a limited partner for the right to share in allocations and distributions from us, including liquidating distributions. Our general partner will vote and exercise other powers attributable to
any of our common units owned by an assignee that has not become a substituted limited partner at the written direction of the assignee. Please read Meetings; Voting. Transferees that do not execute and deliver a transfer
application will not be treated as assignees or as record holders of our common units and will not receive cash distributions, federal income tax allocations or reports furnished to holders of our common units. Please read Description of the
Common UnitsTransfer of Common Units.
Non-Citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or regulations that, in the reasonable determination of our general partner, create
a substantial risk of cancellation or forfeiture of any property that we have an interest in because of the nationality, citizenship or other related status of any limited partner or assignee, we may redeem the units held by the limited partner or
assignee at their current market price. In order to avoid any cancellation or forfeiture, our general partner may require each limited partner or assignee to furnish information about its nationality, citizenship or related status. If a limited
partner or assignee fails to furnish information about its nationality, citizenship or other related status within 30 days after a request for the information or our general partner determines after receipt of the information that the limited
partner or assignee is not an eligible
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citizen, the limited partner or assignee may be treated as a non-citizen assignee. In addition to other limitations on the rights of an assignee that is not a substituted limited partner, a
non-citizen assignee does not have the right to direct the voting of its units and may not receive distributions in kind upon our liquidation.
Books and Reports
Our general partner is required to keep appropriate books and records with respect to our business at our
principal offices. Our books are maintained, for both federal income tax and financial reporting purposes, on an accrual basis. For both federal income tax and financial reporting purposes, our fiscal year end is December 31.
We will furnish or make available to record holders of common units, no later than 120 days after the close of each fiscal year, an annual
report containing audited financial statements and a report on those financial statements by our independent registered public accounting firm. Except for the fourth quarter of each fiscal year, we will also furnish or make available unaudited
financial statements no later than 90 days after the close of each quarter.
We will furnish each record holder with information
reasonably required for tax reporting purposes within 90 days after the close of each calendar year.
Right to Inspect Our
Books and Records
Except as described below, each limited partner has the right, for a purpose reasonably related to such limited
partners interest as a limited partner in our partnership, upon reasonable written demand and at such limited partners own expense:
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to obtain true and full information regarding the status of our business and financial condition;
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promptly after becoming available, to obtain a copy of our federal, state and local income tax returns for each year;
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to have furnished to it a current list of the name and last known business, residence or mailing address of each partner;
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to have furnished to it a copy of our partnership agreement and our certificate of limited partnership and all amendments thereto, together with copies of all powers of attorney pursuant to which our partnership
agreement, our certificate of limited partnership and all amendments thereto have been executed;
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to obtain true and full information regarding the amount of cash and a description and statement of the net agreed value of any other capital contribution by each partner and that each partner has agreed to contribute
in the future, and the date on which each became a partner; and
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to obtain such other information regarding our affairs as is just and reasonable.
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The general
partner may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure of which the general partner believes in good faith is not in our best interests, could damage the partnership group or that
we are required by law or by agreements with third parties to keep confidential.
Registration Rights
Under the 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
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otherwise available. These registration rights continue for two years following any withdrawal or removal of Sunoco Partners LLC as our general partner. We are obligated to pay all expenses
incidental to such registration, excluding underwriting discounts and commissions.
Indemnification
Section 17-108 of the Delaware Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from
and against all claims and demands whatsoever. Under our partnership agreement, in most circumstances, we will indemnify the following persons (each an indemnitee) to the fullest extent permitted by law, from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an indemnitee:
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any departing general partner;
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any person who is or was an affiliate of our general partner or any departing general partner;
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any person who is or was a member, partner, officer, director, fiduciary or trustee of any member of the partnership group, our general partner or any departing partner or any affiliate of any member of the partnership
group, our general partner or any departing partner;
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any person who is or was serving at the request of our general partner or any departing partner or any affiliate of our general partner or any departing partner as an officer, director, member, partner, fiduciary or
trustee of another person (provided, that a person will not be an indemnitee by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial services); or
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any person that our general partner designates as an indemnitee for purposes of our partnership agreement.
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Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees in its sole discretion, our general
partner will not be personally liable for, or have any obligation to contribute or loan funds or assets to us to enable us to effectuate, such indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by
persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under the partnership agreement.
Under our partnership agreement, an indemnitee will not be indemnified and held harmless if there has been a final and non-appealable judgment
entered by a court of competent jurisdiction determining that, in respect of the matter for which the indemnitee is seeking indemnification pursuant to our partnership agreement, the indemnitee acted in bad faith or engaged in fraud, willful
misconduct or gross negligence or, in the case of a criminal matter, acted with knowledge that the indemnitees conduct was unlawful.
In the opinion of the SEC, indemnification provisions that purport to include indemnification for liabilities arising under the Securities Act
are contrary to public policy and are, therefore, unenforceable.
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DESCRIPTION OF THE DEBT SECURITIES
References in this Description of the Debt Securities to we, us and our mean Sunoco Logistics
Partners Operations L.P., and references to the Subsidiary Guarantors are to any of our subsidiaries that guarantee any of the debt securities. References in this prospectus to an Indenture refer to the particular indenture
under which we issue a series of debt securities.
The following description sets forth the general terms and provisions that apply to the
debt securities. Each prospectus supplement will state the particular terms that will apply to the debt securities included in the supplement.
We will issue our senior debt securities under an Indenture, among us, as issuer, Sunoco Logistics Partners, as Guarantor, our subsidiaries
party thereto, and U.S. Bank National Association, as successor trustee. The term Trustee as used in this prospectus refers to the trustee under a particular Indenture. The debt securities will be governed by the provisions of the
Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the Trust Indenture Act). We, the Trustee, the Guarantor and any Subsidiary Guarantors may enter into supplements to the Indenture from time
to time. The debt securities will be either senior debt securities or subordinated debt securities of Sunoco Logistics Partners Operations L.P. If we decide to issue subordinated debt securities, we will issue them under a separate Indenture
containing subordination provisions.
Neither Indenture contains provisions that would afford holders of debt securities protection in the
event of a sudden and significant decline in our credit quality or a takeover, recapitalization or highly leveraged or similar transaction. Accordingly, we could in the future enter into transactions that could increase the amount of indebtedness
outstanding at that time or otherwise adversely affect our capital structure or credit rating.
This description is a summary of the
material provisions of the debt securities and the Indentures. We urge you to read the senior Indenture and form of subordinated Indenture filed as exhibits to the registration statement of which this prospectus is a part because those Indentures,
and not this description, govern your rights as a holder of debt securities.
General
Any series of debt securities that we issue:
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will be our general obligations;
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will be guaranteed by Sunoco Logistics Partners and may be guaranteed by the Subsidiary Guarantors, and when so guaranteed, will be each guarantors general obligations; and
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may be subordinated to our Senior Indebtedness, and any guarantees of Sunoco Logistics Partners and the Subsidiary Guarantors will be subordinated to their Senior Indebtedness.
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The Indenture does not limit the total amount of debt securities that we may issue. We may issue debt securities under the Indenture from time
to time in separate series, up to the aggregate amount authorized for each such series.
Specific Terms of Each Series of
Debt Securities to be Described in the Prospectus Supplement
We will prepare a prospectus supplement and either a supplemental
indenture, or authorizing resolutions of our general partners board of directors, accompanied by an officers certificate, relating to any series of debt securities that we offer, which will include specific terms relating to some or all
of the following:
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the form and title of the debt securities;
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the total principal amount of the debt securities;
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the date or dates on which the debt securities may be issued;
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whether the debt securities are senior or subordinated debt securities;
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the currency or currencies in which principal and interest will be paid, if not in U.S. dollars;
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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 dates on which the principal and premium, if any, of the debt securities will be payable;
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the interest rate which 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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whether the debt securities are entitled to the benefits of any guarantees by the Subsidiary Guarantors;
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whether the debt securities may be issued in amounts other than $1,000 each or multiples thereof;
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any changes to or additional events of default or covenants;
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the subordination, if any, of the debt securities and any changes to the subordination provisions of the subordinated Indenture; and
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any other terms of the debt securities.
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This description of debt securities will be deemed
modified, amended or supplemented by any description of any series of debt securities set forth in a prospectus supplement related to that series.
The prospectus supplement also will describe any material United States federal income tax consequences or other special considerations
regarding the applicable series of debt securities, including those relating to:
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debt securities with respect to which payments of principal, premium or interest are determined with reference to an index or formula, including changes in prices of particular securities, currencies or commodities;
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debt securities with respect to which principal, premium or interest is payable in a foreign or composite currency;
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debt securities that are issued at a discount below their stated principal amount, bearing no interest or interest at a rate that at the time of issuance is below market rates; and
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variable rate debt securities that are exchangeable for fixed rate debt securities.
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At our
option, we may make interest payments by check mailed to the registered holders of any debt securities not in global form or, if so stated in the applicable prospectus supplement, at the option of a holder by wire transfer to an account designated
by the holder.
Unless otherwise provided in the applicable prospectus supplement, debt securities may be transferred or exchanged at the
office of the Trustee at which its corporate trust business is principally administered in the United States, subject to the limitations provided in the Indenture, without the payment of any service charge, other than any applicable tax or
governmental charge.
Any funds we pay to a paying agent for the payment of amounts due on any debt securities that remain unclaimed for
two years will be returned to us, and the holders of the debt securities must look only to us for payment after that time.
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The Parent Guarantee
Our payment obligations under any series of debt securities will be fully and unconditionally guaranteed by Sunoco Logistics Partners, which
will execute a notation of guarantee as further evidence of its guarantee. The applicable prospectus supplement will describe the terms of any guarantee by Sunoco Logistics Partners L.P.
Sunoco Logistics Partners guarantee of any series of the senior debt securities will be Sunoco Logistics Partners unsecured and
unsubordinated general obligation, and will rank on a parity with all of Sunoco Logistics Partners other unsecured and unsubordinated indebtedness. With respect to a series of subordinated debt securities, its guarantee will be subordinated to
the senior debt of Sunoco Logistics Partners to substantially the same extent as the series of subordinated debt securities is subordinated to our senior debt. Please read Subordination.
The Subsidiary Guarantees
Our payment obligations under any series of debt securities may be jointly and severally, fully and unconditionally guaranteed by one or more
Subsidiary Guarantors. If a series of debt securities are so guaranteed, the Subsidiary Guarantors will execute a notation of guarantee as further evidence of their guarantee. The applicable prospectus supplement will describe the terms of any
guarantee by the Subsidiary Guarantors. If a series of debt securities is guaranteed by the Subsidiary Guarantors and is designated as subordinate to our Senior Indebtedness, then the guarantees by the Subsidiary Guarantors will be subordinated to
the Senior Indebtedness of the Subsidiary Guarantors to substantially the same extent as the series is subordinated to our Senior Indebtedness. Please read Subordination.
Limitations on Guarantees; Releases
The obligations of each of the Guarantor and the Subsidiary Guarantors under its guarantee of the debt securities will be limited to the
maximum amount that will not result in its obligations under its guarantee constituting a fraudulent conveyance or fraudulent transfer under federal or state law, after giving effect to:
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all other contingent and fixed liabilities of the guarantor; and
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any collections from or payments made by or on behalf of any other guarantors in respect of its obligations under its guarantee.
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The guarantee of the Guarantor or any Subsidiary Guarantors may be released under certain circumstances. If we exercise our legal or covenant
defeasance option with respect to debt securities of a particular series as described below in Defeasance, then any Subsidiary Guarantor will be released with respect to that series. Further, if no default has occurred and is
continuing under the Indenture, and to the extent not otherwise prohibited by the Indenture, the Guarantor or a Subsidiary Guarantor will be unconditionally released and discharged from its guarantee:
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in the case of a Subsidiary Guarantor, automatically upon any sale, exchange or transfer, whether by way of merger or otherwise, to any person that is not our affiliate, of all of our direct or indirect limited
partnership or other equity interests in the Subsidiary Guarantor;
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in the case of a Subsidiary Guarantor, automatically upon the merger of the Subsidiary Guarantor into us, the Guarantor or any other Subsidiary Guarantor or the liquidation and dissolution of the Subsidiary Guarantor;
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in the case of the Guarantor, automatically upon the merger of the Guarantor into us or any Subsidiary Guarantor, or the liquidation or dissolution of the Guarantor; or
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in the case of the Guarantor or a Subsidiary Guarantor, following delivery of a written notice of the release by us to the Trustee, upon the release of all guarantees by the Guarantor or the Subsidiary Guarantor of any
debt of ours for borrowed money or for a guarantee thereof, except for any series of debt securities.
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Specific Covenants
The Indenture contains the following covenants for the benefit of the holders of all series of debt securities:
Reports
So long as any debt
securities are outstanding, Sunoco Logistics Partners will:
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for as long as it is required to file information with the SEC pursuant to the Exchange Act, file with the Trustee, within 15 days after it is required to file with the SEC, copies of the annual report and of the
information, documents and other reports which it is required to file with the SEC pursuant to the Exchange Act;
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if it is not required to file information with the SEC pursuant to the Exchange Act, file with the Trustee, within 15 days after it would have been required to file with the SEC, financial statements and a
Managements Discussion and Analysis of Financial Condition and Results of Operations, both comparable to what it would have been required to file with the SEC had it been subject to the reporting requirements of the Exchange Act; and
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if it is required to furnish annual or quarterly reports to its unitholders pursuant to the Exchange Act, file with the Trustee any annual report or other reports sent to unitholders generally.
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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 our partnership agreement, 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; and
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expressly assumes, by supplemental indenture in form satisfactory to the Trustee, all the obligations under the Indenture and the debt securities 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 would occur or be continuing;
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if we are not the surviving person, then each of the Guarantor and any Subsidiary Guarantor, unless it 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 debt securities and the Indenture; and
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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.
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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 and the debt securities.
A series of debt securities may contain additional financial and other covenants. The
applicable prospectus supplement will contain a description of any such covenants that are added to the Indenture specifically for the benefit of holders of a particular series.
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Events of Default, Remedies and Notice
Events of Default
Each of the
following events will be an Event of Default under the Indenture with respect to a series of debt securities:
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default in any payment of interest on any debt securities of that series when due that continues for 30 days;
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default in the payment of principal of or premium, if any, on any debt securities of that series when due at its stated maturity, upon redemption, by declaration, upon required repurchase or otherwise;
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default in the payment of any sinking fund payment on any debt securities of that series when due;
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failure by us or the Guarantor or, if the series of debt securities is guaranteed by any Subsidiary Guarantor, by such Subsidiary Guarantor to comply for 60 days after notice with the other agreements contained in the
Indenture, any supplement to the Indenture or any board resolution authorizing the issuance of that series;
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certain events of bankruptcy, insolvency or reorganization of us or the Guarantor or, if the series of debt securities is guaranteed by any Subsidiary Guarantor, of such Subsidiary Guarantor;
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the guarantee of the Guarantor or, if the series of debt securities is guaranteed by any Subsidiary Guarantor, any of the subsidiary guarantees:
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ceases to be in full force and effect, except as otherwise provided in the Indenture; or
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is declared null and void in a judicial proceeding; or
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the Guarantor or any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or its guarantee.
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Exercise of Remedies
If an Event
of Default, other than an Event of Default described in the fifth bullet point above, occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the outstanding debt securities of that series may declare the entire
principal of, premium, if any, and accrued and unpaid interest, if any, on all the debt securities of that series to be due and payable immediately.
A default under the fourth bullet point above will not constitute an Event of Default until the Trustee or the holders of 25% in principal
amount of the outstanding debt securities of that series notify us and the Guarantor and, if the series of debt securities is guaranteed by any Subsidiary Guarantor, any such Subsidiary Guarantor, of the default and such default is not cured or
waived within 60 days after receipt of notice.
If an Event of Default described in the fifth bullet point above occurs and is continuing,
the principal of, premium, if any, and accrued and unpaid interest on all outstanding debt securities of all series will become immediately due and payable without any declaration of acceleration or other act on the part of the Trustee or any
holders.
The holders of a majority in principal amount of the outstanding debt securities of a series may rescind any declaration of
acceleration by the Trustee or the holders with respect to the debt securities of that series, but only if:
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rescinding the declaration of acceleration would not conflict with any judgment or decree of a court of competent jurisdiction; and
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all existing Events of Default with respect to that series have been cured or waived, other than the nonpayment of principal, premium, if any, or interest on the debt securities of that series that has become due solely
by the declaration of acceleration.
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If an Event of Default occurs and is continuing, the Trustee will be under no obligation, except
as otherwise provided in the Indenture, to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any costs,
liability or expense. No holder may pursue any remedy with respect to the Indenture or the debt securities of any series, except to enforce the right to receive payment of principal, premium, if any, or interest when due on its debt securities,
unless:
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such holder has previously given the Trustee notice that an Event of Default with respect to that series is continuing;
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holders of at least 25% in principal amount of the outstanding debt securities of that series have requested that the Trustee pursue the remedy;
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such holders have offered the Trustee reasonable indemnity or security against any cost, liability or expense;
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the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of indemnity or security; and
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the holders of a majority in principal amount of the outstanding debt securities of that series have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such
60-day period.
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The holders of a majority in principal amount of the outstanding debt securities of a series have the right,
subject to certain restrictions, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any right or power conferred on the Trustee with respect to that series of debt securities.
The Trustee, however, may refuse to follow any direction that:
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the Trustee determines is unduly prejudicial to the rights of any other holder; or
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would involve the Trustee in personal liability.
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Notice of an Event of Default
Within 30 days after the occurrence of any Default (meaning an event that is, or after the notice or passage of time would be, an Event of
Default) or Event of Default, 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 are required to deliver to the
Trustee, within 120 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 occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder a notice of the Default by
the later of 90 days after the Default occurs or 30 days after the Trustee knows of the Default. Except in the case of a Default in the payment of principal, premium, if any, or interest with respect to any debt securities, the Trustee may withhold
such notice, but only if and so long as the board of directors, the executive committee or a committee of directors or responsible officers of the Trustee in good faith determines that withholding such notice is in the interests of the holders.
Amendments and Waivers
We may amend the Indenture without the consent of any holder of debt securities to:
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cure any ambiguity, omission, defect or inconsistency;
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provide for the assumption by a successor of our obligations under the Indenture;
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add any Subsidiary Guarantor with respect to the debt securities;
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change or eliminate any restriction on the payment of principal of, or premium, if any, on any debt securities;
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add covenants for the benefit of the holders or surrender any right or power conferred upon us, the Guarantor or any Subsidiary Guarantor;
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make any change that does not adversely affect the rights of any holder;
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add or appoint a successor or separate Trustee;
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comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; or
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establish the form or terms of debt securities of any series to be issued under the Indenture.
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In addition, we may amend the Indenture if the holders of a majority in principal amount of all debt securities of each series that would be
affected then outstanding under the Indenture consent to it. We may not, however, without the consent of each holder of outstanding debt securities of each series that would be affected, amend the Indenture to:
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reduce the percentage in principal amount of debt securities of any series whose holders must consent to an amendment;
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reduce the rate of or extend the time for payment of interest on any debt securities;
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reduce the principal of or extend the stated maturity of any debt securities;
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reduce the premium payable upon the redemption of any debt securities or change the time at which any debt securities may or shall be redeemed;
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make any debt securities payable in other than U.S. dollars;
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impair the right of any holder to receive payment of premium, if any, principal or interest with respect to such holders debt securities on or after the applicable due date;
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impair the right of any holder to institute suit for the enforcement of any payment with respect to such holders debt securities;
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release any security that has been granted in respect of the debt securities, other than in accordance with the Indenture;
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make any change in the amendment provisions that require each holders consent;
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make any change in the waiver provisions; or
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except as provided in the Indenture, release the Guarantor or any Subsidiary Guarantor, or modify the guarantee of the Guarantor or any Subsidiary Guarantor in any manner adverse to the holders.
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The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment. After an amendment under the Indenture requiring the consent of the holders becomes effective, we are required to mail to all holders of each series affected by it a notice briefly
describing the amendment. The failure to give, or any defect in, such notice, however, will not impair or affect the validity of the amendment.
The holders of a majority in aggregate principal amount of the outstanding debt securities of each affected series, on behalf of all such
holders, and subject to certain rights of the Trustee, may waive:
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compliance by us, the Guarantor or any Subsidiary Guarantor with certain restrictive provisions of the Indenture; and
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any past Default or Event of Default under the Indenture;
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except that such majority of holders may not waive a default:
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in the payment of principal, premium, if any, or interest; or
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in respect of a provision that under the Indenture cannot be amended without the consent of all holders of the series of debt securities that is affected.
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Defeasance
At
any time, we may terminate, with respect to debt securities of a particular series, all our obligations under such series of debt securities and the Indenture, which we call a legal defeasance. If we decide to make a legal defeasance,
however, we may not terminate certain specified obligations, including our obligations:
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relating to the defeasance trust;
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to register the transfer or exchange of the debt securities;
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to replace mutilated, destroyed, lost or stolen debt securities; or
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to maintain a registrar and paying agent in respect of the debt securities.
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If we exercise
our legal defeasance option, any guarantee will terminate with respect to that series of debt securities.
At any time we may also effect
a covenant defeasance, which means we have elected to terminate our obligations under:
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covenants applicable to a series of debt securities, including any covenant that is added specifically for such series and is described in a prospectus supplement;
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the bankruptcy provisions with respect to the Guarantor and any Subsidiary Guarantor; and
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the guarantee provision described under Events of Default, Remedies and NoticeEvents of Default above with respect to a series of debt securities, if applicable, and any Event of Default that is
added specifically for such series and described in a prospectus supplement.
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We may exercise our legal defeasance option
notwithstanding our prior exercise of our covenant defeasance option. If we exercise our legal defeasance option, payment of the affected series of debt securities may not be accelerated because of an Event of Default with respect to that series. If
we exercise our covenant defeasance option, payment of the defeased series of debt securities may not be accelerated because of an Event of Default specified in the fourth, fifth (with respect only to the Guarantor and any Subsidiary Guarantor) or
sixth bullet points under Events of Default, Remedies and NoticeEvents of Default above or an Event of Default that is added specifically for such series and described in a prospectus supplement.
In order to exercise either defeasance option, we must:
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irrevocably deposit in trust with the Trustee money or certain U.S. government obligations for the payment of principal, premium, if any, and interest on the series of debt securities to redemption or stated maturity,
as the case may be;
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comply with certain other conditions, including that no Default has occurred and is continuing after the deposit in trust; and
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deliver to the Trustee an opinion of counsel to the effect that holders of the series of debt securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. In the case of legal defeasance only, such opinion of counsel must be based on
a ruling of the Internal Revenue Service (the IRS) or other change in applicable federal income tax law.
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In addition, we may discharge all our obligations under the Indenture with respect to the debt
securities of a particular series, other than our obligation to register the transfer of and exchange debt securities of that series, provided that we either:
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deliver all outstanding debt securities of that series to the Trustee for cancellation; or
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all debt securities of that series 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 sufficient to pay the entire indebtedness of the debt securities of that series, including interest and premium, if any, to the
stated maturity or applicable redemption date.
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No Personal Liability of General Partner
Sunoco Logistics Partners GP LLC, our general partner, and its directors, officers, employees and members, as such, will not be liable for:
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any of our obligations or the obligations of the Guarantor or any Subsidiary Guarantors under the debt securities, the Indentures or the guarantees; or
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any claim based on, in respect of, or by reason of, such obligations or their creation.
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By
accepting a debt security, each holder will be deemed to have waived and released all such liability. This waiver and release are part of the consideration for our issuance of the debt securities. This waiver may not be effective, however, to waive
liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
Subordination
Debt securities of a series may be subordinated to our Senior Indebtedness, which we define generally to include any obligation
created or assumed by us for the repayment of borrowed money and any guarantee thereof, whether outstanding or hereafter issued, unless, by the terms of the instrument creating or evidencing such obligation, it is provided that such obligation is
subordinate or not superior in right of payment to the debt securities or to other obligations which are pari passu with or subordinated to the debt securities. Subordinated debt securities and the related guarantees will be subordinate in right of
payment, to the extent and in the manner set forth in the Indenture and the prospectus supplement relating to such series, to the prior payment of all of our indebtedness and that of the Guarantor and, if applicable, any Subsidiary Guarantor that is
designated as Senior Indebtedness with respect to the series.
The holders of Senior Indebtedness of ours or the Guarantor or,
if applicable, a Subsidiary Guarantor will receive payment in full of the Senior Indebtedness before holders of subordinated debt securities will receive any payment of principal, premium, if any, or interest with respect to the subordinated debt
securities upon any payment or distribution of our assets or the Guarantors or, if applicable to any series of outstanding debt securities, a Subsidiary Guarantors assets, to creditors:
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upon a liquidation or dissolution of us or the Guarantor or, if applicable to any series of outstanding debt securities, the Subsidiary Guarantors; or
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in a bankruptcy, receivership or similar proceeding relating to us or the Guarantor or, if applicable to any series of outstanding debt securities, to the Subsidiary Guarantors.
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Until the Senior Indebtedness is paid in full, any distribution to which holders of subordinated debt securities would otherwise be entitled
will be made to the holders of Senior Indebtedness, except that the holders of subordinated debt securities may receive units representing limited partner interests in us and any debt securities that are subordinated to Senior Indebtedness to at
least the same extent as the subordinated debt securities.
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If we do not pay any principal, premium, if any, or interest with respect to Senior Indebtedness
within any applicable grace period (including at maturity), or any other default on Senior Indebtedness occurs and the maturity of the Senior Indebtedness is accelerated in accordance with its terms, we may not:
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make any payments of principal, premium, if any, or interest with respect to subordinated debt securities;
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make any deposit for the purpose of defeasance or discharge of the subordinated debt securities; or
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repurchase, redeem or otherwise retire any subordinated debt securities, except that in the case of subordinated debt securities that provide for a mandatory sinking fund, we may deliver subordinated debt securities to
the Trustee in satisfaction of our sinking fund obligation,
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unless, in either case:
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the default has been cured or waived and any declaration of acceleration has been rescinded;
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the Senior Indebtedness has been paid in full in cash; or
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we and the Trustee receive written notice approving the payment from the representatives of each issue of Designated Senior Indebtedness.
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Generally, Designated Senior Indebtedness will include:
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any specified issue of Senior Indebtedness of at least $100 million; and
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any other Senior Indebtedness that we may designate in respect of any series of subordinated debt securities.
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During the continuance of any default, other than a default described in the immediately preceding paragraph, that may cause the maturity of
any Designated Senior Indebtedness to be accelerated immediately without further notice, other than any notice required to effect such acceleration, or the expiration of any applicable grace periods, we may not pay the subordinated debt securities
for a period called the Payment Blockage Period. A Payment Blockage Period will commence on the receipt by us and the Trustee of written notice of the default, called a Blockage Notice, from the representative of any
Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and will end 179 days thereafter.
The Payment
Blockage Period may be terminated before its expiration:
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by written notice from the person or persons who gave the Blockage Notice;
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by repayment in full in cash of the Designated Senior Indebtedness with respect to which the Blockage Notice was given; or
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if the default giving rise to the Payment Blockage Period is no longer continuing.
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Unless the
holders of the Designated Senior Indebtedness have accelerated the maturity of the Designated Senior Indebtedness, we may resume payments on the subordinated debt securities after the expiration of the Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any period of 360 consecutive days. The total number of days during which any one
or more Payment Blockage Periods are in effect, however, may not exceed an aggregate of 179 days during any period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the subordinated debt securities are paid in full, holders of the subordinated debt
securities shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness.
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As a result of the subordination provisions described above, in the event of insolvency, the
holders of Senior Indebtedness, as well as certain of our general creditors, may recover more, ratably, than the holders of the subordinated debt securities.
Book Entry, Delivery and Form
We may issue debt securities of a series in the form of one or more global certificates deposited with a depositary. We expect that The
Depository Trust Company, New York, New York (DTC) will act as depositary. If we issue debt securities of a series in book-entry form, we will issue one or more global certificates that will be deposited with or on behalf of DTC and will
not issue physical certificates to each holder. A global security may not be transferred unless it is exchanged in whole or in part for a certificated security, except that DTC, its nominees and their successors may transfer a global security as a
whole to one another.
DTC will keep a computerized record of its participants, such as a broker, whose clients have purchased the debt
securities. The participants will then keep records of their clients who purchased the debt securities. Beneficial interests in global securities will be shown on, and transfers of beneficial interests in global securities will be made only through,
records maintained by DTC and its participants.
DTC advises us that it is:
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a limited-purpose trust company organized under the New York Banking Law;
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a banking organization within the meaning of the New York Banking Law;
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a member of the United States Federal Reserve System;
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a clearing corporation within the meaning of the New York Uniform Commercial Code; and
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a clearing agency registered under the provisions of Section 17A of the Exchange Act.
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The rules that apply to DTC and its participants are on file with the SEC.
DTC holds securities that its participants deposit with DTC. DTC also records the settlement among participants of securities transactions,
such as transfers and pledges, in deposited securities through computerized records for participants accounts. This eliminates the need to exchange certificates. Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations.
We will wire principal, premium, if any, and interest payments due on the global
securities to DTCs nominee. We, the Trustee and any paying agent will treat DTCs nominee as the owner of the global securities for all purposes. Accordingly, we, the Trustee and any paying agent will have no direct responsibility or
liability to pay amounts due on the global securities to owners of beneficial interests in the global securities.
It is DTCs
current practice, upon receipt of any payment of principal, premium, if any, or interest, to credit participants accounts on the payment date according to their respective holdings of beneficial interests in the global securities as shown on
DTCs records. In addition, it is DTCs current practice to assign any consenting or voting rights to participants, whose accounts are credited with debt securities on a record date, by using an omnibus proxy.
Payments by participants to owners of beneficial interests in the global securities, as well as voting by participants, will be governed by
the customary practices between the participants and the owners of beneficial interests, as is the case with debt securities held for the account of customers registered in street name. Payments to holders of beneficial interests are the
responsibility of the participants and not of DTC, the Trustee or us.
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Beneficial interests in global securities will be exchangeable for certificated securities with
the same terms in authorized denominations only if:
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DTC notifies us that it is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under applicable law and 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 security and notify the Trustee of our decision.
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The Trustee
We may appoint a separate trustee for any series of debt securities. We use the term Trustee to refer to the trustee appointed with
respect to any such series of debt securities. We may maintain banking and other commercial relationships with the Trustee and its affiliates in the ordinary course of business, and the Trustee may own our debt securities.
Governing Law
The Indenture and the debt securities will be governed by, and construed in accordance with, the laws of the State of New York.
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CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
References in this Conflicts of Interest and Fiduciary Responsibilities to we, us and our mean
Sunoco Logistics Partners L.P.
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates,
including ETP and ETE Common Holdings, on the one hand, and our partnership and our limited partners, on the other hand. The directors and officers of our general partner have fiduciary duties to manage our general partner in a manner beneficial to
ETP. At the same time, our general partner has a fiduciary duty to manage our partnership in a manner beneficial to us and our unitholders.
Whenever a conflict arises between our general partner or its affiliates, on the one hand, and us or any other partner, on the other hand, our
general partner will resolve that conflict. Our partnership agreement contains provisions that modify and limit our general partners fiduciary duties to the unitholders. Our partnership agreement also restricts the remedies available to
unitholders for actions taken that, without those limitations, might constitute breaches of fiduciary duty.
Our general partner will not
be in breach of its obligations under our partnership agreement or its duties to us or our unitholders if the resolution of the conflict is:
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approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval;
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approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates;
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.
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As indicated above, our general partner may, but is not required to, seek the approval of such resolution from the conflicts committee of its
board of directors. If our general partner does not seek approval from the conflicts committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the
standards set forth in the third or fourth bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the
partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our general partner or the conflicts
committee may consider any factors it determines in good faith to consider when resolving a conflict. When our partnership agreement requires someone to act in good faith, it requires that person to reasonably believe that he is acting in the best
interests of the partnership, unless the context otherwise requires.
Conflicts of interest could arise in the situations described below,
among others.
Actions taken by our general partner may affect the amount of cash available for distribution to unitholders or to our general
partner in respect of the incentive distribution rights.
The amount of cash that is available for distribution to unitholders is
affected by decisions of our general partner regarding such matters as:
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amount and timing of asset purchases and sales;
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the issuance of additional units; and
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the creation, reduction or increase of cash reserves in any quarter.
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In addition, borrowings
by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders, including borrowings that have the purpose or effect of enabling our general partner to receive distributions on the incentive
distribution rights.
For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly
distribution on our common units, our partnership agreement permits us to borrow funds, which may enable us to make this distribution on all outstanding units. Please read Cash Distributions in this prospectus.
Our partnership agreement provides that we and our subsidiaries may borrow funds from our general partner and its affiliates. Our general
partner and its affiliates may not borrow funds from us, the Operating Partnership or its operating subsidiaries, other than as provided in the treasury services agreement between us and an affiliate of ETP, which is the controlling owner of our
general partner.
We do not have any officers or employees and rely solely on officers and employees of our general partner and its affiliates.
Affiliates of our general partner conduct businesses and activities of their own in which we have no economic interest. If these
separate activities are significantly greater than our activities, there could be material competition for the time and effort of certain of the officers and employees who provide services to our general partner. Generally, the officers of our
general partner spend substantially all of their time managing our business and affairs. However, certain of our general partners officers currently devote time to the affairs of affiliates of ETP, which is the controlling owner of our general
partner, and such officers are compensated by such ETP affiliates for the services rendered to them.
We will reimburse our general partner and its
affiliates for expenses.
We will reimburse our general partner and its affiliates for costs incurred in managing and operating us,
including costs incurred in rendering staff and support services to us. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith.
Our general partner intends to limit its liability regarding our obligations.
Our general partner intends to limit its liability under contractual arrangements so that the other party has recourse only to our assets, and
not against our general partner or its assets. Our partnership agreement provides that any action taken by our general partner to limit its liability or our liability is not a breach of our general partners fiduciary duties, even if we could
have obtained more favorable terms without the limitation on liability.
Common unitholders will have no right to enforce obligations of our general
partner and its affiliates under agreements with us.
Any agreements between us, on the one hand, and our general partner and its
affiliates, on the other, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.
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Contracts between us, on the one hand, and our general partner and its affiliates, on the other, may not be
the result of arms-length negotiations.
Our partnership agreement allows our general partner to determine, in good faith,
any amounts to pay itself or its affiliates for any services rendered to us. Our general partner may also enter into additional contractual arrangements with any of its affiliates on our behalf. Neither our partnership agreement nor any of the other
agreements, contracts and arrangements between us, on the one hand, and our general partner and its affiliates, on the other, are required to be the result of arms-length negotiations. Our general partner will determine, in good faith, the
terms of any of these transactions.
Our general partner and its affiliates will have no obligation to permit us to use any facilities or
assets of our general partner and its affiliates, except as may be provided in contracts entered into specifically dealing with that use. There will not be any obligation of our general partner and its affiliates to enter into any contracts of this
kind.
Common units are subject to our general partners limited call right.
If, at any time, our general partner and its affiliates own more than 80% of our common units then outstanding, our general partner has the
right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the remaining common units at a price not less than the then-current market price of the common units. Our general
partner may exercise this right at its option, free of any fiduciary duty or obligation to us or our unitholders. As a result, a unitholder may have its common units purchased from it at an undesirable time or price. For a description of this right,
please read Description of Our Partnership AgreementLimited Call Right.
We may choose not to retain separate counsel for
ourselves or for the holders of common units.
Attorneys, independent registered public accountants and others who will perform
services for us in the future will be selected by our general partner or the conflicts committee and may also perform services for our general partner and its affiliates. We may, but are not required to, retain separate counsel for ourselves or the
holders of common units in the event of a conflict of interest arising between our general partner and its affiliates, on the one hand, and us or the holders of common units, on the other, depending on the nature of the conflict. Such conflicts may
arise out of extraordinary transactions between us and ETP or its affiliates, such as transfers of material assets or mergers or material amendments to our agreements with ETP and its affiliates. We do not intend to retain separate counsel in most
cases.
Our general partners affiliates may compete with us.
Our partnership agreement provides that the general partner will be restricted from engaging in any business activities other than those
incidental to its ownership of interests in us and certain services the employees of our general partner provide to ETP and its affiliates. Except as provided in our partnership agreement and in our omnibus agreement with affiliates of ETP, neither
ETP nor its affiliates, other than our general partner, are prohibited from engaging in other businesses or activities, including those that might be in direct competition with us.
Conflicts of interest may arise between us and ETP, as the controlling owner of our general partner which, due to limited fiduciary responsibilities,
may permit ETP and its affiliates to favor their own interests to the detriment of our unitholders.
ETP is the controlling owner
of our current approximately 1.7% general partner interest and owns 26.5% of our limited partnership interests. Conflicts of interest may arise, from time to time, between ETP and its affiliates (including our general partner), on the one hand, and
us and our unitholders, on the other hand. As a result of
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these conflicts, our general partner may favor its own interests and the interests of its affiliates (including ETP) over the interests of our unitholders. These conflicts may include, among
others, the following situations:
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ETP and its affiliates may engage in competition with us. Neither our partnership agreement nor any other agreement requires ETP to pursue a business strategy that favors us or utilizes our assets, and our general
partner may consider the interests of parties other than us, such as ETP, in resolving conflicts of interest;
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under our partnership agreement, our general partners fiduciary duties are restricted, and our unitholders have only limited remedies available in the event of conduct constituting a potential breach of fiduciary
duty by our general partner;
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our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuance of additional partnership securities, and reserves, each of which can affect the amount of
cash available for distribution to our unitholders and the amount received by our general partner in respect of its incentive distribution rights;
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our general partner determines which costs incurred by ETP and its affiliates are reimbursable by us; and
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our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for services rendered, or from entering into additional contractual arrangements with any of these entities on
our behalf, so long as the terms of any additional contractual arrangements are fair and reasonable to us; and our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates.
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Fiduciary Responsibilities
Our general partner is accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our general partner are
prescribed by law and our partnership agreement. The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, restrict, eliminate or otherwise modify the fiduciary duties otherwise owed by a general partner to
limited partners and the partnership.
Our partnership agreement contains various provisions modifying and restricting the fiduciary
duties that might otherwise be owed by our general partner. These modifications, among other things, restrict the remedies available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as
described below. The following is a summary of the material restrictions of the fiduciary duties owed by our general partner to the limited partners:
State-law fiduciary duty standards
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Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a
general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general
partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
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Partnership agreement modified standards
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Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise
issues about compliance with fiduciary duties or applicable law. For example, our partnership agreement provides that
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when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in good faith and will not be subject to any other
standard under applicable law. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These
standards reduce the obligations to which our general partner would otherwise be held.
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Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of
directors of our general partner must be:
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).
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If our general partner does not seek approval from the conflicts committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of
the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the
person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.
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In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable
for monetary damages to us, our limited partners or assignees for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or
its officers and directors acted in bad faith or engaged in fraud, willful misconduct or gross negligence.
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Rights and remedies of unitholders under Delaware law
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The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party
where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of the
partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of
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himself and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners.
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In order to become one of our limited partners, a common unitholder is required to agree to be bound by the provisions in our partnership agreement, including the provisions discussed above. This is in accordance with
the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner or assignee to sign a partnership agreement does not render the partnership agreement
unenforceable against that person.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material U.S. federal income tax consequences that may be relevant to prospective common unitholders and is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the Code), existing and proposed Treasury regulations thereunder (the Treasury Regulations), and current administrative rulings and court decisions,
all of which are subject to change. Changes in these authorities may cause the federal income tax consequences to a prospective common unitholder to vary substantially from those described below. Unless the context otherwise requires, references in
this section to we or us are references to Sunoco Logistics Partners L.P. and Sunoco Logistics Partners Operations L.P., our operating partnership.
Legal conclusions contained in this section, unless otherwise noted, are the opinion of Vinson & Elkins L.L.P. and are
based on the accuracy of representations made by us to them for this purpose. However, this section does not address all federal income tax matters that affect us or our unitholders and does not describe the application of the alternative minimum
tax that may be applicable to certain unitholders. Furthermore, this section focuses on unitholders who are individual citizens or residents of the United States (for federal income tax purposes), who have the U.S. dollar as their functional
currency, who use the calendar year as their taxable year, and who hold units as capital assets (generally, property that is held for investment). This section has limited applicability to corporations, partnerships (including entities treated as
partnerships for federal income tax purposes), estates, trusts, non-resident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt institutions, non-U.S. persons, individual retirement accounts (IRAs),
employee benefit plans, real estate investment trusts or mutual funds.
Accordingly, we encourage each common unitholder to consult the unitholders own tax advisor in analyzing the federal, state, local and non-U.S. tax consequences
particular to that common unitholder resulting from ownership or disposition of units and potential changes in applicable tax laws
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We will rely on the opinions and advice of Vinson & Elkins L.L.P. with respect to the matters described herein. An opinion of counsel
represents only that counsels best legal judgment and does not bind the Internal Revenue Service (the IRS) or a court. Accordingly, the opinions and statements made herein may not be sustained by a court if contested by the IRS.
Any such contest of the matters described herein may materially and adversely impact the market for units and the prices at which our units trade. In addition, our costs of any contest with the IRS will be borne indirectly by our unitholders because
the costs will reduce our cash available for distribution. Furthermore, the tax consequences of an investment in us may be significantly modified by future legislative or administrative changes or court decisions, which may be retroactively applied.
For the reasons described below, Vinson & Elkins L.L.P. has not rendered an opinion with respect to the following federal income
tax issues: (1) the treatment of a unitholder whose units are the subject of a securities loan (e.g., a loan to a short seller to cover a short sale of units) (please read Tax Consequences of Unit OwnershipTreatment of
Securities Loans); (2) whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read Disposition of Common UnitsAllocations Between Transferors and
Transferees); and (3) whether our method for taking into account Section 743 adjustments is sustainable in certain cases (please read Tax Consequences of Unit OwnershipSection 754 Election and
Uniformity of Units).
Partnership Status
We expect to be treated as a partnership for federal income tax purposes and, therefore, generally will not be liable for entity-level federal
income taxes. Instead, as described below, each of our common unitholders will take into account its respective share of our items of income, gain, loss and deduction in computing its federal income tax liability as if the common unitholder had
earned such income directly, even if no cash distributions are made to the common unitholder. Distributions by us to a common unitholder generally will not give rise to income or gain taxable to such unitholder, unless the amount of cash distributed
to a common unitholder exceeds the unitholders adjusted tax basis in its units.
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Section 7704 of the Code generally provides that publicly traded partnerships will be
treated as corporations for federal income tax purposes. However, if 90% or more of a partnerships gross income for every taxable year it is publicly traded consists of qualifying income, the partnership may continue to be treated
as a partnership for federal income tax purposes (the Qualifying Income Exception). Qualifying income includes income and gains derived from the exploration, development, mining or production, processing, transportation, and marketing of
natural resources, including oil, 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 qualifying income. We estimate that approximately 2% of our current gross income is not qualifying income; however, this estimate could change from time to time.
Based upon factual representations made by us and our general partner regarding the composition of our income and the other representations
set forth below, Vinson & Elkins L.L.P. is of the opinion that we will be treated as a partnership and each of our non-corporate subsidiaries will be treated as a partnership or will be disregarded as an entity separate from us for federal
income tax purposes. In rendering its opinion, Vinson & Elkins L.L.P. has relied on factual representations made by us and our general partner. The representations made by us and our general partner upon which Vinson & Elkins
L.L.P. has relied include, without limitation:
(a) Neither we nor any of our partnership or limited liability company subsidiaries has
elected to be treated as a corporation for federal income tax purposes; and
(b) For each taxable year, more than 90% of our gross income
has been and will be income of a character that Vinson & Elkins L.L.P. has opined is qualifying income within the meaning of Section 7704(d) of the Code.
We believe that these representations are true and 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 common unitholders or pay other amounts), we will be treated as transferring 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 distributing that stock to our common unitholders in liquidation of their units. This
deemed contribution and liquidation generally will not result in the recognition of taxable income by our common unitholders or us so long as our liabilities do not exceed the tax basis of our assets. Thereafter, we would be treated as an
association taxable as a corporation for federal income tax purposes.
The present U.S. federal income tax treatment of publicly traded
partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, the Obama administrations budget proposal for fiscal
year 2016 recommends that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. From time to time, members of Congress propose and consider such substantive changes to
the existing federal income tax laws that affect publicly traded partnerships. If successful, the Obama administrations proposal or other similar proposals could eliminate the qualifying income exception to the treatment of all publicly-traded
partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible
for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such
changes could negatively impact the value of an investment in our common units.
If for any reason we are taxable as a corporation in any
taxable year, our items of income, gain, loss and deduction would be taken into account by us in determining the amount of our liability for federal income tax, rather than being passed through to our common unitholders. Our taxation as a
corporation would materially
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reduce the cash available for distribution to unitholders and thus would likely substantially reduce the value of our units. Any distribution made to a common unitholder at a time we are treated
as a corporation would be (i) a taxable dividend to the extent of our current or accumulated earnings and profits, then (ii) a nontaxable return of capital to the extent of the unitholders tax basis in its units, and thereafter
(iii) taxable capital gain.
The remainder of this discussion is based on the opinion of Vinson & Elkins L.L.P. that we will
be treated as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners of Sunoco Logistics Partners L.P. will be treated as partners of Sunoco Logistics Partners L.P.
for federal income tax purposes. Also, assignees who have executed and delivered transfer applications, and are awaiting admission as limited partners, and unitholders whose common units are held in street name or by a nominee and who have the right
to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units will be treated as partners of Sunoco Logistics Partners 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.
For a discussion related to the risks of losing partner status as a result of short sales, please read Tax Consequences of Unit
OwnershipTreatment of Securities Loans. Common unitholders who are not treated as partners in us as described above are urged to consult their own tax advisors with respect to the tax consequences applicable to them under the
circumstances.
Tax Consequences of Unit Ownership
Flow-Through of Taxable Income
. Subject to the discussion below under Entity-Level Collections of Unitholder Taxes
with respect to payments we may be required to make on behalf of our common unitholders, we will not pay any federal income tax. Rather, each common unitholder will be required to report on its income tax return its share of our income, gains,
losses and deductions for our taxable year or years ending with or within its taxable year without regard to whether we make cash distributions to such unitholder. Consequently, we may allocate income to a common unitholder even if that unitholder
has not received a cash distribution.
Treatment of Distributions
. Distributions made by us to a common unitholder generally will
not be taxable to the common unitholder, unless such distributions are of cash or marketable securities that are treated as cash and exceed the common unitholders tax basis in its units, in which case the common unitholder will recognize gain
taxable in the manner described below under Disposition of Common Units.
Any reduction in a common unitholders
share of our nonrecourse liabilities will be treated as a distribution by us of cash to that common unitholder. A decrease in a common unitholders percentage interest in us because of our issuance of additional units will decrease the common
unitholders share of our nonrecourse liabilities. For purposes of the foregoing, a common unitholders share of our nonrecourse liabilities generally will be based upon that common unitholders share of the unrealized appreciation
(or depreciation) in our assets, to the extent thereof, with any excess liabilities allocated based on the common unitholders share of our profits. Please read Disposition of Common Units.
A non-pro rata distribution of money or property (including a deemed distribution described above) may cause a common unitholder to recognize
ordinary income, if the distribution reduces the common unitholders share of our unrealized receivables, including recapture of intangible drilling costs, depreciation recapture and
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substantially appreciated inventory items, both as defined in Section 751 of the Code (Section 751 Assets). To the extent of such reduction, the common unitholder
would be deemed to receive its proportionate share of the Section 751 Assets and exchange such assets with us in return for an allocable portion of the non-pro rata distribution. This latter deemed exchange generally will result in the common
unitholders realization of ordinary income in an amount equal to the excess of (1) the non-pro rata portion of that distribution over (2) the common unitholders tax basis (generally zero) in the Section 751 Assets deemed
to be relinquished in the exchange.
Basis of Common Units
. A unitholders tax basis in its units initially will be the amount
it paid for those units plus its initial share of our liabilities. That basis generally will be (i) increased by the common unitholders share of our income and any increases in such unitholders share of our nonrecourse
liabilities (liabilities for which no partner, including our general partner, bears the economic risk of loss), and (ii) decreased, but not below zero, by distributions to it, by its share of our losses, any decreases in its share of our
nonrecourse liabilities and its share of our expenditures that are neither deductible nor required to be capitalized.
Limitations on
Deductibility of Losses
. A unitholder may not be entitled to deduct the full amount of loss we allocate to it because its share of our losses will be limited to the lesser of (i) the common unitholders tax basis in its units and
(ii) in the case of a common unitholder that is an individual, estate, trust or certain types of closely-held corporations, the amount for which the unitholder is considered to be at risk with respect to our activities. In general,
a common unitholder will be at risk to the extent of its tax basis in its units, reduced by (1) any portion of that basis attributable to the unitholders share of our liabilities, (2) any portion of that basis representing amounts
otherwise protected against loss because of a guarantee, stop loss agreement or similar arrangement and (3) any amount of money the unitholder borrows to acquire or hold its units, if the lender of those borrowed funds owns an interest in us,
is related to another unitholder or can look only to the units for repayment. A unitholder subject to the at risk limitation must recapture losses deducted in previous years to the extent that distributions (including distributions deemed to result
from a reduction in a unitholders share of nonrecourse liabilities) cause the unitholders 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 the basis or at risk limitations will carry forward and will be allowable as a
deduction in a later year to the extent that the unitholders tax basis or at risk amount, whichever is the limiting factor, is subsequently increased. Upon a taxable disposition of units, any gain recognized by a unitholder can be offset by
losses that were previously suspended by the at risk limitation but not losses suspended by the basis limitation. Any loss previously suspended by the at risk limitation in excess of that gain can no longer be used and will not be available to
offset a unitholders salary or active business income.
In addition to the basis and at risk limitations, passive activity loss
limitations generally limit the deductibility of losses incurred by individuals, estates, trusts, some closely held corporations and personal service corporations from passive activities (generally, trade or business activities in which
the taxpayer does not materially participate). 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 any dividend or interest income we derive or from our investments or investments in other publicly-traded partnerships or
salary or active business income. Passive losses that are not deductible because they exceed a unitholders share of income we generate may be deducted in full when the unitholder disposes of all of its units in a fully taxable transaction with
an unrelated party. The passive activity loss rules are applied after other applicable limitations on deductions, including the at risk and basis limitations.
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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(b)
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our interest expense attributed to portfolio income; and
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(c)
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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 (if applicable) 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 of Unitholder Taxes.
If we are required or elect under applicable law to pay any federal, state, local or
foreign income tax on behalf of any unitholder or our general partner or any former unitholder, we are authorized to pay those taxes from our funds. That payment, if made, will be treated as a distribution of cash to the unitholder on whose behalf
the payment was made. If the payment is made on behalf of a person whose identity cannot be determined, we are authorized to treat the payment as a distribution to all current unitholders. We are authorized to amend our partnership agreement in the
manner necessary to maintain uniformity of intrinsic tax characteristics of units and to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under
our partnership agreement is maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in
order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction.
In general, if we have a net profit, our items
of income, gain, loss and deduction will be allocated among our general partner and the unitholders in accordance with their percentage interests in us. At any time that 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 our general partner and the unitholders in accordance with their percentage interests in us to the extent of their positive
capital accounts and, second, to our general partner.
Specified items of our income, gain, loss and deduction will be allocated under
Section 704(c) of the Code to account for any difference between the tax basis and fair market value of our assets at the time such assets are contributed to us and at the time of any subsequent offering of our units (a Book-Tax
Disparity). In addition, items of recapture income will be specially allocated to the extent possible to the common unitholder who was allocated the deduction giving rise to that recapture income in order to minimize the recognition of
ordinary income by other unitholders.
An allocation of items of our income, gain, loss or deduction, generally must have
substantial economic effect as determined under Treasury Regulations. If an allocation does not have substantial economic effect, it will be reallocated to our common unitholders the basis of their interests 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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(b)
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the interests of all the partners in profits and losses;
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(c)
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the interest of all the partners in cash flow; and
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(d)
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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 UnitsAllocations Between Transferors and Transferees, allocations under our partnership agreement will have substantial economic effect.
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Treatment of Securities Loans.
A common unitholder whose units are loaned (for example, a
loan to short seller to cover a short sale of units) may be treated as having disposed of those units. If so, such common unitholder 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, (i) any of our income, gain, loss or deduction allocated to those units would not be reportable by the lending unitholder and (ii) any cash
distributions received by the common unitholder as to those units may be treated as ordinary taxable income.
Due to a lack of controlling
authority, Vinson & Elkins L.L.P. has not rendered an opinion regarding the tax treatment of a common unitholder that enters into a securities loan with respect to its units. Common unitholders desiring to assure their status as partners
and avoid the risk of income recognition from a loan of their units are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and lending their units. The IRS has announced that it is studying issues
relating to the tax treatment of short sales of partnership interests. Please read Disposition of Common UnitsRecognition of Gain or Loss.
Tax Rates.
Under current law, the highest marginal federal income tax rates for individuals applicable to ordinary income and long-term
capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year) are 39.6% and 20%, respectively. These rates are subject to change by new legislation at any time.
In addition, a 3.8% net investment income tax (NIIT) applies to certain net investment income earned by individuals, estates and
trusts. For these purposes, net investment income generally includes a common unitholders allocable share of our income and gain realized by a common unitholder from a sale of units. In the case of an individual, the tax will be imposed on the
lesser of (i) the common unitholders net investment income from all investments and (ii) the amount by which the common unitholders modified adjusted gross income exceeds $250,000 (if the unitholder is married and filing
jointly or a surviving spouse), $125,000 (if married filing separately) or $200,000 (if the unitholder is unmarried or in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed net
investment income and (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.
Section 754 Election
. We have made the election permitted by Section 754 of the Code that permits us to adjust the tax bases
in our assets as to specific purchased units under Section 743(b) of the Code to reflect the unit purchase price. The Section 743(b) adjustment separately applies to each purchaser of units based upon the values and bases of our assets at
the time of the relevant purchase. The Section 743(b) adjustment does not apply to a person who purchases units directly from us. For purposes of this discussion, a common unitholders basis in our assets will be considered to have two
components: (1) its share of the tax basis in our assets as to all common unitholders (common basis) and (2) its Section 743(b) adjustment to that tax basis (which may be positive or negative).
Under Treasury Regulations, a Section 743(b) adjustment attributable to property depreciable under Section 168 of the Code, such as
our storage assets, may be amortizable over the remaining cost recovery period for such property, while a Section 743(b) adjustment attributable to properties subject to depreciation under Section 167 of the Code, must be amortized
straight-line or using the 150% declining balance method. As a result, if we owned any assets subject to depreciation under Section 167 of the Code, the amortization rates could give rise to differences in the taxation of common unitholders
purchasing units from us and common unitholders purchasing from other unitholders.
Under our partnership agreement, we are authorized to
take a position to preserve the uniformity of units even if that position is not consistent with these or any other Treasury Regulations. Please read Disposition of Common UnitsUniformity of Units. Consistent with this
authority, we intend to treat properties depreciable under Section 167, if any, in the same manner as properties depreciable under Section 168 for this purpose. These
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positions are consistent with the methods employed by other publicly traded partnerships but are inconsistent with the existing Treasury Regulations, and Vinson & Elkins L.L.P. has not
opined on the validity of this approach.
The IRS may challenge our position with respect to depreciating or amortizing the
Section 743(b) adjustment we take to preserve the uniformity of units due to lack of controlling authority. Because a common unitholders tax basis for its units is reduced by its share of our items of deduction or loss, any position we
take that understates deductions will overstate a common unitholders basis in its units, and may cause the common unitholder to understate gain or overstate loss on any sale of such units. Please read Disposition of Common
UnitsRecognition of Gain or Loss. If a challenge to such treatment were sustained, the gain from the sale of units may be increased without the benefit of additional deductions.
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. The IRS could seek to reallocate some or all of any Section 743(b) adjustment we allocated to our assets subject to depreciation to goodwill or nondepreciable assets. 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 any common unitholder that the determinations we make will not be successfully challenged by the IRS or that the
resulting deductions will not be reduced or disallowed altogether. Should the IRS require a different tax 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 it 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 twelve months of our income, gain, loss and deduction. Please read Disposition of Common UnitsAllocations Between
Transferors and Transferees.
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 partners holding interests in us prior to this offering. Please read Tax Consequences of Unit OwnershipAllocation of Income, Gain, Loss and Deduction.
If we dispose of depreciable property by sale, foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount
of depreciation previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a common 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 its interest in us. Please read Tax Consequences of Unit OwnershipAllocation of Income, Gain,
Loss and Deduction and Disposition of Common UnitsRecognition of Gain or Loss.
The costs we incur in
offering and selling our units (called syndication expenses) must be capitalized and cannot be deducted currently, ratably or upon our termination. While there are uncertainties regarding the
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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 tax 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 deduction previously reported by common unitholders could change, and common unitholders could 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
. A common unitholder will be required to recognize gain or loss on a sale of units equal to the difference
between the common unitholders amount realized and tax basis for the units sold. A common unitholders amount realized will equal the sum of the cash or the fair market value of other property it receives plus its share of our liabilities
with respect to such units. Because the amount realized includes a common unitholders share of our liabilities, the gain recognized on the sale of units could result in a tax liability in excess of any cash received from the sale.
Except as noted below, gain or loss recognized by a common unitholder on the sale or exchange of a unit held for more than one year generally
will be taxable as long-term capital gain or loss. However, gain or loss recognized on the disposition of units will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to
Section 751 Assets, primarily depreciation recapture. Ordinary income attributable to Section 751 Assets may exceed net taxable gain realized on 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 common unitholder may recognize both ordinary income and a capital loss upon a sale of units. Net capital loss may offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year.
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 its entire interest in the partnership as the value of the interest sold bears to the value of the
partners entire interest in the partnership.
Treasury Regulations under Section 1223 of the Code allow a selling common
unitholder who can identify units transferred with an ascertainable holding period to elect to use the actual holding period of the units transferred. Thus, according to the ruling discussed above, a common unitholder will be unable to select high
or low basis units to sell as would be the case with corporate stock, but, according to the Treasury Regulations, it may designate specific units sold for purposes of determining the holding period of units transferred. A common unitholder electing
to use the actual holding period of units transferred must consistently use that identification method for all subsequent sales or exchanges of our units. A common unitholder considering the purchase of additional units or a sale of units purchased
in separate transactions is urged to consult its tax advisor as to the possible consequences of this ruling and application of the Treasury Regulations.
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Specific provisions of the 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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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 or loss will be determined annually, will be prorated
on a monthly basis and will be subsequently apportioned among the common unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month (the Allocation
Date). Nevertheless, we allocate certain deductions for depreciation of capital additions based upon the date the underlying property is placed in service, and gain or loss realized on a sale or other disposition of our assets or, in the
discretion of the general partner, any other extraordinary item of income, gain, loss or deduction will be allocated among the common unitholders on the Allocation Date in the month in which such income, gain, loss or deduction is recognized. As a
result, a common unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the 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 common unitholders. Nonetheless, the safe harbor in the proposed regulations differs slightly from the proration method we have
adopted because the safe harbor would allocate tax items among the months based upon the relative number of days in each month, and could require certain tax items which our general partner may not consider extraordinary to be allocated to the month
in which such items actually occur. Accordingly, Vinson & Elkins L.L.P. is unable to opine on the validity of this method of allocating income and deductions between transferee and transferor common unitholders. If this method is not
allowed under the Treasury Regulations, or only applies to transfers of less than all of the common unitholders interest, our taxable income or losses might be reallocated among the common unitholders. We are authorized to revise our method of
allocation between transferee and transferor common unitholders, as well as among common unitholders whose interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.
A common unitholder who disposes of units prior to the record date set for a cash distribution for that quarter will be allocated items of our
income, gain, loss and deduction attributable to the month of disposition but will not be entitled to receive a cash distribution for that period.
Notification Requirements
. A unitholder who sells or purchases any units is generally required to notify us in writing of that
transaction within 30 days after the transaction (or, if earlier, January 15 of the year following the transaction). 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 transfer of units may, in
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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
through a broker who will satisfy such requirements.
Constructive Termination
. We will be considered to have terminated our
partnership for federal income tax purposes upon the sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For such purposes, multiple sales of the same unit are counted only once. A
constructive termination results in the closing of our taxable year for all common unitholders. In the case of a common 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 such common unitholders 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 for one fiscal year and
the cost of the preparation of these returns will be borne by all common unitholders. However, pursuant to an IRS relief procedure the IRS may allow, among other things, a constructively terminated partnership to provide a single Schedule K-1 for
the calendar year in which a termination occurs. We would be required to make new tax elections after a termination, including a new election under Section 754 of the Code, and a termination would result in a deferral of our deductions for
depreciation. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the
termination.
Uniformity of Units
. Because we cannot match transferors and transferees of units and for other reasons, 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 could result from a literal application of Treasury Regulation Section 1.167(c)-1(a)(6), which is not anticipated to apply to a material portion of our assets. Any non-uniformity could have a negative impact on
the value of the units. Please read Tax Consequences of Unit OwnershipSection 754 Election.
If necessary to
preserve the uniformity of our units, our partnership agreement permits our general partner to take positions in filing our tax returns even when contrary to a literal application of regulations like the one described above. These positions may
include reducing for some common unitholders the depreciation, amortization or loss deductions to which they would otherwise be entitled or reporting a slower amortization of Section 743(b) adjustments for some common unitholders than that to
which they would otherwise be entitled. The general partner does not anticipate needing to take such positions, but if they were necessary, Vinson & Elkins L.L.P. would be unable to opine as to validity of such filing positions in the
absence of direct and controlling authority.
A common unitholders basis in units is reduced by its share of our deductions (whether
or not such deductions were claimed on an individual income tax return) so that any position that we take that understates deductions will overstate the common unitholders basis in its units, and may cause the common unitholder to understate
gain or overstate loss on any sale of such units. Please read Disposition of Common UnitsRecognition of Gain or Loss above and Tax Consequences of Unit OwnershipSection 754 Election above. The IRS may
challenge one or more of any positions we take to preserve the uniformity of units. If such a challenge were sustained, the uniformity of units might be affected, and, under some circumstances, the gain from the sale of units might be increased
without the benefit of additional deductions.
Tax-Exempt Organizations and Other Investors
Ownership of common units by employee benefit plans and other tax-exempt organizations as well as by non-resident alien individuals, non-U.S.
corporations and other non-U.S. persons (collectively, Non-U.S. Unitholders) raises issues unique to those investors and, as described below, may have substantially adverse tax
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consequences to them. Prospective unitholders that are tax-exempt entities or Non-U.S. Unitholders should consult their tax advisors before investing in our common units. Employee benefit plans
and most other tax-exempt organizations, including IRAs and other retirement plans, are subject to federal income tax on unrelated business taxable income. Virtually all of our income will be unrelated business taxable income and will be taxable to
a tax-exempt unitholder.
Non-U.S. Unitholders are taxed by the United States on income effectively connected with a U.S. trade or
business (effectively connected income) and on certain types of U.S.-source non-effectively connected income (such as dividends), unless exempted or further limited by an income tax treaty. Non-U.S. Unitholders will be considered to be
engaged in business in the United States because of their ownership of our units. Furthermore, it is probable that they will be deemed to conduct such activities through permanent establishments in the U.S. within the meaning of applicable tax
treaties. Consequently, 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 on their share of our net income or gain. Moreover, under rules applicable to publicly
traded partnerships, distributions to Non-U.S. Unitholders are subject to withholding at the highest applicable effective tax rate. 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.
In addition, because
a Non-U.S. Unitholder classified as a corporation will be treated as engaged in a United States trade or business, that corporation may be subject to the U.S. 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 to the extent reflected in the corporations effectively connected earnings and profits. 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 Code.
A Non-U.S. Unitholder who sells or otherwise disposes of a unit will be subject to federal income tax on
gain realized from the sale or disposition of that common unit to the extent the gain is effectively connected with a U.S. trade or business of the Non-U.S. Unitholder. Under a ruling published by the IRS interpreting the scope of effectively
connected income, gain recognized by a Non-U.S. Unitholder from the sale of its interest in a partnership that is engaged in a trade or business in the United States will be considered to be effectively connected with a U.S. trade
or business. Thus, part or all of a Non-U.S. Unitholders gain from the sale or other disposition of its units may be treated as effectively connected with a common unitholders indirect U.S. trade or business constituted by its investment
in us. Moreover, under the Foreign Investment in Real Property Tax Act, a Non-U.S. Unitholder generally will be subject to federal income tax upon the sale or disposition of a common unit if (i) it owned (directly or indirectly 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 our worldwide real property interests and our
other assets used or held for use in a trade or business consisted of U.S. real property interests (which include U.S. real estate, including land, improvements, and associated personal property, and interests in certain entities holding U.S. real
estate) at any time during the shorter of the period during which such unitholder held the units or the 5-year period ending on the date of disposition. More than 50% of our assets may consist of U.S. real property interests. Therefore, Non-U.S.
Unitholders may be subject to federal income tax on gain from the sale or disposition of their common units.
Administrative
Matters
Information Returns and Audit Procedures.
We intend to furnish to each common unitholder, within 90 days after the
close of each taxable year, specific tax information, including a Schedule K-1, which describes its 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 common unitholders share of income, gain, loss and deduction. We cannot assure our common unitholders that those positions
will yield a result that conforms to the requirements of the Code, Treasury Regulations or administrative interpretations of the IRS.
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The IRS may audit our federal income tax information returns. Neither we, nor Vinson &
Elkins L.L.P. can assure prospective common unitholders that the IRS will not successfully contend in court that those positions are impermissible, and such a contention could negatively affect the value of the units. Adjustments resulting from an
IRS audit may require each common unitholder to adjust a prior years tax liability, and possibly may result in an audit of its own return. Any audit of a common unitholders return could result in adjustments not related to our returns as
well as those related to its returns.
Publicly traded partnerships generally are treated as entities separate from their owners for
purposes of federal income 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 Code requires that one partner be designated as the Tax Matters Partner for these purposes, and our partnership agreement designates our general partner.
The Tax Matters Partner has made and will make elections on our behalf and on behalf of common unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of tax deficiencies against common unitholders for items in our returns. The Tax Matters Partner may bind a common unitholder with less than a 1% profits interest in us to a settlement
with the IRS unless that common 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 common 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 common unitholder having at least a 1% interest in profits or by any group of common unitholders having in the
aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each common unitholder with an interest in the outcome may participate in that action.
A common unitholder must file a statement with the IRS identifying the treatment of any item on its 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 common 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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(a)
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the name, address and taxpayer identification number of the beneficial owner and the nominee;
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(b)
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a statement regarding whether the beneficial owner is:
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2.
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a non-U.S. government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or
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(c)
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the amount and description of units held, acquired or transferred for the beneficial owner; and
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(d)
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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 dispositions.
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Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons
and specific information on units they acquire, hold or transfer for their own account. A penalty of $100 per failure, up to a maximum of $1.5 million per calendar year, is imposed by the 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.
Certain penalties may be imposed as a result 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. No penalty will be imposed, however,
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for any portion of an underpayment if it is shown that there was a reasonable cause for the underpayment of that portion and that the taxpayer acted in good faith regarding the underpayment of
that portion. We do not anticipate that any accuracy-related penalties will be assessed against us.
State, Local, Foreign
and Other Tax Considerations
In addition to federal income taxes, common unitholders will be subject to other taxes, including state
and local income taxes, unincorporated business taxes, and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which we conduct business or own property or in which the common unitholder is a resident. We
currently conduct business or own property in many states in the United States. Most of these states impose an income tax on individuals, corporations and other entities. As we make acquisitions or expand our business, we may own property or conduct
business in other states in additional states that impose a personal income tax. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider their potential impact on its investment in us.
A unitholder may be required to file income tax returns and pay income taxes in some or all of the jurisdictions in which we do business or
own property, though such unitholder may not be required to file a return and pay taxes in certain jurisdictions because its income from such jurisdictions falls below the jurisdictions filing and payment requirement. Further, a common
unitholder may be subject to penalties for a failure to comply with any filing or payment requirement applicable to such unitholder. Some of the jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be
distributed to a common unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular common unitholders income tax liability to the jurisdiction, generally does not relieve a
nonresident common unitholder from the obligation to file an income tax return.
It is the responsibility of each common unitholder
to investigate the legal and tax consequences, under the laws of pertinent states and localities, of its investment in us. Vinson & Elkins L.L.P. has not rendered an opinion on the state, local, or non-U.S. tax consequences of an investment
in us. We strongly recommend that each prospective common unitholder consult, and depend on, its own tax counsel or other advisor with regard to those matters. It is the responsibility of each common unitholder to file all tax returns that may be
required of the common unitholder.
Tax Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of the acquisition, ownership and disposition of any series of debt securities
that we may offer hereunder will be set forth in the prospectus supplement relating to the offering of such debt securities.
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SELLING UNITHOLDERS
We are registering for resale an indeterminate number of our common units held by certain of our unitholders to be named in a prospectus
supplement.
The prospectus supplement for any offering of our common units by a selling unitholder hereunder will include, among other
things, the following information:
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the name of the each selling unitholder;
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the nature of any position, office or other material relationship which each selling unitholder has had within the last three years with us or any of our affiliates;
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the number of common units held by each selling unitholder prior to the offering;
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the number of common units to be offered for each selling unitholders account; and
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the number and (if one percent or more) the percentage of common units held by each of the selling unitholders after the offering.
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INVESTMENT IN THE COMMON UNITS OR DEBT SECURITIES BY EMPLOYEE
BENEFIT PLANS
The following is a summary of certain considerations associated with an investment in the common units and/or debt
securities by an employee benefit plan that is subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), Section 4975 of the Code or provisions under any federal, state, local, non-U.S. or other
laws, rules or regulations that are similar to such provisions of the Code or ERISA, which we refer to collectively as Similar Laws. As used herein, the term employee benefit plan includes, but is not limited to, qualified
pension, profit-sharing and stock bonus plans, certain Keogh plans, certain simplified employee pension plans and tax deferred annuities or individual retirement accounts or other arrangements established or maintained by an employer or employee
organization, and entities whose underlying assets are considered to include plan assets by reason of a plans investment in such entities.
This summary is based on the provisions of ERISA and the Code (and related regulations and administrative and judicial interpretations) as of
the date of this prospectus. This summary does not purport to be complete and future legislation, court decisions, administrative regulations, rulings or administrative pronouncements could significantly modify the requirements summarized below. Any
of these changes may be retroactive and may thereby apply to transactions entered into prior to the date of their enactment or release.
General Fiduciary Matters
ERISA and the Code impose certain duties on persons who are fiduciaries of an employee benefit plan that
is subject to Title I of ERISA or Section 4975 of the Code, which we refer to as an ERISA Plan, and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested parties. Under ERISA and
the Code, any person who exercises any discretionary authority or control over the administration of an ERISA Plan or the management or disposition of the assets of an ERISA Plan, or who renders investment advice for a fee or other compensation to
an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering an investment in the common units or debt
securities with any portion of the assets of an employee benefit plan, a fiduciary of the employee benefit plan should consider, among other things, whether the investment is in accordance with the documents and instruments governing the employee
benefit plan and the applicable provisions of ERISA, the Code or any applicable Similar Law relating to the fiduciarys duties to the employee benefit plan, including, without limitation: (a) whether such investment is prudent under
Section 404(a)(1)(B) of ERISA and any other applicable Similar Laws; (b) whether in making such investment, such plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA and any other applicable Similar
Laws; (c) whether making such an investment will comply with the delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws; (d) whether the investment will constitute a
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (please read the discussion under Prohibited Transaction Issues below); (e) whether in making such an investment in the common
units, the employee benefit plan will be considered to hold, as plan assets, (i) only the investment in the common units or (ii) an undivided interest in our underlying assets (please read the discussion under Plan Asset
Issues below); and (f) whether such investment will result in recognition of unrelated business taxable income by the employee benefit plan and, if so, the potential after-tax investment return (please read the discussion under
Material U.S. Federal Income Tax ConsequencesTax-Exempt Organizations and Other Investors).
Prohibited
Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit employee benefit plans, and certain individual
retirement accounts that are not considered part of an employee benefit plan, from engaging in certain transactions involving plan assets with parties that are parties in interest under Section 406 ERISA or
disqualified persons under Section 4975 of the Code with respect to the plan or individual retirement account,
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unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities
under ERISA and the Code. In addition, a fiduciary of an ERISA Plan that engages in such a non-exempt prohibited transaction may be subject to excise taxes, penalties and liabilities under ERISA and the Code. Employee benefit plans that are
governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA or Section 4975(g)(3) of the Code) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) are not
subject to the requirements of ERISA or Section 4975 of the Code but may be subject to similar prohibitions under other applicable Similar Laws.
The acquisition and/or holding of debt securities by an ERISA Plan with respect to which we, a guarantor or any of the initial purchasers, or
certain of our or their affiliates, are considered a party in interest or a disqualified person, may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the
debt securities are acquired and held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor has issued prohibited transaction class exemptions, or
PTCEs, that may apply to provide exemptive relief for direct or indirect prohibited transactions resulting from the acquisition, holding and/or disposition (to the extent relevant) of the debt securities. These class exemptions include,
without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting transactions involving insurance company pooled separate accounts, PTCE 91-38 respecting transactions
involving bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers. In addition, Section 408(b)(17) of ERISA and
Section 4975(d)(20) of the Code each provide statutory exemptions for prohibited transactions between an ERISA Plan and a person or entity that is a party in interest to such ERISA Plan, provided that (i) neither the issuer of the
securities nor any of its affiliates (directly or indirectly) have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any ERISA Plan involved in the transaction, and (ii) the ERISA
Plan receives no less, and pays no more, than adequate consideration in connection with the transaction. Each of these statutory exemptions and PTCEs contain conditions and limitations on their application. Thus, the fiduciaries of an employee
benefit plan that is considering acquiring and/or holding the debt securities in reliance on any of these, or any other, PTCEs should carefully review the PTCE and consult with their counsel to confirm that it is applicable. There can be no, and we
do not provide any, assurance that any of these exemptions or any other exemption will be available with respect to the acquisition of the debt securities, or that all of the conditions of any such exemptions will be satisfied.
Because of the foregoing, the common units and/or the debt securities may not be purchased or held (or converted to equity securities, in the
case of any convertible debt) by any person investing plan assets of any employee benefit plan, unless such purchase and holding (or conversion, if any) will not constitute a non-exempt prohibited transaction under ERISA or the Code or
similar violation of any applicable Similar Laws.
Representation
Accordingly, by purchase or acceptance of the common units and/or the debt securities, or any interest therein, each purchaser and subsequent
transferee of the common units or debt securities will be deemed to have represented and warranted that either (i) no portion of the assets used by such purchaser or transferee to acquire and hold the common units or debt securities constitutes
assets of any employee benefit plan or (ii) the purchase and holding (and any conversion, if applicable) of the common units or debt securities by such purchaser or transferee will not constitute a non-exempt prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code or similar violation under any applicable Similar Laws.
Plan Asset
Issues
In addition to considering whether the purchase of the common units or the debt securities is a prohibited transaction, a
fiduciary of an employee benefit plan should consider whether such plan will, by investing in the
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common units or the debt securities, be deemed to own an undivided interest in our assets, with the result that our general partner also would be a fiduciary of such plan and our operations would
be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the Code and any other applicable Similar Laws. In addition, if our assets are deemed to be plan
assets under ERISA, this would result, among other things, in (a) the application of the prudence and other fiduciary responsibility standards of ERISA to investments made by us, and (b) the possibility that certain transaction in
which we seek to engage could constitute prohibited transaction under the Code, ERISA and any other applicable Similar Laws.
The Department of Labor regulations, as modified by Section 3(42) of ERISA, provide guidance with respect to whether the assets of an
entity in which employee benefit plans acquire equity interests would be deemed plan assets under certain circumstances. These regulations generally provide that when an ERISA Plan acquires an equity interest in certain entities, the
ERISA Plans assets are deemed to include both the equity interest and an undivided interest in each of the underlying assets of the entity (plan assets) unless an exception applies. An entitys underlying assets will not be
considered to be plan assets of an employee benefit plan which purchases an interest therein if, among other things:
(a) the
equity interests acquired by employee benefit plans are publicly offered securitiesi.e., the equity interests are part of a class of securities that is widely held by 100 or more investors independent of the issuer and each other,
are freely transferable (as defined in the Department of Labor regulations), and are either registered pursuant to certain provisions of the federal securities laws or sold to the plan as part of a public offering under certain
conditions;
(b) the entity is an operating companyi.e., it is primarily engaged in the production or sale of a product
or service, other than the investment of capital, either directly or through a majority-owned subsidiary or subsidiaries; or
(c) there is
no significant investment by benefit plan investors (as defined in Section 3(42) of ERISA), which is defined to mean that immediately after the most recent acquisition by a plan of any equity interest in the entity, less than 25% of the total
value of each class of equity interest, disregarding certain interests held by our general partner, its affiliates, and certain other persons who have discretionary authority or control with respect to the assets of the entity or provide investment
advice for a fee with respect to such assets) is held by the employee benefit plans that are subject to part 4 of Title I of ERISA (which excludes governmental plans and non-electing church plans) and/or Section 4975 of the Code, individual
retirement accounts and certain other employee benefit plans not subject to ERISA (such as electing church plans).
With respect to an
investment in the common units, we believe that our assets should not be considered plan assets under these regulations because it is expected that the investment will satisfy the requirements in (a) and (b) above and may also
satisfy the requirements in (c) above (although we do not monitor the level of investment by benefit plan investors as required for compliance with (c)). With respect to an investment in the debt securities, our assets should not be considered
plan assets under these regulations because such securities are not equity securities and, even if they are issued with a feature that allows their conversion into equity securities, it is expected that the securities into which they
will be convertible will satisfy the requirements in (a) above and may satisfy the requirements in (b) above.
The foregoing
discussion of issues arising for employee benefit plan investments under ERISA, the Code and applicable Similar Laws is general in nature and is not intended to be all inclusive, nor should it be construed as legal advice. Plan fiduciaries and other
persons contemplating a purchase of the common units and/or the debt securities should consult with their own counsel regarding the potential applicability of and consequences under ERISA, the Code and other Similar Laws in light of the complexity
of these rules and the serious penalties imposed on persons who engage in non-exempt prohibited transactions or other violations. Investors in the common units and the debt securities have exclusive responsibility for
65
ensuring that their purchase of the common units and/or the debt securities does not violate the fiduciary or prohibited transaction rules of ERISA or the Code or any similar provisions of
Similar Laws. The sale of any common units and/or debt securities by or to any employee benefit plan is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by such employee benefit plans generally or any particular employee benefit plan, or that such an investment is appropriate for such employee benefit plans generally or any particular employee benefit plan.
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PLAN OF DISTRIBUTION
We or selling unitholders will sell the securities being offered hereby through underwriters on a firm commitment basis.
The prospectus supplement with respect to any offering of securities will set forth the terms of the offering, including: (i) the name or
names of any underwriters; (ii) the purchase price of the securities and the proceeds to us and, if applicable, any selling unitholder from the sale; (iii) any underwriting discounts and commissions and other items constituting
underwriters compensation; and (iv) any delayed delivery arrangements.
We and, if applicable, the selling unitholders will
enter into an underwriting agreement with the underwriters at the time of sale to them. We will set forth the names of these underwriters and the terms of the transaction in the prospectus supplement, which will be used by the underwriters to make
resales of the securities in respect of which this prospectus is delivered to the public. We and, if applicable, the selling unitholders may indemnify the underwriters under the relevant underwriting agreement against specific liabilities, including
liabilities under the Securities Act. The underwriters may also be our customers or may engage in transactions with or perform services for us in the ordinary course of business.
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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., New York, NY.
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 consolidated statements of comprehensive income, equity, and cash flows of Sunoco Logistics Partners L.P. for the period from
October 5, 2012 to December 31, 2012 (successor) and the period from January 1, 2012 to October 4, 2012 (predecessor) appearing in Sunoco Logistics Partners L.P.s Annual Report (Form 10-K) for the year ended
December 31, 2014 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon included therein, and incorporated herein by reference. Such consolidated financial
statements are incorporated herein in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The audited consolidated financial statements and managements assessment of the effectiveness of internal control over financial
reporting incorporated by reference in this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the reports of Grant Thornton LLP, independent registered public accountants, upon the
authority of said firm as experts in accounting and auditing.
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Energy Transfer Partners, L.P.
54,000,000 Common Units
Representing Limited Partner Interests
Prospectus Supplement
August 14, 2017
Barclays
Morgan Stanley
UBS
Investment Bank
Wells Fargo Securities
Sunoco Logistics (NYSE:SXL)
過去 株価チャート
から 11 2024 まで 12 2024
Sunoco Logistics (NYSE:SXL)
過去 株価チャート
から 12 2023 まで 12 2024