As filed with the Securities and Exchange Commission on August 2, 2011
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHESAPEAKE MIDSTREAM PARTNERS, L.P.
CHKM FINANCE CORP.*
(Exact Name of Registrant as Specified in its
Charter)
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Delaware
Delaware
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80-0534394
45-1502258
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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900 NW 63
rd
Street
Oklahoma City, Oklahoma 73118
(405) 935-1500
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J. Mike Stice
900 NW 63
rd
Street
Oklahoma City, Oklahoma 73118
(405) 935-1500
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(Address, Including Zip Code, and Telephone Number, including Area Code, of Registrants Principal Executive Offices)
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(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
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Copy to:
Michael S. Telle
Bracewell & Giuliani LLP
711 Louisiana Street, Suite 2300
Houston, Texas 77002-2770
(713) 221-1327
(713) 221-2113 (fax)
Approximate
date of commencement of proposed sale to the public
: From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following
box.
¨
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.
x
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering.
¨
If this form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering.
¨
If this Form is a registration statement pursuant to
General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following
box.
¨
If this Form is a post-effective amendment to a registration
statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following
box.
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated
filer
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Non-accelerated filer
x
(Do not check if a smaller reporting company)
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Smaller reporting company
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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(2)(3)
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Amount of
Registration Fee
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Primary Offering(1)(2)
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Common units representing limited partner interests
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Debt Securities (3)
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Guarantees of Debt Securities by Certain Subsidiaries of Chesapeake Midstream Partners, L.P.
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(4)
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Total Primary Offering
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(1)
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(2)
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$750,000,000(5)
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$87,075(6)
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Secondary Offering
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Common units representing limited partner interests
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44,638,622(7)
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(8)
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$1,218,634,381(9)
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$141,484(10)
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Total (Primary and Secondary)
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$1,968,634,381
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$228,559
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(1)
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With respect to the primary offering, there are being registered hereunder a presently indeterminate number of common units representing limited partner interests in
Chesapeake Midstream Partners, L.P. and an indeterminate principal amount of debt securities, which may be offered and sold in such amount as shall result in an aggregate offering price not to exceed $750,000,000. This registration statement also
covers an indeterminate amount of securities as may be issued in exchange for, or upon conversion or exercise of, as the case may be, the securities registered hereunder.
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(2)
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With respect to the primary offering, the proposed maximum offering price per unit for each class of securities and the proposed maximum aggregate offering price for
each class of securities to be registered is not specified pursuant to General Instruction II.D. of Form S3.
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(3)
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If any debt securities are issued at an original issue discount, then the offering price of those debt securities shall be in an amount that will result in an aggregate
initial offering price not to exceed $750,000,000, less the dollar amount of any registered securities previously issued.
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(4)
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No separate consideration will be received for any guarantee of debt securities; accordingly, pursuant to Rule 457(n) under the Securities Act, no separate registration
fee is required.
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(5)
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Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act. With respect to the primary offering, in no
event will the aggregate initial offering price of all securities offered from time to time pursuant to this Registration Statement exceed $750,000,000. Any securities registered hereunder may be sold separately or together with other securities
registered hereunder.
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(6)
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Calculated in accordance with Rule 457(o) under the Securities Act.
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(7)
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Represents the resale of common units. Pursuant to Rule 416(a) under the Securities Act, the number of common units being registered on behalf of the selling
unitholders shall be adjusted to include any additional common units that may become issuable as a result of any unit distribution, split, combination or similar transaction.
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(8)
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With respect to the secondary offering, the proposed maximum offering price per common unit will be determined from time to time by the selling unitholders in
connection with, and at the time of, the sale by the selling unitholders of the common units registered hereunder.
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(9)
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Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act. The price is based on the average of the high and
low sale prices for our common units on August 1, 2011, as reported on the New York Stock Exchange.
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(10)
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Calculated in accordance with Rule 457(c) under the Securities Act.
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*
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The companies listed on the next page in the Table of Additional Registrant Guarantors are also included in this Registration Statement as additional Registrants.
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
The following are additional registrants that may guarantee the debt securities registered hereby:
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Exact Name of Registrant Guarantor
as Specified in its Charter(1)
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State or Other Jurisdiction of
Incorporation or Organization
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I.R.S. Employer
Identification Number
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Chesapeake MLP Operating, L.L.C.
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Delaware
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27-0870752
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Bluestem Gas Services, L.L.C.
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Oklahoma
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20-0174765
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Chesapeake Midstream Gas Services, L.L.C.
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Oklahoma
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26-2096775
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Oklahoma Midstream Gas Services, L.L.C.
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Oklahoma
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26-2572816
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Texas Midstream Gas Services, L.L.C.
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Oklahoma
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20-5093006
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Magnolia Midstream Gas Services, L.L.C.
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Oklahoma
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27-3973921
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Ponder Midstream Gas Services, L.L.C.
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Delaware
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27-0895708
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(1)
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The address, including zip code, and telephone number, including area code, of each of the additional registrant guarantors principal executive
offices is c/o Chesapeake Midstream Partners, L.P., 900 NW 63
rd
Street, Oklahoma City, Oklahoma 73118, (405) 935-1500. The primary standard industrial classification code number of each of the additional registrant guarantors is 4922. The name, address,
including zip code, and telephone number, including area code, of the agent for service for each of the additional registrant guarantors is J. Mike Stice, Chief Executive Officer, Chesapeake Midstream Partners, L.P., 900 NW 63
rd
Street, Oklahoma City, Oklahoma 73118, (405) 935-1500.
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The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 2, 2011
PROSPECTUS
Chesapeake Midstream Partners, L.P.
CHKM Finance Corp.
Common Units Representing Limited Partner Interests
Debt Securities
We may from time to time, in one or more offerings, offer and sell the common units representing limited partner interests in Chesapeake
Midstream Partners, L.P. and the debt securities described in this prospectus. CHKM Finance Corp. may act as co-issuer of the debt securities, and certain direct or indirect subsidiaries of Chesapeake Midstream Partners, L.P. may guarantee the debt
securities. We refer to the common units and the debt securities collectively as the securities. The aggregate initial offering price of all securities sold by us under this prospectus will not exceed $750,000,000.
In addition, the selling unitholders named in this prospectus may from time to time, in one or more offerings, offer and sell up to
44,638,622 common units. We will not receive any of the proceeds from any sale of our common units by the selling unitholders. For a more detailed description of the selling unitholders, please read Selling Unitholders.
We or the 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 the selling unitholders will offer the securities. The specific terms of any
securities we or the selling unitholders offer will be included in a supplement to this prospectus. The prospectus supplement will describe the specific manner in which we or the selling unitholders will offer the securities and also may add, update
or change information contained in this prospectus. The names of any underwriters and the specific terms of a plan of distribution will be stated in the prospectus supplement. Each selling unitholder, as an affiliate of Chesapeake Midstream
Partners, L.P., may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended, or the Securities Act, and, as a result, may be deemed to be offering securities, indirectly, on our behalf.
Our common units are traded on the New York Stock Exchange (NYSE) under the symbol CHKM. We will provide
information in the related prospectus supplement for the trading market, if any, for any debt securities that may be offered.
Investing in
our securities involves a high degree of risk. Limited partnerships are inherently different from corporations. You should carefully consider the risks relating to investing in our securities and each of the other risk factors described under
Risk
Factors
on page 3 of this prospectus before you make an investment in our securities.
Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is
, 2011
TABLE OF CONTENTS
In making your investment decision, you should rely only on the information contained or incorporated
by reference in this prospectus and in any prospectus supplement. We have not authorized any other person to provide you with any other information. If anyone provides you with different or inconsistent information, you should not rely on it.
You should not assume that the information contained in this prospectus or in any prospectus supplement 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 in this prospectus or in any prospectus supplement is accurate as of any date
other than the respective dates of those documents. Our business, financial condition, results of operations and prospects may have changed since those dates. We will disclose any material changes in our affairs in an amendment to this prospectus, a
prospectus supplement or a future filing with the Securities and Exchange Commission (the SEC) incorporated by reference in this prospectus.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the SEC using a shelf registration process. Under
this shelf registration process, we may over time, in one or more offerings, offer and sell any combination of the securities described in this prospectus, and selling unitholders may, over time, in one or more offerings, offer and sell common
units.
This prospectus provides you with a general description of Chesapeake Midstream Partners, L.P. and the securities that
are registered hereunder. Each time we sell any securities offered by this prospectus, we will provide a prospectus supplement that will contain specific information about the terms of that offering and the securities being offered. Because the
selling unitholders may be deemed to be underwriters under the Securities Act, each time any selling unitholder sells any common units offered by this prospectus, such selling unitholder is required to provide you with this prospectus
and the related prospectus supplement containing specific information about such selling unitholder and the terms of the common units being offered in the manner required by the Securities Act. Any prospectus supplement may also add to, update or
change information contained in this prospectus. To the extent information in this prospectus is inconsistent with the information contained in a prospectus supplement, you should rely on the information in the prospectus supplement.
Additional information, including our financial statements and the notes thereto, is incorporated in this prospectus by reference to our
reports filed with the SEC. Before you invest in our securities, you should carefully read this prospectus, including the Risk Factors, any prospectus supplement, the information incorporated by reference in this prospectus and any
prospectus supplement (including the documents described under the heading Where You Can Find More Information in both this prospectus and any prospectus supplement), and any additional information you may need to make your investment
decision.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports with the SEC (File No. 001-34831). Our SEC filings are available over the Internet at
the SECs web site at
http://www.sec.gov
. You may also read and copy any document we file at the SECs public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference room and its copy charges.
We incorporate by reference information into this prospectus,
which means that we disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus.
We incorporate by reference in this prospectus the documents listed below and any subsequent filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, (excluding information deemed to be furnished and not filed with the SEC) until all offerings under the registration statement of which this prospectus forms a part are
completed or terminated:
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Our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 11, 2011;
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Our Quarterly Report on Form 10-Q for the three months ended March 31, 2011, as filed with the SEC on May 13, 2011;
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Our Current Reports on Form 8-K as filed with the SEC on February 4, 2011, April 11, 2011, April 20, 2011, April 21,
2011, May 2, 2011, May 24, 2011, June 16, 2011 and August 1, 2011 (excluding any information furnished pursuant to Item 2.02 or Item 7.01 of any such Current Report on Form 8-K);
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Our Current Report on Form 8-K/A as filed with the SEC on February 11, 2011; and
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The description of our common units contained in our Registration Statement on Form 8-A as filed with the SEC on July 26, 2010 and any
subsequent amendment thereto filed for the purpose of updating such description.
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We are also incorporating
by reference all additional documents we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the date hereof and prior to the effectiveness of the registration statement of
which this prospectus forms a part.
You may request a copy of any document incorporated by reference in this prospectus and
any exhibit specifically incorporated by reference in those documents, at no cost, by writing or telephoning us at the following address or phone number:
Chesapeake Midstream Partners, L.P.
900 NW 63rd Street
Oklahoma City, Oklahoma 73118
Attention: David C. Shiels
Telephone: (405) 935-6224
We also make available free of charge on our internet website at
www.chkm.com
our annual reports on Form 10-K, our quarterly
reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not
incorporated by reference into this prospectus and you should not consider information contained on our website as part of this prospectus.
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FORWARD-LOOKING STATEMENTS
Certain statements and information in this prospectus may constitute forward-looking statements. The words believe,
expect, anticipate, plan, intend, foresee, should, would, could or other similar expressions are intended to identify forward-looking statements, which
are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking
statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our
forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could
cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but
are not limited to, those summarized below:
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our dependence on Chesapeake Energy Corporation (Chesapeake) and Total E&P USA, Inc. (Total) for a substantial majority of
our revenues;
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the impact on our growth strategy and ability to increase cash distributions if Chesapeake and Total do not increase the volume of natural gas they
provide to our gathering systems;
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realized oil and natural gas prices;
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the termination of our gas gathering agreements with Chesapeake or Total;
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our potential inability to maintain existing distribution amounts or pay the minimum quarterly distribution to our unitholders;
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the limitations that Chesapeakes and our own level of indebtedness may have on our financial flexibility;
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our ability to obtain new sources of natural gas, which is dependent on factors largely beyond our control;
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the availability of capital resources to fund capital expenditures and other contractual obligations, and our ability to access those resources through
the debt or equity capital markets;
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competitive conditions;
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the unavailability of third-party pipelines interconnected to our gathering systems or the potential that the volumes we gather do not meet the quality
requirement of such pipelines;
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new asset construction may not result in revenue increases and will be subject to regulatory, environmental, political, legal and economic risks;
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our exposure to direct commodity price risk may increase in the future;
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our ability to maintain and/or obtain rights to operate our assets on land owned by third parties;
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hazards and operational risks that may not be fully covered by insurance;
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our dependence on Chesapeake for substantially all of our compression capacity;
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our lack of industry and geographic diversification; and
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legislative or regulatory changes, including changes in environmental regulations, environmental risks, regulations by the Federal Energy Regulatory
Commission, or FERC, and liability under federal and state environmental laws and regulations.
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Other
factors that could cause our actual results to differ from our projected results are described under the caption Risk Factors and elsewhere in this prospectus and in our reports filed with the SEC and incorporated by reference in this
prospectus.
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Readers are cautioned not to place undue reliance on forward-looking statements, which speak
only as of the date originally made. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
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WHO WE ARE
Unless the context otherwise requires, references in this prospectus to the Partnership, we, our,
us or like terms, when used in a historical context, refer to the results of Chesapeake Midstream Partners, L.L.C. from its inception on September 30, 2009, through the closing date of our initial public offering (IPO)
on August 3, 2010, and to Chesapeake Midstream Partners, L.P. (NYSE: CHKM) and its subsidiaries thereafter. Predecessor refers to Chesapeake Midstream Development, L.P., which held substantially all of our assets as well as other
midstream assets prior to September 30, 2009. Finance Corp. refers to CHKM Finance Corp., an indirect wholly owned subsidiary of Chesapeake Midstream Partners, L.P. that may act as co-issuer of any debt securities offered by this
prospectus. Our general partner refers to Chesapeake Midstream GP, L.L.C. Chesapeake refers to Chesapeake Energy Corporation (NYSE:CHK) and GIP refers to Global Infrastructure Partners-A, L.P., and affiliated
funds managed by Global Infrastructure Management, L.L.C., and certain of their respective subsidiaries and affiliates. Chesapeake Midstream Ventures refers to Chesapeake Midstream Ventures, L.L.C., the sole member of our general
partner. Total, when discussing the upstream joint venture with Chesapeake, refers to Total E&P USA, Inc., a wholly owned subsidiary of Total S.A. (NYSE:TOT, FP:FP), and when discussing our gas gathering agreement to which it is a
party and related matters, refers to Total E&P USA, Inc. and Total Gas & Power North America, Inc., a wholly owned subsidiary of Total S.A.
General
We are a growth-oriented publicly traded Delaware limited
partnership formed by Chesapeake and GIP to own, operate, develop and acquire natural gas, natural gas liquids and oil gathering systems and other midstream energy assets. We are principally focused on natural gas and natural gas liquids gathering,
the first segment of midstream energy infrastructure that connects natural gas and natural gas liquids produced at the wellhead to third-party takeaway pipelines. The following diagram illustrates our area of focus in the natural gas, natural gas
liquids and oil value chain:
We provide gathering, treating and compression services to Chesapeake and Total, our primary
customers, and other third-party producers under long-term, fixed-fee contracts. Our gathering systems operate in our Barnett Shale region in north-central Texas, our Haynesville Shale region in northwest Louisiana and our Mid-Continent region,
which includes the Anadarko, Arkoma, Delaware and Permian Basins. We generate the majority of our operating income in our Barnett Shale region, where we service approximately 1,925 wells in the core of the prolific Barnett Shale. Our Springridge
gathering system services approximately 183 wells in one of the core areas of the Haynesville Shale. In our Mid-Continent region, we have an enhanced focus on the unconventional resources located in the Colony Granite Wash and Texas Panhandle
Granite Wash plays of the Anadarko Basin. In total, our systems consist of approximately 3,386 miles of gathering pipelines, servicing approximately 4,510 natural gas wells. For the quarter ended March 31, 2011, our assets gathered
approximately 2.0 billion cubic feet (bcf) of natural gas per day.
Our gas gathering systems primarily collect
natural gas from unconventional resource plays, a growing source of U.S. natural gas supply that is generally characterized by low finding and development costs compared to conventional resource plays. These systems were historically operated by
Chesapeake and are integral to Chesapeakes operations in our Barnett Shale, Haynesville Shale and Mid-Continent regions.
1
We generate substantially all of our revenues through long-term, fixed-fee natural gas
gathering, treating and compression contracts that limit our direct commodity price exposure. We have entered into 20-year natural gas gathering agreements with Chesapeake and Total, Chesapeakes upstream joint venture partner, in our Barnett
Shale region, and with Chesapeake in our Mid-Continent region. We have also entered into a 10-year natural gas gathering agreement with Chesapeake in our Haynesville Shale region. Pursuant to these gas gathering agreements, Chesapeake and Total have
agreed to provide us with extensive acreage dedications in our Barnett Shale region and, with respect to our agreements with Chesapeake, our Haynesville Shale and Mid-Continent regions. These agreements generally require us to connect Chesapeake-
and Total-operated natural gas drilling pads and wells within our acreage dedications to our gathering systems and contain the following terms:
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minimum volume commitments for 10 years in our Barnett Shale region and for three years in our Haynesville Shale region, which mitigate throughput
volume variability;
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fee redetermination mechanisms in our Barnett Shale, Haynesville Shale and Mid-Continent regions, which are designed to support a return on invested
capital and allow our gathering rates to be adjusted, subject to specified caps, to account for variability in revenues, capital expenditures and compression expenses; and
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price escalators in our Barnett Shale, Haynesville Shale and Mid-Continent regions, which annually increase our gathering rates.
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We believe that the combination of our fixed-fee business model and these contractual protections provide
us with long-term cash flow stability and a strong platform from which to grow our business.
Finance Corp. was incorporated
under the laws of the State of Delaware on April 4, 2011, is wholly owned by the Partnership, and has no material assets or any liabilities other than as a co-issuer of debt securities. Its activities are limited to co-issuing debt securities
and engaging in other activities incidental thereto.
Organizational History, Partnership Structure and Management
On August 3, 2010, we completed our initial public offering of 24,437,500 common units (including 3,187,500 common units issued
pursuant to the exercise of the underwriters over-allotment option on August 3, 2010) at a price of $21.00 per unit. Our common units are listed on the NYSE under the symbol CHKM.
Upon completion of the IPO, we had outstanding 69,076,122 common units, 69,076,122 subordinated units, a two percent general partner
interest and incentive distribution rights (IDRs). IDRs entitle the holder to specified increasing percentages of cash distributions as the Partnerships per-unit cash distributions increase above specified levels. At the close of
the IPO, common units held by the public represented 17.7 percent of all outstanding limited partner interests, and Chesapeake and GIP held 42.3 percent and 40.0 percent, respectively, of all outstanding limited partner interests. The limited
partners, collectively, hold a 98.0 percent limited partner interest in the Partnership and the general partner, which is owned and controlled by Chesapeake and GIP, holds a two percent general partner interest in the Partnership.
Our executive offices are located at 900 NW 63rd Street, Oklahoma City, Oklahoma 73118 and our telephone number at this address is
(405) 935-1500.
2
RISK FACTORS
Our business is subject to uncertainties and 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 and Quarterly Reports on Form 10-Q, which are incorporated by reference into this prospectus and the applicable prospectus supplement, together with all of the other information included in
this prospectus, the applicable prospectus supplement and the documents we incorporate by reference, in evaluating an investment in our securities. If any of the risks discussed in the foregoing documents were to occur, our business, financial
condition, results of operations and cash flows could be materially adversely affected and you could lose all or part of your investment. Please also read Forward-Looking Statements.
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USE OF PROCEEDS
We will use the net proceeds from the sale of securities offered by this prospectus for general partnership purposes, which may include,
among other things, repayment of indebtedness, acquisitions, capital expenditures and additions to working capital. The actual application of proceeds from the sale of any particular offering of securities by us using this prospectus will be
determined at the time of the offering and 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, among other factors, our funding
requirements and the availability and cost of other funds. We will not receive any of the net proceeds from any sale of common units by the selling unitholders.
4
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for the periods indicated on a consolidated historical basis. For
purposes of computing the ratio of earnings to fixed charges, earnings consists of pre-tax income from continuing operations before income from equity investees plus fixed charges (excluding capitalized interest), distributed income of
equity investees and amortization of capitalized interest. Fixed charges represents interest incurred (whether expensed or capitalized), amortization of debt expense (including discounts and premiums relating to indebtedness) and the
portion of rental expense on operating leases deemed to be the equivalent of interest.
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Predecessor(1)
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Year Ended December 31,
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Three
Months
Ended
March
31,
2011
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Year Ended
December 31,
2010
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Period from
October 1,
2009 through
December 31,
2009
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Period from
January 1,
2009 through
September 30,
2009
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2008
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2007
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2006
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Ratio of Earnings to Fixed Charges
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5.55x
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8.22x
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9.38x
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(2)
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6.47x
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10.46x
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12.64x
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(1)
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Represents data from our predecessor, Chesapeake Midstream Development, L.P. before the formation of the joint venture between Chesapeake and GIP on September 30,
2009. For further discussion, please see Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
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(2)
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During the period noted, our coverage ratio was less than 1:1. We would have needed to generate additional earnings of approximately $14.8 million during the period
from January 1, 2009 through September 30, 2009 to achieve a coverage ratio of 1:1.
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5
DESCRIPTION OF OUR COMMON UNITS
The Units
The common
units and the subordinated units are separate classes of limited partner interests in us. The holders of units are entitled to participate in partnership distributions and exercise the rights or privileges available to limited partners under our
partnership agreement. For a description of the relative rights and preferences of holders of common and subordinated units in and to partnership distributions, please read this section and Provisions of our Partnership Agreement Relating to
Cash Distributions. For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read The Partnership Agreement.
Our outstanding common units are listed on the NYSE under the symbol CHKM, and any additional common units we issue will also
be listed on the NYSE. As of July 29, 2011, there were 69,085,038 common units outstanding and 69,076,122 subordinated units outstanding. On July 29, 2011, the last reported sales price of our common units on the NYSE was $27.62
per common unit.
Transfer Agent and Registrar
Duties
. Computershare Trust Company, N.A. serves as the registrar and transfer agent for the common units. We will 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 common unitholder; and
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other similar fees or charges.
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There will be 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 in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.
Resignation or Removal
. The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of
the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor is appointed, our general partner may act as the transfer agent and registrar until a
successor is appointed.
Transfer of Common Units
By transfer of common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such
transfer and admission are reflected in our books and records. Each transferee:
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represents that the transferee has the capacity, power and authority to become bound by our partnership agreement;
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automatically becomes bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and
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gives the consents, waivers and approvals contained in our partnership agreement.
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Our general partner will cause any transfers to be recorded on our books and records no less frequently than quarterly.
6
We may, at our discretion, treat the nominee holder of a common unit as the absolute owner.
In that case, the beneficial holders rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are securities and any transfers are subject to the laws governing the transfer of securities. In addition to other rights
acquired upon transfer, the transferor gives the transferee the right to become a substituted limited partner in our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the absolute owner for all purposes, except as otherwise required by law or
stock exchange regulations.
7
DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
Chesapeake Midstream Partners, L.P. may issue debt securities in one or more series, and CHKM Finance Corp. may be a co-issuer of one or
more series of debt securities. The debt securities will be issued under an indenture to be dated as of a date on or prior to our initial issuance of debt securities. The Bank of New York Mellon Trust Company, N.A., will serve as trustee under the
indenture, which will be executed at the time we issue any debt securities. Any supplemental indentures will be filed with the SEC on a Form 8-K or by a post-effective amendment to the registration statement of which this prospectus forms a part.
The terms of the debt securities will include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the Trust Indenture Act).
The following description is only a summary of the material provisions of the debt securities and the indenture. These descriptions do
not purport to be complete and are subject to, and are qualified in their entirety by reference to, the debt securities and the indenture. We urge you to read the indenture because it, and not this description, defines the rights of Holders of the
debt securities. The indenture has been filed as an exhibit to the registration statement of which this prospectus forms a part. Additionally, you may request copies of the indenture at our address set forth under the heading Where You Can
Find More Information.
You can find the definitions of certain terms used in this description under the subheading
Certain Definitions. In this description, the term Partnership, us, our or we refers only to Chesapeake Midstream Partners, L.P. and not to any of its subsidiaries, the term
Finance Corp. refers to CHKM Finance Corp. and the term Issuers refers to the Partnership and Finance Corp.
The registered Holder of a debt security will be treated as the owner of it for all purposes. Only registered Holders will have rights under the indenture.
General
The indenture
does not limit the amount of debt securities that may be issued thereunder. Debt securities may be issued under the indenture from time to time in separate series, each up to the aggregate amount authorized for such series. The indenture also gives
us the ability to reopen a previous issue of a series of debt securities and issue additional debt securities of that series. The debt securities will be general obligations of the Issuers. The indenture permits the Issuers to issue debt securities
that are subordinated to their Senior Indebtedness. Unless provided otherwise in a prospectus supplement for a series of debt securities, the debt securities will be the Issuers senior obligations and will rank
pari passu
with their
other Senior Indebtedness. See Subordination of Debt Securities.
Terms
A prospectus supplement and a supplemental indenture (or a resolution of the Board of Directors of our General Partner and of Finance
Corp. and an accompanying officers certificate from each of our General Partner and Finance Corp.) relating to any series of debt securities being offered will include specific terms relating to the offering. These terms will include some or
all of the following:
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whether Finance Corp. will be a co-issuer of the debt securities;
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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 dates on which the principal of and premium, if any, on the debt securities will be payable;
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the rate at which the debt securities will bear interest, the date from which interest will accrue, and the interest payment dates and the record dates
for the debt securities;
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any right to extend or defer the interest payment periods and the duration of the extension;
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whether and under what circumstances any additional amounts with respect to the debt securities will be payable;
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any provisions for optional redemption or early repayment;
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any sinking fund or other provisions that would obligate the Issuers to repurchase or otherwise redeem the debt securities;
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whether the debt securities are entitled to the benefit of the Subsidiary Guarantee of the Guarantors;
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the denominations in which the debt securities will be issued, if other than denominations of $2,000 and integral multiples of $1,000 thereafter;
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the terms, if any, upon which the debt securities may be convertible into or exchanged for Capital Stock or other securities of the Issuers or any
other obligor or issuer;
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the portion of the principal amount which will be payable if the maturity of the debt securities is accelerated;
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any additional means of defeasance of the debt securities, any additional conditions or limitations to defeasance of the debt securities or any changes
to those conditions or limitations;
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the currency or currency unit in which the debt securities will be paid, if not U.S. dollars;
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any deletions from, additions to or modifications of the covenants or Events of Default;
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whether the debt securities will be issued in individual certificates to each Holder or in the form of temporary or permanent global debt securities
held by a depositary on behalf of Holders;
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the subordination, if any, of the debt securities and any changes to the subordination provisions of the indenture; and
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any other terms of the debt securities not prohibited by the indenture.
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We may sell the debt securities at a discount, which may be substantial, below their stated principal amount. These debt securities may
bear no interest or interest at a rate that at the time of issuance is below market rates. If we sell these debt securities, we will describe in the prospectus supplement any material United States federal income tax consequences and other special
considerations.
If we sell any of the debt securities denominated in any foreign currency or currency unit or if payments on
the debt securities are payable in any foreign currency or currency unit, we will describe in the prospectus supplement the restrictions, elections, tax consequences, specific terms and other information relating to those debt securities and the
foreign currency or currency unit.
Subsidiary Guarantees
If provided for with respect to a series of debt securities, the payment obligations of the Issuers under the debt securities will be jointly and severally, fully and unconditionally guaranteed by the
Guarantors. The Subsidiary Guarantee provides that in the event of a default in the payment of principal of, or premium, if any, or interest on any debt security, the trustee may institute legal proceedings directly against the applicable Guarantor
to enforce the Subsidiary Guarantee without first proceeding against us. Unless otherwise provided in a prospectus supplement for a series of debt securities, the obligation of a Guarantor in respect of its Subsidiary Guarantee will be its senior
obligation and will rank
pari passu
with its other Senior Indebtedness from time to time outstanding. See Subordination of Debt Securities.
These Subsidiary Guarantees will be joint and several obligations of the Guarantors. The obligations of each Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that
Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law.
9
Subject to the next succeeding paragraph, no Guarantor may consolidate with or merge with or
into another Person, other than the Partnership or another Guarantor, unless:
(1) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor under the indenture and the debt securities pursuant to a supplemental indenture, and
(2) immediately after giving effect to such transaction, no Default or Event of Default exists.
The Subsidiary Guarantee of a Guarantor will be automatically released upon:
(1) the sale or disposition of a Guarantor (or all or substantially all of its assets), whether by way of merger, consolidation or
otherwise, or the liquidation and dissolution of the Guarantor;
(2) delivery of a written notice by us to the trustee
of the cessation by a Guarantor to guarantee any other Indebtedness of the Partnership or any other Guarantor other than a De Minimis Guaranteed Amount; or
(3) the Partnerships election, in compliance with the terms of the indenture, to exercise its rights pursuant to the provisions in the indenture regarding Legal Defeasance or Covenant Defeasance
(each as defined below in Defeasance).
Covenants
The indenture contains covenants regarding payment of principal of, and premium, if any, and interest on the debt securities; maintenance
of an office or agency where debt securities may be presented or surrendered for purposes of payments, transfers, exchanges and, if applicable, conversions; payment of taxes; waiver of stay, extension and usury laws; and maintenance of existence.
Additionally, the indenture requires that the Partnership will file with the trustee, within 30 days after it files the same with the Commission, copies of the annual reports and the information, documents and other reports that the Partnership is
required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Partnership is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Partnership will file with the trustee, within
30 days after it would have been required to file the same with the Commission, financial statements, including any notes thereto and, with respect to the annual information only, a report on the annual financial statements by the Partnerships
certified independent accountants, and a Managements Discussion and Analysis of Financial Condition and Results of Operations, both comparable to what the Partnership would have been required to include in such annual reports,
information, documents or other reports if the Partnership had been subject to the requirements of Section 13 or 15(d) of the Exchange Act.
A series of debt securities may contain additional financial and other covenants applicable to us and our subsidiaries. The applicable prospectus supplement will contain a description of any such
covenants that are added to the indenture specifically for the benefit of Holders of a particular series of debt securities.
Merger,
Consolidation or Sale of All or Substantially All Assets
Neither of the Issuers may, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not such Issuer is the survivor); or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more
related transactions, to another Person; unless:
(1) either: (a) such Issuer is the survivor; or (b) the Person
formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a Person organized or existing under the laws of the United
States, any state of
10
the United States or the District of Columbia; provided, however, that Finance Corp. may not consolidate or merge with or into any Person other than a corporation satisfying such requirement so
long as the Partnership is not a corporation;
(2) the Person formed by or surviving any such consolidation or merger (if
other than such Issuer) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made assumes all the obligations of such Issuer under the debt securities and the indenture pursuant to agreements
reasonably satisfactory to the trustee; and
(3) immediately after giving effect to such transaction, no Default or Event of
Default would occur and be continuing or would result from the transaction.
Notwithstanding the preceding paragraph, the
Partnership is permitted to reorganize as any other form of entity in accordance with the following procedures provided that:
(1) the reorganization involves the conversion (by merger, sale, contribution or exchange of assets or otherwise) of the Partnership into
a form of entity other than a limited partnership formed under Delaware law;
(2) the entity so formed by or resulting from
such reorganization is an entity organized or existing under the laws of the United States, any state thereof or the District of Columbia;
(3) the entity so formed by or resulting from such reorganization assumes all the obligations of the Partnership under the debt securities and the indenture pursuant to agreements reasonably satisfactory
to the trustee;
(4) immediately after such reorganization no Default or Event of Default exists; and
(5) such reorganization is not materially adverse to the Holders or Beneficial Owners of the debt securities (for purposes of this clause
(5) a reorganization will not be considered materially adverse to the Holders or Beneficial Owners of the debt securities solely because the successor or survivor of such reorganization (a) is subject to federal or state income taxation as
an entity or (b) is considered to be an includible corporation of an affiliated group of corporations within the meaning of Section 1504(b) of the Code or any similar state or local law).
Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established
definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve all or substantially all of the properties or assets of a
Person.
Events of Default and Remedies
Unless we inform you otherwise in the prospectus supplement, each of the following will be an Event of Default with respect to the debt securities of any series:
(1) failure to pay interest due on the debt securities of that series for 30 days;
(2) failure to pay the principal of, or premium, if any, on the debt securities of that series when due for 30 days;
(3) failure to pay when due any sinking fund payment with respect to the debt securities of that series;
(4) failure by an Issuer or, if such series of debt securities is entitled to the benefits of a Subsidiary Guarantee, any Guarantor to
perform any other covenant in the indenture that continues for 60 days after written notice is given to such Issuer or, if applicable, Guarantor;
11
(5) any Subsidiary Guarantee of the debt securities of such series ceases to be in full
force and effect or is declared null and void in a judicial proceeding or any Guarantor denies or disaffirms its obligations in respect of such series under the indenture or such Subsidiary Guarantee;
(6) certain events of bankruptcy, insolvency or reorganization described in the indenture with respect to either Issuer or, if such
series of debt securities is entitled to the benefits of a Subsidiary Guarantee, any of the Guarantors; and
(7) any other
Event of Default provided with regard to such series of debt securities in the terms thereof.
In the case of an Event of
Default arising from certain events of bankruptcy, insolvency or reorganization with respect to the Partnership or the Operating Company, all outstanding debt securities will become due and payable immediately without further action or notice. If
any other Event of Default occurs and is continuing, the trustee or the Holders of at least 25% in principal amount of the then outstanding debt securities of a series may declare all the debt securities of that series to be due and payable
immediately.
Holders of the debt securities may not enforce the indenture or the debt securities except as provided in the
indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding debt securities of a series may direct the trustee in its exercise of any trust or power. This provision does not, however, affect the right
of any Holder of a debt security to sue for enforcement of any overdue payment. The trustee may withhold notice of any continuing Default or Event of Default from Holders of the debt securities if it determines that withholding notice is in their
interest, except a Default or Event of Default relating to the payment of principal of, or interest or premium, if any, on, the debt securities.
The Holders of a majority in principal amount of the debt securities of a series then outstanding by notice to the trustee may on behalf of the Holders of all of the debt securities of that series waive
any existing Default or Event of Default with respect to the debt securities of that series and its consequences under the indenture except a continuing Default or Event of Default in the payment of principal of, or interest or premium, if any, on
the debt securities.
The Partnership is required to deliver to the trustee annually a statement regarding compliance with the
indenture. Within 30 days of any officer of the General Partner becoming aware of any Default or Event of Default with respect to the debt securities of a series, the Partnership is required to deliver to the trustee a statement specifying such
Default or Event of Default.
An Event of Default under one series of debt securities will not necessarily be an Event of
Default under another series.
No Personal Liability of Directors, Officers, Employees and Unitholders and No Recourse to General Partner
Neither the General Partner nor any director, officer, partner, employee, incorporator, manager or unitholder or other
owner of Capital Stock of the Issuers, the General Partner or any Guarantor, as such, will have any liability for any obligations of the Issuers or any Guarantor under the debt securities, the indenture or the Subsidiary Guarantees, or for any claim
based on, in respect of, or by reason of, such obligations or their creation. Each Holder of debt securities, by accepting a debt security, waives and releases all such liability. The waiver and release are part of the consideration for issuance of
the debt securities.
12
Defeasance
The Issuers may, at their option and at any time, elect to have all of their obligations discharged with respect to the outstanding debt securities of a series and all obligations of the Guarantors
discharged with respect to their Subsidiary Guarantees (Legal Defeasance), except for:
(1) the rights of Holders
of outstanding debt securities of that series to receive payments in respect of the principal of, and interest or premium, if any, on such debt securities when such payments are due from the trust referred to below;
(2) the Issuers obligations with respect to the debt securities of that series concerning issuing temporary debt securities,
registration of debt securities, mutilated, destroyed, lost or stolen debt securities and the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and the Issuers obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Issuers may, at their option and at any time, elect to have their obligations released with respect to certain covenants
that are described in the indenture (Covenant Defeasance) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the debt securities. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, insolvency or reorganization events) described under Events of Default and Remedies will no longer constitute an Event of Default with respect to the debt securities.
If the Issuers exercise either their Legal Defeasance or Covenant Defeasance option, each Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee and any security for the debt securities (other than the trust) will
be released.
In order to exercise either Legal Defeasance or Covenant Defeasance with respect to a series of debt securities:
(1) the Issuers must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the debt securities of
that series, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, and premium, if any, and interest on the outstanding debt securities of that series on the date of fixed maturity or on the applicable redemption date, as the case may be, and the Issuers must specify
whether the debt securities of that series are being defeased to the date of fixed maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuers have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that:
(a) the Issuers have received from, or there has been published by, the Internal Revenue
Service a ruling; or
(b) since the date of the indenture, there has been a change in the applicable federal
income tax law,
in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the
outstanding debt securities of that series will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the
Issuers have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding debt securities of that series
13
will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of
Default has occurred and is continuing with respect to the debt securities of that series on the date of such deposit (other than a Default or Event of Default in respect of such series resulting from the borrowing of funds to be applied to such
deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a
default under, any material agreement or instrument (other than the indenture and solely with respect to such series of debt securities) to which the Partnership or any of its Subsidiaries is a party or by which the Partnership or any of its
Subsidiaries is bound;
(6) the Issuers must deliver to the trustee an officers certificate stating that the deposit was
not made by the Issuers with the intent of preferring the Holders of debt securities of that series over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and
(7) the Issuers must deliver to the trustee an officers certificate and an opinion of counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture or the debt securities of any series may be
amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding debt securities of each series affected by such amendment or supplement (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, debt securities), and any existing default or compliance with any provision of the indenture or the debt securities of any series may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding debt securities of each series affected by such waiver (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, debt
securities).
Without the consent of each Holder affected, an amendment, supplement or waiver may not (with respect to any
debt securities held by a non-consenting Holder):
(1) reduce the principal amount of debt securities whose Holders must
consent to an amendment, supplement or waiver;
(2) change the Stated Maturity of any debt security or alter the provisions
with respect to the redemption or repurchase of the debt securities of any such series;
(3) reduce the premium, if any,
payable upon the redemption of any debt security or change the fixed date after which any debt security may or shall be redeemed;
(4) change any obligation of the Partnership or any Guarantor to pay Additional Amounts with respect to any debt security;
(5) reduce the rate of or change the time for payment of interest on any debt security;
(6) adversely affect the conversion rights of any debt security that is convertible in accordance with the applicable provisions of such debt security;
(7) waive a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest on or Additional
Amounts with respect to the debt securities of any series (except a rescission of acceleration of the debt securities of that series by the Holders of at least a majority in principal amount of the debt securities of that series and a waiver of the
payment default that resulted from such acceleration);
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(8) make any debt security payable in currency other than that stated in such debt security;
(9) make any change in the provisions of the indenture relating to waivers of past Defaults or Events of Default or the
rights of Holders of debt securities to receive payments of principal of, or interest or premium, if any, on the debt securities;
(10) waive a redemption or repurchase payment with respect to any debt security;
(11) impair the right to institute suit for the enforcement of any payment of principal of, premium, if any, or interest on or any
Additional Amounts with respect to any debt security as provided in the indenture;
(12) release any Guarantor from any of its
obligations under its Subsidiary Guarantee or the indenture or modify the related Guarantee in any manner materially adverse to the Holders, except in accordance with the terms of the indenture; or
(13) make any change in the preceding amendment, supplement and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of debt securities, the Issuers, the Guarantors and the trustee may
amend or supplement the indenture or the debt securities of any series:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated debt securities in addition to or in place of certificated debt securities;
(3) to provide for the assumption of an Issuers obligations to Holders of debt securities in the case of a merger or consolidation
or sale of all or substantially all of such Issuers properties or assets;
(4) to make any change that would provide any
additional rights or benefits to the Holders, that surrenders a right or benefit held by the Issuers or any Guarantor or that does not adversely affect the legal rights under the indenture of any such Holder;
(5) to add to, change or eliminate any of the provisions of the indenture, provided that any such addition, change or elimination shall
not be effective as to the debt securities of any series outstanding prior to the date of such amendment or supplement;
(6)
to establish the forms or terms of the debt securities of any series issued under the indenture;
(7) to make provisions with
respect to the conversion of debt securities of any series that are convertible in accordance with the terms of such debt securities;
(8) to secure the debt securities or the subsidiary guarantees;
(9) to add any
additional Guarantor with respect to the debt securities of any series or to evidence the release of any Guarantor from its Subsidiary Guarantee, in each case as provided in the indenture;
(10) to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust
Indenture Act or to comply with the rules and regulations of any exchange on which the debt securities may be listed or traded;
(11) to provide for the reorganization of the Partnership as any other form of entity in accordance with the second paragraph under
Merger, Consolidation or Sales of All or Substantially All Assets; or
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(12) to evidence or provide for the acceptance or appointment under the indenture of a
successor trustee with respect to debt securities of any series.
Subordination of Debt Securities
Debt securities of a series may be subordinated to our Senior Indebtedness (the debt securities of such series being referred to herein as
the Subordinated Debt Securities). Subordinated Debt Securities and the Subsidiary Guarantee thereof 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 indebtedness of the Issuers and Guarantors that is designated as Senior Indebtedness with respect to the series.
The Holders of Senior Indebtedness of the Issuers will receive payment in full of the Senior Indebtedness before Holders of Subordinated Debt Securities will receive any payment of principal of, or
premium, if any, or interest with respect to the Subordinated Debt Securities:
(1) upon any payment or distribution of the
assets of the Issuers or a Guarantor to its creditors;
(2) upon a total or partial liquidation or dissolution of the Issuers
or a Guarantor; or
(3) in a bankruptcy, receivership or similar proceeding relating to the Issuers or their respective
property or a Guarantor or its property.
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 such Holders may receive securities representing Capital Stock of the Partnership or the Guarantors and any debt securities of
the Issuers or the Guarantors that are subordinated to Senior Indebtedness to at least the same extent as the Subordinated Debt Securities.
If the Issuers do not pay the principal of, or premium, if any, or interest on, 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, the Issuers may not:
(1) make
any payments of principal, premium, if any, or interest with respect to Subordinated Debt Securities;
(2) make any deposit
for the purpose of defeasance of the Subordinated Debt Securities; or
(3) 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,
unless, in either case,
(1)
the default has been cured or waived and the declaration of acceleration has been rescinded;
(2) the Senior Indebtedness has
been paid in full in cash; or
(3) the Issuers and the Trustee receive written notice approving the payment from the
representatives of each issue of Designated Senior Indebtedness of the Issuers.
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, the Issuers 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 the Issuers 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.
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The Payment Blockage Period may be terminated before its expiration:
(1) by written notice from the Person or Persons who gave the Blockage Notice;
(2) by repayment in full in cash of the Designated Senior Indebtedness with respect to which the Blockage Notice was given; or
(3) if the default giving rise to the Payment Blockage Period is no longer continuing.
Unless the Holders of such Designated Senior Indebtedness or the representative of such Holders shall have accelerated the maturity of
such Designated Senior Indebtedness, the Issuers 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 irrespective of the number of defaults with respect to any number of issues of Designated Senior
Indebtedness during such period. 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.
If a Guarantor does not pay the principal of, or premium, if any, or interest on, Senior Indebtedness of such Guarantor within any
applicable grace period (including at maturity), or any other default on Senior Indebtedness of such Guarantor occurs and the maturity of the Senior Indebtedness is accelerated in accordance with its terms, such Guarantor may not make a guarantee
payment on Subordinated Debt Securities unless, in either case,
(1) the default has been cured or waived and the declaration
of acceleration has been rescinded;
(2) the Senior Indebtedness has been paid in full in cash; or
(3) the Guarantor and the trustee receive written notice approving the payment from the representative of each issue of Designated Senior
Indebtedness of such Guarantor.
During the continuance of any default, other than a default described in the immediately
preceding paragraph, that may cause the maturity of any 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, the
Guarantor may not make a guarantee payment on Subordinated Debt Securities for the Payment Blockage Period, as described above.
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.
By reason of the subordination, in the event of insolvency, our creditors who are Holders of Senior Indebtedness, as well as certain of our general creditors, may recover more, ratably, than the Holders
of the Subordinated Debt Securities.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as to debt securities of any series (except as to surviving rights
of registration of transfer or exchange of the debt securities of that series and as otherwise specified in the indenture), when:
(1) either:
(a) all debt securities of that series which have
been authenticated, except lost, stolen or destroyed debt securities of that series which have been replaced or paid and debt securities of that series for whose payment money has been deposited in trust and thereafter repaid to the Issuers, have
been delivered to the trustee for cancellation; or
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(b) all such debt securities that have not been delivered to the trustee for
cancellation have become due and payable or will become due and payable within one year by reason of the mailing of a notice of redemption or otherwise and the Issuers or any Guarantor has irrevocably deposited or caused to be deposited with the
trustee as trust funds in trust solely for the benefit of the Holders of debt securities of such series, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in
amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the debt securities of such series not delivered to the trustee for cancellation for principal, premium, if any, and
accrued interest to the date of fixed maturity or redemption;
(2) no Default or Event of Default has occurred and is
continuing with respect to the debt securities of that series on the date of the deposit or will occur as a result of the deposit (other than a Default or Event of Default in respect of such series resulting from the borrowing of funds to be applied
to such deposit), and the deposit will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture and solely with respect to such series) to which the Partnership or any of
its Subsidiaries is a party or by which the Partnership or any of its Subsidiaries is bound;
(3) the Issuers or any Guarantor
has paid or caused to be paid all sums payable by it in respect of such series under the indenture; and
(4) the Issuers have
delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the debt securities of such series at fixed maturity or on the redemption date, as the case may be.
In addition, the Issuers must deliver an officers certificate and an opinion of counsel to the trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of an Issuer or any Guarantor, the indenture limits its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust
Indenture Act) after a Default has occurred and is continuing, it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign.
The Holders of a majority in principal amount of the then outstanding debt securities will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing with respect to the debt securities of any series,
the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any Holder of debt securities of that series, unless such Holder has offered to the trustee security or indemnity satisfactory to it against any loss, liability or expense.
Governing Law
The
indenture, the debt securities and the Subsidiary Guarantees will be governed by, and construed in accordance with, the laws of the State of New York.
Additional Information
Anyone who receives this prospectus may obtain a
copy of the indenture without charge by writing to the Partnership at 900 NW 63rd Street, Oklahoma City, Oklahoma 73118, Attention: Chief Financial Officer.
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Book-Entry, Delivery and Form
Unless otherwise provided with respect to a series of debt securities, the debt securities of each series will be issued in the form of
one or more global securities. The global securities will be deposited with, or on behalf of the Depositary, and registered in the name of the Depositary or its nominee. Except as set forth below, the global securities may be transferred, in whole
and not in part, only to the Depositary or another nominee of the Depositary. Investors may hold their beneficial interests in the global securities directly through the Depositary if they have an account with the Depositary or indirectly through
organizations which have accounts with the Depositary.
The Depositary has advised the Partnership as follows: The Depositary
is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing
agency registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary was created to hold securities of institutions that have accounts with the Depositary (participants) and to facilitate the
clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The
Depositarys participants include securities brokers and dealers (which may include the underwriters), banks, trust companies, clearing corporations and certain other organizations. Access to the Depositarys book-entry system is also
available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly.
The Partnership expects that pursuant to procedures established by the Depositary, upon the issuance of the global securities, the
Depositary will credit, on its book-entry registrations and transfer system, the aggregate principal amount of debt securities represented by such global securities to the accounts of participants. The accounts to be credited shall be designated by
the underwriter of the debt securities. Ownership of beneficial interests in the global securities will be limited to participants or Persons that may hold interests through participants. Ownership of beneficial interests in the global securities
will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by the Depositary (with respect to participants interest) and such participants (with respect to the owners of beneficial
interests in the global securities other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability
to transfer or pledge beneficial interests in the global securities.
So long as the Depositary, or its nominee, is the Holder
of the global securities, the Depositary or such nominee, as the case may be, will be considered the sole legal owner and Holder of the debt securities for all purposes of the debt securities and the Indenture. Except as set forth below, you will
not be entitled to have the debt securities represented by the global securities registered in your name, will not receive or be entitled to receive physical delivery of certificated debt securities in definitive form and will not be considered to
be the owner or Holder of any debt securities under the global securities. The Partnership understands that under existing industry practice, in the event an owner of a beneficial interest in the global securities desires to take any action that the
Depositary, as the Holder of the global securities, is entitled to take, the Depositary will authorize the participants to take such action, and that the participants will authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning through them.
The Partnership will make all
payments on debt securities represented by the global securities registered in the name of and held by the Depositary or its nominee to the Depositary or its nominee, as the case may be, as the owner and Holder of the global securities.
The Partnership expects that the Depositary or its nominee, upon receipt of any payment in respect of the global securities, will credit
participants accounts with payments in amounts proportionate to their respective beneficial interests in the aggregate principal amount of the global securities as shown on the records of the
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Depositary or its nominee. The Partnership also expects that payments by participants to owners of beneficial interest in the global securities held through such participants will be governed by
standing instructions and customary practices and will be the responsibility of such participants. The Partnership will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the global securities for any debt securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depositary and its
participants or the relationship between such participants and the owners of beneficial interests in the global securities owning through such participants.
Although the Depositary has agreed to the foregoing procedures in order to facilitate transfers of interests in the global securities among participants of the Depositary, it is under no obligations to
perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor the Partnership will have any responsibility for the performance by the Depositary or its participants or indirect
participants of their respective obligations under the rules and procedures governing their operations.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure
of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
Additional Amounts
means any additional amounts required by the express terms of a debt security or by or pursuant to
a board resolution, under circumstances specified therein or pursuant thereto, to be paid by the Partnership with respect to certain taxes, assessments or other governmental charges imposed on certain Holders and that are owing to such Holders.
Board of Directors
means:
(1) with respect to Finance Corp., its board of directors;
(2) with respect to
the Partnership, the Board of Directors of the General Partner or any authorized committee thereof; and
(3) with respect to
any other Person, the board or committee of such Person, or its general partner, as applicable, serving a similar function.
Capital Stock
means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an
association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
Code
means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
Commission
or
SEC
means the Securities
and Exchange Commission.
Credit Facilities
means one or more debt facilities, commercial paper facilities
or other agreements, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables
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financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.
Default
means any event that is, or with the passage of time or the giving of notice or both would be, an Event of
Default.
De Minimis Guaranteed Amount
means a principal amount of Indebtedness that does not exceed
$25,000,000.
Depositary
means, unless otherwise specified by the Company with respect to any series of
debt securities issuable or issued in whole or in part in the form of one or more global securities, The Depository Trust Company, New York, New York, or any successor thereto registered as a clearing agency under the Exchange Act or other
applicable statute or regulations.
Designated Senior Indebtedness
means, as of any time of determination,
each series of Senior Indebtedness which has an aggregate principal amount outstanding at such time of, or under which, at such time, the holders thereof are committed to lend, at least $100 million.
General Partner
means Chesapeake Midstream GP, L.L.C., a Delaware limited liability company, and its successors and
permitted assigns as general partner of the Partnership.
Government Securities
means direct obligations
of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged.
The term
guarantee
means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including,
without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. When used as a verb, guarantee has a correlative meaning.
Guarantors
means any Subsidiary of the Partnership (except Finance Corp.) who may execute the indenture, or a
supplemental indenture, for the purpose of providing a Subsidiary Guarantee and the respective successors and assigns of any such Subsidiary, in each case until such time as any such Subsidiary shall be released and relieved of its obligations
pursuant to the indenture or any supplemental indenture.
Holder
means a Person in whose name a debt
security is registered.
Indebtedness
means, without duplication, with respect to any Person, (a) all
obligations of such Person, including those evidenced by bonds, notes, debentures or similar instruments, for the repayment of money borrowed (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof); (b) all liabilities of others of the kind described in the preceding clause (a) that such Person has guaranteed; and (c) Indebtedness (as otherwise defined in this definition) of another Person secured by a lien on
any asset of such Person, whether or not such Indebtedness is assumed by such Person, the amount of such obligations being deemed to be the lesser of (1) the full amount of such obligations so secured, and (2) the fair market value of such
asset, as determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution.
Obligations
means any principal, premium, if any, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization, whether or not a
claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages, guarantees, and other liabilities or amounts payable under the documentation governing any
Indebtedness or in respect thereto.
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Operating Company
means Chesapeake MLP Operating, L.L.C., a Delaware
limited liability company, and its successors.
Person
means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
Senior Indebtedness
means
(1) any debt securities of the
Issuers (other than Subordinated Debt Securities);
(2) all Indebtedness of the Partnership or any Guarantor outstanding under
Credit Facilities and all hedging obligations with respect thereto;
(3) the Issuers 5.875% Senior Notes due 2021;
(4) any other Indebtedness of the Partnership or any Guarantor, unless the instrument under which such Indebtedness is
incurred expressly provides that it is subordinated in right of payment to the debt securities or any Subsidiary Guarantee; and
(5) all Obligations with respect to the items listed in the preceding clauses (1) through (4).
Notwithstanding anything to the contrary in the preceding sentence, Senior Indebtedness will not include any intercompany Indebtedness of
the Partnership or any of its Subsidiaries.
Stated Maturity
means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
Subsidiary
means, with respect to any specified Person:
(1) any corporation, association or other business entity (other than a partnership or limited liability company) of which more than 50%
of the total voting power of Voting Stock is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (whether general or limited) or limited liability company (a) the sole general partner or the managing general
partner or managing member of which is such Person or a Subsidiary of such Person, or (b) if there are more than a single general partner or member, either (x) the only general partners or managing members of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof) or (y) such Person owns or controls, directly or indirectly, a majority of the outstanding general partner interests, member interests or other Voting Stock of such partnership or
limited liability company, respectively.
Subsidiary Guarantee
means any guarantee by a Guarantor of the
Issuers Obligations under the indenture and on the debt securities.
Voting Stock
of any Person as of
any date means the Capital Stock of such Person that is at the time entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.
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PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH
DISTRIBUTIONS
Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash
distributions.
Distributions of Available Cash
General
. Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record
date.
Definition of Available Cash
. Available cash, for any quarter, consists of all cash on hand at the end of
that quarter:
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less, the amount of cash reserves established by our general partner 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 for any one or more of the next four quarters (provided that our general partner may not establish
cash reserves for subordinated units unless it determines that the establishment of reserves will not prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages for the next four quarters);
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plus
, if our general partner so determines, all or a portion of 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 borrowings that
are made under a credit facility, commercial paper facility or similar financing arrangement, and in all cases are used solely for working capital purposes or to pay distributions to partners and with the intent of the borrower to repay such
borrowings within twelve months from sources other than additional working capital borrowings.
Intent to Distribute the
Minimum Quarterly Distribution
. We intend to distribute to the holders of common and subordinated units on a quarterly basis at least the minimum quarterly distribution of $0.3375 per unit, or $1.35 on an annualized basis, 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 and its affiliates. However, there is no guarantee that we will pay the minimum quarterly
distribution on the units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into
consideration the terms of our partnership agreement.
General Partner Interest and Incentive Distribution
Rights
. Our general partner is entitled to 2.0% of all quarterly distributions that we make after inception and prior to our liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of
capital to us to maintain its current general partner interest. Our general partners 2.0% interest in our distributions may be reduced if we issue additional limited partner units in the future (other than the issuance of common units upon
conversion of outstanding subordinated units or the issuance of common units upon a reset of the incentive distribution rights) and our general partner does not contribute a proportionate amount of capital to us to maintain its 2.0% general partner
interest.
Our general partner also currently holds incentive distribution rights that entitle it to receive increasing
percentages, up to a maximum of 50.0%, of the cash we distribute from operating surplus (as defined below) in excess of $0.388125 per unit per quarter. The maximum distribution of 50.0% includes distributions paid to our general partner on its 2.0%
general partner interest and assumes that our general partner maintains its general partner interest at 2.0%. The maximum distribution of 50.0% does not include any distributions that our general partner may receive on limited partner units that it
owns.
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Operating Surplus and Capital Surplus
General
. All cash distributed will be characterized as either operating surplus or capital surplus.
Our partnership agreement requires that we distribute available cash from operating surplus differently than available cash from capital surplus.
Operating Surplus
. Operating surplus for any period consists of:
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$120 million (as described below); plus
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all of our cash receipts after the closing of our IPO, excluding cash from interim capital transactions, which include the following:
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borrowings (including sales of debt securities) that are not working capital borrowings;
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sales of equity interests;
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sales or other dispositions of assets outside the ordinary course of business; and
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capital contributions received;
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provided that cash receipts from the termination of a commodity hedge or interest rate hedge prior to its specified termination date shall be included in operating surplus in equal quarterly installments
over the remaining scheduled life of such commodity hedge or interest rate hedge; plus
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working capital borrowings made after the end of the period but on or before the date of determination of operating surplus for the period; plus
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cash distributions paid on equity issued (including incremental distributions on incentive distribution rights) to finance all or a portion of the
construction, acquisition or improvement of a capital improvement or replacement of a capital asset (such as equipment or facilities) in respect of the period beginning on the date that we enter into a binding obligation to commence the
construction, acquisition or improvement of a capital improvement or replacement of a capital asset and ending on the earlier to occur of the date the capital improvement or capital asset commences commercial service and the date that it is
abandoned or disposed of; plus
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cash distributions paid on equity issued (including incremental distributions on incentive distribution rights) to pay the construction period interest
on debt incurred, or to pay construction period distributions on equity issued, to finance the capital improvements or capital assets referred to above; less
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all of our operating expenditures (as defined below) after the closing of our IPO; less
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the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less
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all working capital borrowings not repaid within twelve months after having been incurred; less
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any loss realized on disposition of an investment capital expenditure.
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As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is
not limited to cash generated by our operations. For example, it includes a basket of $120 million that will enable us, if we choose, to distribute as operating surplus 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. In addition, the effect of including, as described above, certain cash distributions on equity interests in operating surplus is to increase
operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.
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The proceeds of working capital borrowings increase operating surplus and repayments of
working capital borrowings are generally operating expenditures, as described below, and thus reduce operating surplus when made. However, if a working capital borrowing is not repaid during the twelve-month period following the borrowing, it will
be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowing is in fact repaid, it will be excluded from operating expenditures because operating surplus will have been previously
reduced by the deemed repayment.
We define operating expenditures in the partnership agreement, and it generally means all of
our cash expenditures, including, but not limited to, taxes, reimbursement of expenses to our general partner and its affiliates, payments made in the ordinary course of business under our gas compressor master rental and servicing agreement,
payments made under interest rate hedge agreements or commodity hedge contracts (provided that (i) with respect to amounts paid in connection with the initial purchase of an interest rate hedge contract or a commodity hedge contract, such
amounts will be amortized over the life of the applicable interest rate hedge contract or commodity hedge contract and (ii) payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior
to the expiration of its stipulated settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract),
officer compensation, repayment of working capital borrowings, debt service payments and estimated maintenance capital expenditures (as discussed in further detail below), provided that operating expenditures does not include:
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repayment of working capital borrowings deducted from operating surplus pursuant to the penultimate bullet point of the definition of operating surplus
above when such repayment actually occurs;
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payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness, other than working capital borrowings;
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expansion capital expenditures;
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actual maintenance capital expenditures (as discussed in further detail below);
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investment capital expenditures;
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payment of transaction expenses relating to interim capital transactions;
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distributions to our partners (including distributions in respect of our incentive distribution rights); or
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repurchases of equity interests except to fund obligations under employee benefit plans.
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Capital Surplus
. Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of
our cumulative operating surplus. Accordingly, capital surplus would generally be generated by:
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borrowings other than working capital borrowings;
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sales of our equity and debt securities; and
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sales or other dispositions of assets for cash, other than inventory, accounts receivable and other assets sold in the ordinary course of business or
as part of normal retirement or replacement of assets.
|
All available cash distributed by us on any date
from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of our IPO equals the operating surplus from the closing of our IPO through the end of the quarter immediately
preceding that distribution. Any excess available cash distributed by us on that date will be deemed to be capital surplus.
Characterization of Cash Distributions
. Our partnership agreement requires that we treat all available cash distributed as
coming from operating surplus until the sum of all available cash distributed since the closing of our IPO equals the operating surplus from the closing of our IPO through the end of the quarter immediately
25
preceding that distribution. Our partnership agreement requires that we treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. We do not
anticipate that we will make any distributions from capital surplus.
Capital Expenditures
Estimated maintenance capital expenditures reduce operating surplus, but expansion capital expenditures, actual maintenance capital
expenditures and investment capital expenditures do not. Maintenance capital expenditures are those capital expenditures required to maintain our long-term operating capacity and/or operating income. A primary component of maintenance capital
expenditures is well connection expenditures required to replace expected reductions in natural gas gathering volumes handled by our facilities. Other components of maintenance capital expenditures include expenditures for routine equipment and
pipeline maintenance or replacement due to obsolescence. Maintenance capital expenditures also include interest (and related fees) on debt incurred and distributions on equity issued (including incremental distributions on incentive distribution
rights) to finance all or any portion of the construction or development of a replacement asset that is paid in respect of the period that begins when we enter into a binding obligation to commence constructing or developing a replacement asset and
ending on the earlier to occur of the date that any such replacement asset commences commercial service and the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes are not considered to be maintenance
capital expenditures.
Because our maintenance capital expenditures can be irregular, the amount of our actual maintenance
capital expenditures may differ substantially from period to period, which could cause similar fluctuations in the amounts of operating surplus and adjusted operating surplus if we subtracted actual maintenance capital expenditures from operating
surplus.
Our partnership agreement requires that an estimate of the average quarterly maintenance capital expenditures
necessary to maintain our operating capacity and/or operating income (as the Board of Directors of our general partner, with the concurrence of its conflicts committee, deems appropriate) over the long-term be subtracted from operating surplus each
quarter as opposed to the actual amounts spent. The amount of estimated maintenance capital expenditures deducted from operating surplus for those periods is subject to review and change by our general partner (with the concurrence of the conflicts
committee of our Board of Directors) at least once a year, provided that any change is approved by our conflicts committee. The estimate is made at least annually and whenever an event occurs that is likely to result in a material adjustment to the
amount of our maintenance capital expenditures, such as a major acquisition or the introduction of new governmental regulations that will impact our business. For purposes of calculating operating surplus, any adjustment to this estimate will be
prospective only.
The use of estimated maintenance capital expenditures in calculating operating surplus has the following
effects:
|
|
|
it reduces the risk that maintenance capital expenditures in any one quarter will be large enough to render operating surplus less than the minimum
quarterly distribution to be paid on all the units for the quarter;
|
|
|
|
it increases our ability to distribute as operating surplus cash we receive from non-operating sources; and
|
|
|
|
it is more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions on the incentive
distribution rights held by our general partner.
|
Expansion capital expenditures are those capital
expenditures that we expect will increase our operating capacity or operating income over the long term. Examples of expansion capital expenditures include the acquisition of equipment, or the construction, development or acquisition of additional
pipeline or treating
26
capacity or new compression capacity, to the extent such capital expenditures are expected to expand our long-term operating capacity or operating income. Expansion capital expenditures also
include interest (and related fees) on debt incurred to finance all or any portion of the construction of such capital improvement in respect of the period that commences when we enter into a binding obligation to commence construction of a capital
improvement and ending on the earlier to occur of the date any such capital improvement commences commercial service and the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes are not considered
expansion capital expenditures.
Investment capital expenditures are those capital expenditures that are neither maintenance
capital expenditures nor expansion capital expenditures. Investment capital expenditures largely consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for
investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes or
development of facilities that are in excess of the maintenance of our existing operating capacity or operating income, but which are not expected to expand, for more than the short term, our operating capacity or operating income.
As described above, neither investment capital expenditures nor expansion capital expenditures are included in operating expenditures,
and thus do not reduce operating surplus. Because expansion capital expenditures include interest payments (and related fees) on debt incurred to finance all or a portion of the construction, replacement or improvement of a capital asset (such as
gathering pipelines or treating facilities) in respect of the period that begins when we enter into a binding obligation to commence construction of the capital asset and ending on the earlier to occur of the date the capital asset commences
commercial service or the date that it is abandoned or disposed of, such interest payments are also not subtracted from operating surplus. Losses on disposition of an investment capital expenditure reduce operating surplus when realized and cash
receipts from an investment capital expenditure is treated as a cash receipt for purposes of calculating operating surplus only to the extent the cash receipt is a return on principal.
Capital expenditures that are made in part for maintenance capital purposes, investment capital purposes and/or expansion capital
purposes are allocated as maintenance capital expenditures, investment capital expenditures or expansion capital expenditure by our general partner.
Subordination Period
General
. Our partnership agreement
provides that, during the subordination period (which we describe below), the common units have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $0.3375 per common unit, which amount is
defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating
surplus is made on the subordinated units. These units are deemed subordinated because for a period of time, referred to as the subordination period, the subordinated units are not entitled to receive any distributions until the common
units have received the minimum quarterly distribution plus any arrearages from prior quarters. Furthermore, no arrearages are paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during
the subordination period there will be available cash to be distributed on the common units.
Subordination
Period
. Except as described below, the subordination period will expire on the first business day after the distribution to unitholders in respect of any quarter, beginning with the quarter ending June 30, 2013, if each of the following
has occurred:
|
|
|
distributions of available cash from operating surplus on each of the outstanding common and subordinated units and the related distribution on the
general partner interest equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
|
27
|
|
|
the adjusted operating surplus (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods
immediately preceding that date equaled or exceeded the sum of the minimum quarterly distribution on all of the outstanding common and subordinated units during those periods on a fully diluted weighted average basis and the related distribution on
the general partner interest; and
|
|
|
|
there are no arrearages in payment of the minimum quarterly distribution on the common units.
|
Early Termination of Subordination Period
. Notwithstanding the foregoing, the subordination period will automatically
terminate on the first business day after the distribution to unitholders in respect of any quarter, if each of the following has occurred:
|
|
|
distributions of available cash from operating surplus on each of the outstanding common and subordinated units and the related distribution on the
general partner interest equaled or exceeded $2.025 (150.0% of the annualized minimum quarterly distribution) for the four-quarter period immediately preceding that date;
|
|
|
|
the adjusted operating surplus (as defined below) generated during the four-quarter period immediately preceding that date equaled or
exceeded the sum of $2.025 (150.0% of the annualized minimum quarterly distribution) on all of the outstanding common and subordinated units on a fully diluted weighted average basis and the related distribution on the general partner interest and
incentive distribution rights; and
|
|
|
|
there are no arrearages in payment of the minimum quarterly distributions on the common units.
|
Expiration Upon Removal of the General Partner
. In addition, if the unitholders remove our general partner other than for
cause:
|
|
|
the subordinated units held by any person will immediately and automatically convert into common units on a one-for-one basis, provided
(i) neither such person nor any of its affiliates voted any of its units in favor of the removal and (ii) such person is not an affiliate of the successor general partner; and
|
|
|
|
if all of the subordinated units convert pursuant to the foregoing, all cumulative common unit arrearages on the common units will be extinguished and
the subordination period will end.
|
Expiration of the Subordination Period
. When the
subordination period ends, each outstanding subordinated unit will convert into one common unit and will then participate pro-rata with the other common units in distributions of available cash.
Adjusted Operating Surplus
. Adjusted operating surplus is intended to reflect the cash generated from operations during a
particular period and therefore excludes net increases in working capital borrowings and net drawdowns of reserves of cash generated in prior periods. Adjusted operating surplus for any period consists of:
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|
|
operating surplus generated with respect to that period (excluding any amounts attributable to the items described in the first bullet point under
Operating Surplus and Capital SurplusOperating Surplus above); less
|
|
|
|
any net increase in working capital borrowings with respect to that period; less
|
|
|
|
any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to
that period; plus
|
|
|
|
any net decrease in working capital borrowings with respect to that period; plus
|
|
|
|
any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of
principal, interest or premium; plus
|
|
|
|
any net decrease made in subsequent periods in cash reserves for operating expenditures initially established with respect to such period to the extent
such decrease results in a reduction of adjusted operating surplus in subsequent periods pursuant to the third bullet point above.
|
28
Cash payments by any of our customers, including Chesapeake and Total, to settle a shortfall
associated with any minimum volume commitment under a gas gathering agreement will be operating surplus in the quarter in which they are actually received. An estimated, prorated amount of such payments, however, may be included in adjusted
operating surplus by our general partner in the manner generally described below. As described elsewhere in this prospectus, the cash settlement of any shortfall in actual volumes associated with the minimum volume commitments of Chesapeake and
Total will be settled in the year following the calendar year to which such volume commitments relate. In order to accommodate the rolling-four quarter test associated with expiration of the subordination period (relative to any after the period
payment associated with a shortfall in any minimum volume commitment), to the extent that the actual volumes (associated with a minimum volume commitment) in a particular quarter or quarters are less than the prorated minimum volume commitment
amount for such period, our general partner may add to adjusted operating surplus for such period an amount equal to such shortfall in actual volumes, multiplied by the then applicable gathering rate. The quarterly shortfall payment estimate would
be adjusted each subsequent quarter based on the level of actual volumes for such subsequent quarter and the preceding quarters of the period that remain subject to a minimum volume commitment (as compared to the prorated volume commitment for such
period). If the estimated amount of shortfall payments used by our general partner to increase adjusted operating surplus in prior quarters is more than any shortfall amount actually paid for a minimum volume commitment period as finally determined,
and subordinated units remain outstanding, then adjusted operating surplus shall be adjusted in each such quarter to give effect to the actual amount of the payment as if it had been received in such quarter to cover the shortfall in such quarter.
With respect to a quarter in which a shortfall amount is actually paid, adjusted operating surplus shall be reduced by an amount equal to the amount of quarterly shortfall payment estimates previously added by the general partner to adjusted
operating surplus with respect to such minimum volume commitment period.
Distributions of Available Cash From Operating Surplus During the
Subordination Period
Our partnership agreement requires that we make distributions of available cash from operating
surplus for any quarter during the subordination period in the following manner:
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|
|
first
, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an
amount equal to the minimum quarterly distribution for that quarter;
|
|
|
|
second
, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an
amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
|
|
|
|
third
, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding subordinated
unit an amount equal to the minimum quarterly distribution for that quarter; and
|
|
|
|
thereafter
, in the manner described in General Partner Interest and Incentive Distribution Rights below.
|
The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general
partner interest and that we do not issue additional classes of equity interests.
Distributions of Available Cash From Operating Surplus
After the Subordination Period
Our partnership agreement requires that we make distributions of available cash from
operating surplus for any quarter after the subordination period in the following manner:
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to the
minimum quarterly distribution for that quarter; and
|
|
|
|
thereafter
, in the manner described in General Partner Interest and Incentive Distribution Rights below.
|
29
The preceding discussion is based on the assumptions that our general partner maintains its
2.0% general partner interest and that we do not issue additional classes of equity interests.
General Partner Interest and Incentive
Distribution Rights
Our general partner is currently entitled to 2.0% of all distributions that we make prior to our
liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 2.0% general partner interest if we issue additional units. Our general partners 2.0% interest, and
the percentage of our cash distributions to which it is entitled, will be proportionately reduced if we issue additional units in the future (other than the issuance of common units upon conversion of outstanding subordinated units or the issuance
of common units upon a reset of the incentive distribution rights) and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest. Our partnership agreement does not require
that the general partner fund its capital contribution with cash and our general partner may fund its capital contribution by the contribution to us of common units or other property.
Incentive distribution rights represent the right to receive an increasing percentage (13.0%, 23.0% and 48.0%) of quarterly distributions
of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately
from its general partner interest, subject to restrictions in the partnership agreement.
The following discussion assumes
that our general partner maintains its 2.0% general partner interest, that there are no arrearages on common units and that our general partner continues to own the incentive distribution rights.
If for any quarter:
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|
|
we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly
distribution; and
|
|
|
|
we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in
payment of the minimum quarterly distribution;
|
then, our partnership agreement requires that we distribute any additional
available cash from operating surplus for that quarter among the unitholders and the general partner in the following manner:
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives a total of $0.388125 per unit for
that quarter (the first target distribution);
|
|
|
|
second
, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $0.421875 per unit for
that quarter (the second target distribution);
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|
|
|
third
, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives a total of $0.50625 per unit for
that quarter (the third target distribution); and
|
|
|
|
thereafter
, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
|
Percentage Allocations of Available Cash From Operating Surplus
The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner based on the specified 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 per unit. The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution
30
amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our general partner include its 2.0% general partner interest, assume our general
partner has contributed any additional capital to maintain its 2.0% general partner interest and has not transferred its incentive distribution rights and there are no arrearages on common units.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total quarterly distribution per unit
|
|
Marginal percentage interest in
distributions
|
|
|
|
Unitholders
|
|
|
General
partner
|
|
Minimum Quarterly Distribution
|
|
$0.3375
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
First Target Distribution
|
|
up to $0.388125
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
Second Target Distribution
|
|
above $0.388125 up to $0.421875
|
|
|
85.0
|
%
|
|
|
15.0
|
%
|
Third Target Distribution
|
|
above $0.421875 up to $ 0.50625
|
|
|
75.0
|
%
|
|
|
25.0
|
%
|
Thereafter
|
|
above $ 0.50625
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
General Partners Right to Reset Incentive Distribution Levels
Our general partner, as the holder of our incentive distribution rights, has the right under our partnership agreement to elect to
relinquish the right to receive incentive distribution payments based on the initial cash target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and cash target distribution levels upon which the
incentive distribution payments to our general partner would be set. Our general partners right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general
partner are based may be exercised, without approval of our unitholders or the conflicts committee of our general partner, at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the
incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum
quarterly distribution amount and the target distribution levels prior to the reset such that our general partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following
this event increase as described below. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions
per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.
In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding
relinquishment by our general partner of incentive distribution payments based on the target cash distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units based on a predetermined
formula described below that takes into account the cash parity value of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters prior to the reset event as
compared to the average cash distributions per common unit during this period. Our general partners general partner interest in us (currently 2.0%) will be maintained at the percentage immediately prior to the reset election.
The number of common units that our general partner would be entitled to receive from us in connection with a resetting of the minimum
quarterly distribution amount and the target distribution levels then in effect would be equal to the quotient determined by dividing (x) the average amount of cash distributions received by our general partner in respect of its incentive
distribution rights during the two consecutive fiscal quarters ended immediately prior to the date of such reset election by (y) the average of the amount of cash distributed per common unit during each of these two quarters.
31
Following a reset election by our general partner, the minimum quarterly distribution amount
will be reset to an amount equal to the average cash distribution amount per unit for the two fiscal quarters immediately preceding the reset election (which amount we refer to as the reset minimum quarterly distribution) and the target
distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives an amount per unit equal to 115.0% of
the reset minimum quarterly distribution for that quarter;
|
|
|
|
second
, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125.0%
of the reset minimum quarterly distribution for the quarter;
|
|
|
|
third
, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives an amount per unit equal to 150.0%
of the reset minimum quarterly distribution for the quarter; and
|
|
|
|
thereafter
, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
|
The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and our
general partner at various cash distribution levels (i) pursuant to the cash distribution provisions of our partnership agreement, as well as (ii) following a hypothetical reset of the minimum quarterly distribution and target distribution
levels based on the assumption that the average quarterly cash distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $0.60.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly distribution per
unit prior to
reset
|
|
Marginal percentage interest in
distribution
|
|
|
Quarterly distribution
per unit following
hypothetical reset
|
|
|
Unitholders
|
|
|
General partner
|
|
|
Minimum Quarterly Distribution
|
|
$0.3375
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
|
$0.60
|
First Target Distribution
|
|
up to $0.388125
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
|
up to $0.69(1)
|
Second Target Distribution
|
|
above $0.388125 up to $0.421875
|
|
|
85.0
|
%
|
|
|
15.0
|
%
|
|
above $0.69(1) up to $0.75(2)
|
Third Target Distribution
|
|
above $0.421875 up to $0.50625
|
|
|
75.0
|
%
|
|
|
25.0
|
%
|
|
above $0.75(2) up to $0.90(3)
|
Thereafter
|
|
above $0.50625
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
|
above $0.90(3)
|
(1)
|
This amount is 115.0% of the hypothetical reset minimum quarterly distribution.
|
(2)
|
This amount is 125.0% of the hypothetical reset minimum quarterly distribution.
|
(3)
|
This amount is 150.0% of the hypothetical reset minimum quarterly distribution.
|
32
The following table illustrates the total amount of available cash from operating surplus
that would be distributed to the unitholders and our general partner, including in respect of IDRs based on an average of the amounts distributed for a quarter for the two quarters immediately prior to the reset. The table assumes that immediately
prior to the reset there would be 138,161,160 common units outstanding, our general partner has maintained its 2.0% general partner interest, and the average distribution to each common unit would be $0.60 for the two quarters prior to the reset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
distribution
per unit
prior to
reset
|
|
Cash
distributions
to common
unitholders
prior to reset
|
|
|
Cash distributions to general partner prior to reset
|
|
|
|
|
|
|
|
Common
Units
|
|
|
2.0%
general
partner
interest
|
|
|
Incentive
distribution
rights
|
|
|
Total
|
|
|
Total
distributions
|
|
Minimum Quarterly Distribution
|
|
$0.3375
|
|
$
|
46,629,392
|
|
|
$
|
|
|
|
$
|
951,620
|
|
|
$
|
|
|
|
$
|
951,620
|
|
|
$
|
47,581,012
|
|
First Target Distribution
|
|
above $0.3375 up to $0.388125
|
|
|
6,994,409
|
|
|
|
|
|
|
|
142,743
|
|
|
|
|
|
|
|
142,743
|
|
|
|
7,137,152
|
|
Second Target Distribution
|
|
above $0.388125 up to $0.421875
|
|
|
4,662,939
|
|
|
|
|
|
|
|
109,716
|
|
|
|
713,155
|
|
|
|
822,871
|
|
|
|
5,485,810
|
|
Third Target Distribution
|
|
above $0.421875 up to $0.50625
|
|
|
11,657,348
|
|
|
|
|
|
|
|
310,863
|
|
|
|
3,574,920
|
|
|
|
3,885,783
|
|
|
|
15,543,131
|
|
Thereafter
|
|
above $0.50625
|
|
|
12,952,609
|
|
|
|
|
|
|
|
518,104
|
|
|
|
12,434,505
|
|
|
|
12,952,609
|
|
|
|
25,905,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,896,697
|
|
|
$
|
|
|
|
$
|
2,033,046
|
|
|
$
|
16,722,580
|
|
|
$
|
18,755,626
|
|
|
$
|
101,652,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
The following table illustrates the total amount of available cash from operating surplus
that would be distributed to the unitholders and our general partner, including in respect of IDRs, with respect to the quarter in which the reset occurs. The table reflects that as a result of the reset there would be 166,032,127 common units
outstanding, our general partners 2.0% interest has been maintained, and the average distribution to each common unit would be $0.60. The number of common units to be issued to our general partner upon the reset was calculated by dividing
(i) the average of the amounts received by our general partner in respect of its IDRs for the two quarters prior to the reset as shown in the table above, or $16,722,580, by (ii) the average available cash distributed on each common unit
for the two quarters prior to the reset as shown in the table above, or $0.60.
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Quarterly
distribution
per unit
after reset
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Cash
distributions
to common
unitholders
after reset
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Cash distributions to general partner after reset
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Common
Units issued in
connection
with reset
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2.0%
general
partner
interest
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Incentive
distribution
rights
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Total
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Total
distributions
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Minimum Quarterly Distribution
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$0.600
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$
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82,896,697
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$
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16,722,580
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$
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2,033,046
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$
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$
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18,755,626
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$
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101,652,323
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First Target Distribution
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up to
$0.690
above
$0.690
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Second Target Distribution
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up to
$0.750
Above
$0.750
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Third Target Distribution
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up to
$0.900
Above
$0.900
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Thereafter
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$
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82,896,697
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$
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16,722,580
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$
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2,033,046
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$
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$
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18,755,626
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$
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101,652,323
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Our general partner will be entitled to cause the minimum quarterly distribution amount and the target
distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the prior four consecutive fiscal quarters based on the highest level of
incentive distributions that it is entitled to receive under our partnership agreement.
Distributions From Capital Surplus
How Distributions from Capital Surplus Will Be Made
. Our partnership agreement requires that we make distributions of
available cash from capital surplus, if any, in the following manner:
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first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until the minimum quarterly distribution is reduced to zero, as
described below;
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second
, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each common unit, an amount of
available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and
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thereafter
, we will make all distributions of available cash from capital surplus as if they were from operating surplus.
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The preceding paragraph assumes that our general partner maintains its 2.0% general partner interest and
that we do not issue additional classes of equity securities.
34
Effect of a Distribution from Capital Surplus
. Our partnership agreement
treats a distribution of capital surplus as the repayment of the initial unit price from our IPO, which is a return of capital. 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 distribution had in relation to the fair market value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum quarterly
distribution and target distribution levels after any of these distributions are made, it may be easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution
of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.
If we reduce the minimum quarterly distribution to zero, all future distributions will be made such that 50.0% will be paid to the holders of units and 50.0% to our general partner. The percentage
interests shown for our general partner include its 2.0% general partner interest and assume our general partner has not transferred the incentive distribution rights.
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, our partnership agreement specifies that the following items will be proportionately adjusted:
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the minimum quarterly distribution;
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the target distribution levels;
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the initial unit price as described below; and
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the per unit amount of any outstanding arrearages in payment of the minimum quarterly distribution.
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For example, if a two-for-one split of the units should occur, the minimum quarterly distribution, the target distribution levels and the
initial unit price would each be reduced to 50.0% of its initial level. If we combine our common units into a lesser number of units or subdivide our common units into a greater number of units, we will combine or subdivide our subordinated units
using the same ratio applied to the common units. Our partnership agreement provides that we do not make any adjustment by reason of the issuance of additional units for cash or property.
In addition, if as a result of a change in law or interpretation thereof, we or any of our subsidiaries is treated as an association
taxable as a corporation or is otherwise subject to additional taxation as an entity for U.S. federal, state, local or non-U.S. income or withholding tax purposes, our general partner may, in its sole discretion, reduce the minimum quarterly
distribution and the target distribution levels for each quarter by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter (after deducting our general partners estimate of our additional
aggregate liability for the quarter for such income and withholdings taxes payable by reason of such change in law or interpretation) and the denominator of which is the sum of (1) available cash for that quarter, plus (2) our general
partners estimate of our additional aggregate liability for the quarter for such income and withholding taxes payable by reason of such change in law or interpretation thereof. To the extent that the actual tax liability differs from the
estimated tax liability for any quarter, the difference will be accounted for in distributions with respect to subsequent quarters.
Distributions of Cash Upon Liquidation
General
. If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of
liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and the general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other
disposition of our assets in liquidation.
35
The allocations of gain and loss upon liquidation are intended, to the extent possible, to
entitle the holders of units to a repayment of the initial value contributed by them to us for their units, which we refer to as the initial unit price for each unit. The initial unit price for the common units will be the price paid for
the common units issued in this offering. The allocations of gain and loss upon liquidation are also intended, to the extent possible, to entitle the holders of outstanding common units to a preference over the holders of outstanding subordinated
units upon our liquidation, to the extent required to permit common unitholders to receive their initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the
minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of these amounts, even though there may be cash available for distribution
to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights of our general partner.
Manner of Adjustments for Gain
. The manner of the adjustment for gain is set forth in the partnership agreement. If our
liquidation occurs before the end of the subordination period, we will allocate any gain to the partners in the following manner:
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first
, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion
to those negative balances;
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second
, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until the capital account for each common unit is equal to
the sum of: (i) the initial unit price; (ii) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and (iii) any unpaid arrearages in payment of the minimum quarterly distribution;
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third
, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until the capital account for each subordinated unit is
equal to the sum of: (i) the initial unit price; and (ii) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;
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fourth
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:
(i) 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 (ii) the cumulative amount per unit of any distributions of available cash from
operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98.0% to the unitholders, pro rata, and 2.0% to our general partner, for each quarter of our existence;
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fifth
, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:
(i) 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 (ii) the cumulative amount per unit of any distributions of available cash from
operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence;
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sixth
, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:
(i) 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 (ii) the cumulative amount per unit of any distributions of available cash from
operating surplus in excess of the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to our general partner for each quarter of our existence; and
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thereafter
, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
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The percentage interests set forth above for our general partner include its 2.0% general partner interest and assume our general partner
has not transferred the incentive distribution rights.
36
If the liquidation occurs after the end of the subordination period, the distinction between
common and subordinated units will disappear, so that clause (iii) of the second bullet point above and all of the third bullet point above will no longer be applicable.
Manner of Adjustments for Losses
. If our liquidation occurs before the end of the subordination period, we will generally allocate any loss to our general partner and the unitholders in the
following manner:
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first
, 98.0% to holders of subordinated units in proportion to the positive balances in their capital accounts and 2.0% to our general partner,
until the capital accounts of the subordinated unitholders have been reduced to zero;
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second
, 98.0% to the holders of common units in proportion to the positive balances in their capital accounts and 2.0% to our general partner,
until the capital accounts of the common unitholders have been reduced to zero; and
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thereafter
, 100.0% to our general partner.
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If the liquidation occurs after the end of the subordination period, the distinction between common and subordinated units will disappear, so that all of the first bullet point above will no longer be
applicable.
Adjustments to Capital Accounts
. Our partnership agreement requires that we make adjustments to
capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to the unitholders and the
general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we allocate any
later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the general partners capital account balances equaling the amount
which they would have been if no earlier positive adjustments to the capital accounts had been made.
37
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. We will provide prospective investors with a copy of
our partnership agreement upon request at no charge.
We summarize the following provisions of our partnership agreement
elsewhere in this prospectus:
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with regard to distributions of available cash, please read Provisions of our Partnership Agreement Relating to Cash Distributions;
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with regard to the transfer of common units, please read Description of Our Common UnitsTransfer of Common Units; and
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with regard to allocations of taxable income and taxable loss, please read Material U.S. Federal Income Tax Consequences.
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Organization and Duration
Our partnership was organized in January 2010 and will have a perpetual existence.
Purpose
Our purpose, as set forth in our partnership agreement, is limited to any business activity that is approved by our
general partner and that lawfully may be conducted by a limited partnership organized under Delaware law; provided, that our general partner shall not cause us to engage, directly or indirectly, in any business activity that the general partner
determines would be reasonably likely to cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes.
Although our general partner has the ability to cause us and our subsidiaries to engage in activities other than the business of natural gas, natural gas liquids and oil gathering, treating and
compression services, our general partner has no current plans to do so and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of
us or the limited partners. Our general partner is generally authorized to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business.
Cash Distributions
Our partnership agreement specifies the manner in which
we will make cash distributions to holders of our common units and other partnership securities as well as to our general partner in respect of its general partner interest and its incentive distribution rights. For a description of these cash
distribution provisions, please read Provisions of our Partnership Agreement Relating to Cash Distributions.
Capital
Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under
Limited Liability.
For a discussion of our general partners right to contribute capital to maintain
its 2% general partner interest if we issue additional units, please read Issuance of Additional Partnership Interests.
38
Voting Rights
The following is a summary of the unitholder vote required for approval of the matters specified below. Matters that require the approval of a unit majority require:
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during the subordination period, the approval of a majority of the common units, excluding those common units held by our general partner and its
affiliates, and a majority of the subordinated units, voting as separate classes; and
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after the subordination period, the approval of a majority of the common units.
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In voting their common and subordinated units, our general partner and its affiliates will have no fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners.
Issuance of additional units
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No approval right.
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Amendment of our partnership agreement
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Certain amendments may be made by our general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read
Amendment of the Partnership Agreement.
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Merger of our partnership or the sale of all or substantially all of our assets
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Unit majority in certain circumstances. Please read Merger, Consolidation, Conversion, Sale or Other Disposition of Assets.
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Dissolution of our partnership
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Unit majority. Please read Dissolution.
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Continuation of our business upon dissolution
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Unit majority. Please read Dissolution.
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Withdrawal of our general partner
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Under most circumstances, the approval of a majority of the common units, excluding common units held by our general partner and its affiliates, is required for the withdrawal of our general
partner prior to June 30, 2020 in a manner that would cause a dissolution of our partnership. Please read Withdrawal or Removal of Our General Partner.
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Removal of our general partner
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Not less than 66
2
/
3
percent of the outstanding units, voting as a single class, including units held by our general partner and its affiliates. Please read Withdrawal or Removal of Our General Partner.
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Transfer of our general partner interest
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Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its
merger or consolidation with or into, or sale of all or substantially all of its assets to, such person. The approval of a majority of the common units, excluding common units held by our general partner and its affiliates, is required in other
circumstances for a transfer of the general partner interest to a third party prior to June 30, 2020. Please read Transfer of General Partner Interest.
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39
Transfer of incentive distribution rights
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Except for transfers to an affiliate or to another person as part of our general partners merger or consolidation, sale of all or substantially all of its assets, the sale of all of the
ownership interests in our general partner, the pledge, hypothecation, mortgage, encumbrance, grant of a lien, collateralization, or other grant of a security interest in the incentive distribution rights in favor a person providing bona-fide debt
financing to such holder as security or collateral for such debt financing and the transfer of incentive distribution rights in connection with exercise of any remedy of such person in connection therewith, the approval of a majority of the common
units, excluding common units held by our general partner and its affiliates, is required in most circumstances for a transfer of the incentive distribution rights to a third party prior to June 30, 2020. Please read Transfer of
Incentive Distribution Rights.
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Transfer of ownership interests in our general partner
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No approval required at any time. Please read Transfer of Ownership Interests in the General Partner.
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If any person or group other than our general partner and its affiliates acquires beneficial ownership of 20% or more of any class of
units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires the units from our general partner, its affiliates, their direct transferees and their indirect
transferees approved by our general partner in its sole discretion or to any person or group who acquires the units with the specific prior approval of our general partner.
Applicable Law; Forum, Venue and Jurisdiction
Our partnership agreement is
governed by Delaware law. Our partnership agreement requires that any claims, suits, actions or proceedings:
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arising out of or relating in any way to the partnership agreement (including any claims, suits or actions to interpret, apply or enforce the
provisions of the partnership agreement) or the duties, obligations or liabilities among limited partners or of limited partners, or the rights or powers of, or restrictions on, the limited partners or us;
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brought in a derivative manner on our behalf;
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asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of us or our general partner, or owed by our general
partner, to us or the limited partners;
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asserting a claim arising pursuant to any provision of the Delaware Act; and
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asserting a claim governed by the internal affairs doctrine
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shall be exclusively brought in the Court of Chancery of the State of Delaware, regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on
common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or
proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware in connection with any such claims, suits, actions or proceedings.
40
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that he otherwise acts in conformity with the provisions of the partnership
agreement, his liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to us for his common units plus his share of any undistributed profits and assets. However, if it
were determined that the right, or exercise of the right, by the limited partners as a group:
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to remove or replace our general partner;
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to approve some amendments to our partnership agreement; or
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to take 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 under the reasonable belief that the limited partner is a general partner. Neither our partnership agreement nor the Delaware
Act specifically provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of 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 partnership, would exceed the fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides
that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the distribution for three years.
Under the Delaware Act, a substituted limited partner of a limited partnership is liable for the obligations of his assignor to make contributions to the partnership, except that such person is not obligated for liabilities unknown to him at the
time he became a limited partner and that could not be ascertained from the partnership agreement.
Our subsidiaries conduct
business in five states and we may have subsidiaries that conduct business in other states in the future. Maintenance of our limited liability as a member of our primary operating subsidiary, Chesapeake MLP Operating, L.L.C., which we refer to as
our operating company, may require compliance with legal requirements in the jurisdictions in which the operating company conducts business, including qualifying our subsidiaries to do business there.
Limitations on the liability of members or limited partners for the obligations of a limited liability company or limited partnership
have not been clearly established in many jurisdictions. If, by virtue of our ownership interest in our operating company or otherwise, it were determined that we were conducting business in any state without compliance with the applicable limited
partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace our general partner, to approve some 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 the 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.
41
Issuance of Additional Partnership Interests
Our partnership agreement authorizes us to issue an unlimited number of additional partnership interests for the consideration and on the
terms and conditions determined by our general partner without the approval of the unitholders.
It is possible that we will
fund acquisitions through the issuance of additional common units, subordinated units or other partnership interests. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in
our distributions of available cash. In addition, the issuance of additional common units or other partnership interests may dilute the value of the interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership interests that,
as determined by our general partner, may have special voting rights to which the common units are not entitled. In addition, our partnership agreement does not prohibit our subsidiaries from issuing equity securities, which may effectively rank
senior to the common units.
Upon issuance of additional partnership interests (other than the issuance of common units upon
conversion of outstanding subordinated units or the issuance of common units upon a reset of the incentive distribution rights) our general partner will be entitled, but not required, to make additional capital contributions to the extent necessary
to maintain its 2.0% general partner interest in us. Our general partners 2.0% interest in us will be reduced if we issue additional units in the future (other than in those circumstances described above) and our general partner does not
contribute a proportionate amount of capital to us to maintain its 2.0% general partner interest. Moreover, our general partner has the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common
units, subordinated units or other partnership interests whenever, and on the same terms that, we issue those interests to persons other than our general partner and its affiliates and beneficial owners, to the extent necessary to maintain the
percentage interest of the general partner and its affiliates, including such interest represented by common and subordinated units, that existed immediately prior to each issuance. The holders of common units do not have preemptive rights under our
partnership agreement to acquire additional common units or other partnership interests.
Amendment of the Partnership Agreement
General
. Amendments to our partnership agreement may be proposed only by or with the consent of our general
partner. However, our general partner has no duty or obligation to propose any amendment and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the
best interests of us or the limited partners. In order to adopt a proposed amendment, other than the amendments discussed below, our general partner is required to seek written approval of the holders of the number of units required to approve the
amendment or to call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a unit majority.
Prohibited Amendments
. No amendment may be made that would:
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enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner
interests so affected; or
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enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise
payable by us to our general partner or any of its affiliates without the consent of our general partner, which consent may be given or withheld in its sole discretion.
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42
The provision of our partnership agreement preventing the amendments having the effects
described in the clauses above can be amended upon the approval of the holders of at least 90.0 percent of the outstanding units, voting as a single class (including units owned by our general partner and its affiliates).
No Unitholder Approval
. Our general partner may generally make amendments to our partnership agreement without the approval
of any limited partner to reflect:
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a change in our name, the location of our principal place of business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership or a
partnership in which the limited partners have limited liability under the laws of any state or to ensure that neither we nor any of our subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes (to the extent not already so treated);
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an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents or trustees from
in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisers Act of 1940 or plan asset regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or
not substantially similar to plan asset regulations currently applied or proposed;
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an amendment that our general partner determines to be necessary or appropriate in connection with the creation, authorization or issuance of
additional partnership interests or the right to acquire partnership interests;
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any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our partnership agreement;
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any amendment that our general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation,
partnership or other entity, as otherwise permitted by our partnership agreement;
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a change in our fiscal year or taxable year and related changes;
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conversions into, mergers with or conveyances to another limited liability entity that is newly formed and has no assets, liabilities or operations at
the time of the conversion, merger or conveyance other than those it receives by way of the conversion, merger or conveyance; or
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any other amendments substantially similar to any of the matters described in the clauses above.
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In addition, our general partner may make amendments to our partnership agreement, without the approval of any limited partner, if our
general partner determines that those amendments:
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do not adversely affect the limited partners (or any particular class of limited partners) in any material respect;
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are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of
any federal or state agency or judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of
any securities exchange on which the limited partner interests are or will be listed for trading;
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are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of our
partnership agreement; or are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement.
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Opinion of Counsel and Unitholder Approval
. Any amendment that our general partner determines adversely affects in any
material respect one or more particular classes of limited partners will require the approval of at least a majority of the class or classes so affected, but no vote will be required by any class or classes of limited partners that our general
partner determines are not adversely affected in any material respect. Any amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to other classes of units will require
the approval of at least a majority of the type or class of units so affected. Any amendment that reduces the voting percentage required to take any action, other than to remove the general partner or call a meeting, is required to be approved by
the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced. Any amendment that increases the voting percentage required to remove the general partner or call a
meeting of unitholders must be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be increased. For amendments of the type not requiring unitholder
approval, our general partner is not required to obtain an opinion of counsel that an amendment will neither result in a loss of limited liability to the limited partners nor result in our being treated as a taxable entity for federal income tax
purposes in connection with any of the amendments. No other amendments to our partnership agreement will become effective without the approval of holders of at least 90% of the outstanding units, voting as a single class, unless we first obtain an
opinion of counsel to the effect that the amendment will not affect the limited liability under applicable law of any of our limited partners.
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets
A merger, consolidation or conversion of us requires the prior consent of our general partner. However, our general partner has no duty or obligation to consent to any merger, consolidation or conversion
and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interest of us or the limited partners.
In addition, our partnership agreement generally prohibits our general partner, without the prior approval of the holders of a unit
majority, from causing us to sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions. Our general partner may, however, mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of our assets without such approval. Our general partner may also sell all or substantially all of our assets under a foreclosure or other realization upon those encumbrances without such approval.
Finally, our general partner may consummate any merger without the prior approval of our unitholders if we are the surviving entity in the transaction, our general partner has received an opinion of counsel regarding limited liability and tax
matters, the transaction would not result in a material amendment to the partnership agreement (other than an amendment that the general partner could adopt without the consent of the limited partners), each of our units will be an identical unit of
our partnership following the transaction and the partnership interests to be issued do not exceed 20% of our outstanding partnership interests (other than the incentive distribution rights) immediately prior to the transaction.
If the conditions specified in our partnership agreement are satisfied, our general partner may convert us or any of our subsidiaries
into a new limited liability entity or merge us or any of our subsidiaries into, or convey all of our assets to, a newly formed entity, if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into
another limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax matters and the governing instruments of the new entity provide the limited partners and our general partner with the same
rights and obligations as contained in our partnership agreement. Our unitholders are not entitled to dissenters rights of appraisal under our partnership agreement or applicable Delaware law in the event of a conversion, merger or
consolidation, a sale of substantially all of our assets or any other similar transaction or event.
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Dissolution
We will continue as a limited partnership until dissolved under our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our partnership; or
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the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than by reason of a
transfer of its general partner interest in accordance with our partnership agreement or its withdrawal or removal following the approval and admission of a successor.
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Upon a dissolution under the last clause above, the holders of a unit majority may also elect, within specific time limitations, to
continue our business on the same terms and conditions described in our partnership agreement by appointing as a successor general partner an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion
of counsel to the effect that:
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the action would not result in the loss of limited liability under Delaware law of any limited partner; and
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neither our partnership, our operating company nor any of our other subsidiaries would be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue (to the extent not already so treated or taxed).
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Liquidation and Distribution of Proceeds
Upon our dissolution, unless our
business is continued, the liquidator authorized to wind up our affairs will, acting with all of the powers of our general partner that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as described in
Provisions of our Partnership Agreement Relating to Cash DistributionsDistributions of Cash Upon Liquidation. The liquidator may defer liquidation or distribution of our assets for a reasonable period of time or distribute assets
to partners in kind if it determines that a sale would be impractical or would cause undue loss to our partners.
Withdrawal or Removal of
Our General Partner
Except as described below, our general partner has agreed not to withdraw voluntarily as our general
partner prior to June 30, 2020 without obtaining the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, and furnishing an opinion of counsel
regarding limited liability and tax matters. On or after June 30, 2020, our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days written notice, and that withdrawal will not
constitute a violation of our partnership agreement. Notwithstanding the information above, our general partner may withdraw without unitholder approval upon 90 days notice to the limited partners if at least 50 percent of the outstanding
common units are held or controlled by one person and its affiliates, other than our general partner and its affiliates. 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. Please read Transfer of General Partner Interest and Transfer of Incentive Distribution Rights.
Upon withdrawal of our general partner under any circumstances, other than as a result of a transfer by our general partner of all or a
part of its general partner interest in us, the holders of a unit majority may select a
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successor to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, we will be
dissolved, wound up and liquidated, unless within a specified period after that withdrawal, the holders of a unit majority agree in writing to continue our business and to appoint a successor general partner. Please read
Dissolution.
Our general partner may not be removed unless that removal is approved by
the vote of the holders of not less than 66
2
/
3
percent of the outstanding units, voting together as a single class, including units held by our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of our general partner
is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units, voting as a class, and the outstanding subordinated units, voting as a class. The ownership of more than 33
1
/
3
percent of the outstanding units by our general
partner and its affiliates gives them the ability to prevent our general partners removal.
Our
partnership agreement also provides that if our general partner is removed as our general partner under circumstances where cause does not exist:
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the subordinated units held by any person will immediately and automatically convert into common units on a one-for-one basis, provided
(i) neither such person nor any of its affiliates voted any of its units in favor of the removal and (ii) such person is not an affiliate of the successor general partner; and
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if all of the subordinated units convert pursuant to the foregoing, all cumulative common unit arrearages on the common units will be extinguished and
the subordination period will end.
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In the event of the removal of our general partner under circumstances
where cause exists or withdrawal of our general partner where that withdrawal violates our partnership agreement, a successor general partner will have the option to purchase the general partner interest and incentive distribution rights of the
departing general partner for a cash payment equal to the fair market value of those interests. Under all other circumstances where our general partner withdraws or is removed by the limited partners, the departing general partner will have the
option to require the successor general partner to purchase the general partner interest and the incentive distribution rights of the departing general partner or its affiliates for fair market value. In each case, this fair market value will be
determined by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert selected by the departing general partner and the
successor general partner will determine the fair market value. Or, if the departing general partner and the successor general partner cannot agree upon an expert, then an expert chosen by agreement of the experts selected by each of them will
determine the fair market value.
If the option described above is not exercised by either the departing general partner or
the successor general partner, the departing general partners general partner interest and all of its or its affiliates incentive distribution rights will automatically convert into common units equal to the fair market value of those
interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.
In addition, we will be required to reimburse the departing general partner for all amounts due the departing general partner, including, without limitation, all employee-related liabilities, including
severance liabilities incurred as a result of the termination of any employees employed for our benefit by the departing general partner or its affiliates.
Transfer of General Partner Interest
Except for transfer by our general
partner of all, but not less than all, of its general partner interest to:
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an affiliate of our general partner (other than an individual); or
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another entity as part of the merger or consolidation of our general partner with or into another entity or the transfer by our general partner of all
or substantially all of its assets to another entity,
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our general partner may not transfer all or any of its general
partner interest to another person prior to June 30, 2020 without the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our general partner and its affiliates. As a condition of this
transfer, the transferee must, among other things, assume the rights and duties of our general partner, agree to be bound by the provisions of our partnership agreement and furnish an opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may, at any time, transfer common units or subordinated units to one or more persons,
without unitholder approval, except that they may not transfer subordinated units to us.
Transfer of Ownership Interests in the General
Partner
At any time, the owners of our general partner may sell or transfer all or part their ownership 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 its affiliates or a subsequent holder may (i) transfer its incentive distribution rights to an
affiliate of the holder (other than an individual) or another entity as part of the merger or consolidation of such holder with or into another entity, the sale of all of the ownership interests in such holder or the sale of all or substantially all
of such holders assets to that entity or (ii) pledge, hypothecate, mortgage, encumber, grant a lien, collateralize, or grant a security interest in the incentive distribution rights in favor of a person providing bona-fide debt financing
to such holder as security or collateral for such debt financing and the transfer of incentive distribution rights in connection with exercise of any remedy of such person in connection therewith, without the prior approval of the unitholders. Prior
to June 30, 2020, any other transfer of incentive distribution rights will require the affirmative vote of holders of a majority of the outstanding common units, excluding common units held by our general partner and its affiliates. On or after
June 30, 2020, the incentive distribution rights will be freely transferable.
Change of Management Provisions
Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove
Chesapeake Midstream GP, L.L.C. as our general partner or from otherwise changing our management. Please read Withdrawal or Removal of Our General Partner for a discussion of certain consequences of the removal of our general
partner. If any person or group, other than our general partner and its affiliates, acquires beneficial ownership of 20% or more of any class of units, that person or group loses voting rights on all of its units. This loss of voting rights does not
apply in certain circumstances. Please read Meetings; Voting.
Limited Call Right
If at any time our general partner and its affiliates own more than 80% of the then-issued and outstanding limited partner interests of
any class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or beneficial owners thereof or to us, to acquire all, but not less than all, of the limited partner interests of the class held by
unaffiliated persons as of a record date to be selected by our general partner, on at least 10, but not more than 60, days notice. The purchase price in the event of this purchase is the greater of:
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the highest price paid by our general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days
preceding the date on which our general partner first mails notice of its election to purchase those limited partner interests; and
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the average of the daily closing prices of the partnership securities of such class over the 20 trading days preceding the date three days before the
date the notice is mailed.
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As a result of our general partners right to purchase outstanding limited partner
interests, a holder of limited partner interests may have his limited partner interests purchased at an undesirable time or 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. Please read Material U.S. Federal Income Tax
ConsequencesDisposition of Common Units.
Non-Citizen Assignees; Redemption
If our general partner, with the advice of counsel, determines we are subject to U.S. 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, then our
general partner may adopt such amendments to our partnership agreement as it determines necessary or advisable to:
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obtain proof of the nationality, citizenship or other related status of our member (and their owners, to the extent relevant); and
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permit us to redeem the units held by any person whose nationality, citizenship or other related status creates substantial risk of cancellation or
forfeiture of any property or who fails to comply with the procedures instituted by our general partner to obtain proof of the nationality, citizenship or other related status. The redemption price in the case of such a redemption will be the
average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.
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Non-Taxpaying Assignees; Redemption
In the event any rates that we charge
our customers become regulated by the Federal Energy Regulatory Commission, to avoid any adverse effect on the maximum applicable rates chargeable to customers by us, or in order to reverse an adverse determination that has occurred regarding such
maximum rate, our partnership agreement provides our general partner the power to amend the agreement. If our general partner, with the advice of counsel, determines that our not being treated as an association taxable as a corporation or otherwise
taxable as an entity for U.S. federal income tax purposes, coupled with the tax status (or lack of proof thereof) of one or more of our limited partners, has, or is reasonably likely to have, a material adverse effect on the maximum applicable rates
chargeable to customers by us, then our general partner may adopt such amendments to our partnership agreement as it determines necessary or advisable to:
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obtain proof of the U.S. federal income tax status of our member (and their owners, to the extent relevant); and
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permit us to redeem the units held by any person whose tax status has or is reasonably likely to have a material adverse effect on the maximum
applicable rates or who fails to comply with the procedures instituted by our general partner to obtain proof of the U.S. federal income tax status. The redemption price in the case of such a redemption will be the average of the daily closing
prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.
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Meetings; Voting
Except as described below regarding certain persons or groups owning 20% or more of any class of units then outstanding,
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.
Our general partner does not anticipate that any meeting of our unitholders will be called in the foreseeable future. Any action that is
required or permitted to be taken by the unitholders may be taken either at a meeting of
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the unitholders or without a meeting, if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting.
Meetings of the unitholders may be called by our general partner or by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders
of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum, unless any action by the unitholders requires approval by holders of a greater
percentage of the units, in which case the quorum will be the greater percentage.
Each record holder of a unit has a vote
according to his percentage interest in us, although additional limited partner interests having special voting rights could be issued. Please read Issuance of Additional Interests. However, if at any time any person or group,
other than our general partner and its affiliates, or a direct or subsequently approved (at the time of transfer) transferee of our general partner or its affiliates and purchasers specifically approved by our general partner in its sole discretion,
acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. Common units held in nominee or street name account will be voted by the broker or other
nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise. Except as our partnership agreement otherwise provides, subordinated units will vote together
with common units, as a single class.
Any notice, demand, request, report or proxy material required or permitted to be given
or made to record holders of common units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.
Status as Limited Partner
By transfer of common units in accordance with
our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission are reflected in our books and records. Except as described under
Limited Liability, the common units will be fully paid, and unitholders will not be required to make additional contributions.
Indemnification
Under our partnership agreement, in most circumstances, we
will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:
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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 manager, managing member, director, officer, employee, agent, fiduciary or trustee of our partnership, our subsidiaries, our
general partner, any departing general partner or any of their affiliates;
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any person who is or was serving as a manager, managing member, director, officer, employee, agent, fiduciary or trustee of another person owing a
fiduciary duty to us or our subsidiaries;
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any person who controls our general partner or any departing general partner; and
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any person designated by our general partner.
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Any indemnification under these provisions will only be out of our assets. Unless our
general partner otherwise agrees, it will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against
and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our partnership agreement.
Reimbursement of Expenses
Our partnership agreement requires us to
reimburse our general partner and its affiliates for all expenses they incur or payments they make on our behalf. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our
behalf and expenses allocated to our general partner by its affiliates. Our general partner is entitled to determine in good faith the expenses that are allocable to us.
Books and Reports
Our general partner is required to keep appropriate
books of our business at our principal offices. These books will be maintained for both tax and financial reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar year.
We will furnish or make available to record holders of our common units, within 90 days (or such shorter time as required by SEC rules)
after the close of each fiscal year, an annual report containing audited consolidated financial statements and a report on those consolidated financial statements by our independent public accountants. Except for our fourth quarter, we will also
furnish or make available summary financial information within 45 days (or such shorter time as required by SEC rules) after the close of each quarter. We will be deemed to have made any such report available if we file such report with the SEC on
EDGAR or make the report available on a publicly available website which we maintain.
We will furnish each record holder with
information reasonably required for federal and state tax reporting purposes within 90 days after the close of each calendar year. This information is expected to be furnished in summary form so that some complex calculations normally required of
partners can be avoided. Our ability to furnish this summary information to our unitholders will depend on their cooperation in supplying us with specific information. Every unitholder will receive information to assist him in determining his
federal and state tax liability and in filing his federal and state income tax returns, regardless of whether he supplies us with the necessary information.
Right to Inspect Our Books and Records
Our partnership agreement provides
that a limited partner can, for a purpose reasonably related to his interest as a limited partner, upon reasonable written demand stating the purpose of such demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each partner;
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a copy of our tax returns;
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information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be
contributed by each partner and the date on which each partner became a partner;
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copies of our partnership agreement, our certificate of limited partnership and related amendments and powers of attorney under which they have been
executed;
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information regarding the status of our business and our financial condition; and
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any other information regarding our affairs as is just and reasonable.
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Our general partner may, and intends to, keep confidential from the limited partners trade
secrets or other information the disclosure of which our general partner believes in good faith is not in our best interests or that we are required by law or by agreements with third parties to keep confidential.
Operating Agreement of Chesapeake MLP Operating, L.L.C.
We conduct all of our operations through Chesapeake MLP Operating, L.L.C. and its subsidiaries. Under the amended and restated limited liability company agreement of Chesapeake MLP Operating, L.L.C., the
management of Chesapeake MLP Operating, L.L.C. is vested in us. As the sole member, we have the authority to cause Chesapeake MLP Operating, L.L.C. to make distributions to us, among other things, as required.
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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 unitholders. To the extent
this section discusses federal income taxes, that discussion is based upon current provisions of the U.S. Internal Revenue Code of 1986, as amended (the Code), existing and proposed U.S. 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 unitholder to vary
substantially from those described below.
Legal conclusions contained in this section, unless otherwise noted, are the
opinion of Bracewell & Giuliani LLP 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. Furthermore,
this section focuses on unitholders who are individual citizens or residents of the United States (for federal income tax purposes), whose functional currencies are the U.S. dollar and who hold units as capital assets (generally, property that is
held for investment). This section has limited applicability to corporations, partnerships, entities treated as partnerships for U.S. 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, because each unitholder may have unique
circumstances beyond the scope of the discussion herein, we encourage each unitholder to consult such unitholders own tax advisor in analyzing the federal, state, local and non-U.S. tax consequences that are particular to that unitholder
resulting from its ownership or disposition of its units.
We are relying on opinions and advice of Bracewell &
Giuliani LLP 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 courts. 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 our units and the prices at which such units trade. In addition, our
costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our cash available for distribution. Furthermore, our tax treatment, or the tax treatment of an investment in us, may
be significantly modified by future legislative or administrative changes or court decisions, which might be retroactively applied.
For the reasons described below, Bracewell & Giuliani LLP has not rendered an opinion with respect to the following federal income tax issues: (1) the treatment of a unitholder whose units
are loaned to a short seller to cover a short sale of units (please read Tax Consequences of Unit OwnershipTreatment of Short Sales); (2) whether our monthly convention for allocating taxable income and losses is
permitted by existing Treasury Regulations (please read Disposition of Units Allocations 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).
Taxation of the Partnership
Partnership Status
. We expect to
be treated as a partnership for federal income tax purposes and, therefore, we generally will not be liable for federal income taxes. Instead, as described below, each of our 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 unitholder had earned such income directly, even if no cash distributions are made to the unitholder. Distributions by us to a unitholder generally will not
give rise to income or gain taxable to such unitholder, unless the amount of cash distributed to a unitholder exceeds the unitholders adjusted tax basis in its units.
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
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it is publicly traded consists of qualifying income, the partnership may continue to be treated as a partnership for U.S. federal income tax purposes (the Qualifying Income
Exception). Qualifying income includes (i) income and gains derived from the transportation, storage and processing of crude oil, natural gas and products thereof, (ii) interest (other than from a financial business),
(iii) dividends, (iv) gains from the sale of real property and (v) gains from the sale or other disposition of capital assets held for the production of qualifying income. We estimate that less than 5% of our current gross income is
not qualifying income; however, this estimate could change from time to time.
Based upon factual representations made by us
and our general partner regarding the composition of our income and the other representations set forth below, Bracewell & Giuliani LLP is of the opinion that we will be treated as a partnership and our operating company will be disregarded
as an entity separate from us for federal income tax purposes. In rendering its opinion, Bracewell & Giuliani LLP has relied on factual representations made by us and our general partner. The representations made by us and our general
partner upon which Bracewell & Giuliani LLP has relied include, without limitation:
(a) Neither we
nor the operating company has elected or will elect to be treated as a corporation; and
(b) For each taxable
year since and including the year of our initial public offering, more than 90% of our gross income has been and will be income of a character that Bracewell & Giuliani LLP 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 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 distributing that stock to our unitholders in liquidation of their
units. This deemed contribution and liquidation should not result in the recognition of taxable income by our 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.
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 unitholders. Accordingly, our taxation as a corporation
would materially reduce our cash distributions to unitholders and thus would likely substantially reduce the value of our units. In addition, any distribution made to a unitholder would be treated as (i) taxable dividend income 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 our units and thereafter (iii) taxable capital gain.
The remainder of this discussion assumes that we will be treated as a partnership for federal income tax purposes.
Tax Consequences of Unit Ownership
Limited Partner Status
. Unitholders who are admitted as limited partners of Chesapeake Midstream Partners, L.P., as well as unitholders whose 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 units, will be treated as partners of Chesapeake Midstream Partners, L.P. for federal income tax purposes. 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 Short Sales. 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.
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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 unitholders, we will not pay any federal income tax. Rather, each 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
unitholder even if that unitholder has not received a cash distribution.
Basis of Units
. A unitholders
tax basis in its units initially will be the amount it paid for those units plus its initial share of our nonrecourse liabilities. That basis generally will be (i) increased by the unitholders share of our income and any increases in such
unitholders share of our nonrecourse liabilities, and (ii) decreased, but not below zero, by distributions to it, by its share of our losses, by any decreases in its share of our nonrecourse liabilities and by its share of our
expenditures that are neither deductible nor required to be capitalized.
Treatment of Distributions
.
Distributions made by us to a unitholder generally will not be taxable to the unitholder, unless such distributions exceed the unitholders tax basis in its units, in which case the unitholder will recognize gain taxable in the manner described
below under Disposition of Units.
Any reduction in a unitholders share of our nonrecourse
liabilities (liabilities for which no partner bears the economic risk of loss) will be treated as a distribution by us of cash to that unitholder. A decrease in a unitholders percentage interest in us because of our issuance of
additional units will decrease the unitholders share of our nonrecourse liabilities. For purposes of the foregoing, a unitholders share of our nonrecourse liabilities generally will be based upon that unitholders share of the
unrealized appreciation (or depreciation) in our assets, to the extent thereof, with any excess liabilities allocated based on the unitholders share of our profits. Please read Disposition of Units.
A non-pro rata distribution of money or property (including a deemed distribution described above) may cause a unitholder to recognize
ordinary income, if the distribution reduces the unitholders share of our unrealized receivables, including depreciation recapture and substantially appreciated inventory items, both as defined in Section 751 of
the Code (Section 751 Assets). To the extent of such reduction, the 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 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
unitholders tax basis (generally zero) in the Section 751 Assets deemed to be relinquished in the exchange.
Limitations on Deductibility of Losses
. The deduction by a unitholder of its share of our losses will be limited to the
lesser of (i) the unitholders tax basis in its units, and (ii) in the case of a unitholder who is an individual, estate, trust or corporation (if more than 50% of the corporations stock is owned directly or indirectly by or for
five or fewer individuals or a specific type of tax exempt organization), the amount for which the unitholder is considered to be at risk with respect to our activities. In general, a 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 basis and at risk limitation must recapture losses deducted in previous years to
the extent that distributions (including distributions as a result of 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 these 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
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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.
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 be available to offset only our passive
income generated in the future. 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 all of his 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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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. Such term generally does not include qualified dividend income or gains attributable to the disposition of property held for investment. A unitholders share of a
publicly traded partnerships portfolio income and, according to the IRS, net passive income will be treated as investment income for purposes of the investment interest expense limitation.
Entity-Level Collections of Unitholder Taxes
. If we are required or elect under applicable law to pay any federal, state,
local or non-U.S. tax on behalf of any current or former unitholder or our general partner, we are authorized to pay those taxes and treat the payment as a distribution of cash to the relevant unitholder or general partner. Where the relevant
unitholders 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 a unitholder, in which event the unitholder may be entitled to claim a refund of the overpayment amount. Unitholders are urged to consult their tax
advisors to determine the consequences to them of any tax payment we make on their behalf.
Allocation of Income, Gain,
Loss and Deduction
. In general, if we have a net profit, our items of income, gain, loss and deduction will be allocated among the general partner and our unitholders in accordance with their percentage interests in us. If we have a net
loss, our items of income, gain, loss and deduction will be allocated first among the general partner and our unitholders in accordance with their percentage interests in us to the extent of their positive capital accounts and thereafter to our
general partner. At any time that distributions are made to the common units and not to the subordinated units, or that incentive distributions are made to the general partner, gross income will be allocated to the recipients to the extent of such
distributions.
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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 we issue additional units (a Book-Tax Disparity). In
addition, items of recapture income will be specially allocated to the extent possible to the 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 substantially economic effect, it will be reallocated to our 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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our partners relative contributions to us;
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the interests of all of our partners in profits and losses;
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the interest of all of our partners in cash flow; and
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the rights of all of our partners to distributions of capital upon liquidation.
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Bracewell & Giuliani LLP is of the opinion that, with the exception of the issues described in Section 754
Election and Disposition of UnitsAllocations Between Transferors and Transferees, allocations under our partnership agreement will have substantial economic effect.
Treatment of Short Sales
. A unitholder whose units are loaned to a short seller to cover a short sale of units
may be treated as having disposed of those units. If so, such 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 unitholder, and (ii) any cash distributions received by the unitholder as to those units would be fully
taxable, possibly as ordinary income.
Due to the lack of controlling authority, Bracewell & Giuliani LLP has not
rendered an opinion regarding the tax treatment of a unitholder whose units are loaned to a short seller to cover a short sale of our units. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan
to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing 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 UnitsRecognition of Gain or Loss.
Alternative
Minimum Tax
. If a unitholder is subject to federal alternative minimum tax, such tax will apply to such unitholders distributive share of any items of our income, gain, loss or deduction. The current alternative minimum tax rate for
non-corporate taxpayers is 26% on the first $175,000 of alternative minimum taxable income in excess of the exemption amount and 28% on any additional alternative minimum taxable income. Prospective unitholders are urged to consult with their tax
advisors with respect to the impact of an investment in our units on their alternative minimum tax liability.
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 35% and 15%, respectively. However, absent new legislation extending the current rates, beginning January 1, 2013, the highest marginal federal income tax rate applicable to ordinary income and long-term capital gains of individuals
will increase to 39.6% and 20%, respectively. These rates are subject to change by new legislation at any time.
A 3.8%
Medicare tax on certain investment income earned by individuals, estates, and trusts will apply for taxable years beginning after December 31, 2012. For these purposes, investment income generally includes a
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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 from all investments, 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.
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 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 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 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 unitholders purchasing units from us and unitholders
purchasing units 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 Uniformity 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 positions are consistent with the methods employed by other publicly traded partnerships but are inconsistent with the existing
Treasury Regulations, and Bracewell & Giuliani LLP 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 a lack of controlling authority. Because a 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 unitholders basis in its units, and may cause the unitholder to understate gain or overstate loss on any sale of such units.
Please read Disposition of 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 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
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income its share of our income, gain, loss and deduction for each taxable year ending within or with its 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 its units following the close of our taxable year but before the close of its taxable year must include its share of our income, gain, loss and deduction in income for its taxable year, with the result
that it will be required to include in income for its taxable year its share of more than one year of our income, gain, loss and deduction. Please read Disposition of 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 such 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 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 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 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 unitholders could change, and unitholders could be required to adjust their tax liability for prior years and incur interest and penalties with respect to those
adjustments.
Disposition of Units
Recognition of Gain or Loss
. A unitholder will be required to recognize gain or loss on a sale of units equal to the difference between the unitholders amount realized and tax basis
for the units sold. A 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
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 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 unitholder may recognize both
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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 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 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 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 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.
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 unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month (the
Allocation Date). However, gain or loss realized on a sale or other disposition of our assets or, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction will be allocated among the
unitholders on the Allocation Date in the month in which such income, gain, loss or deduction is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the Code and most publicly traded partnerships use similar simplifying
conventions, the use of this method may not be permitted under existing Treasury Regulations. Recently, however, the Department of the Treasury and the IRS issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly
traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders, although such tax items must be prorated on a daily basis. Nonetheless, the proposed regulations do not
specifically authorize the use of
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the proration method we have adopted. Accordingly, Bracewell & Giuliani LLP is unable to opine on the validity of this method of allocating income and deductions between transferee and
transferor unitholders. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholders interest, our taxable income or losses might be reallocated among the unitholders. We are
authorized to revise our method of allocation between transferee and transferor unitholders, as well as among unitholders whose interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.
A 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 of its 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 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 unitholders. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may result in more than twelve
months of our taxable income or loss being includable in such 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 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.
Our partnership agreement permits our general partner to take positions in filing our tax returns that preserve the uniformity of our units. These positions may include reducing for some 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 unitholders than that to which they would otherwise be entitled.
Bracewell & Giuliani LLP is unable to opine as to validity of such filing positions.
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A 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 unitholders basis in its units, and may cause the unitholder to understate gain or overstate loss
on any sale of such units. Please read Disposition of 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 units by employee benefit plans, other tax-exempt organizations, non-resident aliens, non-U.S. corporations and other non-U.S. persons raises issues unique to those investors and, as
described below, may have substantially adverse tax consequences to them. Prospective unitholders who are tax-exempt entities or non-U.S. persons should consult their tax advisor before investing in our 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-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 their ownership of our units. 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 at regular rates 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. A change in applicable law may require us to
change these procedures.
In addition, because a foreign corporation that owns units will be treated as engaged in a United
States trade or business, that corporation may be subject to the United States branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our income and gain, as adjusted for changes in the foreign
corporations U.S. net equity, which is effectively connected with the conduct of a United States trade or business. That tax may be reduced or eliminated by an income tax treaty between the United States and the country in which
the foreign corporate unitholder is a qualified resident. In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Code.
A foreign 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 unit to the extent the gain is effectively connected with a U.S. trade or business of the foreign unitholder. Under a ruling published by the IRS, interpreting the scope of effectively connected income, a foreign
unitholder would be considered to be engaged in a trade or business in the U.S. by virtue of the U.S. activities of the partnership, and part or all of that unitholders gain would be effectively connected with that unitholders indirect
U.S. trade or business. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign unitholder generally will be subject to federal income tax upon the sale or disposition of a unit if (i) it owned (directly or constructively
applying certain attribution rules) more than 5% of our 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 units or the 5-year period ending on the date of disposition. Currently, more than 50% of our assets consist of U.S. real property interests and we do not
expect that to change in the foreseeable future. Therefore, foreign unitholders may be subject to federal income tax on gain from the sale or disposition of their units.
61
Administrative Matters
Information Returns and Audit Procedures
. We intend to furnish to each 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 unitholders share of income, gain, loss and deduction. We cannot assure our unitholders that those positions will yield a result that conforms to the requirements of the Code, Treasury Regulations or
administrative interpretations of the IRS.
Neither we, nor Bracewell & Giuliani LLP can assure prospective
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. 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 its own return. Any audit of a unitholders return could result in adjustments not related to our
returns as well as those related to its returns.
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 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 in that action.
A 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 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:
(1) the
name, address and taxpayer identification number of the beneficial owner and the nominee;
(2) a statement regarding whether
the beneficial owner is:
(a) a non-U.S. person;
(b) a non-U.S. government, an international organization or any wholly owned agency or instrumentality of either of the
foregoing; or
(c) a tax-exempt entity;
(3) the amount and description of units held, acquired or transferred for the beneficial owner; and
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(4) specific information including the dates of acquisitions and transfers, means of
acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales.
Brokers and
financial institutions are required to furnish additional information, including whether they are 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
. An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is
attributable to one or more specified causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Code. No penalty will be imposed, however,
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.
For individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the
greater of 10% of the tax required to be shown on the return for the taxable year or $5,000. The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted on the return:
(1) for which there is, or was, substantial authority; or
(2) as to which there is a reasonable basis and the relevant facts of that position are disclosed on the return.
If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an
understatement of income for which no substantial authority exists, we must disclose the 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. More stringent rules apply to tax shelters, which we do not believe includes us, or any of
our investments, plans or arrangements.
A substantial valuation misstatement exists if (a) the value of any property, or
the tax basis of any property, claimed on a tax return is 150% or more of the amount determined to be the correct amount of the valuation or tax basis, (b) the price for any property or services (or for the use of property) claimed on any such
return with respect to any transaction between persons described in Code Section 482 is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct amount of such price, or (c) the net Code
Section 482 transfer price adjustment for the taxable year exceeds the lesser of $5 million or 10% of the taxpayers gross receipts. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation
misstatement exceeds $5,000 ($10,000 for a corporation other than an S Corporation or a personal holding company). The penalty is increased to 40% in the event of a gross valuation misstatement.
In addition, the 20% accuracy-related penalty also applies to any portion of an underpayment of tax that is attributable to transactions
lacking economic substance. To the extent that such transactions are not disclosed, the penalty imposed is increased to 40%. Additionally, there is no reasonable cause defense to the imposition of this penalty to such transactions.
Reportable Transactions
. If we were to engage in a reportable transaction, we (and possibly our unitholders and
others) would be required to make a detailed disclosure of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or that it produces certain kinds of losses for partnerships, individuals, S corporations, and trusts in excess of $2 million in any single tax
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year, or $4 million in any combination of six successive tax years. Our participation in a reportable transaction could increase the likelihood that our federal income tax information return (and
possibly our unitholders tax return) would be audited by the IRS. Please read Administrative MattersInformation Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, our unitholders may be subject to the following provisions
of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at
Administrative MattersAccuracy-Related Penalties;
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for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability; and
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in the case of a listed transaction, an extended statute of limitations.
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We do not expect to engage in any reportable transactions.
State, Local, Foreign and Other Tax Considerations
In addition to federal
income taxes, unitholders will be subject to other taxes, including 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
conduct business or own property or in which the unitholder is a resident. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider its potential impact on its investment in us. We currently
conduct business or own property in Arkansas, Kansas, Louisiana, Oklahoma and Texas. Each of these states, other than Texas, imposes a personal income tax on individuals. Most of these states also impose an income tax on corporations and other
entities. We may also own property or conduct business in other jurisdictions in the future.
It is the responsibility of each
unitholder to investigate the legal and tax consequences, under the laws of pertinent states and localities, of its investment in us. Bracewell & Giuliani LLP 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 unitholder consult, and depend on, its own tax counsel or other advisor with regard to those matters. It is the responsibility of each unitholder to file all tax returns that may be
required of it.
TAX CONSEQUENCES OF OWNERSHIP OF DEBT SECURITIES
A description of the material federal income tax consequences of the acquisition, ownership and disposition of debt securities will be
set forth in a prospectus supplement relating to the offering of debt securities.
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SELLING UNITHOLDERS
This prospectus covers the offering for resale from time to time, in one or more offerings, of up to 44,638,622 common units by selling
unitholders. The common units were obtained by the selling unitholders as consideration for their contribution of certain assets to us in connection with our initial public offering in August 2010 pursuant to a contribution, conveyance and
assumption agreement dated as of July 28, 2010. All transactions were completed in private placements exempt from the registration requirements of the Securities Act under Section 4(2) of the Securities Act. We entered into a registration
rights agreement with the selling unitholders in connection with the private placements. We are registering the common units described below pursuant to such registration rights agreement. As of July 29, 2011, the selling unitholders also own
69,076,122 of our subordinated units, and indirectly own all of the ownership interests in our general partner and our incentive distribution rights, all of which were issued in connection with our initial public offering. The subordinated units may
be converted into common units on a one-for-one basis upon termination of the subordination period under certain circumstances, as set forth in our partnership agreement.
No offer or sale may be made by a unitholder unless that unitholder is listed in the table below. The selling unitholders may sell all, some or none of the common units covered by this prospectus. Please
read Plan of Distribution. We will bear all costs, fees and expenses incurred in connection with the registration of the common units offered by this prospectus. Brokerage commissions and similar selling expenses, if any, attributable to
the sale of common units will be borne by the selling unitholders.
None of the selling unitholders is either a broker-dealer
registered under Section 15 of the Exchange Act, or an affiliate of a broker-dealer registered under Section 15 of the Exchange Act.
The following table sets forth information relating to the selling unitholders as of July 29, 2011 based on information supplied to us by the selling unitholders on or prior to that date. We have not
sought to verify such information. Information concerning the selling unitholders may change over time, including by addition of additional selling unitholders, and if necessary, we will supplement this prospectus accordingly. Some or all of the
selling unitholders may hold or acquire at any time common units in addition to those offered by this prospectus and may have acquired additional common units since the date on which the information reflected herein was provided to us. Additionally,
some or all of the selling unitholders may have sold, transferred or otherwise disposed of some or all of the units listed below in exempt or non-exempt transactions since the date on which the information was provided to us and may in the future
sell, transfer or otherwise dispose of some or all of their common units in private placement transactions exempt from or not subject to the registration requirements of the Securities Act.
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Common
units
beneficially owned
prior to the offering(1)
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Common
units being
offered(1)
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Total common units
beneficially owned after
the offering(1)(2)
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Name of Selling Unitholder
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Number
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Percentage(3)
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Number(2)
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Percentage(3)
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Chesapeake Midstream Holdings, L.L.C.(4)
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23,913,061
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34.6
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%
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23,913,061
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%
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GIP(5)
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20,725,561
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30.0
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%
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20,725,561
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%
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(1)
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Each of Chesapeake Midstream Holdings, L.L.C. and GIP also owns 34,538,061 subordinated units, which are convertible into common units. These subordinated units are not
included in this table and are not being registered under the registration statement of which this prospectus forms a part.
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(2)
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Assumes the sale of all common units held by the selling unitholders offered by this prospectus.
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(3)
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Based on 69,085,038 common units outstanding as of July 29, 2011.
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(4)
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Chesapeake is the ultimate parent company of Chesapeake Midstream Holdings, L.L.C., who is the owner of 50% of the membership interests of Chesapeake Midstream Ventures
and the owner of common units and subordinated units. Chesapeake may be deemed to beneficially own the interests held directly or indirectly by Chesapeake Midstream Holdings.
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(5)
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Global Infrastructure Investors, Limited (Global Infrastructure Investors) is the sole general partner of Global Infrastructure GP, L.P., which is the sole
general partner of the limited partnerships (the GIP Partnerships) that directly or indirectly own the general partners of each of GIP-A Holding (CHK), L.P. (GIP-A), GIP-B Holding (CHK), L.P. (GIP-B) and GIP-C
Holding (CHK), L.P. (GIP-C). Global Infrastructure Management, LLC (Global Infrastructure Management) manages the GIP Partnerships. GIP-A, GIP-B and GIP-C hold the following interests in us:
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GIP-A owns 7,474,545 common units, 12,455,939 subordinated units and a 18.0% membership interest in Chesapeake Midstream Ventures;
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GIP-B owns 2,640,646 common units, 4,400,496 subordinated units and a 6.4% membership interest in Chesapeake Midstream Ventures; and
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GIP-C owns 10,610,370 common units, 17,681,626 subordinated units and a 25.6% membership interest in Chesapeake Midstream Ventures.
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Matthew C. Harris and William A. Woodburn, two of the directors of our general partner, as members of Global
Infrastructure Managements internal committees are entitled to vote on decisions to vote, or to direct to vote, and to dispose, or to direct the disposition of, the common units and subordinated units held by GIP-A, GIP-B and GIP-C but cannot
individually or together control the outcome of such decisions. Global Infrastructure Investors, Matthew C. Harris and William A. Woodburn disclaim beneficial ownership of the common units and subordinated units held by GIP-A, GIP-B and GIP-C in
excess of their respective pecuniary interest in such units. Global Infrastructure Investors and Global Infrastructure Management disclaim beneficial ownership of the common and subordinated units held by GIP-A, GIP-B and GIP-C.
Each time any selling unitholder sells any common units offered by this prospectus, such selling unitholder is required to provide you
with this prospectus and the related prospectus supplement containing specific information about such selling unitholder and the terms of the common units being offered in the manner required by the Securities Act. The prospectus supplement will set
forth the following information with respect to any such selling unitholder:
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the name of the selling unitholder;
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the nature of any position, office or other material relationship that the 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 owned by the selling unitholder prior to the offering;
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the amount of common units to be offered for the selling unitholders account; and
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the amount and (if one percent or more) the percentage of common units to be owned by the selling unitholder after the completion of the offering.
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No offer or sale may occur unless the registration statement that includes this prospectus
has been declared effective by the SEC and remains effective at the time any selling unitholder offers or sells common units. We are required, under certain circumstances, to update, supplement or amend this prospectus to reflect material
developments in our business, financial position and results of operations and may do so by an amendment to this prospectus, a prospectus supplement or a future filing with the SEC incorporated by reference in this prospectus.
Each selling unitholder, as an affiliate of Chesapeake Midstream Partners, L.P., may be deemed to be an underwriter within
the meaning of the Securities Act, and, as a result, may be deemed to be offering securities, indirectly, on our behalf.
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INVESTMENT IN CHESAPEAKE MIDSTREAM PARTNERS, L.P. BY EMPLOYEE
BENEFIT PLANS
An investment in our common units by certain employee benefit plans may be subject to additional
considerations because the investments of these plans are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA and the restrictions imposed by Section 4975 of the Internal Revenue Code. For these purposes the
term employee benefit plan includes, but is not limited to, qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or individual retirement accounts or annuities
(IRAs) established or maintained by an employer or employee organization, and entities whose underlying assets are considered to include plan assets of such plans, accounts and arrangements.
General Fiduciary Matters
ERISA and the Internal Revenue Code impose certain duties on persons who are fiduciaries of an employee benefit plan and prohibit certain
transactions involving the assets of an employee benefit plan and its fiduciaries or other interested parties. Under ERISA and the Internal Revenue Code, any person who exercises any discretionary authority or control over the administration of an
employee benefit plan or the management or disposition of the assets of such a plan, or who renders investment advice for a fee or other compensation to an employee benefit plan, is generally considered to be a fiduciary of the employee benefit
plan. In considering an investment in our common units, among other things, consideration should be given to:
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whether the investment satisfies the prudence requirements under Section 404(a)(1)(B) of ERISA;
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whether in making the investment, the plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA;
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whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment
return. Please read Material U.S. Federal Tax ConsequencesTax-Exempt Organizations and Other Investors;
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whether the investment is permitted under the terms of the applicable documents governing the plan;
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whether in making the investment, the plan will be considered to hold as plan assets (1) only the investment in our common units or (2) an
undivided interest in our underlying assets; and
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whether making such an investment will comply with the prohibited transaction provisions of ERISA and the Internal Revenue Code.
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Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit plans from engaging in specified transactions involving plan assets with parties that,
with respect to the plan, are parties in interest under ERISA or disqualified persons under the Internal Revenue Code 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 Internal Revenue Code. In addition, the fiduciary of the employee benefit plan that engaged in such a non-exempt prohibited transaction may
be subject to excise taxes, penalties and liabilities under ERISA and the Internal Revenue Code.
The prohibited transaction
rules are complex, and persons involved in prohibited transactions are subject to penalties. For that reason, potential employee benefit plan investors should consult with their counsel to determine the consequences under ERISA and the Internal
Revenue Code of their acquisition and ownership of our common units.
Plan Asset Issues
In addition to considering whether the purchase of our common units is a prohibited transaction, a fiduciary should consider whether the
plan will, by investing in our common units, be deemed to own an undivided interest
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in our assets, with the result that our general partner would also 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 Internal Revenue Code and ERISA.
The
Department of Labor regulations provide guidance with respect to whether, in certain circumstances, the assets of an entity in which employee benefit plans acquire equity interests would be deemed plan assets. Under these regulations, an
entitys assets would not be considered to be plan assets if, among other things:
(a) the
equity interests acquired by the employee benefit plan are publicly offered securitiesi.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, are freely transferable (as defined
in the regulations) and are either part of a class registered under 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 company,i.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, which is defined to mean that less than 25% of the value of each class of equity interest, disregarding certain interests held by our
general partner, its affiliates and certain other persons, is held by the employee benefit plans that are subject to part 4 of Title I of ERISA (which excludes governmental plans and certain non-electing church plans) and/or Section 4975 of the
Internal Revenue Code.
With respect to an investment in our 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 requirement in (c) above (although we do not monitor the level of
benefit plan investors as required for compliance with (c)).
The foregoing discussion of issues arising for employee benefit
plan investments under ERISA and the Internal Revenue Code is general in nature and is not intended to be all inclusive, nor should it be construed as legal advice. In light of the complexity of these rules and the excise taxes, penalties and
liabilities that may be imposed on persons who engage in prohibited transactions or other violations, plan fiduciaries contemplating a purchase of our common units should consult with their own counsel regarding the consequences under ERISA and the
Internal Revenue Code.
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PLAN OF DISTRIBUTION
The securities offered pursuant to this prospectus and any accompanying prospectus supplement may be sold in any of the following ways:
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directly to one or more purchasers;
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through underwriters, brokers or dealers; or
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through a combination of any of these methods of sale.
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In addition, we or the selling unitholders may from time to time sell securities in compliance with Rule 144 under the Securities Act, if available, or pursuant to other available exemptions from the
registration requirements under the Securities Act, rather than pursuant to this prospectus. In such event, we and the selling unitholders, if applicable, may be required by the securities laws of certain states to offer and sell the common units
only through registered or licensed brokers or dealers.
We will fix a price or prices of our securities at:
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market prices prevailing at the time of any sale under this registration statement;
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prices related to market prices; or
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We may change the price of the securities offered from time to time.
The selling
unitholders may act independently of us in making decisions with respect to the timing, manner and size of each of its sales. The selling unitholders may make sales of the common units on the NYSE or otherwise at prices and under terms prevailing at
the time of the sale, or at prices related to the thencurrent market price, at fixed prices, or in privately negotiated transactions.
Offers to purchase securities may be solicited directly by us and the sale thereof may be made by us directly to institutional investors or others. In this case, no underwriters or agents would be
involved. We may use electronic media, including the Internet, to sell offered securities directly.
We, or agents designated
by us, may directly solicit, from time to time, offers to purchase the securities. Any such agent may be deemed to be an underwriter as that term is defined in the Securities Act. We will name any agents involved in the offer or sale of the
securities and describe any commissions payable by us to these agents in the prospectus supplement. Unless otherwise indicated in the prospectus supplement, these agents will be acting on a best efforts basis for the period of their appointment. The
agents may be entitled under agreements which may be entered into with us to indemnification by us against specific civil liabilities, including liabilities under the Securities Act. The agents may also be our customers or may engage in transactions
with or perform services for us in the ordinary course of business.
If we or the selling unitholders utilize any underwriters
in the sale of the securities in respect of which this prospectus is delivered, we and, if applicable, the selling unitholders, will enter into an underwriting agreement with those 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 or the selling
unitholders may indemnify the underwriters under the relevant underwriting agreement against specific liabilities, including liabilities under the Securities Act. The underwriters or their affiliates may be customers of, may engage in transactions
with and may perform services for us or our affiliates in the ordinary course of business.
If we or the selling unitholders
utilize a dealer in the sale of the securities in respect of which this prospectus is delivered, we or the selling unitholders, as applicable, will sell those securities to the dealer, as principal. The
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dealer may then resell those securities to the public at varying prices to be determined by the dealer at the time of resale. We or the selling unitholders may indemnify the dealers against
specific liabilities, including liabilities under the Securities Act. The dealers or their affiliates may also be our customers or may engage in transactions with, or perform services for us in the ordinary course of business.
We or the selling unitholders may offer the common units covered by this prospectus into an existing trading market on the terms
described in the prospectus supplement relating thereto. Underwriters, dealers and agents who participate in any atthemarket offerings will be described in the prospectus supplement relating thereto.
A prospectus and accompanying prospectus supplement in electronic form may be made available on the web sites maintained by the
underwriters. The underwriters may agree to allocate a number of securities for sale to their online brokerage account holders. Such allocations of securities for internet distributions will be made on the same basis as other allocations. In
addition, securities may be sold by the underwriters to securities dealers who resell securities to online brokerage account holders.
Because the Financial Industry Regulatory Authority, Inc., or FINRA, views our common units as interests in a direct participation program, any offering of common units under the registration statement of
which this prospectus forms a part will be made in compliance with Rule 2310 of the FINRA Conduct Rules. Accordingly, the aggregate maximum compensation the underwriters will receive in connection with the sale of any securities under this
prospectus and the registration statement of which it forms a part will not exceed 10% of the gross proceeds from the sale.
The maximum commission or discount to be received by any FINRA member or independent broker/dealer may not be greater than 8% of the
gross proceeds received by us for the sale of any securities being registered pursuant to Rule 415 under the Securities Act.
To the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. The
place and time of delivery for the securities in respect of which this prospectus is delivered will be set forth in the accompanying prospectus supplement.
In connection with offerings of securities under the registration statement of which this prospectus forms a part and in compliance with applicable law, underwriters, brokers or dealers may engage in
transactions that stabilize or maintain the market price of the securities at levels above those that might otherwise prevail in the open market. Specifically, underwriters, brokers or dealers may overallot in connection with offerings,
creating a short position in the securities for their own accounts. For the purpose of covering a syndicate short position or stabilizing the price of the securities, the underwriters, brokers or dealers may place bids for the securities or effect
purchases of the securities in the open market. Finally, the underwriters may impose a penalty whereby selling concessions allowed to syndicate members or other brokers or dealers for distribution of the securities in offerings may be reclaimed by
the syndicate if the syndicate repurchases previously distributed securities in transactions to cover short positions, in stabilization transactions or otherwise. These activities may stabilize, maintain or otherwise affect the market price of the
securities, which may be higher than the price that might otherwise prevail in the open market, and, if commenced, may be discontinued at any time.
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VALIDITY OF THE SECURITIES
In connection with particular offerings of the securities offered in this prospectus in the future, and if stated in the applicable
prospectus supplements, the validity of the issuance of the securities and certain other legal matters will be passed upon for us by Bracewell & Giuliani LLP, Houston, Texas. Legal counsel to any underwriters may pass upon legal matters for
such underwriters.
EXPERTS
The financial statements incorporated in this prospectus by reference to the Partnerships Annual Report on Form 10-K for the year
ended December 31, 2010 have been so incorporated in reliance on the reports (which each contain an explanatory paragraph stating the Partnership and the Predecessor earned substantially all of its revenues and has other significant
transactions with affiliated entities) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
72
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 14.
Other
Expenses of Issuance and Distribution
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby.
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SEC registration fee
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$
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228,559
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FINRA filing fee
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75,500
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Legal fees and expenses
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*
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Accounting fees and expenses
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*
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Printing and engraving expenses
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*
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Listing Expenses
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*
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Miscellaneous
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*
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Total
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$
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*
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*
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Because an indeterminate amount of securities is covered by this registration statement, the expenses in connection with the issuance and distribution of the securities
are not currently determinable.
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Item 15.
Indemnification of Directors and Officers
Chesapeake Midstream Partners, L.P.
Subject to any terms, conditions or restrictions set forth in the partnership agreement, Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers a Delaware limited partnership
to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. The section of the prospectus entitled The Partnership AgreementIndemnification discloses that we will generally
indemnify officers, directors and affiliates of our general partner to the fullest extent permitted by the law against all losses, claims, damages or similar events and is incorporated herein by reference.
Under our partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law,
from and against all losses, claims, damages or similar events:
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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 director, officer, member, partner, fiduciary or trustee of any entity set forth in the preceding three bullet points;
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any person who is or was serving as director, officer, member, partner, fiduciary or trustee of another person at the request of our general partner,
any departing general partner, an affiliate of our general partner or an affiliate of any departing general partners; and
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any person designated by our general partner.
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Any indemnification under these provisions will only be out of our assets. Unless our general partner otherwise agrees, it will not be personally liable for, or have any obligation to contribute or lend
funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the
person against liabilities under our partnership agreement.
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Additionally, pursuant to the omnibus agreement, we will be entitled to indemnification for
certain liabilities, and we will be required to indemnify Chesapeake Midstream Ventures for certain liabilities. Please see Item 13 Certain Relationships and Related Party TransactionsAgreements with AffiliatesOmnibus
AgreementIndemnification in our Annual Report on Form 10-K for the year ended December 31, 2010 for a description of our obligation to indemnify Chesapeake Midstream Ventures with respect to services provided pursuant to the omnibus
agreement.
With respect to services provided pursuant to the services agreement, we have agreed to indemnify certain
affiliates of Chesapeake from and against certain potential claims, losses and expenses attributable to (1) breaches by us of the services agreement and (2) claims by third parties relating to (a) certain acts or omissions of such
affiliates of Chesapeake in connection with their performance of the services outlined in the services agreement, or (b) our gross negligence or willful misconduct. Please see Item 13 Certain Relationships and Related Party
TransactionsAgreements with AffiliatesServices AgreementIndemnification in our Annual Report on Form 10-K for the year ended December 31, 2010 for a description of our obligation to indemnify certain affiliates of
Chesapeake with respect to services provided pursuant to the services agreement.
We have agreed to indemnify Chesapeake and
certain affiliates of Chesapeake against any loss or expense with respect to certain surety bonds issued for our benefit and for which we are obligated to provide indemnity insurance to Chesapeake. We may also be required to indemnify Chesapeake in
connection with future surety bond issuances made for our benefit. Please see Item 13 Certain Relationships and Related Party TransactionsAgreements with AffiliatesSurety Bond Indemnification Agreement in our Annual
Report on Form 10-K for the year ended December 31, 2010 for a description of our obligation to indemnify Chesapeake with respect to our surety bond indemnification agreement.
We expect that any underwriting agreement to be entered into in connection with the sale of the securities offered pursuant to this
registration statement will provide for indemnification by the underwriters of us, any selling unitholder, our general partner, our general partners directors and our general partners officers who sign the registration statement, and any
person who controls us, any selling unitholder or our general partner, including indemnification for liabilities under the Securities Act.
Chesapeake Midstream GP, L.L.C.
Section 18-108 of the Delaware Limited Liability Company Act (the Delaware LLC Act) provides that, subject to such standards and restrictions, if any, as are set forth in its limited
liability company agreement, a Delaware limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. The limited liability
company agreement of Chesapeake Midstream GP, L.L.C., our general partner, provides that our general partner shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of our general partner, or is or was serving at the request of our general partner as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise (an indemnitee), against expenses (including reasonable attorneys fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such indemnitee in connection with such action, suit or proceeding to the full extent permitted by the Delaware LLC Act, upon such determination having been made as to such indemnitees good faith and conduct as is
required by the Delaware LLC Act. The limited liability company agreement of our general partner also provides that expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by our general partner in advance of the
final disposition of such action, suit or proceeding to the extent, if any, authorized by our general partners sole member in accordance with the provisions of the Delaware LLC Act, upon receipt of an undertaking by or on behalf of the
indemnitee to repay such amount unless it shall ultimately be determined that indemnitee is entitled to be indemnified by our general partner. Officers, directors and affiliates of our general partner are also indemnified by us, as described above.
II-2
Our general partner has purchased insurance covering its officers and directors against
liabilities asserted and expenses incurred in connection with their activities as officers and directors of our general partner or any of its direct or indirect subsidiaries.
CHKM Finance Corp.
Section 145 of the Delaware General
Corporation Law provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit, or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons conduct was unlawful.
Section 145 of the Delaware
General Corporation Law also provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper.
To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection
therewith; provided that indemnification provided for by Section 145 or granted pursuant thereto shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and a corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity or arising out of such persons status as such whether or not the corporation would have
the power to indemnify such person against such liabilities under Section 145.
In addition, Section 102(b)(7) of
the Delaware General Corporation Law permits Delaware corporations to include a provision in their certificates of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that such provisions shall not eliminate or limit the liability of a director: (i) for any breach of the directors duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for unlawful payment of dividends or unlawful stock purchases or redemptions; or (iv) for any transactions from which the
director derived an improper personal benefit.
II-3
The Certificate of Incorporation of CHKM Finance Corp. currently provides that each
director shall not be personally liable to such corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
Article 14 of the Bylaws of CHKM Finance Corp. sets forth the extent to which the directors and officers of CHKM Finance Corp. may be indemnified by CHKM Finance Corp. against liabilities which they may
incur while serving in such capacity. Article 14 generally provides that CHKM Finance Corp. shall indemnify the directors and officers of CHKM Finance Corp. who are or were a party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of CHKM Finance Corp. or of another corporation, partnership, joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection therewith, provided that the applicable standard of conduct set forth in Section 145 of the Delaware General
Corporation Law was met and, provided further, that such indemnification shall be limited to expenses (including attorneys fees) actually and reasonably incurred in the case of an action or suit by or in the right of CHKM Finance Corp. to
procure a judgment in its favor. Subject to the procedures for indemnification of directors and officers set forth in the Bylaws, the indemnification of the directors and officers of CHKM Finance Corp. provided for therein is in all other respects
substantially similar to that provided for in Section 145 of the Delaware General Corporation Law. Any such indemnification shall continue as to a person who has ceased to be a director or officer of CHKM Finance Corp. and shall inure to the
benefit of the heirs, executors, and administrators of such person.
Chesapeake Energy Corporation
Section 1031 of the Oklahoma General Corporation Act generally provides that an Oklahoma corporation has the power to indemnify
(a) any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of
the corporation, by reason of the fact that the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses, including attorneys fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit, or
proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
the conduct was unlawful; and (b) any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of
the fact that the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against expenses, including attorneys fees, actually and reasonably incurred by the person in connection with the defense or settlement of an action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which the person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which the action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for expenses which the court shall deem proper.
Article VIII of Chesapeakes
restated certificate of incorporation provides that Chesapeake shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of Chesapeake) by reason of the fact that he or she is or was a director, officer, employee or agent of Chesapeake or is or was serving at the request of Chesapeake as a
director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise against expenses (including attorneys fees), judgments,
II-4
fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of Chesapeake and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. In addition, Article VI of Chesapeakes
amended and restated bylaws generally provides that Chesapeake shall indemnify any person who is a director, officer, employee or agent of Chesapeake or is or was serving at the request of Chesapeake as a director, officer, employee or agent of
another corporation, partnership, joint venture or other enterprise to the fullest extent permitted by Section 1031 of the Oklahoma General Corporation Act.
Chesapeake has entered into indemnity agreements with each of its officers and directors, including Messrs. J. Mike Stice, Aubrey K. McClendon and Domenic J. DellOsso, Jr., which generally provide
that Chesapeake shall indemnify its officers and directors in connection with serving in their capacity as an officer, director, employee or agent of Chesapeake or an affiliate or serving at the request of Chesapeake as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other enterprise to the fullest extent permitted by law. In addition, Chesapeake provides liability insurance for each of its directors and executive officers.
Item 16.
Exhibits and Financial Statement Schedules
(a) Exhibits
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1.1+
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Form of Underwriting Agreement
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4.1*
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Form of Indenture
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4.2+
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Form of Debt Securities
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5.1*
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Opinion of Bracewell & Giuliani LLP as to the legality of the securities being registered
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8.1*
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Opinion of Bracewell & Giuliani LLP relating to tax matters
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12.1*
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Calculation of Ratio of Earnings to Fixed Charges
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23.1*
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Consent of PricewaterhouseCoopers LLP
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23.2*
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Consent of Bracewell & Giuliani LLP (contained in Exhibits 5.1 and 8.1)
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24.1*
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Powers of Attorney (included on the signature pages)
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25.1*
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Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of the Trustee under the Indenture
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To be filed as an exhibit to a report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 or in a post-effective amendment to this
Registration Statement.
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Item 17.
Undertakings
Each of the undersigned registrants hereby undertakes:
A. The undersigned registrant hereby undertakes:
(1) To file, during any period
in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(a) To
include any prospectus required by Section 10(a)(3) of the Securities Act;
(b) To reflect in the
prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or
high end of the
II-5
estimated maximum offering range may be reflected in the form of the prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement;
(c) To include any material information with respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to the information in this Registration Statement;
provided, however
, that paragraphs
(A)(l)(a), (A)(l)(b) and (A)(1)(c) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each of the post-effective amendments shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser:
(a) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(b) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in
a primary offering of securities of the undersigned registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by
means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(a) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed
pursuant to Rule 424;
(b) Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
II-6
(c) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(d) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
B. Each undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of its annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plans annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered herein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
D. The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance on Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)( 1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of
prospectus or prospectus supplement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
E. The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Trust Indenture Act.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
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Chesapeake Midstream Partners, L.P.
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By:
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Chesapeake Midstream GP, L.L.C.,
its general partner
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By:
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/s/ J. Mike Stice
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Name:
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J. Mike Stice
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Title:
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Chief Executive Officer
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POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
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Signature
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Title
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Date
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/s/ J. Mike
Stice
J. Mike Stice
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Chief Executive Officer
(Principal Executive Officer)
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August 2, 2011
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/s/ David C.
Shiels
David C. Shiels
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Chief Financial Officer
(Principal Financial Officer)
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August 2, 2011
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/s/ Bradley D.
Mueller
Bradley D. Mueller
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Controller
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August 2, 2011
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/s/ David A.
Daberko
David A. Daberko
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Chairman of the Board and Director
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August 2, 2011
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/s/ Domenic J. DellOsso,
Jr.
Domenic J. DellOsso, Jr.
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Director
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August 2, 2011
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II-8
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/s/ Philip L.
Frederickson
Philip L. Frederickson
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Director
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August 2, 2011
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/s/ Matthew C.
Harris
Matthew C. Harris
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Director
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August 2, 2011
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/s/ Suedeen G.
Kelly
Suedeen G. Kelly
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Director
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August 2, 2011
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/s/ Aubrey K.
McClendon
Aubrey K. McClendon
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Director
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August 2, 2011
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/s/ William A.
Woodburn
William A. Woodburn
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Director
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August 2, 2011
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II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
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CHKM Finance Corp.
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By:
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/s/ J. Mike Stice
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Name:
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|
J. Mike Stice
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Title:
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|
Chief Executive Officer
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POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ Domenic J. DellOsso,
Jr.
Domenic J. DellOsso, Jr.
|
|
Director
|
|
August 2, 2011
|
|
|
|
/s/ Matthew C.
Harris
Matthew C. Harris
|
|
Director
|
|
August 2, 2011
|
|
|
|
/s/ Aubrey K.
McClendon
Aubrey K. McClendon
|
|
Director
|
|
August 2, 2011
|
|
|
|
/s/ William A.
Woodburn
William A. Woodburn
|
|
Director
|
|
August 2, 2011
|
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Chesapeake MLP Operating, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake Midstream Partners, L.P., the sole manager of Chesapeake MLP Operating, L.L.C.
|
|
August 2, 2011
|
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Bluestem Gas Services, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake MLP Operating, L.L.C., the sole manager of Bluestem Gas Services, L.L.C.
|
|
August 2, 2011
|
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Chesapeake Midstream Gas Services, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake MLP Operating, L.L.C., the sole manager of Chesapeake Midstream Gas Services, L.L.C.
|
|
August 2, 2011
|
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Oklahoma Midstream Gas Services, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake MLP Operating, L.L.C., the sole manager of Oklahoma Midstream Gas Services, L.L.C.
|
|
August 2, 2011
|
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Texas Midstream Gas Services, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake MLP Operating, L.L.C., the sole manager of Texas Midstream Gas Services, L.L.C.
|
|
August 2, 2011
|
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Magnolia Midstream Gas Services, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake MLP Operating, L.L.C., the sole manager of Magnolia Midstream Gas Services, L.L.C.
|
|
August 2, 2011
|
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma City, State of Oklahoma, on August 2, 2011.
|
|
|
Ponder Midstream Gas Services, L.L.C.
|
|
|
By:
|
|
/s/ J. Mike Stice
|
Name:
|
|
J. Mike Stice
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below appoints J. Mike Stice, Robert S. Purgason and David C. Shiels, and each of them, any of whom may act without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration
Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
August 2, 2011
|
|
|
|
/s/ David C.
Shiels
David C. Shiels
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
August 2, 2011
|
|
|
|
/s/ Bradley D.
Mueller
Bradley D. Mueller
|
|
Controller
|
|
August 2, 2011
|
|
|
|
/s/ J. Mike
Stice
J. Mike Stice
|
|
Chief Executive Officer of Chesapeake MLP Operating, L.L.C., the sole manager of Ponder Midstream Gas Services, L.L.C.
|
|
August 2, 2011
|
II-17
INDEX TO EXHIBITS
|
|
|
|
|
1.1+
|
|
|
|
Form of Underwriting Agreement
|
4.1*
|
|
|
|
Form of Indenture
|
4.2+
|
|
|
|
Form of Debt Securities
|
5.1*
|
|
|
|
Opinion of Bracewell & Giuliani LLP as to the legality of the securities being registered
|
8.1*
|
|
|
|
Opinion of Bracewell & Giuliani LLP relating to tax matters
|
12.1*
|
|
|
|
Calculation of Ratio of Earnings to Fixed Charges
|
23.1*
|
|
|
|
Consent of PricewaterhouseCoopers LLP
|
23.2*
|
|
|
|
Consent of Bracewell & Giuliani LLP (contained in Exhibits 5.1 and 8.1)
|
24.1*
|
|
|
|
Powers of Attorney (included on the signature pages)
|
25.1*
|
|
|
|
Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of the Trustee under the Indenture
|
+
|
To be filed as an exhibit to a report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 or in a post-effective amendment to this
Registration Statement.
|
II-18
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