e424b5
The
information in this preliminary prospectus supplement and
accompanying prospectus is not complete and may be changed. This
prospectus supplement and the accompanying prospectus are not an
offer to sell these securities and are not soliciting an offer
to buy these securities in any jurisdiction where the offer or
sale is not permitted.
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SUBJECT TO COMPLETION, DATED
NOVEMBER 2, 2010
Filed
Pursuant to Rule 424(b)(5)
Registration No. 333-162713
Preliminary Prospectus
Supplement
(To Prospectus dated October 28, 2009)
$
WILLIAMS PARTNERS
L.P.
% Senior
Notes due
We are offering $ aggregate
principal amount of
our % senior notes
due . The notes will pay interest
semi-annually in cash in arrears
on and of
each year, beginning
on .
We may redeem some or all of the notes at any time or from time
to time at a specified make-whole premium. We also
have the option, at any time on or
after
(which is the date that is three months prior to the maturity
date of the notes), to redeem the notes, in whole or in part, at
a redemption price equal to 100% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest thereon
to the redemption date. See Description of the
Notes Optional Redemption.
The notes will be our senior unsecured obligations and will rank
equally in right of payment with all of our other senior
indebtedness and senior to all of our future indebtedness that
is expressly subordinated in right of payment to the notes.
Investing in the notes involves risks. Please read
Risk Factors beginning on
page S-6
of this prospectus supplement.
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Per Note
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Total
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Public offering price(1)
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$
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$
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Underwriting discount and commissions
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$
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$
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Proceeds to Williams Partners L.P. (before expenses)
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$
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$
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(1) |
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Plus accrued interest from November , 2010, if
settlement occurs after that date. |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the accompanying base prospectus. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the notes to investors
through the facilities of The Depository Trust Company,
including its direct participants, Euroclear System and
Clearstream Banking, S.A., against payment in New York,
New York on or about November , 2010.
Joint Book-Running Managers
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Deutsche
Bank Securities |
J.P. Morgan |
RBC Capital Markets |
Co-Managers
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Mitsubishi
UFJ Securities |
Mizuho Securities USA Inc. |
TD Securities |
The Williams Capital Group,
L.P. US Bancorp
November , 2010
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering
of the notes. The second part is the accompanying base
prospectus, which gives more general information, some of which
may not apply to this offering. Generally, when we refer only to
the prospectus, we are referring to both parts
combined. If the information about the offering of the notes
varies between this prospectus supplement and the accompanying
base prospectus, you should rely on the information in this
prospectus supplement.
Any statement made in this prospectus or in a document
incorporated or deemed to be incorporated by reference into this
prospectus will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed
document that is also incorporated by reference into this
prospectus modifies or supersedes that statement. Any statement
so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
Please read Where You Can Find More Information on
page S-52
of this prospectus supplement.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement, the
accompanying base prospectus and any free writing prospectus
relating to this offering. Neither we nor the underwriters have
authorized anyone to provide you with additional or different
information. If anyone provides you with additional, different
or inconsistent information, you should not rely on it. We are
offering to sell the notes, and seeking offers to buy the notes,
only in jurisdictions where offers and sales are permitted. You
should not assume that the information contained in this
prospectus supplement, the accompanying base prospectus or any
free writing prospectus is accurate as of any date other than
the dates shown in these documents or that any information we
have incorporated by reference herein is accurate as of any date
other than the date of the document incorporated by reference.
Our business, financial condition, results of operations and
prospects may have changed since such dates.
TABLE OF
CONTENTS
Prospectus
Supplement
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S-ii
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S-iv
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S-1
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S-6
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S-28
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S-29
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S-30
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S-31
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S-43
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S-45
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S-49
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S-51
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S-51
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S-52
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S-52
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Prospectus dated October 28, 2009
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53
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FORWARD-LOOKING
STATEMENTS
Certain matters discussed in this prospectus supplement and the
documents incorporated herein by reference, excluding historical
information, include forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). These forward-looking
statements relate to anticipated financial performance,
managements plans and objectives for future operations,
business prospects, outcome of regulatory proceedings, market
conditions, and other matters.
All statements, other than statements of historical facts,
included in this prospectus supplement that address activities,
events or developments that we expect, believe or anticipate
will exist or may occur in the future are forward-looking
statements. Forward-looking statements can be identified by
various forms of words such as anticipates,
believes, seeks, could,
may, should, continues,
estimates, expects,
forecasts, intends, might,
goals, objectives, targets,
planned, potential,
projects, scheduled, will,
or other similar expressions. These statements are based on
managements beliefs and assumptions and on information
currently available to management and include, among others,
statements regarding:
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Amounts and nature of future capital expenditures;
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Expansion and growth of our business and operations;
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Financial condition and liquidity;
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Business strategy;
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Cash flow from operations or results of operations;
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The levels of cash distributions to unitholders;
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Seasonality of certain business segments; and
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Natural gas and natural gas liquids prices and demand.
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Forward-looking statements are based on numerous assumptions,
uncertainties, and risks that could cause future events or
results to be materially different from those stated or implied
in this prospectus supplement or in the documents incorporated
herein by reference. You should carefully consider the risk
factors discussed below in addition to the other information in
this prospectus supplement. If any of the following risks were
actually to occur, our business, results of operations and
financial condition could be materially adversely affected. Many
of the factors that will determine these results are beyond our
ability to control or predict. Specific factors that could cause
actual results to differ from results contemplated by the
forward-looking statements include, among others, the following:
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Whether we have sufficient cash from operations to enable us to
pay cash distributions following establishment of cash reserves
and payment of fees and expenses, including payments to our
general partner;
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Availability of supplies (including the uncertainties inherent
in assessing and estimating future natural gas reserves), market
demand, volatility of prices, and the availability and cost of
capital;
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Inflation, interest rates and general economic conditions
(including future disruptions and volatility in the global
credit markets and the impact of these events on our customers
and suppliers);
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The strength and financial resources of our competitors;
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Development of alternative energy sources;
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The impact of operational and development hazards;
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Costs of, changes in, or the results of laws, government
regulations (including proposed climate change legislation
and/or
potential additional regulation of drilling and completion of
wells), environmental liabilities, litigation and rate
proceedings;
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S-ii
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Our allocated costs for defined benefit pension plans and other
postretirement benefit plans sponsored by our affiliates;
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Changes in maintenance and construction costs;
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Changes in the current geopolitical situation;
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Our exposure to the credit risks of our customers;
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Risks related to strategy and financing, including restrictions
stemming from our debt agreements, future changes in our credit
ratings and the availability and cost of credit;
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Risks associated with future weather conditions;
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Acts of terrorism; and
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Additional risks described in our filings with the Securities
and Exchange Commission (the SEC).
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Given the uncertainties and risk factors that could cause our
actual results to differ materially from those contained in any
forward-looking statement, we caution investors not to unduly
rely on our forward-looking statements. We disclaim any
obligations to and do not intend to update the above list or to
announce publicly the result of any revisions to any of the
forward-looking statements to reflect future events or
developments.
In addition to causing our actual results to differ, the factors
listed above and referred to below may cause our intentions to
change from those statements of intention set forth in or
incorporated into this prospectus supplement. Such changes in
our intentions may also cause our results to differ. We may
change our intentions, at any time and without notice, based
upon changes in such factors, our assumptions, or otherwise.
Because forward-looking statements involve risks and
uncertainties, we caution that there are important factors, in
addition to those listed above, that may cause actual results to
differ materially from those contained in the forward-looking
statements. These factors include the risks set forth under the
caption Risk Factors in this prospectus supplement
and in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (the 2009
10-K),
incorporated by reference in this prospectus supplement, and our
Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2010,
June 30, 2010 and September 30, 2010 (the 2010
10-Qs),
incorporated by reference in this prospectus supplement.
S-iii
CERTAIN
DEFINITIONS
As used in this prospectus supplement, unless the context
otherwise requires or indicates:
Gulfstream refers to Gulfstream Natural Gas
System, L.L.C.
Northwest Pipeline refers to Northwest
Pipeline GP.
Partially Owned Entities refers to the
entities in which we do not own a 100% ownership interest,
including principally Discovery Producer Services LLC,
Gulfstream, Overland Pass Pipeline Company LLC and Laurel
Mountain Midstream, LLC.
Pipeline Entities refers to Williams
regulated pipeline entities, including principally Northwest
Pipeline, Transco, Gulfstream, Discovery Producer Services LLC
and Black Marlin Pipeline LLC.
Transco refers to Transcontinental Gas Pipe
Line Company, LLC.
Williams Partners, we,
our, us or like terms refer to
Williams Partners L.P. and its subsidiaries.
Williams refers to The Williams Companies,
Inc. and its subsidiaries, including Williams Partners.
In addition, our industry uses many terms and acronyms that may
not be familiar to you. To assist you in reading this prospectus
supplement, we have provided below definitions of some of these
terms.
British Thermal Units (Btu): When used in
terms of volumes, Btu is used to refer to the amount of natural
gas required to raise the temperature of one pound of water by
one degree Fahrenheit at one atmospheric pressure.
FERC: Federal Energy Regulatory Commission.
Fractionation: The process by which a mixed
stream of natural gas liquids is separated into its constituent
products, such as ethane, propane and butane.
LNG: Liquefied natural gas.
NGLs: Natural gas liquids. Natural gas liquids
result from natural gas processing and crude oil refining and
are used as petrochemical feedstocks, heating fuels and gasoline
additives, among other applications.
NGL margins: NGL revenues less Btu replacement
cost, plant fuel, transportation and fractionation.
Throughput: The volume of product transported
or passing through a pipeline, plant, terminal or other facility.
S-iv
SUMMARY
This summary highlights some of the information contained or
incorporated by reference in this prospectus supplement and the
accompanying base prospectus. It does not contain all of the
information that you should consider before making a decision to
invest in the notes. You should read the entire prospectus
supplement, the accompanying base prospectus and the documents
incorporated by reference in this prospectus supplement before
making an investment decision. You should consider the issues
discussed in the Risk Factors section of this
prospectus supplement and in our 2009
10-K and
2010 10-Qs,
which are incorporated by reference in this prospectus
supplement, in evaluating your investment decision in the
notes.
For purposes of this prospectus supplement, unless we have
indicated otherwise or the context otherwise requires,
references to Williams Partners, we,
our, us or like terms refer to Williams
Partners L.P. and its subsidiaries and references to
Williams refer to The Williams Companies, Inc. and
its subsidiaries.
Williams
Partners L.P.
We are a publicly-traded Delaware limited partnership formed by
Williams in February 2005 to own, operate and acquire a
diversified portfolio of complementary energy assets. Prior to
the completion of the Dropdown discussed below, our focus was on
the gathering, transporting, processing and treating of natural
gas and the fractionation and storage of NGLs.
On February 17, 2010, we closed a transaction pursuant to
which Williams contributed to us the ownership interests in the
entities that made up substantially all of Williams Gas
Pipeline and Midstream Gas & Liquids businesses to the
extent not already owned by us, including Williams limited
and general partner interests in Williams Pipeline Partners
L.P., but excluding Williams Canadian, Venezuelan, and
olefin operations and 25.5 percent of Gulfstream. Such
entities are referred to herein as the Contributed
Entities. This contribution was made in exchange for
aggregate consideration of:
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$3.5 billion in cash (less certain expenses incurred by us
and other post-closing adjustments), which we financed by
issuing $3.5 billion of senior unsecured notes.
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203 million of our Class C limited partnership units,
which automatically converted into our common limited
partnership units on May 10, 2010.
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An increase in the capital account of our general partner to
allow it to maintain its 2 percent general partner interest.
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The transactions described in the preceding paragraph are
referred to as the Dropdown.
In connection with the Dropdown, we entered into a new
$1.75 billion senior unsecured revolving three-year credit
facility (the Credit Facility).
Business
Strategies
Our primary business objectives are to generate stable cash
flows sufficient to make quarterly cash distributions to our
unitholders and to increase quarterly cash distributions over
time by executing the following strategies:
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pursue economically attractive organic expansion opportunities
around our existing assets;
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focus on consistently attracting new business by providing
highly reliable service to our customers;
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create value by maximizing the utilization of our pipeline
capacity by providing high quality, low cost transportation of
natural gas to large and growing markets;
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safely and reliably operate our large scale midstream
infrastructure where our assets can be fully utilized and drive
low per unit costs;
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grow through accretive acquisitions of complementary energy
assets; and
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target investment-grade credit metrics.
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S-1
Competitive
Strengths
We believe we are well positioned to execute our business
strategies successfully because of the following competitive
strengths:
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our assets are strategically located in areas with high demand
for our services;
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our assets are diversified geographically within the United
States and represent important aspects of the regulated
interstate natural gas pipeline business and midstream natural
gas and natural gas liquids businesses;
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our conservative capital structure, investment grade rating, and
distribution coverage ratio, which facilitate pursuit of
additional growth opportunities;
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the senior management team and board of directors of our general
partner have extensive industry experience and include the most
senior officers of Williams; and
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Williams, as a diversified natural gas energy provider, has
established a reputation in the regulated interstate natural gas
pipeline and midstream natural gas and natural gas liquids
industries as a reliable and cost-effective operator, and we
believe that we and our customers will continue to benefit from
Williams scale and operational expertise.
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Recent
Developments
Midstream
Piceance Acquisition
On October 26, 2010, we entered into an agreement with
Williams pursuant to which we will acquire from Williams certain
natural gas gathering and processing assets located in
Colorados Piceance Basin in exchange for
$782 million, including cash consideration of
$702 million, approximately 1.8 million of our common
units and an increase in the capital account of our general
partner to allow it to maintain its 2 percent general
partner interest (the Midstream Piceance
Acquisition). The Midstream Piceance Acquisition is
expected to close in mid-November. We intend to use the net
proceeds from this offering to fund a portion of the cash
consideration to be paid in the Midstream Piceance Acquisition,
with the balance to come from borrowings under our Credit
Facility or cash on hand.
Common
Unit Offering
On September 28, 2010, we completed an equity issuance of
9,250,000 common units representing limited partner interests in
us at a price to the public of $42.40 per common unit. On
October 8, 2010, we sold an additional 1,387,500 common
units upon the underwriters exercise of their option to
purchase additional common units to cover over-allotments. We
used the net proceeds of approximately $446 million
(including a cash contribution of approximately $9 million
from our general partner to maintain its 2% general partner
interest) to fund a portion of our additional $424 million
investment in Overland Pass Pipeline Company LLC and for general
partnership purposes.
Our
Relationship with Williams
One of our principal attributes is our relationship with
Williams, an integrated energy company with 2009 consolidated
revenues in excess of $8 billion that trades on the New
York Stock Exchange (NYSE) under the symbol
WMB. Williams operates in a number of areas within
the energy industry, including principally natural gas
exploration and production, interstate natural gas
transportation and midstream services. Through our relationship
with Williams, we will have access to a significant pool of
management talent, strong commercial relationships throughout
the energy industry, and opportunities for synergistic growth
with the exploration and production segment of its business.
S-2
Organizational
Structure
The diagram below provides a simplified depiction of our
organization and ownership structure as of October 31,
2010.(1)
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This chart is provided for illustrative purposes only and does
not represent all legal entities of Williams or Williams
Partners or their respective subsidiaries. |
Partnership
Structure and Management
Management
of Williams Partners L.P.
Our operations are conducted through, and our operating assets
are owned by, our operating subsidiary, Williams Partners
Operating LLC, and its subsidiaries. Our general partner manages
our operations and activities. The executive officers of our
general partner manage our business. All of the executive
officers and some of the directors of our general partner also
serve as executive officers and directors of Williams. For more
information on these individuals, please read Item 10 of
Part III, Directors, Executive Officers and Corporate
Governance, of our Annual Report on
Form 10-K
for the year ended December 31, 2009. Please read
Risk Factors in this prospectus supplement for a
description of certain conflicts of interest between us and
Williams. Unlike shareholders in a publicly traded corporation,
our unitholders are not entitled to elect our general partner or
its directors.
While our relationship with Williams and its subsidiaries is a
significant attribute, it is also a source of potential
conflicts. For example, Williams is not restricted from
competing with us. Williams may acquire, construct or dispose of
other assets in the future without any obligation to offer us
the opportunity to purchase or construct those assets. Please
read Risk Factors in this prospectus supplement.
Principal
Executive Offices and Internet Address
Our principal executive offices are located at One Williams
Center, Tulsa, Oklahoma
74172-0172,
and our telephone number is
(918) 573-2000.
Our website is located at
http://www.williamslp.com.
We make our periodic reports and other information filed with or
furnished to the SEC available, free of charge, through our
website, as soon as reasonably practicable after those reports
and other information are electronically filed with or furnished
to the SEC. Information on our website or any other website is
not incorporated by reference into this prospectus supplement
and does not constitute a part of this prospectus supplement.
S-3
THE
OFFERING
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Issuer |
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Williams Partners L.P. |
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Notes Offered |
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$ aggregate principal amount of
our % senior notes
due . |
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Maturity |
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The notes will mature
on . |
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Interest |
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The interest rate on the notes shall
be %. |
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Interest Payment Dates |
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Interest on the notes will be payable semi-annually in arrears
on
and
beginning
on ,
and will be payable to holders of record at the close of
business on
the
or immediately
preceding the interest payment date (whether or not a business
day). |
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Optional Redemption |
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We may redeem the notes, in whole or in part, at our option at
any time or from time to time, at the applicable redemption
price described in this prospectus supplement. We also have the
option, at any time on or
after (which
is the date that is three months prior to the maturity date of
the notes), to redeem the notes, in whole or in part, at a
redemption price equal to 100% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest thereon
to the redemption date. See Description of the
Notes Optional Redemption. |
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Ranking |
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The notes will be our senior unsecured obligations. Your right
to payment under the notes will be equal in right of payment
with all of our existing and future senior unsecured
indebtedness. The notes will be effectively subordinated to all
of our future secured indebtedness and will be structurally
subordinated to all existing and future indebtedness and other
obligations of our subsidiaries, including trade payables. The
notes will rank senior to all of our future subordinated
indebtedness. |
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Certain Covenants |
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We will issue the notes under a supplemental indenture to a base
indenture, which we refer to collectively as the
indenture, each to be dated as of
November , 2010, between us and The Bank of New
York Mellon Trust Company, N.A., as trustee. The indenture
will contain limitations on, among other things: |
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The incurrence of liens on assets to secure certain
debt; and
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Certain mergers or consolidations and transfers of
assets.
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These covenants are subject to exceptions. See Description
of the Notes Certain Covenants. |
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Use of Proceeds |
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The net proceeds from this offering of notes will be
approximately $ million after
deducting the estimated underwriting discount and commissions.
We intend to use the net proceeds of this offering to fund a
portion of the cash consideration to be paid in the Midstream
Piceance Acquisition. See Use of Proceeds. |
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Form and Denomination |
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The notes will be represented by one or more global notes. The
global notes will be deposited with the trustee, as custodian
for The Depository Trust Company, or DTC. |
S-4
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Ownership of beneficial interests in the global notes will be
shown on, and transfers of such interests will be effected only
through, records maintained in book-entry form by DTC and its
direct and indirect participants, including the depositaries for
Clearstream Banking Luxembourg, or Euroclear Bank S.A./N.V., as
operator of the Euroclear System. |
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The notes will be issued in minimum denominations of $2,000 and
in integral multiples of $1,000 in excess thereof. |
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Absence of Public Trading Market |
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The notes will be a new issue of securities for which there is
currently no market. We do not intend to apply for the notes to
be listed on any securities exchange or to arrange for any
quotation system to quote them. Accordingly, there can be no
assurance that a liquid market for the notes will develop or be
maintained. See Risk Factors. |
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Governing Law |
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The notes and the indenture will be governed by the laws of the
State of New York. |
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Trustee |
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The Bank of New York Mellon Trust Company, N.A. |
S-5
RISK
FACTORS
Before you invest in the notes, you should carefully consider
the risk factors set forth below and included in our 2009
10-K and
2010 10-Qs,
which are incorporated herein by reference, together with all of
the other information included in this prospectus supplement and
the documents incorporated herein by reference in evaluating an
investment in the notes. If any of the risks discussed below or
in the foregoing documents were actually to occur, our business,
prospects, financial condition, results of operations, cash
flows and, in some cases, our reputation, could be materially
adversely affected. In that case, we might not be able to pay
interest on, or the principal of, the notes. Additional risks
and uncertainties not currently known to us or those we
currently deem to be immaterial may also materially and
adversely affect us. In any such case, you may lose all or part
of your original investment and not realize any return that you
may have expected thereon. See Certain Definitions
for definitions of certain terms used in this section.
Risks
Related to the Notes
Our
partnership agreement limits our ability to accumulate cash,
which may limit cash available to service the notes or to repay
them at maturity.
Our partnership agreement requires us to distribute on a
quarterly basis, 100% of our available cash to our unitholders
of record and our general partner. Available cash is generally
all of our cash on hand at the end of each quarter, after
payment of fees and expenses and the establishment of cash
reserves by our general partner. Our general partner determines
the amount and timing of cash distributions and has broad
discretion to establish and make additions to our reserves or
the reserves of our operating subsidiaries in amounts our
general partner determines to be necessary or appropriate:
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to provide for the proper conduct of our business and the
businesses of our operating subsidiaries (including reserves for
future capital expenditures and for our anticipated future
credit needs);
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to provide funds for distributions to our unitholders and our
general partner for any one or more of the next four calendar
quarters; or
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to comply with applicable law or any of our loan or other
agreements.
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Depending on the timing and amount of our cash distributions to
unitholders and because we are not required to accumulate cash
for the purpose of meeting obligations to holders of any notes,
such distributions could significantly reduce the cash available
to us in subsequent periods to pay the interest on, and
principal of, the notes.
Our
indebtedness could impair our financial condition and our
ability to fulfill our debt obligations, including our
obligations under the notes.
As of September 30, 2010, we had outstanding indebtedness
of $6.2 billion, representing approximately 59% of our
total book capitalization. As of September 30, 2010, after
giving effect to this offering and the consummation of the
Midstream Piceance Acquisition, we would have had outstanding
indebtedness of $ billion,
representing approximately % of our
total book capitalization.
Our debt service obligations and restrictive covenants in the
Credit Facility, the indenture governing the notes and the
indentures governing our existing senior unsecured notes could
have important consequences to you. For example, they could:
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make it more difficult for us to satisfy our obligations with
respect to the notes and our other indebtedness, which could in
turn result in an event of default on such other indebtedness or
the notes;
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impair our ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions, general
partnership purposes or other purposes;
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diminish our ability to withstand a continued or future downturn
in our business or the economy generally;
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S-6
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require us to dedicate a substantial portion of our cash flow
from operations to debt service payments, thereby reducing the
availability of cash for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; and
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place us at a competitive disadvantage compared to our
competitors that have proportionately less debt.
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Our ability to repay, extend or refinance our existing debt
obligations, to make payments of interest on, and the principal
of, the notes, and to obtain future credit will depend primarily
on our operating performance, which will be affected by general
economic, financial, competitive, legislative, regulatory,
business and other factors, many of which are beyond our
control. Our ability to refinance existing debt obligations or
obtain future credit will also depend upon the current
conditions in the credit markets and the availability of credit
generally. If we are unable to meet our debt service
obligations, we could be forced to restructure or refinance our
indebtedness, seek additional equity capital or sell assets. We
may be unable to obtain financing or sell assets on satisfactory
terms, or at all.
We are not prohibited under the indenture that will govern the
notes or the indentures that govern our existing senior
unsecured notes from incurring additional indebtedness in
addition to the notes. Our incurrence of significant additional
indebtedness would exacerbate the negative consequences
mentioned above, and could adversely affect our ability to pay
the interest on, and principal of, the notes.
We
have a holding company structure in which our subsidiaries
conduct our operations and own our operating assets, which may
affect our ability to make payments on the notes.
We have a holding company structure, and our subsidiaries
conduct all of our operations and own all of our operating
assets. We have no significant assets other than the ownership
interests in these subsidiaries. As a result, our ability to
make required payments on the notes depends on the performance
of our subsidiaries and their ability to distribute funds to us.
The ability of our subsidiaries to make distributions to us may
be restricted by, among other things, applicable state
partnership and limited liability company laws and other laws
and regulations. If we are unable to obtain the funds necessary
to pay the principal amount at maturity of the notes, we may be
required to adopt one or more alternatives, such as a
refinancing of the notes. We cannot assure you that we would be
able to refinance the notes.
Our
debt agreements and Williams public indentures contain
financial and operating restrictions that may limit our access
to credit and affect our ability to operate our business. In
addition, our ability to obtain credit in the future will be
affected by Williams credit ratings.
Our public indentures contain various covenants that, among
other things, limit our ability to grant certain liens to
support indebtedness, merge, or sell substantially all of our
assets. In addition, our Credit Facility contains certain
financial covenants and restrictions on our ability and our
subsidiaries ability to incur indebtedness, to consolidate
or allow any material change in the nature of our business,
enter into certain affiliate transactions and make certain
distributions during an event of default. These covenants could
adversely affect our ability to finance our future operations or
capital needs or engage in, expand or pursue our business
activities and prevent us from engaging in certain transactions
that might otherwise be considered beneficial to us. Our ability
to comply with these covenants may be affected by events beyond
our control, including prevailing economic, financial and
industry conditions. If market or other economic conditions
deteriorate, our current assumptions about future economic
conditions turn out to be incorrect or unexpected events occur,
our ability to comply with these covenants may be significantly
impaired.
Williams public indentures contain covenants that restrict
Williams and our ability to incur liens to support
indebtedness. These covenants could adversely affect our ability
to finance our future operations or capital needs or engage in,
expand or pursue our business activities and prevent us from
engaging in certain transactions that might otherwise be
considered beneficial to us. Williams ability to comply
with the covenants contained in its debt instruments may be
affected by events beyond our and Williams control,
including prevailing economic, financial
S-7
and industry conditions. If market or other economic conditions
deteriorate, Williams ability to comply with these
covenants may be negatively impacted.
Our failure to comply with the covenants in our debt agreements
could result in events of default. Upon the occurrence of such
an event of default, the lenders could elect to declare all
amounts outstanding under a particular facility to be
immediately due and payable and terminate all commitments, if
any, to extend further credit. Certain payment defaults or an
acceleration under our public indentures or other material
indebtedness could cause a cross-default or cross-acceleration
of our Credit Facility. Such a cross-default or
cross-acceleration could have a wider impact on our liquidity
than might otherwise arise from a default or acceleration of a
single debt instrument. If an event of default occurs, or if our
Credit Facility cross-defaults, and the lenders under the
affected debt agreements accelerate the maturity of any loans or
other debt outstanding to us, we may not have sufficient
liquidity to repay amounts outstanding under such debt
agreements. For more information regarding our debt agreements,
please read Description of Other Indebtedness in
this prospectus supplement and Managements
Discussion and Analysis of Financial Condition and Results of
Operations in our 2009
10-K and in
our Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2010 (the
Third Quarter 2010
10-Q).
Substantially all of Williams operations are conducted
through its subsidiaries. Williams cash flows are
substantially derived from loans, dividends and distributions
paid to it by its subsidiaries. Williams cash flows are
typically utilized to service debt and pay dividends on the
common stock of Williams, with the balance, if any, reinvested
in its subsidiaries as loans or contributions to capital. Due to
our relationship with Williams, our ability to obtain credit
will be affected by Williams credit ratings. If Williams
were to experience a deterioration in its credit standing or
financial condition, our access to credit and our ratings could
be adversely affected. Any future downgrading of a
Williams credit rating would likely also result in a
downgrading of our credit rating. A downgrading of a
Williams credit rating could limit our ability to obtain
financing in the future upon favorable terms, if at all.
Our
subsidiaries are not prohibited from incurring indebtedness by
their organizational documents, which may affect our ability to
pay interest on, and the principal of, the notes.
Our subsidiaries are not prohibited by the terms of their
respective organizational documents from incurring indebtedness.
If they were to incur significant amounts of indebtedness, such
occurrence may inhibit their ability to make distributions to
us. An inability by our subsidiaries to make distributions to us
would materially and adversely affect our ability to pay
interest on, and the principal of, the notes because we expect
distributions we receive from our subsidiaries to represent a
significant portion of the cash we use to pay interest on, and
the principal of, the notes.
The
notes will be structurally subordinated to liabilities and
indebtedness of our subsidiaries and effectively subordinated to
any of our secured indebtedness to the extent of the assets
securing such indebtedness.
We currently have no secured indebtedness outstanding, but
holders of any secured indebtedness that we may incur in the
future would have claims with respect to our assets constituting
collateral for such indebtedness that are effectively prior to
your claims under the notes. In the event of a default on such
secured indebtedness or our bankruptcy, liquidation or
reorganization, those assets would be available to satisfy
obligations with respect to the indebtedness secured thereby
before any payment could be made on the notes. Accordingly, any
such secured indebtedness would effectively be senior to the
notes to the extent of the value of the collateral securing the
indebtedness. While the indenture governing the notes places
some limitations on our ability to create liens, there are
significant exceptions to these limitations that will allow us
to secure some kinds of indebtedness without equally and ratably
securing the notes. To the extent the value of the collateral is
not sufficient to satisfy the secured indebtedness, the holders
of that indebtedness would be entitled to share with the holders
of the notes and the holders of other claims against us with
respect to our other assets. Holders of the notes will
participate ratably with all holders of our unsecured
indebtedness that is deemed to be of the same class as the
notes, and potentially with all of our other general creditors,
based upon the respective amounts owed to each holder or
creditor, in our remaining assets. In any of the foregoing
events, we cannot assure you that there will be sufficient
assets to pay amounts due on the notes. As a result, holders of
notes may receive less, ratably, than holders of secured
indebtedness.
S-8
In addition, the notes are not guaranteed by our subsidiaries
and our subsidiaries are generally not prohibited under the
indenture from incurring additional indebtedness (in particular,
Transco and Northwest Pipeline collectively had approximately
$2 billion of indebtedness outstanding as of
September 30, 2010 and are likely to incur additional
indebtedness in the future). As a result, holders of the notes
will be structurally subordinated to claims of third party
creditors, including holders of indebtedness, of these
subsidiaries. Claims of those other creditors, including trade
creditors, secured creditors, governmental authorities, and
holders of indebtedness or guarantees issued by the
subsidiaries, will generally have priority as to the assets of
the subsidiaries over claims by the holders of the notes. As a
result, rights of payment of holders of our indebtedness,
including the holders of the notes, will be structurally
subordinated to all those claims of creditors of our
subsidiaries.
Cost
reimbursements due to our general partner and its affiliates
will reduce cash available to pay interest on, and the principal
of, the notes.
We reimburse our general partner and its affiliates, including
Williams, for various general and administrative services they
provide for our benefit, including costs for rendering
administrative staff and support services to us, and overhead
allocated to us. Our general partner determines the amount of
these reimbursements in its sole discretion. Payments for these
services will be substantial and will reduce the amount of cash
available for payments of interest on, and the principal of, the
notes. In addition, under Delaware partnership law, our general
partner has unlimited liability for our obligations, such as our
debts and environmental liabilities, except for our contractual
obligations that are expressly made without recourse to our
general partner. To the extent our general partner incurs
obligations on our behalf, we are obligated to reimburse or
indemnify it. If we are unable or unwilling to reimburse or
indemnify our general partner, our general partner may take
actions to cause us to make payments of these obligations and
liabilities. Any such payments adversely affect our ability to
pay interest on, and the principal of, the notes.
An
active trading market may not develop for our
notes.
Prior to this offering, there was no market for the notes. We
have been informed by the underwriters that they intend to make
a market in the notes after this offering is completed. However,
none of the underwriters is obligated to make a market in the
notes and, even if the underwriters commence market making, they
may cease their market-making at any time. In addition, the
liquidity of the trading market in the notes and the market
price quoted for the notes may be adversely affected by changes
in the overall market for debt securities and by changes in our
financial performance or prospects or in the financial
performance or prospects of companies in our industry. As a
result, an active trading market may not develop or be
maintained for our notes. If an active market does not develop
or is not maintained, the market price and liquidity of our
notes may be adversely affected.
Risks
Inherent in Our Business
We may
not be able to grow or effectively manage our
growth.
A principal focus of our strategy is to continue to grow by
expanding our business. Our future growth will depend upon our
ability to successfully identify, finance, acquire, integrate
and operate projects and businesses. Failure to achieve any of
these factors would adversely affect our ability to achieve
anticipated growth in the level of cash flows or realize
anticipated benefits.
We may acquire new facilities or expand our existing facilities
to capture anticipated future growth in natural gas production
that does not ultimately materialize. As a result, our new or
expanded facilities may not achieve profitability. In addition,
the process of integrating newly acquired or constructed assets
into our operations may result in unforeseen operating
difficulties, may absorb significant management attention and
may require financial resources that would otherwise be
available for the ongoing development and expansion of our
existing operations. Future acquisitions or construction
projects may require substantial new capital and could result in
the incurrence of indebtedness, additional liabilities and
excessive costs that could have a material adverse effect on our
business, results of operations, financial condition and our
ability to pay interest on, and the principal of, the notes.
Further, any limitations on our access to capital, including
limitations caused by illiquidity in the capital markets, may
impair our ability to complete future acquisitions and
construction projects on favorable terms, if at all.
S-9
Prices
for NGLs, natural gas and other commodities are volatile, and
this volatility could adversely affect our financial results,
cash flows, access to capital and ability to maintain existing
businesses.
Our revenues, operating results, future rate of growth and the
value of certain segments of our businesses depend primarily
upon the prices of NGLs, natural gas, or other commodities, and
the differences between prices of these commodities. Price
volatility can impact both the amount we receive for our
products and services and the volume of products and services we
sell. Prices affect the amount of cash flow available for
capital expenditures and our ability to borrow money or raise
additional capital. Any of the foregoing can also have an
adverse effect on our business, results of operations and
financial condition and our ability to pay interest on, and the
principal of, the notes.
The markets for NGLs, natural gas and other commodities are
likely to continue to be volatile. Wide fluctuations in prices
might result from relatively minor changes in the supply of and
demand for these commodities, market uncertainty and other
factors that are beyond our control, including:
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worldwide and domestic supplies of and demand for natural gas,
NGLs, petroleum, and related commodities;
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turmoil in the Middle East and other producing regions;
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the activities of the Organization of Petroleum Exporting
Countries;
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terrorist attacks on production or transportation assets;
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weather conditions;
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the level of consumer demand;
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the price and availability of other types of fuels;
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the availability of pipeline capacity;
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supply disruptions, including plant outages and transportation
disruptions;
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the price and level of foreign imports;
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domestic and foreign governmental regulations and taxes;
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volatility in the natural gas markets;
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the overall economic environment;
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the credit of participants in the markets where products are
bought and sold; and
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the adoption of regulations or legislation relating to climate
change.
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We
might not be able to successfully manage the risks associated
with selling and marketing products in the wholesale energy
markets.
Our portfolio of derivative and other energy contracts may
consist of wholesale contracts to buy and sell commodities,
including contracts for natural gas, NGLs and other commodities
that are settled by the delivery of the commodity or cash
throughout the United States. If the values of these contracts
change in a direction or manner that we do not anticipate or
cannot manage, it could negatively affect our results of
operations. In the past, certain marketing and trading companies
have experienced severe financial problems due to price
volatility in the energy commodity markets. In certain instances
this volatility has caused companies to be unable to deliver
energy commodities that they had guaranteed under contract. If
such a delivery failure were to occur in one of our contracts,
we might incur additional losses to the extent of amounts, if
any, already paid to, or received from, counterparties. In
addition, in our businesses, we often extend credit to our
counterparties. Despite performing credit analysis prior to
extending credit, we are exposed to the risk that we might not
be able to collect amounts owed to us. If the counterparty to
such a transaction fails to perform and any collateral that
secures our counterpartys obligation is inadequate, we
will suffer a loss. Downturns in the economy or disruptions in
the global credit markets could cause more of our counterparties
to fail to perform than we expect.
S-10
Any
decrease in NGL prices or a change in NGL prices relative to the
price of natural gas could affect our processing, fractionation
and storage businesses.
The relationship between natural gas prices and NGL prices
affects our profitability. When natural gas prices are low
relative to NGL prices, it is more profitable for us and our
customers to process natural gas. When natural gas prices are
high relative to NGL prices, it is less profitable to process
natural gas both because of the higher value of natural gas and
because of the increased cost of separating the mixed NGLs from
the natural gas. Higher natural gas prices relative to NGL
prices may also make it uneconomical to recover ethane, which
may further negatively impact sales volumes and margins.
Finally, higher natural gas prices relative to NGL prices could
also reduce volumes of gas processed generally, reducing the
volumes of mixed NGLs available for fractionation.
The
long-term financial condition of our natural gas transportation
and midstream businesses is dependent on the continued
availability of natural gas supplies in the supply basins that
we access, demand for those supplies in our traditional markets,
and the prices of and market demand for natural
gas.
The development of the additional natural gas reserves that are
essential for our gas transportation and midstream businesses to
thrive requires significant capital expenditures by others for
exploration and development drilling and the installation of
production, gathering, storage, transportation and other
facilities that permit natural gas to be produced and delivered
to our pipeline systems. Low prices for natural gas, regulatory
limitations, including environmental regulations, or the lack of
available capital for these projects could adversely affect the
development and production of additional reserves, as well as
gathering, storage, pipeline transportation and import and
export of natural gas supplies, adversely impacting our ability
to fill the capacities of our gathering, transportation and
processing facilities.
Production from existing wells and natural gas supply basins
with access to our pipeline systems will also naturally decline
over time. The amount of natural gas reserves underlying these
wells may also be less than anticipated, and the rate at which
production from these reserves declines may be greater than
anticipated. Additionally, the competition for natural gas
supplies to serve other markets could reduce the amount of
natural gas supply for our customers. Accordingly, to maintain
or increase the contracted capacity or the volume of natural gas
transported on our pipeline systems and cash flows associated
with the transportation of natural gas, our customers must
compete with others to obtain adequate supplies of natural gas.
In addition, if natural gas prices in the supply basins
connected to our pipeline systems are higher than prices in
other natural gas producing regions, our ability to compete with
other transporters may be negatively impacted on a short-term
basis, as well as with respect to our long-term recontracting
activities. If new supplies of natural gas are not obtained to
replace the natural decline in volumes from existing supply
areas, if natural gas supplies are diverted to serve other
markets, or if environmental regulators restrict new natural gas
drilling, the overall volume of natural gas transported and
stored on our system would decline, which could have a material
adverse effect on our business, financial condition and results
of operations, and our ability to pay interest on, and the
principal of, the notes. In addition, new LNG import facilities
built near our markets could result in less demand for our
gathering and transportation facilities.
Our
risk measurement and hedging activities might not be effective
and could increase the volatility of our results.
Although we have systems in place that use various methodologies
to quantify commodity price risk associated with our businesses,
these systems might not always be followed or might not always
be effective. Further, such systems do not in themselves manage
risk, particularly risks outside of our control, and adverse
changes in energy commodity market prices, volatility, adverse
correlation of commodity prices, the liquidity of markets,
changes in interest rates and other risks discussed in this
prospectus supplement might still adversely affect our earnings,
cash flows and balance sheet under applicable accounting rules,
even if risks have been identified.
In an effort to manage our financial exposure related to
commodity price and market fluctuations, we have entered and may
in the future enter into contracts to hedge certain risks
associated with our assets and operations. In these hedging
activities, we have used and may in the future use fixed-price,
forward, physical purchase and sales contracts, futures,
financial swaps and option contracts traded in the
over-the-counter
markets or on exchanges.
S-11
Nevertheless, no single hedging arrangement can adequately
address all risks present in a given contract. For example, a
forward contract that would be effective in hedging commodity
price volatility risks would not hedge the contracts
counterparty credit or performance risk. Therefore, unhedged
risks will always continue to exist. While we attempt to manage
counterparty credit risk within guidelines established by our
credit policy, we may not be able to successfully manage all
credit risk and as such, future cash flows and results of
operations could be impacted by counterparty default.
Our use of hedging arrangements through which we attempt to
reduce the economic risk of our participation in commodity
markets could result in increased volatility of our reported
results. Changes in the fair values (gains and losses) of
derivatives that qualify as hedges under generally accepted
accounting principles (GAAP), to the extent that
such hedges are not fully effective in offsetting changes to the
value of the hedged commodity, as well as changes in the fair
value of derivatives that do not qualify or have not been
designated as hedges under GAAP, must be recorded in our income.
This creates the risk of volatility in earnings even if no
economic impact to us has occurred during the applicable period.
The impact of changes in market prices for NGLs and natural gas
on the average prices paid or received by us may be reduced
based on the level of our hedging activities. These hedging
arrangements may limit or enhance our margins if the market
prices for NGLs or natural gas were to change substantially from
the price established by the hedges. In addition, our hedging
arrangements expose us to the risk of financial loss in certain
circumstances, including instances in which:
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volumes are less than expected;
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the hedging instrument is not perfectly effective in mitigating
the risk being hedged; and
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the counterparties to our hedging arrangements fail to honor
their financial commitments.
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The
adoption and implementation of new statutory and regulatory
requirements for derivative transactions could have an adverse
impact on our ability to hedge risks associated with our
business and increase the working capital requirements to
conduct these activities.
In July 2010, federal legislation known as the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank
Act) was enacted. The Dodd-Frank Act provides for new
statutory and regulatory requirements for derivative
transactions, including oil and gas hedging transactions. Among
other things, the Dodd-Frank Act provides for the creation of
position limits for certain derivatives transactions, as well as
requiring certain transactions to be cleared on exchanges for
which cash collateral will be required. The final impact of the
Dodd-Frank Act on our hedging activities is uncertain at this
time due to the requirement that the SEC and the Commodities
Futures Trading Commission (the CFTC) promulgate
rules and regulations implementing the new legislation within
360 days from the date of enactment. These new rules and
regulations could significantly increase the cost of derivative
contracts, materially alter the terms of derivative contracts or
reduce the availability of derivatives. Although we believe the
derivative contracts that we enter into should not be impacted
by position limits and should be exempt from the requirement to
clear transactions through a central exchange or to post
collateral, the impact upon our businesses will depend on the
outcome of the implementing regulations adopted by the CFTC.
Depending on the rules and definitions adopted by the CFTC, we
might in the future be required to provide cash collateral for
our commodities hedging transactions under circumstances in
which we do not currently post cash collateral. Posting of such
additional cash collateral could impact liquidity and reduce our
cash available for capital expenditures or other partnership
purposes. A requirement to post cash collateral could therefore
reduce our ability to execute hedges to reduce commodity price
uncertainty and thus protect cash flows. If we reduce our use of
derivatives as a result of the Dodd-Frank Act and regulations,
our results of operations may become more volatile and our cash
flows may be less predictable, which could adversely affect our
ability to plan for and fund capital expenditures.
S-12
Our
industry is highly competitive, and increased competitive
pressure could adversely affect our business and operating
results.
We have numerous competitors in all aspects of our businesses,
and additional competitors may enter our markets. Some of our
competitors are large oil, natural gas and petrochemical
companies that have greater access to supplies of natural gas
and NGLs than we do. In addition, current or potential
competitors may make strategic acquisitions or have greater
financial resources than we do, which could affect our ability
to make investments or acquisitions. Other companies with which
we compete may be able to respond more quickly to new laws or
regulations or emerging technologies or to devote greater
resources to the construction, expansion or refurbishment of
their facilities than we can. In addition, current or potential
competitors may make strategic acquisitions or have greater
financial resources than we do, which could affect our ability
to make investments or acquisitions. There can be no assurance
that we will be able to compete successfully against current and
future competitors and any failure to do so could have a
material adverse effect on our business, results of operations,
and financial condition and our ability to pay interest on, and
the principal of, the notes.
We are
exposed to the credit risk of our customers, and our credit risk
management may not be adequate to protect against such
risk.
We are subject to the risk of loss resulting from nonpayment
and/or
nonperformance by our customers in the ordinary course of our
business. Generally, our customers are rated investment grade,
are otherwise considered creditworthy or are required to make
prepayments or provide security to satisfy credit concerns.
However, our credit procedures and policies may not be adequate
to fully eliminate customer credit risk. We cannot predict to
what extent our business would be impacted by deteriorating
conditions in the economy, including declines in our
customers creditworthiness. If we fail to adequately
assess the creditworthiness of existing or future customers,
unanticipated deterioration in their creditworthiness and any
resulting increase in nonpayment
and/or
nonperformance by them could cause us to write down or write off
doubtful accounts. Such write-downs or write-offs could
negatively affect our operating results in the periods in which
they occur, and, if significant, could have a material adverse
effect on our business, results of operations, cash flows, and
financial condition and our ability to pay interest on, and the
principal of, the notes.
The
failure of counterparties to perform their contractual
obligations could adversely affect our operating results,
financial condition and cash available to make
distributions.
Despite performing credit analysis prior to extending credit, we
are exposed to the credit risk of our contractual counterparties
in the ordinary course of business even though we monitor these
situations and attempt to take appropriate measures to protect
ourselves. In addition to credit risk, counterparties to our
commercial agreements, such as product sales, gathering,
treating, storage, transportation, processing and fractionation
agreements, may fail to perform their other contractual
obligations. A failure of counterparties to perform their
contractual obligations, including Williams, could cause us to
write down or write off doubtful accounts, which could
materially adversely affect our operating results, and financial
condition and our ability to pay interest on, and the principal
of, the notes.
If
third-party pipelines and other facilities interconnected to our
pipelines and facilities become unavailable to transport natural
gas and NGLs or to treat natural gas, our revenues and cash
available to pay distributions could be adversely
affected.
We depend upon third-party pipelines and other facilities that
provide delivery options to and from our pipelines and
facilities for the benefit of our customers. Because we do not
own these third-party pipelines or facilities, their continuing
operation is not within our control. If these pipelines or
facilities were to become temporarily or permanently unavailable
for any reason, or if throughput were reduced because of
testing, line repair, damage to pipelines or facilities, reduced
operating pressures, lack of capacity, increased credit
requirements or rates charged by such pipelines or facilities or
other causes, we and our customers would have reduced capacity
to transport, store or deliver natural gas or NGL products to
end use markets or to receive deliveries of mixed NGLs, thereby
reducing our revenues. Further, although there are laws and
regulations designed to encourage competition in wholesale
market transactions, some companies may fail to provide fair and
equal access to their transportation systems or may not provide
sufficient transportation capacity for other market participants.
S-13
Any temporary or permanent interruption at any key pipeline
interconnect or in operations on third-party pipelines or
facilities that would cause a material reduction in volumes
transported on our pipelines or our gathering systems or
processed, fractionated, treated or stored at our facilities
could have a material adverse effect on our business, results of
operations, and financial condition and our ability to repay the
notes.
Future
disruptions in the global credit markets may make equity and
debt markets less accessible, create a shortage in the
availability of credit and lead to credit market volatility,
which could disrupt our financing plans and limit our ability to
grow.
In 2008, public equity markets experienced significant declines,
and global credit markets experienced a shortage in overall
liquidity and a resulting disruption in the availability of
credit. Future disruptions in the global financial marketplace,
including the bankruptcy or restructuring of financial
institutions, could make equity and debt markets inaccessible
and adversely affect the availability of credit already arranged
and the availability and cost of credit in the future. We have
availability under our Credit Facility, but our ability to
borrow under that facility could be impaired if one or more of
our lenders fails to honor its contractual obligation to lend to
us.
As a publicly traded partnership, these developments could
significantly impair our ability to make acquisitions or finance
growth projects. We distribute all of our available cash to our
unitholders on a quarterly basis. We typically rely upon
external financing sources, including the issuance of debt and
equity securities and bank borrowings, to fund acquisitions or
expansion capital expenditures. Any limitations on our access to
external capital, including limitations caused by illiquidity or
volatility in the capital markets, may impair our ability to
complete future acquisitions and construction projects on
favorable terms, if at all. As a result, we may be at a
competitive disadvantage as compared to businesses that reinvest
all of their available cash to expand ongoing operations,
particularly under adverse economic conditions.
Adverse
economic conditions could negatively affect our results of
operations.
A slowdown in the economy has the potential to negatively impact
our businesses in many ways. Included among these potential
negative impacts are reduced demand and lower prices for our
products and services, increased difficulty in collecting
amounts owed to us by our customers and a reduction in our
credit ratings (either due to tighter rating standards or the
negative impacts described above), which could result in
reducing our access to credit markets, raising the cost of such
access or requiring us to provide additional collateral to our
counterparties.
A
downgrade of our credit rating could impact our liquidity,
access to capital and our costs of doing business, and
maintaining credit ratings is under the control of independent
third parties.
A downgrade of our credit rating might increase our cost of
borrowing and could require us to post collateral with third
parties, negatively impacting our available liquidity. Our
ability to access capital markets could also be limited by a
downgrade of our credit rating and other disruptions. Such
disruptions could include:
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economic downturns;
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deteriorating capital market conditions;
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declining market prices for natural gas, NGLs and other
commodities;
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terrorist attacks or threatened attacks on our facilities or
those of other energy companies; and
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the overall health of the energy industry, including the
bankruptcy or insolvency of other companies.
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Credit rating agencies perform independent analysis when
assigning credit ratings. The analysis includes a number of
criteria including, but not limited to, business composition,
market and operational risks, as well as various financial
tests. Credit rating agencies continue to review the criteria
for industry sectors and various debt ratings and may make
changes to those criteria from time to time. Our current credit
ratings from Moodys is Baa3, from S&P is BBB-, and
from Fitch is BBB-. Credit ratings are not recommendations to
buy, sell or hold investments in the rated entity. Ratings are
subject to revision or withdrawal at any time by the ratings
agencies and no assurance can be given that we will maintain our
current credit ratings.
S-14
We are
subject to risks associated with climate change.
There is a growing belief that emissions of greenhouse gases may
be linked to climate change. Climate change and the costs that
may be associated with its impacts and the regulation of
greenhouse gases have the potential to affect our business in
many ways, including negatively impacting the costs we incur in
providing our products and services, the demand for and
consumption of our products and services (due to change in both
costs and weather patterns), and the economic health of the
regions in which we operate, all of which can create financial
risks. For further information regarding risks to our business
arising from climate change related regulation, please read the
discussion below under Our operations are subject to
governmental laws and regulations relating to the protection of
the environment, which may expose us to significant costs and
liabilities and could exceed current expectations.
Our
assets and operations can be affected by weather and other
natural phenomena.
Our assets and operations can be adversely affected by
hurricanes, floods, earthquakes, tornadoes and other natural
phenomena and weather conditions, including extreme
temperatures, making it more difficult for us to realize the
historic rates of return associated with these assets and
operations. Insurance may be inadequate, and in some instances,
we have been unable to obtain insurance on commercially
reasonable terms or insurance has not been available at all. A
significant disruption in operations or a significant liability
for which we were not fully insured could have a material
adverse effect on our business, results of operations and
financial condition and our ability to pay interest on, and the
principal of, the notes.
Our customers energy needs vary with weather conditions.
To the extent weather conditions are affected by climate change
or demand is impacted by regulations associated with climate
change, customers energy use could increase or decrease
depending on the duration and magnitude of the changes, leading
either to increased investment or decreased revenues.
We
depend on certain key customers and producers for a significant
portion of our revenues and supply of natural gas and NGLs. If
we lost any of these key customers or producers or contracted
volumes, our revenues and cash available to pay distributions
could decline.
We rely on a limited number of customers for a significant
portion of our revenues. Although some of these customers are
subject to long-term contracts, we may be unable to negotiate
extensions or replacements of these contracts on favorable
terms, if at all. The loss of all, or even a portion of, the
revenues from natural gas, NGLs or contracted volumes, as
applicable, supplied by these customers, as a result of
competition, creditworthiness, inability to negotiate extensions
or replacements of contracts or otherwise, could have a material
adverse effect on our business, results of operations, financial
condition and our ability to pay interest on, and the principal
of, the notes, unless we are able to acquire comparable volumes
from other sources.
We do
not own all of the interests in Partially Owned Entities, which
could adversely affect our ability to operate and control these
assets in a manner beneficial to us.
Because we do not control the Partially Owned Entities, our
investments in which account for approximately 8% of our total
consolidated assets at September 30, 2010, we may have
limited flexibility to control the operation of or cash
distributions received from these assets. Any future
disagreements with the other co-owners of these assets could
adversely affect our ability to respond to changing economic or
industry conditions, which could have a material adverse effect
on our business, results of operations, financial condition and
ability to make payments on the notes.
The
Partially Owned Entities may reduce their cash distributions to
us in some situations.
The Partially Owned Entities organizational documents
require distribution of their available cash to their members on
a quarterly basis. In each case, available cash is reduced, in
part, by reserves appropriate for operating their respective
businesses.
S-15
Significant
prolonged changes in natural gas prices could affect supply and
demand, cause a reduction in or termination of the long-term
transportation and storage contracts or throughput on the
Pipeline Entities systems, and adversely affect our cash
available to make distributions.
Higher natural gas prices over the long term could result in a
decline in the demand for natural gas and, therefore, in the
Pipeline Entities long-term transportation and storage
contracts or throughput on their respective systems. Also, lower
natural gas prices over the long term could result in a decline
in the production of natural gas resulting in reduced contracts
or throughput on their systems. As a result, significant
prolonged changes in natural gas prices could have a material
adverse effect on our Pipeline Entities business,
financial condition, results of operations and cash flows, and
on our ability to pay interest on, and the principal of, the
notes.
The
Pipeline Entities natural gas sales, transportation and
storage operations are subject to regulation by FERC, which
could have an adverse impact on their ability to establish
transportation and storage rates that would allow them to
recover the full cost of operating their respective pipelines,
including a reasonable rate of return.
The Pipeline Entities natural gas sales, transmission and
storage operations are subject to federal, state and local
regulatory authorities. Specifically, their interstate pipeline
transportation and storage service is subject to regulation by
FERC. The federal regulation extends to such matters as:
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transportation and sale for resale of natural gas in interstate
commerce;
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rates, operating terms and conditions of service, including
initiation and discontinuation of service;
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the types of services the Pipeline Entities may offer to their
customers;
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certification and construction of new facilities;
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acquisition, extension, disposition or abandonment of facilities;
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accounts and records;
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depreciation and amortization policies;
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relationships with affiliated companies who are involved in
marketing functions of the natural gas business; and
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market manipulation in connection with interstate sales,
purchases or transportation of natural gas.
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Under the Natural Gas Act (NGA), FERC has authority
to regulate providers of natural gas pipeline transportation and
storage services in interstate commerce, and such providers may
only charge rates that have been determined to be just and
reasonable by FERC. In addition, FERC prohibits providers from
unduly preferring or unreasonably discriminating against any
person with respect to pipeline rates or terms and conditions of
service.
Regulatory actions in these areas can affect our business in
many ways, including decreasing tariff rates and revenues,
decreasing volumes in our pipelines, increasing our costs and
otherwise altering the profitability of our pipeline business.
The FERC Standards of Conduct govern the relationship between
natural gas transmission providers and their marketing function
employees as defined by the rule. The standards of conduct are
intended to prevent natural gas transmission providers from
preferentially benefiting gas marketing functions by requiring
the employees of a transmission provider that perform
transmission functions to function independently from marketing
function employees and by restricting the information that
transmission providers may provide to gas marketing employees.
The inefficiencies created by the restrictions on the sharing of
employees and information may increase our costs, and the
restriction on the sharing of information may have an adverse
impact on our senior managements ability to effectively
obtain important information about our business.
Unlike other pipelines that own facilities in the offshore Gulf
of Mexico, Transco charges its transportation customers a
separate fee to access its offshore facilities. The separate
charge that it assesses, referred to as an IT feeder
charge, is charged only when the facilities are used and
typically is paid by producers or marketers. This
S-16
means that Transco recovers the costs included in the IT feeder
charge only if its facilities are used, and because it is
typically paid by producers and marketers, it generally results
in netback prices to producers that are slightly lower than the
netbacks realized by producers transporting on other interstate
pipelines. Longer term, this rate design disparity could result
in producers bypassing Transcos offshore facilities in
favor of alternative transportation facilities. Transco has
asked FERC to allow it to eliminate the IT feeder charge and
charge for transportation on its offshore facilities in the same
manner as other pipelines. Transcos requests have been
denied.
The rates, terms and conditions for the Pipeline Entities
interstate pipeline services are set forth in their respective
FERC-approved tariffs. Any successful complaint or protest
against the Pipeline Entities rates could have an adverse
impact on their revenues associated with providing
transportation services. In addition, there is a risk that rates
set by FERC in future rate cases filed by the Pipeline Entities
will be inadequate to recover increases in operating costs or to
sustain an adequate return on capital investments. There is also
the risk that higher rates would cause their customers to look
for alternative ways to transport natural gas.
The
Pipeline Entities could be subject to penalties and fines if
they fail to comply with FERC regulations.
The Pipeline Entities transportation and storage
operations are regulated by FERC. Should the Pipeline Entities
fail to comply with all applicable FERC administered statutes,
rules, regulations and orders, they could be subject to
substantial penalties and fines. Under the Energy Policy Act of
2005, FERC has civil penalty authority under the NGA to impose
penalties for current violations of up to $1,000,000 per day for
each violation. Any material penalties or fines imposed by FERC
could have a material adverse impact on the Pipeline
Entities business, financial condition, results of
operations and cash flows, and on our ability to pay interest
on, and the principal of, the notes.
The
outcome of certain FERC proceedings involving FERC policy
statements is uncertain and could affect the level of return on
equity that the Pipeline Entities may be able to achieve in any
future rate proceeding.
In an effort to provide some guidance and to obtain further
public comment on FERCs policies concerning return on
equity determinations, on July 19, 2007, FERC issued its
Proposed Proxy Policy Statement, Composition of Proxy
Groups for Determining Gas and Oil Pipeline Return on
Equity. In the Proposed Proxy Policy Statement, FERC
proposes to permit inclusion of publicly traded partnerships in
the proxy group analysis relating to return on equity
determinations in rate proceedings, provided that the analysis
be limited to actual publicly traded partnership distributions
capped at the level of the pipelines earnings.
After receiving public comment on the proposed policy statement,
on April 17, 2008, FERC issued a final policy statement
rejecting the concept of capping distributions in favor of an
adjustment to the long-term growth rate used to calculate the
equity cost of capital for publicly traded partnerships which
are included in the proxy group.
On January 19, 2009, FERC applied the policy statement to a
pipeline rate case and determined that the pipelines
return on equity should be 11.55 percent. It is difficult
to know how instructive this case is for purposes of
anticipating rates of return in future rate cases, because FERC
determined the composition of the proxy group using data from
2004 when the case was filed.
The effect of the application of FERCs policy to the
Pipeline Entities future rate proceedings is not certain,
and we cannot ensure that such application would not adversely
affect our ability to achieve a reasonable level of return on
equity.
The
outcome of future rate cases to set the rates the Pipeline
Entities can charge customers on their respective pipelines
might result in rates that lower their return on the capital
invested in those pipelines.
There is a risk that rates set by FERC in the Pipeline
Entities future rate cases will be inadequate to recover
increases in operating costs or to sustain an adequate return on
capital investments. There is also the risk that higher rates
will cause their customers to look for alternative ways to
transport their natural gas.
S-17
The
outcome of future rate cases will determine the amount of income
taxes the Pipeline Entities will be allowed to
recover.
In May 2005, FERC issued a statement of general policy
permitting a pipeline to include in its
cost-of-service
computations an income tax allowance provided that an entity or
individual has an actual or potential income tax liability on
income from the pipelines public utility assets. The
extent to which owners of pipelines have such actual or
potential income tax liability will be reviewed by FERC on a
case-by-case
basis in rate cases where the amounts of the allowances will be
established.
Legal
and regulatory proceedings and investigations relating to the
energy industry and capital markets have adversely affected the
Pipeline Entities businesses and may continue to do
so.
Public and regulatory scrutiny of the energy industry and of the
capital markets has resulted in increased regulation being
either proposed or implemented. Such scrutiny has also resulted
in various inquiries, investigations and court proceedings in
which the Pipeline Entities or their affiliates are named
as defendants. Both the shippers on the Pipeline Entities
pipelines and regulators have rights to challenge the rates they
charge under certain circumstances. Any successful challenge
could materially affect the Pipeline Entities results of
operations.
Certain inquiries, investigations and court proceedings are
ongoing. Adverse effects may continue as a result of the
uncertainty of these ongoing inquiries and proceedings, or
additional inquiries and proceedings by federal or state
regulatory agencies or private plaintiffs. In addition, we
cannot predict the outcome of any of these inquiries or whether
these inquiries will lead to additional legal proceedings
against the Pipeline Entities, civil or criminal fines or
penalties, or other regulatory action, including legislation,
which might be materially adverse to the operation of the
Pipeline Entities businesses and our revenues and net
income or increase their operating costs in other ways. Current
legal proceedings or other matters against us including
environmental matters, suits, regulatory appeals and similar
matters might result in adverse decisions against the Pipeline
Entities. The result of such adverse decisions, either
individually or in the aggregate, could be material and may not
be covered fully or at all by insurance.
Increased
competition from alternative natural gas transportation and
storage options and alternative fuel sources could have a
significant financial impact on us.
We compete primarily with other interstate pipelines and storage
facilities in the transportation and storage of natural gas.
Some of our competitors may have greater financial resources and
access to greater supplies of natural gas than we do. Some of
these competitors may expand or construct transportation and
storage systems that would create additional competition for
natural gas supplies or the services we provide to our
customers. Moreover, Williams and its other affiliates may not
be limited in their ability to compete with us. Further, natural
gas also competes with other forms of energy available to our
customers, including electricity, coal, fuel oils and other
alternative energy sources.
The principal elements of competition among natural gas
transportation and storage assets are rates, terms of service,
access to natural gas supplies, flexibility and reliability.
FERCs policies promoting competition in natural gas
markets are having the effect of increasing the natural gas
transportation and storage options for our traditional customer
base. As a result, we could experience some turnback
of firm capacity as the primary terms of existing agreements
expire. If we are unable to remarket this capacity or can
remarket it only at substantially discounted rates compared to
previous contracts, we or our remaining customers may have to
bear the costs associated with the turned back capacity.
Increased competition could reduce the amount of transportation
or storage capacity contracted on our system or, in cases where
we do not have long-term fixed rate contracts, could force us to
lower our transportation or storage rates. Competition could
intensify the negative impact of factors that significantly
decrease demand for natural gas or increase the price of natural
gas in the markets served by our pipeline system, such as
competing or alternative forms of energy, a regional or national
recession or other adverse economic conditions, weather, higher
fuel costs and taxes or other governmental or regulatory actions
that directly or indirectly increase the price of natural gas or
limit the use of natural gas. Our ability to renew or replace
existing contracts at rates sufficient to maintain current
revenues and cash flows could be adversely affected by the
activities of our competitors. All of these competitive
pressures could have a material adverse effect on our business,
financial condition, results of operations and cash flows and
our ability to pay interest on, and the principal of, the notes.
S-18
We may
not be able to maintain or replace expiring natural gas
transportation and storage contracts at favorable rates or on a
long-term basis.
The Pipeline Entities primary exposure to market risk
occurs at the time the terms of existing transportation and
storage contracts expire and are subject to termination.
Although none of our material contracts are terminable in 2010,
upon expiration of the terms we may not be able to extend
contracts with existing customers to obtain replacement
contracts at favorable rates or on a long-term basis.
The extension or replacement of existing contracts depends on a
number of factors beyond our control, including:
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the level of existing and new competition to deliver natural gas
to our markets;
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the growth in demand for natural gas in our markets;
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whether the market will continue to support long-term firm
contracts;
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whether our business strategy continues to be successful;
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the level of competition for natural gas supplies in the
production basins serving us; and
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the effects of state regulation on customer contracting
practices.
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Any failure to extend or replace a significant portion of our
existing contracts may have a material adverse effect on our
business, financial condition, results of operations and cash
flows and our ability to pay interest on, and the principal of,
the notes.
Competitive
pressures could lead to decreases in the volume of natural gas
contracted or transported through the Pipeline Entities
pipeline systems.
Although most of the Pipeline Entities pipeline
systems current capacity is fully contracted, FERC has
taken certain actions to strengthen market forces in the natural
gas pipeline industry that have led to increased competition
throughout the industry. In a number of key markets, interstate
pipelines are now facing competitive pressure from other major
pipeline systems, enabling local distribution companies and end
users to choose a transmission provider based on considerations
other than location. Other entities could construct new
pipelines or expand existing pipelines that could potentially
serve the same markets as our pipeline system. Any such new
pipelines could offer transportation services that are more
desirable to shippers because of locations, facilities, or other
factors. These new pipelines could charge rates or provide
service to locations that would result in greater net profit for
shippers and producers and thereby force us to lower the rates
charged for service on our pipeline in order to extend our
existing transportation service agreements or to attract new
customers. We are aware of proposals by competitors to expand
pipeline capacity in certain markets we also serve which, if the
proposed projects proceed, could increase the competitive
pressure upon us. There can be no assurance that we will be able
to compete successfully against current and future competitors
and any failure to do so could have a material adverse effect on
our business, results of operations, and our ability to pay
interest on, and the principal of, the notes.
Decreases
in demand for natural gas could adversely affect our
business.
Demand for our transportation services depends on the ability
and willingness of shippers with access to our facilities to
satisfy their demand by deliveries through our system. Any
decrease in this demand could adversely affect our business.
Demand for natural gas is also affected by weather, future
industrial and economic conditions, fuel conservation measures,
alternative fuel requirements, governmental regulation, or
technological advances in fuel economy and energy generation
devices, all of which are matters beyond our control.
Additionally, in some cases, new LNG import facilities built
near our markets could result in less demand for our gathering
and transmission facilities.
S-19
The
failure of new sources of natural gas production or LNG import
terminals to be successfully developed in North America could
increase natural gas prices and reduce the demand for our
services.
New sources of natural gas production in the United States and
Canada, particularly in areas of shale development, are expected
to become an increasingly significant component of future
U.S. natural gas supply in North America. Additionally,
increases in LNG supplies are expected to be imported through
new LNG import terminals, particularly in the Gulf Coast region.
If these additional sources of supply are not developed, natural
gas prices could increase and cause consumers of natural gas to
turn to alternative energy sources, which could have a material
adverse effect on our business, financial condition, results of
operations and cash flows and our ability to pay interest on,
and the principal of, the notes.
Certain
of the Pipeline Entities services are subject to
long-term, fixed-price contracts that are not subject to
adjustment, even if our cost to perform such services exceeds
the revenues received from such contracts.
The Pipeline Entities provide some services pursuant to
long-term, fixed price contracts. It is possible that costs to
perform services under such contracts will exceed the revenues
they collect for their services. Although most of the services
are priced at cost-based rates that are subject to adjustment in
rate cases, under FERC policy, a regulated service provider and
a customer may mutually agree to sign a contract for service at
a negotiated rate that may be above or below the
FERC-regulated, cost-based rate for that service. These
negotiated rate contracts are not generally subject
to adjustment for increased costs that could be produced by
inflation or other factors relating to the specific facilities
being used to perform the services.
Our
operations are subject to operational hazards and unforeseen
interruptions for which they may not be adequately
insured.
There are operational risks associated with the gathering,
transporting, storage, processing and treating of natural gas
and the fractionation and storage of NGLs, including:
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hurricanes, tornadoes, floods, fires, extreme weather conditions
and other natural disasters;
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aging infrastructure and mechanical problems;
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damages to pipelines and pipeline blockages;
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uncontrolled releases of natural gas (including sour gas), NGLs,
brine or industrial chemicals;
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collapse of NGL storage caverns;
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operator error;
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damage inadvertently caused by third party activity, such as
operation of construction equipment;
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pollution and other environmental risks;
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fires, explosions, craterings and blowouts;
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risks related to truck and rail loading and unloading;
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risks related to operating in a marine environment; and
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terrorist attacks or threatened attacks on our facilities or
those of other energy companies.
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Any of these risks could result in loss of human life, personal
injuries, significant damage to property, environmental
pollution, impairment of our operations and substantial losses
to us. In accordance with customary industry practice, we
maintain insurance against some, but not all, of these risks and
losses, and only at levels we believe to be appropriate. The
location of certain segments of our facilities in or near
populated areas, including residential areas, commercial
business centers and industrial sites, could increase the level
of damages resulting from these risks. In spite of our
precautions, an event such as those described above could cause
considerable harm to people or property, and could have a
material adverse effect on our financial condition and results
of operations,
S-20
particularly if the event is not fully covered by insurance.
Accidents or other operating risks could further result in loss
of service available to our customers.
Some
portions of our current pipeline infrastructure and other assets
have been in use for many decades, which may adversely affect
our business.
Some portions of our assets, including our pipeline
infrastructure, have been in use for many decades. The current
age and condition of our assets could result in a material
adverse impact on our business, financial condition and results
of operations if the costs of maintaining our facilities exceed
current expectations.
Our
operations are subject to governmental laws and regulations
relating to the protection of the environment, which may expose
us to significant costs and liabilities and could exceed current
expectations.
The risk of substantial environmental costs and liabilities is
inherent in natural gas gathering, transportation, storage,
processing and treating, and in the fractionation and storage of
NGLs, and we may incur substantial environmental costs and
liabilities in the performance of these types of operations. Our
operations are subject to extensive federal, state and local
environmental laws and regulations governing environmental
protection, the discharge of materials into the environment and
the security of chemical and industrial facilities. These laws
include:
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Clean Air Act (CAA) and analogous state laws, which
impose obligations related to air emissions;
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Clean Water Act (CWA) and analogous state laws,
which regulate discharge of wastewaters from our facilities to
state and federal waters;
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Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), and analogous state laws,
which regulate the cleanup of hazardous substances that may have
been released at properties currently or previously owned or
operated by us or locations to which we have sent wastes for
disposal; and
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Resource Conservation and Recovery Act (RCRA), and
analogous state laws, which impose requirements for the handling
and discharge of solid and hazardous waste from our facilities.
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Various governmental authorities, including the United States
Environmental Protection Agency (EPA) and analogous
state agencies and the United States Department of Homeland
Security, have the power to enforce compliance with these laws
and regulations and the permits issued under them, oftentimes
requiring difficult and costly actions. Failure to comply with
these laws, regulations, and permits may result in the
assessment of administrative, civil, and criminal penalties, the
imposition of remedial obligations, the imposition of stricter
conditions on or revocation of permits, and the issuance of
injunctions limiting or preventing some or all of our operations.
There is inherent risk of the incurrence of environmental costs
and liabilities in our business, some of which may be material,
due to our handling of the products we gather, transport,
process, fractionate and store, air emissions related to our
operations, historical industry operations, waste disposal
practices, and the prior use of flow meters containing mercury.
Joint and several, strict liability may be incurred without
regard to fault under certain environmental laws and
regulations, including CERCLA, RCRA, and analogous state laws,
for the remediation of contaminated areas and in connection with
spills or releases of natural gas and wastes on, under, or from
our properties and facilities. Private parties, including the
owners of properties through which our pipeline and gathering
systems pass and facilities where our wastes are taken for
reclamation or disposal, may have the right to pursue legal
actions to enforce compliance as well as to seek damages for
non-compliance with environmental laws and regulations or for
personal injury or property damage arising from our operations.
Some sites we operate are located near current or former
third-party hydrocarbon storage and processing operations, and
there is a risk that contamination has migrated from those sites
to ours. In addition, increasingly strict laws, regulations and
enforcement policies could materially increase our compliance
costs and the cost of any remediation that may become necessary.
Our insurance may not cover all environmental risks and costs or
may not provide sufficient coverage if an environmental claim is
made against us.
S-21
Our business may be adversely affected by increased costs due to
stricter pollution control requirements or liabilities resulting
from non-compliance with required operating or other regulatory
permits. Also, we might not be able to obtain or maintain from
time to time all required environmental regulatory approvals for
our operations. If there is a delay in obtaining any required
environmental regulatory approvals, or if we fail to obtain and
comply with them, the operation of our facilities could be
prevented or become subject to additional costs, resulting in
potentially material adverse consequences to our business,
financial condition, results of operations and cash flows.
In addition, recent scientific studies have suggested that
emissions of certain gases, commonly referred to as greenhouse
gases (GHGs), may be contributing to warming of the
earths atmosphere, and various governmental bodies have
considered legislative and regulatory responses in this area.
Legislative and regulatory responses related to GHGs and climate
change creates the potential for financial risk. The United
States Congress and certain states have for some time been
considering various forms of legislation related to GHG
emissions. There have also been international efforts seeking
legally binding reductions in emissions of GHGs. In addition,
increased public awareness and concern may result in more state,
regional
and/or
federal requirements to reduce or mitigate GHG emissions.
Several bills have been introduced in the United States Congress
that would compel GHG emission reductions. On June 26,
2009, the U.S. House of Representatives passed the
American Clean Energy and Security Act which is
intended to decrease annual GHG emissions through a variety of
measures, including a cap and trade system which
limits the amount of GHGs that may be emitted and incentives to
reduce the nations dependence on traditional energy
sources. The U.S. Senate is currently considering similar
legislation, and numerous states have also announced or adopted
programs to stabilize and reduce GHGs. In addition, on
December 7, 2009, the EPA issued a final determination that
six GHGs are a threat to public safety and welfare. This
determination could ultimately lead to the direct regulation of
GHG emissions in our industry under the CAA. While it is not
clear whether or when any federal or state climate change laws
or regulations will be passed, any of these actions could result
in increased costs to (i) operate and maintain our
facilities, (ii) install new emission controls on our
facilities, and (iii) administer and manage any GHG
emissions program. If we are unable to recover or pass through a
significant level of our costs related to complying with climate
change regulatory requirements imposed on us, it could have a
material adverse effect on our results of operations and our
ability to pay interest on, and the principal of, the notes. To
the extent financial markets view climate change and GHG
emissions as a financial risk, this could negatively impact our
cost of and access to capital.
Certain environmental and other groups have suggested that
additional laws and regulations may be needed to more closely
regulate the hydraulic fracturing process commonly used in
natural gas production and legislation has been proposed in
Congress to provide for such regulation. We cannot predict
whether any federal, state or local legislation or regulation
will be enacted in this area and if so, what its provisions
would be. If additional levels of reporting, regulation and
permitting were required, our operations and those of our
customers could be adversely affected.
We make assumptions and develop expectations about possible
expenditures related to environmental conditions based on
current laws and regulations and current interpretations of
those laws and regulations. If the interpretation of laws or
regulations, or the laws and regulations themselves, change, our
assumptions may change, and any new capital costs incurred to
comply with such changes may not be recoverable under our
regulatory rate structure or our customer contracts. In
addition, new environmental laws and regulations might adversely
affect our products and activities, including processing,
fractionation, storage and transportation, as well as waste
management and air emissions. For instance, federal and state
agencies could impose additional safety requirements, any of
which could affect our profitability.
We do
not insure against all potential losses and could be seriously
harmed by unexpected liabilities or by the ability of the
insurers we do use to satisfy our claims.
We are not fully insured against all risks inherent to our
business, including environmental accidents that might occur. In
addition, we do not maintain business interruption insurance in
the type and amount to cover all possible risks of loss. We
currently maintain excess liability insurance with limits of
$610 million per occurrence and in the aggregate annually
and a deductible of $2 million per occurrence. This
insurance covers us, our subsidiaries, and
S-22
certain of our affiliates for legal and contractual liabilities
arising out of bodily injury, personal injury or property
damage, including resulting loss of use to third parties. This
excess liability insurance includes coverage for sudden and
accidental pollution liability for full limits, with the first
$135 million of insurance also providing gradual pollution
liability coverage for natural gas and NGL operations. Pollution
liability coverage excludes: release of pollutants subsequent to
their disposal; release of substances arising from the
combustion of fuels that result in acidic deposition; and
testing, monitoring,
clean-up,
containment, treatment or removal of pollutants from property
owned, occupied by, rented to, used by or in the care, custody
or control of us, our subsidiaries, or certain of our affiliates.
We do not insure onshore underground pipelines for physical
damage, except at river crossings and at certain locations such
as compressor stations. We maintain coverage of
$300 million per occurrence for physical damage to onshore
assets and resulting business interruption caused by terrorist
acts. We also maintain coverage of $100 million per
occurrence for physical damage to offshore assets caused by
terrorist acts, except for our Devils Tower spar where we
maintain limits of $450 million per occurrence for physical
damage caused by terrorist acts. We purchase insurance for
business interruption arising from physical loss or damage
resulting from terrorist acts only for certain offshore assets.
Also, all of our insurance is subject to deductibles. If a
significant accident or event occurs for which we are not fully
insured, it could adversely affect our operations and financial
condition. We may not be able to maintain or obtain insurance of
the type and amount we desire at reasonable rates. Changes in
the insurance markets subsequent to hurricanes losses in recent
years have impacted named windstorm insurance coverage, rates
and availability for Gulf of Mexico area exposures, and we may
elect to self insure a portion of our asset portfolio. We cannot
assure you that we will in the future be able to obtain the
levels or types of insurance we would otherwise have obtained
prior to these market changes or that the insurance coverage we
do obtain will not contain large deductibles or fail to cover
certain hazards or cover all potential losses. The occurrence of
any operating risks not fully covered by insurance could have a
material adverse effect on our business, financial condition,
results of operations and cash flows, and our ability to pay
interest on, and the principal of, the notes.
In addition, certain insurance companies that provide coverage
to us, including American International Group, Inc., have
experienced negative developments that could impair their
ability to pay any of our potential claims. As a result, we
could be exposed to greater losses than anticipated and may have
to obtain replacement insurance, if available, at a greater cost.
Execution
of our capital projects subjects us to construction risks,
increases in labor costs and materials, and other risks that may
adversely affect financial results.
Our growth may be dependent upon the construction of new natural
gas gathering, transportation, processing or treating pipelines
and facilities or NGL fractionation or storage facilities, as
well as the expansion of existing facilities. Construction or
expansion of these facilities is subject to various regulatory,
development and operational risks, including:
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the ability to obtain necessary approvals and permits by
regulatory agencies on a timely basis and on acceptable terms;
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the availability of skilled labor, equipment, and materials to
complete expansion projects;
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potential changes in federal, state and local statutes and
regulations, including environmental requirements, that prevent
a project from proceeding or increase the anticipated cost of
the project;
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impediments on our ability to acquire
rights-of-way
or land rights on a timely basis and on acceptable terms;
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the ability to construct projects within estimated costs,
including the risk of cost overruns resulting from inflation or
increased costs of equipment, materials, labor or other factors
beyond our control, that may be material; and
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the ability to access capital markets to fund construction
projects.
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Any of these risks could prevent a project from proceeding,
delay its completion or increase its anticipated costs. As a
result, new facilities may not achieve expected investment
return, which could adversely affect our
S-23
results of operations, financial position, or cash flows and our
ability to pay interest on, and the principal of, the notes.
Our
operating results for certain segments of our business might
fluctuate on a seasonal and quarterly basis.
Revenues from certain segments of our business can have seasonal
characteristics. In many parts of the country, demand for
natural gas and other fuels peaks during the winter. As a
result, our overall operating results in the future might
fluctuate substantially on a seasonal basis. Demand for natural
gas and other fuels could vary significantly from our
expectations depending on the nature and location of our
facilities and pipeline systems and the terms of our natural gas
transportation arrangements relative to demand created by
unusual weather patterns.
We do
not operate all of our assets. This reliance on others to
operate our assets and to provide other services could adversely
affect our business and operating results.
Williams and other third parties operate certain of our assets.
We have a limited ability to control these operations and the
associated costs. The success of these operations is therefore
dependent upon a number of factors that are outside our control,
including the competence and financial resources of the
operators.
We rely on Williams for certain services necessary for us to be
able to conduct our business. Williams may outsource some or all
of these services to third parties, and a failure of all or part
of Williams relationships with its outsourcing providers
could lead to delays in or interruptions of these services. Our
reliance on Williams and others as operators and on
Williams outsourcing relationships, and our limited
ability to control certain costs could have a material adverse
effect on our business, results of operations, and financial
condition and our ability to pay interest on, and the principal
of, the notes.
We do
not own all of the land on which our pipelines and facilities
are located, which could disrupt our operations.
We do not own all of the land on which our pipelines and
facilities have been constructed. As such, we are subject to the
possibility of increased costs to retain necessary land use. We
obtain the rights to construct and operate our pipelines and
gathering systems on land owned by third parties and
governmental agencies for a specific period of time. Our loss of
these rights, through our inability to renew
right-of-way
contracts or otherwise, could have a material adverse effect on
our business, results of operations, and financial condition and
our ability to pay interest on, and the principal of, the notes.
Potential
changes in accounting standards might cause us to revise our
financial results and disclosures in the future, which might
change the way analysts measure our business or financial
performance.
Regulators and legislators continue to take a renewed look at
accounting practices, financial disclosures, retirement plan
practices and companies relationships with their
independent public accounting firms. It remains unclear what new
laws or regulations will be adopted, and we cannot predict the
ultimate impact that any such new laws or regulations could
have. In addition, the Financial Accounting Standards Board, the
SEC or FERC could enact new accounting standards or FERC orders
that might impact how we are required to record revenues,
expenses, assets and liabilities. Any significant change in
accounting standards or disclosure requirements could have a
material adverse effect on our business, results of operations,
and financial condition and our ability to pay interest on, and
the principal of, the notes.
Institutional
knowledge residing with current employees nearing retirement
eligibility might not be adequately preserved.
In our business, institutional knowledge resides with employees
who have many years of service. As these employees reach
retirement age, we may not be able to replace them with
employees of comparable knowledge and experience. In addition,
we may not be able to retain or recruit other qualified
individuals, and our efforts at knowledge transfer could be
inadequate. If knowledge transfer, recruiting and retention
efforts are inadequate, access to significant amounts of
internal historical knowledge and expertise could become
unavailable to us.
S-24
Failure
of or disruptions to our outsourcing relationships might
negatively impact our ability to conduct our
business.
Some studies indicate a high failure rate of outsourcing
relationships. Although Williams has taken steps to build a
cooperative and mutually beneficial relationship with its
outsourcing providers and to closely monitor their performance,
a deterioration in the timeliness or quality of the services
performed by the outsourcing providers or a failure of all or
part of these relationships could lead to loss of institutional
knowledge and interruption of services necessary for us to be
able to conduct our business. The expiration of such agreements
or the transition of services between providers could lead to
similar losses of institutional knowledge or disruptions.
Certain of our accounting, information technology, application
development, and help desk services are currently provided by
Williams outsourcing provider from service centers outside
of the United States. The economic and political conditions in
certain countries from which Williams outsourcing
providers may provide services to us present similar risks of
business operations located outside of the United States,
including risks of interruption of business, war, expropriation,
nationalization, renegotiation, trade sanctions or nullification
of existing contracts and changes in law or tax policy, that are
greater than in the United States.
Acts
of terrorism could have a material adverse effect on our
financial condition, results of operations and cash
flows.
Our assets and the assets of our customers and others may be
targets of terrorist activities that could disrupt our business
or cause significant harm to our operations, such as full or
partial disruption to our ability to produce, process, transport
or distribute natural gas, NGLs or other commodities. Acts of
terrorism as well as events occurring in response to or in
connection with acts of terrorism could cause environmental
repercussions that could result in a significant decrease in
revenues or significant reconstruction or remediation costs,
which could have a material adverse effect on our financial
condition, results of operations, and cash flows and on our
ability to pay interest on, and the principal of, the notes.
We may
not realize the anticipated benefits from the
Dropdown.
We may not realize the benefits that we anticipate from the
Dropdown for a number of reasons, including, but not limited to,
if any of the matters identified as risks in the Risk Factors
section in this prospectus supplement were to occur. If we do
not realize the anticipated benefits from the Dropdown for any
reason, our business may be materially adversely affected.
Risks
Related to our Relationship with Williams
Williams
controls our general partner, which has sole responsibility for
conducting our business and managing our operations. Our general
partner has limited fiduciary duties to, and it and its
affiliates may have conflicts of interest with, us and our
unitholders, and our general partner and its affiliates may
favor their interests to the detriment of our
unitholders.
Williams owns and controls our general partner and appoints all
of the directors of our general partner. All of the executive
officers and certain directors of our general partner are
officers
and/or
directors of Williams and certain of its affiliates. Although
our general partner has a fiduciary duty to manage us in a
manner beneficial to us, the directors and officers of our
general partner also have a fiduciary duty to manage our general
partner in a manner beneficial to Williams. Therefore, conflicts
of interest may arise between Williams and its affiliates,
including our general partner, on the one hand, and us and our
unitholders, on the other hand. In resolving these conflicts,
our general partner may favor its own interests and the
interests of its affiliates over the interests of our
unitholders. These conflicts include, among others, the
following factors:
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neither our partnership agreement nor any other agreement
requires Williams or its affiliates to pursue a business
strategy that favors us. Williams directors and officers
have a fiduciary duty to make decisions in the best interests of
the owners of Williams, which may be contrary to the best
interests of us and our unitholders;
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S-25
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all of the executive officers and certain of the directors of
our general partner are also officers
and/or
directors of Williams and certain of its affiliates, and these
persons will also owe fiduciary duties to those entities;
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our general partner is allowed to take into account the
interests of parties other than us, such as Williams and its
affiliates, in resolving conflicts of interest;
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Williams owns common units representing an approximate 75%
limited partner interest in us, and if a vote of limited
partners is required in which Williams is entitled to vote,
Williams will be able to vote its units in accordance with its
own interests, which may be contrary to our interests or the
interests of our unitholders;
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all of the executive officers and certain of the directors of
our general partner will devote significant time to our business
and/or the
business of Williams, and will be compensated by Williams for
the services rendered to them;
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our general partner determines the amount and timing of our cash
reserves, asset purchases and sales, capital expenditures,
borrowings and issuances of additional partnership securities,
each of which can affect the amount of cash that is distributed
to our unitholders;
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our general partner determines the amount and timing of any
capital expenditures and, based on the applicable facts and
circumstances, and, in some instances, with the concurrence of
the conflicts committee of its board of directors, whether a
capital expenditure is classified as a maintenance capital
expenditure, which reduces operating surplus, or an expansion
capital expenditure or investment capital expenditure, neither
of which reduces operating surplus. This determination can
affect the amount of cash that is distributed to our unitholders
and to our general partner with respect to its incentive
distribution rights;
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in some instances, our general partner may cause us to borrow
funds in order to permit the payment of cash distributions even
if the purpose or effect of the borrowing is to make incentive
distributions to itself as general partner;
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our general partner determines which costs incurred by it and
its affiliates are reimbursable by us;
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our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf;
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our general partner has limited liability regarding our
contractual and other obligations and in some circumstances is
required to be indemnified by us;
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pursuant to our partnership agreement, our general partner may
exercise its limited right to call and purchase common units if
it and its affiliates own more than 80% of our outstanding
common units, but pursuant to a forbearance agreement entered
into by our general partner in connection with the Dropdown, our
general partner agreed not to exercise this right unless it and
its affiliates hold more than 85% of our outstanding common
units; this forbearance agreement will terminate if and when our
general partner and its affiliates hold less than 75% of our
outstanding common units;
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our general partner controls the enforcement of obligations owed
to us by it and its affiliates; and
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our general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
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Affiliates
of our general partner, including Williams, are not limited in
their ability to compete with us. Williams is also not obligated
to offer us the opportunity to acquire additional assets or
businesses from it, which could limit our commercial activities
or our ability to grow. In addition, all of the executive
officers and certain of the directors of our general partner are
also officers and/or directors of Williams, and these persons
will also owe fiduciary duties to it.
While our relationship with Williams and its affiliates is a
significant attribute, it is also a source of potential
conflicts. For example, Williams is in the natural gas business
and is not restricted from competing with us.
S-26
Williams and its affiliates may compete with us. Williams and
its affiliates may acquire, construct or dispose of natural gas
industry assets in the future, some or all of which may compete
with our assets, without any obligation to offer us the
opportunity to purchase or construct such assets. In addition,
all of the executive officers and certain of the directors of
our general partner are also officers
and/or
directors of Williams and certain of its affiliates and will owe
fiduciary duties to those entities as well as our unitholders
and us.
Our
allocation from Williams for costs for its defined benefit
pension plans and other postretirement benefit plans are
affected by factors beyond our and Williams
control.
As we have no employees, employees of Williams and its
affiliates provide services to us. As a result, we are allocated
a portion of Williams costs in defined benefit pension
plans covering substantially all of Williams or its
affiliates employees providing services to us, as well as
a portion of the costs of other postretirement benefit plans
covering certain eligible participants providing services to us.
The timing and amount of our allocations under the defined
benefit pension plans depend upon a number of factors Williams
controls, including changes to pension plan benefits, as well as
factors outside of Williams control, such as asset
returns, interest rates and changes in pension laws. Changes to
these and other factors that can significantly increase our
allocations could have a significant adverse effect on our
financial condition and results of operations.
S-27
USE OF
PROCEEDS
The net proceeds from this offering of notes will be
approximately $ million after
deducting the estimated underwriting discount and commissions.
We intend to use the net proceeds of this offering to fund a
portion of the cash consideration to be paid in the Midstream
Piceance Acquisition.
S-28
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of
earnings to fixed charges for each of the periods indicated,
revised to reflect the consummation of the Dropdown.
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Nine Months Ended
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Year Ended December 31,
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September 30, 2010
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2009
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2008
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2007
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2006
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2005
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Ratio of Earnings to Fixed Charges(a)(b)
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3.58
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4.70
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5.37
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6.40
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7.10
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6.29
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For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items: pre-tax income or loss from continuing operations before
income or loss from equity investees; plus fixed charges; plus
distributed income of equity investees; less our share of
pre-tax losses of equity investees for which charges arising
from guarantees are included in fixed charges; and less
capitalized interest. The term fixed charges means
the sum of the following: interest expensed and capitalized;
amortized premiums, discounts and capitalized expenses related
to indebtedness; and an estimate of the interest within rental
expense; and our share of interest from equity investees where
the related pre-tax loss has been included in earnings. |
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Because the entities acquired in the Dropdown were affiliates of
Williams at the time of the acquisition, this transaction is
accounted for as a combination of entities under common control,
similar to a pooling of interests, whereby the assets and
liabilities of the acquired entities are combined with ours at
their historical amounts. As a result, pre-tax income from
continuing operations includes net income applicable to
pre-partnership operations, which is fully allocated to our
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S-29
CAPITALIZATION
The following table sets forth our historical cash and cash
equivalents and capitalization as of September 30, 2010 and
our pro forma cash and cash equivalents and capitalization as of
September 30, 2010, as adjusted to reflect:
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this offering of the notes and the application of the net
proceeds of this offering as described in Use of
Proceeds;
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the consummation of the Midstream Piceance Acquisition,
including payment of the consideration to Williams; and
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the issuance and sale on October 8, 2010 of 1,387,500 of
our common units pursuant to an underwriters
over-allotment option as described in Summary
Recent Developments Common Unit Offering.
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This table is derived from and should be read together with our
historical consolidated financial statements and the
accompanying notes included in our Third Quarter 2010
10-Q, which
is incorporated by reference in this prospectus supplement. You
should also read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Third Quarter
2010 10-Q,
which is incorporated by reference into this prospectus
supplement.
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As of September 30, 2010
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Historical
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As Adjusted
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(Unaudited)
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($ in millions)
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Cash and Cash Equivalents
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$
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92
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$
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Short-Term Debt:
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Long-term debt due within one year
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458
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458
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Long-Term Debt (less unamortized debt discount):
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Our Credit Facility
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Senior Notes with various interest rates ranging from 3.8% to
8.875% and maturities from 2011 to 2040
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5,765
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5,765
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Notes offered hereby
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Total long-term debt
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5,765
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Equity:
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Held by public:
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Common units
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1,404
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1,461
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Held by the general partner and its affiliates:
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Controlling interests
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3,410
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3,174
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Accumulated other comprehensive (loss)
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(10
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(10
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Total equity
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4,804
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4,625
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Total capitalization
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$
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10,569
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$
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S-30
DESCRIPTION
OF THE NOTES
We will issue $ in aggregate
principal amount of senior notes
due
under an indenture (the base indenture) between the
Company and The Bank of New York Mellon Trust Company,
N.A., as trustee (the trustee), as amended and
supplemented by a supplemental indenture (the supplemental
indenture) between the Company and the trustee relating to
the issuance of the notes. The base indenture, as amended and
supplemented by the supplemental indenture, is referred to
herein as the indenture. The terms of the notes
include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939,
as amended (the Trust Indenture Act).
The following description of certain terms of the notes
supplements, and to the extent inconsistent, replaces, the
description under Description of the Debt Securities
in the accompanying prospectus. The following description and
the description under Description of the Debt
Securities in the accompanying prospectus together
constitute a summary of the material provisions of the indenture
and the notes. They do not restate those documents in their
entirety. We urge you to read the indenture in its entirety,
because it, and not this description or the description under
Description of the Debt Securities in the
accompanying prospectus, defines your rights as holders of the
notes. Copies of the indenture are available as set forth below
under Additional Information. You can
find the definitions of certain terms used in this description
under the subheading Certain
Definitions. In this description, the term
Company, us, our or
we refers only to Williams Partners L.P. and not to
any of our subsidiaries. Certain defined terms used in this
Description of the Notes but not defined below under
Certain Definitions have the meanings
assigned to them in the indenture.
The registered holder of a note will be treated as the owner of
it for all purposes. Only registered holders will have rights
under the indenture.
Brief
Description of the Notes
The notes:
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are our general unsecured obligations;
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are equal in right of payment with all of our existing and
future senior unsecured indebtedness; and
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are effectively subordinated to any of our existing and future
senior secured indebtedness and structurally subordinated to all
existing and future indebtedness and other obligations of our
Subsidiaries, including trade payables.
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Assuming that we had completed this offering of the notes on
September 30, 2010:
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We would have had outstanding indebtedness of approximately
$ billion (including
$ million in aggregate
principal amount of the notes offered hereby); and
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our Subsidiaries would have had outstanding indebtedness of
approximately $2.0 billion.
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The indenture will permit us to incur additional indebtedness,
including additional senior unsecured indebtedness. The
indenture also will not restrict the ability of our subsidiaries
to incur additional indebtedness. See Risks Related to the
Notes Our indebtedness could impair our financial
condition and our ability to fulfill our debt obligations,
including our obligations under the notes.
We own a noncontrolling interest in Aux Sable Liquid Products
Inc., Aux Sable Liquid Products LP, Baton Rouge Fractionators
LLC, Baton Rouge Pipeline LLC, Cardinal Pipeline Company LLC,
Discovery Producer Services LLC, Gulfstream Natural Gas System,
L.L.C., Laurel Mountain Midstream Ohio, LLC, Laurel Mountain
Midstream Operating LLC, Laurel Mountain Midstream, LLC,
Overland Pass Pipeline Company LLC, Pine Needle LNG Company,
LLC, Pacific Connector Gas Pipeline, LLC, Pacific Connector Gas
Pipeline, LP. We use the equity method of accounting for these
investments and they will not be classified as Subsidiaries of
ours under the indenture so long as we continue to own a
noncontrolling interest in each of them. As a result, the
entities listed above will not be subject to the restrictive
covenants in the indenture so long as they are not a
Subsidiaries of ours.
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Principal,
Maturity and Interest
We will issue the notes with an initial maximum aggregate
principal amount of
$ .
The notes will mature
on .
We will issue notes in minimum denominations of $2,000 and
integral multiples of $1,000 in excess thereof.
Interest on the notes will accrue at the rate
of % per annum, and will be payable
semi-annually in arrears
on and ,
beginning
on .
We will make each interest payment on the notes to the holders
of record at the close of business on the immediately
preceding or (whether
or not a Business Day).
Interest on the notes will accrue from the date of original
issuance or, if interest has already been paid or duly provided
for, from the date it was most recently paid or duly provided
for. Interest will be computed on the basis of a
360-day year
comprised of twelve
30-day
months.
We may, without the consent of the holders of notes, issue
additional notes having the same ranking and the same interest
rate, maturity and other terms as the notes, except that
interest would accrue from the date of issuance of such
additional notes and such additional notes may not be fungible
for trading purposes with, and may initially bear a different
identifying numbers than, the notes offered hereby. Any
additional notes having such similar terms, together with the
notes offered hereby, will constitute a single series of debt
securities under the indenture.
Methods
of Receiving Payments on the Notes
We will pay all principal, interest and premium, if any, on the
notes in the manner described under
Same-Day
Settlement and Payment below.
Paying
Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. We
may change the paying agent or registrar without prior notice to
the holders of the notes, and we or any of our Subsidiaries may
act as paying agent or registrar.
Transfer
and Exchange
A holder may transfer or exchange notes in accordance with the
indenture. The registrar and the trustee may require a holder to
furnish appropriate endorsements and transfer documents in
connection with a transfer of notes. No service charges will be
imposed by us, the trustee or the registrar for any registration
of transfer or exchange of notes, but holders may be required to
pay all taxes due on transfer or exchange. We are not required
to transfer or exchange any note selected for redemption. Also,
we are not required to transfer or exchange any note for a
period of 15 days before mailing notice of any redemption
of notes.
Optional
Redemption
We may, at our option, redeem the notes, in whole or in part, at
any time or from time to time at a redemption price equal to the
greater of:
(1) 100% of the principal amount of the notes to be
redeemed, plus accrued interest to the redemption date, and
(2) as determined by the Quotation Agent, the sum of the
present values of the remaining scheduled payments of principal
of and interest on the notes to be redeemed (not including any
portion of payments of interest accrued as of the redemption
date) discounted to the redemption date on a semiannual basis
(assuming a
360-day year
consisting of twelve
30-day
months) at the Adjusted Treasury Rate,
plus
basis points, plus accrued interest to the redemption date.
We also have the option, at any time on or
after
(which is the date that is three months prior to the maturity
date of the notes), to redeem the notes, in whole or in part, at
a redemption price equal to 100% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest thereon
to the redemption date.
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Selection
and Notice
If less than all of the notes are to be redeemed at any time,
the trustee will select such notes for redemption from the
outstanding notes not previously called for redemption on a pro
rata basis or by lot (whichever is consistent with the
trustees customary practice).
No notes of $2,000 or less can be redeemed in part. Notices of
optional redemption will be mailed by first class mail at least
30 but not more than 60 days before the redemption date to
each holder of notes to be redeemed at its registered address.
Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount of that note that is to be redeemed. A new
note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and
after the redemption date, interest will cease to accrue on
notes or portions of them called for redemption.
Mandatory
Redemption
We are not required to make mandatory redemption or sinking fund
payments with respect to the notes or to repurchase the notes at
the option of the holders.
Certain
Covenants
Except as set forth in this Description of the
Notes, neither we nor any of our Subsidiaries will be
restricted by the indenture from incurring additional
indebtedness or other obligations, from making distributions or
paying dividends on our or our Subsidiaries equity
interests or from purchasing our or our Subsidiaries
equity interests. The indenture does not require the maintenance
of any financial ratios or specified levels of net worth or
liquidity. In addition, the indenture does not contain any
provisions that would require us to repurchase or redeem any of
the notes in situations that may adversely affect the
creditworthiness of the notes.
Liens
We will not, and will not permit any Subsidiary of ours to,
issue, assume or guarantee any Indebtedness secured by a Lien,
other than Permitted Liens, upon any of our or any of our
Subsidiaries property, now owned or hereafter acquired,
unless the notes are equally and ratably secured with such
Indebtedness until such time as such Indebtedness is no longer
secured by a Lien.
Notwithstanding the preceding paragraph, we may, and may permit
any Subsidiary of ours to, issue, assume or guarantee any
Indebtedness secured by a Lien, other than a Permitted Lien,
without securing the notes; provided that the aggregate
principal amount of all Indebtedness of ours and any Subsidiary
of ours then outstanding secured by any such Liens (other than
Permitted Liens) does not exceed 15% of Consolidated Net
Tangible Assets.
Merger,
Consolidation or Sale of Assets
We may not directly or indirectly consolidate with or merge with
or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets and properties
and the assets and properties of our Subsidiaries (taken as a
whole) in one or more related transactions to another Person,
unless:
(1) either: (a) we are the survivor; or (b) the
Person formed by or surviving any such consolidation or merger
(if other than us) or to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made is a Person
formed, organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
(2) the Person formed by or surviving any such
consolidation or merger (if other than us) or the Person to
which such sale, assignment, transfer, lease, conveyance or
other disposition has been made expressly assumes by
supplemental indenture, in form reasonably satisfactory to the
trustee, executed by the successor person and delivered to the
trustee, the due and punctual payment of the principal of and
any premium and interest on the notes and the performance of all
of our obligations under the indenture and the notes;
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(3) we or the Person formed by or surviving any such merger
will deliver to the trustee an officers certificate and an
opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other
disposition and such supplemental indenture (if any) comply with
the indenture and that all conditions precedent in the indenture
relating to such transaction have been complied with; and
(4) immediately after giving effect to such transaction, no
Event of Default or event which, after notice or lapse of time,
or both, would become an Event of Default, shall have occurred
and be continuing.
Upon any consolidation by us with or our merger into any other
Person or Persons where we are not the survivor or any sale,
assignment, transfer, lease, conveyance or other disposition of
all or substantially all of our properties and assets and the
properties and assets of our Subsidiaries (taken as a whole) to
any Person or Persons in accordance herewith, the successor
Person formed by such consolidation or into which we are merged
or to which such sale, assignment, transfer, lease, conveyance
or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, us
under the indenture with the same effect as if such successor
Person had been named as the Company therein; and thereafter,
except in the case of a lease, the predecessor Person shall be
released from all obligations and covenants under the indenture
and the notes.
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.
Reports
We will:
(1) file with the trustee, within 30 days after we
have filed the same with the Commission, unless such reports are
available on the Commissions EDGAR filing system (or any
successor thereto), copies of the annual reports and of the
information, documents, and other reports (or copies of such
portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) which we may be
required to file with the Commission pursuant to Section 13
or Section 15(d) of the Exchange Act; or, if we are not
required to file information, documents or reports pursuant to
either of said Sections, then we shall file with the trustee and
the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents, and reports
which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to
time in such rules and regulations;
(2) file with the trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports
with respect to compliance by us with the conditions and
covenants of the indenture as may be required from time to time
by such rules and regulations; and
(3) transmit within 30 days after the filing thereof
with the trustee, in the manner and to the extent provided in
Section 313(c) of the Trust Indenture Act, such
summaries of any information, documents and reports required to
be filed by us pursuant to clauses (1) and (2) of this
paragraph as may be required by rules and regulations prescribed
from time to time by the Commission.
Events of
Default and Remedies
Each of the following is an Event of Default with
respect to the notes, and any references under Description
of the Debt Securities in the accompanying prospectus to
events of default described in the first paragraph under the
heading Events of Default therein shall be deemed to
be references to the following:
(a) default for 30 days in the payment when due of any
interest on the notes;
(b) default in the payment of the principal of or any
premium on the notes when the principal or premium becomes due
and payable;
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(c) failure by us duly to observe or perform any other of
the covenants or agreements (other than those described in
clause (a) or (b) above) in the indenture, which
failure continues for a period of 60 days, or, in the case
of the covenant set forth under Certain
Covenants Reports above, which failure
continues for a period of 90 days, after the date on which
written notice of such failure, requiring the same to be
remedied and stating that such notice is a Notice of
Default has been given to us by the trustee, upon
direction of holders of at least 25% in principal amount of then
outstanding notes; provided, however, that if such
failure is not capable of cure within such
60-day or
90-day
period, as the case may be, such
60-day or
90-day
period, as the case may be, shall be automatically extended by
an additional 60 days so long as (i) such failure is
subject to cure, and (ii) we are using commercially
reasonable efforts to cure such failure; and provided,
further, that a failure to comply with any such other
agreement in the indenture that results from a change in GAAP
shall not be deemed to be an Event of Default;
(d) certain events of bankruptcy, insolvency or
reorganization described in the indenture with respect to us.
In case an Event of Default specified in clause (a) or
(b) above shall occur and be continuing with respect to the
notes, holders of at least 25%, and in case an Event of Default
specified in clause (c) above shall occur and be continuing
with respect to the notes, holders of at least a majority, in
aggregate principal amount of the notes then outstanding may
declare the principal to be due and payable. If an Event of
Default described in clause (d) above shall occur and be
continuing then the principal amount of all the debt securities
then outstanding under the indenture shall be and become due and
payable immediately, without notice or other action by any
holder or the trustee, to the full extent permitted by law. Any
past or existing default or Event of Default with respect to the
notes may be waived by the holders of a majority in aggregate
principal amount of the outstanding notes, except in each case a
continuing default (1) in the payment of the principal of,
any premium or interest on, or any additional amounts with
respect to, any notes, or (2) in respect of a covenant or
provision which cannot be modified or amended without the
consent of each holder affected thereby.
The indenture provides that the trustee may withhold notice to
the holders of any default with respect to the notes (except in
payment of principal of or interest or premium on the notes) if
the trustee considers it in the interest of holders to do so.
The indenture contains a provision entitling the trustee to be
indemnified by the holders before proceeding to exercise any
trust or power under the indenture at the request of such
holders. The indenture provides that the holders of a majority
in aggregate principal amount of the then outstanding notes may
direct the time, method and place of conducting any proceedings
for any remedy available to the trustee or of exercising any
trust or power conferred upon the trustee with respect to the
notes; provided, however, that the trustee may decline to follow
any such direction if, among other reasons, the trustee
determines that the actions or proceedings as directed would be
unduly prejudicial to the holders of the notes not joining in
such direction. The right of a holder to institute a proceeding
with respect to the notes will be subject to certain conditions
precedent including, without limitation, that in case of an
Event of Default specified in clause (a), (b) or
(d) of the first paragraph above under
Events of Default and Remedies, holders
of at least 25%, or in case of an Event of Default specified in
clause (c) of the first paragraph above under
Events of Default, holders of at least a
majority, in aggregate principal amount of the notes then
outstanding make a written request upon the trustee to exercise
its powers under the indenture, indemnify the trustee and afford
the trustee reasonable opportunity to act.
Notwithstanding the foregoing, the holder has an absolute right
to receipt of the principal of, premium, if any, and interest on
and additional amounts with respect to the notes when due and to
institute suit for the enforcement thereof. We are required to
deliver to the trustee annually a statement regarding compliance
with the indenture.
Governing
Law
The indenture and the notes will be governed by, and construed
in accordance with, the laws of the State of New York.
Additional
Information
We will file the supplemental indenture as an exhibit to a
current report on
Form 8-K
at the completion of this offering. Anyone who receives this
prospectus supplement may also obtain a copy of the base
indenture
and/or the
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supplemental indenture without charge by writing to Williams
Partners L.P., One Williams Center, Tulsa, Oklahoma
74172-0172;
Attention: Investor Relations.
Book-Entry,
Delivery and Form
Except as set forth below, notes will be issued in registered,
global form, without interest coupons, which we refer to as
Global Notes. Global Notes will be issued in minimum
denominations of $2,000 and integral multiples of $1,000 in
excess thereof. Notes will be issued at the closing of this
offering only against payment in immediately available funds.
The Global Notes will be deposited upon issuance with the
trustee as custodian for The Depository Trust Company
(DTC), in New York, New York, and registered in the
name of DTCs nominee, Cede & Co., in each case
for credit to an account of a direct or indirect participant in
DTC as described below.
Except as set forth below, the Global Notes may be transferred,
in whole but not in part, only to DTC, to a nominee of DTC or to
a successor of DTC or its nominee. Beneficial interests in the
Global Notes may not be exchanged for notes in registered,
certificated form (Certificated Notes) except in the
limited circumstances described below. See
Exchange of Certificated Notes for Global
Notes. Except in the limited circumstances described
below, owners of beneficial interests in the Global Notes will
not be entitled to receive physical delivery of notes in
certificated form.
Transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those
of the Euroclear System (Euroclear) and Clearstream
Banking, S.A. (Clearstream)), which may change from
time to time.
Depository
Procedures
The following description of the operations and procedures of
DTC is provided solely as a matter of convenience. These
operations and procedures are solely within the control of DTC
and are subject to changes by it. We take no responsibility for
these operations and procedures and urge investors to contact
DTC or its participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company
created to hold securities for its participating organizations
(collectively, the Participants) and to facilitate
the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in
accounts of its Participants. The Participants include
securities brokers and dealers (including the underwriters),
banks, trust companies, clearing corporations and certain other
organizations. Access to DTCs system is also available to
other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly
(collectively, the Indirect Participants). Persons
who are not Participants may beneficially own securities held by
or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers
of ownership interests in, each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised us that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the
accounts of the Participants designated by the underwriters with
portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will
be shown on, and the transfer of ownership of these interests
will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants may hold
their interests therein directly through DTC. Investors in the
Global Notes who are not Participants may hold their interests
therein indirectly through organizations (including Euroclear
and Clearstream) which are Participants. All interests in a
Global Note, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements
of DTC. Those interests held through Euroclear or Clearstream
may also be subject to the procedures and requirements of
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such systems. The laws of some states require that certain
Persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to
that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect
Participants, the ability of a Person having beneficial
interests in a Global Note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Except as described below, owners of an interest in the
Global Notes will not have notes registered in their names, will
not receive physical delivery of Certificated Notes and will not
be considered the registered owners or Holders
thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and
premium, if any, on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the
registered holder under the indenture. Under the terms of the
indenture, the Company and the trustee will treat the Persons in
whose names the notes, including the Global Notes, are
registered as the owners of the notes for the purpose of
receiving payments and for all other purposes. Consequently,
neither the Company, the trustee nor any agent of ours or of the
trustee has or will have any responsibility or liability for:
(1) any aspect of DTCs records or any
Participants or Indirect Participants records
relating to, or payments made on account of, beneficial
ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTCs records or any
Participants or Indirect Participants records
relating to the beneficial ownership interests in the Global
Notes; or
(2) any other matter relating to the actions and practices
of DTC or any of its Participants or Indirect Participants.
DTC has advised us that its current practice, at the due date of
any payment in respect of securities such as the notes, is to
credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe
that it will not receive payment on such payment date. Each
relevant Participant is credited with an amount proportionate to
its beneficial ownership of an interest in the principal amount
of the notes as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the
responsibility of DTC, the trustee or us. Neither we nor the
trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the notes,
and the Company and the trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its
nominee for all purposes.
Transfers between Participants in DTC will be effected in
accordance with DTCs procedures, and will be settled in
same-day
funds, and transfers between participants in Euroclear and
Clearstream will be effected in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable
to the notes described herein, cross-market transfers between
the Participants in DTC, on the one hand, and Euroclear or
Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTCs rules on behalf of
Euroclear or Clearstream, as the case may be, by its depositary;
however, such cross-market transactions will require delivery of
instructions to Euroclear or Clearstream, as the case may be, by
the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time)
of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or
receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures
for same-day
funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised us that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more
Participants to whose account DTC has credited the interests in
the Global Notes and only in respect of such portion of the
aggregate principal amount of the notes as to which such
Participant or Participants has or have
S-37
given such direction. However, if there is an Event of Default
under the notes, DTC reserves the right to exchange the Global
Notes for Certificated Notes, and to distribute such notes to
its Participants.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such
procedures at any time. Neither the Company nor the trustee nor
any of their respective agents will have any responsibility for
the performance by DTC, Euroclear or Clearstream or their
respective Participants or Indirect Participants of their
respective obligations under the rules and procedures governing
their operations.
Exchange
of Global Notes for Certificated Notes
A Global Note is exchangeable for Certificated Notes in minimum
denominations of $2,000 and in integral multiples of $1,000 in
excess thereof if:
(1) DTC notifies us that it is unwilling or unable to
continue as depositary for such Global Notes or that it has
ceased to be a clearing agency registered under the Exchange Act
and, in either case, we fail to appoint a successor depositary
within 90 days after the date of such notice from DTC;
(2) we, at our option and subject to the procedures of DTC,
notify the trustee in writing that we elect to cause the
issuance of the Certificated Notes; or
(3) an Event of Default has occurred and is continuing with
respect to the notes.
In all cases, Certificated Notes delivered in exchange for any
Global Note or beneficial interests in Global Notes will be
registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Same-Day
Settlement and Payment
We will make payments in respect of the notes represented by the
Global Notes (including principal, interest and premium, if any)
by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. We will make all payments
of principal, interest and premium, if any, with respect to
Certificated Notes (i) to holders having an aggregate
principal amount of $2,000,000 or less, by check mailed to such
holders registered address or (ii) to holders having
an aggregate principal amount of more than $2,000,000, by check
mailed to such holders registered address or, upon
application by a holder to the registrar not later than the
relevant record date or in the case of payments of principal or
premium, if any, not later than 15 days prior to the
principal payment date, by wire transfer in immediately
available funds to that holders account within the United
States (subject to surrender of the Certificated Note in the
case of payments of principal or premium), which application
shall remain in effect until the holder notifies the registrar
to the contrary in writing. The notes represented by the Global
Notes are expected to be eligible to trade in DTCs
Same-Day
Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. The Company
expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
Global Note from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
DTC has advised us that cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Note
by or through a Euroclear or Clearstream participant to a
Participant in DTC will be received with value on the settlement
date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTCs settlement date.
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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.
Adjusted Treasury Rate means, with respect to
any redemption date, the rate per annum equal to the semi-annual
equivalent yield to maturity of the applicable Comparable
Treasury Issue, assuming a price for such Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal
to the applicable Comparable Treasury Price for that redemption
date.
Board of Directors means:
(1) with respect to the Company, the board of directors of
the General Partner or any authorized committee thereof; and
(2) with respect to any corporation, the board of directors
of the corporation or any authorized committee thereof;
(3) with respect to a limited liability company, the
managing member or managing members or board of directors, as
applicable, of such limited liability company or any authorized
committee thereof;
(4) with respect to any other partnership, the board of
directors of the general partner of the partnership or any
authorized committee thereof; and
(5) with respect to any other Person, the board or
committee of such Person serving a similar function.
Business Day means each day that is not a
Saturday, Sunday or other day on which banking institutions in
New York, New York or another place of payment are authorized or
required by law, regulation or executive order to close.
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.
Commission means the U.S. Securities and
Exchange Commission, as from time to time constituted, created
under the Exchange Act or any successor agency.
Comparable Treasury Issue means the United
States Treasury security selected by the Quotation Agent as
having an actual or interpolated maturity comparable to the
remaining term of the notes being redeemed that would be
utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining term of
the notes.
Comparable Treasury Price means, with respect
to any redemption date:
(1) the average of the Reference Treasury Dealer Quotations
for that redemption date, after excluding the highest and lowest
of the Reference Treasury Dealer Quotations, or
(2) if the Quotation Agent obtains fewer than three
Reference Treasury Dealer Quotations, the average of all
Reference Treasury Dealer Quotations so received.
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Consolidated Net Tangible Assets means at any
date of determination, the total amount of assets of us and our
Subsidiaries after deducting therefrom:
(1) all current liabilities (excluding (A) any current
liabilities that by their terms are extendable or renewable at
the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is
being computed, and (B) current maturities of long-term
debt); and
(2) the value (net of any applicable reserves) of all
goodwill, trade names, trademarks, patents, and other like
intangible assets,
all as set forth, or on a pro forma basis would be set forth, on
our consolidated balance sheet for our most recently completed
fiscal quarter, prepared in accordance with GAAP.
GAAP means generally accepted accounting
principles in the United States, which are in effect from time
to time.
General Partner means Williams Partners GP
LLC, a Delaware limited liability company (including any
permitted successors and assigns under the Limited Partnership
Agreement).
holder means a Person in whose name a note is
registered.
Indebtedness means, with respect to any
specified Person, any obligation created or assumed by such
Person, whether or not contingent, for the repayment of money
borrowed from others or any guarantee thereof.
Joint Venture means any Person that is not a
direct or indirect Subsidiary of ours in which we or any of our
Subsidiaries owns any Capital Stock.
Lien means any mortgage, pledge, lien,
security interest or other similar encumbrance.
Limited Partnership Agreement means our
Amended and Restated Agreement of Limited Partnership, dated as
of August 23, 2005, among the General Partner, Williams
Energy Services, LLC, Williams Energy, L.L.C., Williams
Discovery Pipeline LLC and Williams Partners Holdings LLC, as
amended, supplemented or restated from time to time.
Non-Recourse Indebtedness means any
Indebtedness incurred by any Joint Venture or Non-Recourse
Subsidiary which does not provide for recourse against us or any
Subsidiary of ours (other than a Non-Recourse Subsidiary) or any
property or asset of ours or any Subsidiary of ours (other than
the Capital Stock or the properties or assets of a Joint Venture
or Non-Recourse Subsidiary).
Non-Recourse Subsidiary means any Subsidiary
of ours (i) whose principal purpose is to incur Non-
Recourse Indebtedness
and/or
construct, lease, own or operate the assets financed thereby, or
to become a direct or indirect partner, member or other equity
participant or owner in a partnership, limited partnership,
limited liability partnership, corporation (including a business
trust), limited liability company, unlimited liability company,
joint stock company, trust, unincorporated association or joint
venture created for such purpose (collectively, a Business
Entity), (ii) who is not an obligor or otherwise
bound with respect to any Indebtedness other than Non-Recourse
Indebtedness, (iii) substantially all the assets of which
Subsidiary or Business Entity are limited to (x) those
assets being financed (or to be financed), or the operation of
which is being financed (or to be financed), in whole or in part
by Non-Recourse Indebtedness or (y) Capital Stock in, or
Indebtedness or other obligations of, one or more other
Non-Recourse Subsidiaries or Business Entities and (iv) any
Subsidiary of a Non-Recourse Subsidiary; provided that
such Subsidiary shall be considered to be a Non-Recourse
Subsidiary only to the extent that and for so long as each of
the above requirements are met.
Permitted Liens means:
(1) any Lien existing on any property at the time of the
acquisition thereof and not created in contemplation of such
acquisition by us or any of our Subsidiaries, whether or not
assumed by us or any of our Subsidiaries;
(2) any Lien existing on any property of a Subsidiary of
ours at the time it becomes a Subsidiary of ours and not created
in contemplation thereof and any Lien existing on any property
of any Person at the time such
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Person is merged or liquidated into or consolidated with us or
any Subsidiary of ours and not created in contemplation thereof;
(3) purchase money and analogous Liens incurred in
connection with the acquisition, development, construction,
improvement, repair or replacement of property (including such
Liens securing Indebtedness incurred within 12 months of
the date on which such property was acquired, developed,
constructed, improved, repaired or replaced); provided
that all such Liens attach only to the property acquired,
developed, constructed, improved, repaired or replaced and the
principal amount of the Indebtedness secured by such Lien shall
not exceed the gross cost of the property;
(4) any Liens created or assumed to secure Indebtedness of
ours or of any Subsidiary of ours maturing within 12 months
of the date of creation thereof and not renewable or extendible
by the terms thereof at the option of the obligor beyond such
12 months;
(5) Liens on accounts receivable and related proceeds
thereof arising in connection with a receivables financing and
any Lien held by the purchaser of receivables derived from
property or assets sold by us or any Subsidiary of ours and
securing such receivables resulting from the exercise of any
rights arising out of defaults on such receivables;
(6) leases constituting Liens existing on the date of the
indenture or thereafter existing and any renewals or extensions
thereof;
(7) any Lien securing industrial development, pollution
control or similar revenue bonds;
(8) Liens existing on the date of the indenture;
(9) Liens in favor of us or any Subsidiary of ours;
(10) Liens securing Indebtedness incurred to refund,
extend, refinance or otherwise replace Indebtedness
(Refinanced Indebtedness) secured by a Lien
permitted to be incurred under the indenture; provided
that the principal amount of such Refinanced Indebtedness
does not exceed the principal amount of Indebtedness refinanced
(plus the amount of penalties, premiums, fees, accrued interest
and reasonable expenses incurred therewith) at the time of
refinancing;
(11) Liens on any assets or properties, or pledges of the
Capital Stock, of (a) any Joint Venture owned by us or any
Subsidiary of ours or (b) any Non-Recourse Subsidiary, in
each case only to the extent securing Non-Recourse Indebtedness
of such Joint Venture or Non-Recourse Subsidiary;
(12) Liens on the products and proceeds (including
insurance, condemnation, and eminent domain proceeds) of and
accessions to, and contract or other rights (including rights
under insurance policies and product warranties) derivative of
or relating to, property permitted by the indenture to be
subject to Liens but subject to the same restrictions and
limitations set forth in the indenture as to Liens on such
property (including the requirement that such Liens on products,
proceeds, accessions, and rights secure only obligations that
such property is permitted to secure);
(13) any Liens securing Indebtedness neither assumed nor
guaranteed by us or any Subsidiary of ours nor on which we or
they customarily pay interest, existing upon real estate or
rights in or relating to real estate (including
rights-of-way
and easements) acquired by us or such Subsidiary, which mortgage
Liens do not materially impair the use of such property for the
purposes for which it is held by us or such Subsidiary;
(14) any Lien existing or hereafter created on any office
equipment, data processing equipment (including computer and
computer peripheral equipment) or transportation equipment
(including motor vehicles, aircraft, and marine vessels);
(15) undetermined Liens and charges incidental to
construction or maintenance;
(16) any Lien created or assumed by us or any Subsidiary of
ours on oil, gas, coal or other mineral or timber property owned
by us or a Subsidiary of ours;
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(17) any Lien created by us or any Subsidiary of ours on
any contract (or any rights thereunder or proceeds therefrom)
providing for advances by us or such Subsidiary to finance gas
exploration and development, which Lien is created to secure
Indebtedness incurred to finance such advances; and
(18) any Lien granted in connection with a cash
collateralization or similar arrangement to secure obligations
of ours or any Subsidiary of ours to issuing banks in connection
with letters of credits issued at the request of us or any
Subsidiary of ours.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or any agency or political subdivision thereof.
Quotation Agent means the Reference Treasury
Dealer appointed as such agent by us.
Reference Treasury Dealer Quotations means,
with respect to any Reference Treasury Dealer and any redemption
date, the average, as determined by the Quotation Agent, of the
bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount)
quoted in writing to the Quotation Agent by that Reference
Treasury Dealer at 5:00 p.m., New York City time, on the
third Business Day preceding that redemption date.
Reference Treasury Dealers means
(i) Deutsche Bank Securities Inc., J.P. Morgan
Securities LLC and RBC Capital Markets, LLC and their
successors, unless any of such entities ceases to be a primary
U.S. Government securities dealer in New York City (a
Primary Treasury Dealer), in which case we shall
substitute another Primary Treasury Dealer; and (ii) any
two other Primary Treasury Dealers selected by us.
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 member of
which is such Person or a Subsidiary of such Person or
(b) if there is more than a single general partner or
member, either (x) the only managing 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.
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.
Williams means The Williams Companies, Inc.,
a Delaware corporation.
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DESCRIPTION
OF OTHER INDEBTEDNESS
Williams
Partners Notes
In connection with the Dropdown, we issued $3.5 billion
aggregate principal face amount of senior unsecured notes
consisting of $750 million of 3.800% senior notes due
2015, $1.5 billion of 5.250% senior notes due 2020 and
$1.25 billion of 6.300% senior notes due 2040
(collectively, the Dropdown Notes). Additionally, as
of September 30, 2010, we also had $150 million of
7.5% senior unsecured notes outstanding that mature on
June 15, 2011 and $600 million of 7.25% senior
unsecured notes outstanding that mature on February 1, 2017
(together, the Existing Notes, and collectively with
the Dropdown Notes, the Williams Partners Notes).
The terms of the Williams Partners Notes are governed by
indentures that contain covenants that, among other things,
limit (1) our ability and the ability of our subsidiaries
to incur liens on assets to secure certain debt and
(2) certain mergers or consolidations and transfers of
assets. The indentures also contain customary events of default,
upon which the trustee or the holders of the Williams Partners
Notes may declare all outstanding Williams Partners Notes to be
due and payable immediately.
We may redeem the Williams Partners Notes at our option in whole
or in part at any time or from time to time prior to the
respective maturity dates, at the applicable redemption prices
described in the indentures governing the Williams Partners
Notes. We are not required to make mandatory redemption or
sinking fund payments with respect to the Williams Partners
Notes or to repurchase the Williams Partners Notes at the option
of the holders.
Transco
and Northwest Pipeline Notes
As of September 30, 2010, Transco had outstanding a total
of $1,282,500,000 aggregate principal face amount of senior
unsecured debt issues with various interest rates from 6.05% to
8.875% and maturities ranging from 2011 to 2026 (the
Transco Notes). As of September 30, 2010,
Northwest Pipeline had outstanding a total of $695,000,000
aggregate principal face amount of senior unsecured debt issues
with various interest rates from 5.95% to 7.125% and maturities
ranging from 2016 to 2025 (the Northwest Pipeline
Notes).
The indentures governing the Transco Notes and the Northwest
Pipeline Notes contain covenants that, among other things, limit
Transco and Northwest Pipelines ability to (1) incur
liens securing indebtedness, (2) engage in certain sale and
lease-back transactions and (3) consolidate, merge,
transfer or lease assets. The indentures also contain customary
events of default including non-payment of principal or
interest, failure to comply with covenants, and certain
bankruptcy or insolvency events. Northwest Pipelines
7.125% Debentures due 2025 ($85 million aggregate
principal amount outstanding as of September 30,
2010) are not subject to redemption prior to maturity. The
remaining Northwest Pipeline Notes, and all of the Transco
Notes, may be redeemed, in whole or in part, at any time and
from time to time, as provided in the indentures governing the
notes.
Credit
Facility
In connection with the Dropdown, we entered into the Credit
Facility with Transco and Northwest Pipeline, as co-borrowers,
Citibank, N.A., as the administrative agent, and certain other
named lenders. Under certain conditions, the Credit Facility may
be increased by up to an additional $250 million. The full
amount of the Credit Facility is available to us, to the extent
not utilized by Transco or Northwest Pipeline. Each of Transco
and Northwest Pipeline may borrow up to $400 million under
the Credit Facility to the extent not otherwise utilized by us.
As of September 30, 2010, no loans or letters of credit
were outstanding under the Credit Facility.
Interest on borrowings under the Credit Facility is payable at
rates per annum equal to, at the option of the borrower:
(1) a fluctuating base rate equal to Citibank, N.A.s
adjusted base rate plus the applicable margin, or (2) a
periodic fixed rate equal to LIBOR plus the applicable margin.
The adjusted base rate will be the highest of (i) the
federal funds rate plus 0.5 percent, (ii) Citibank
N.A.s publicly announced base rate, and
(iii) one-month LIBOR plus 1.0 percent. We pay a
commitment fee (currently 0.5 percent) on the unused
portion of the facility. The applicable margin and the
commitment fee are determined by reference to a pricing schedule
based on the borrowers senior unsecured debt ratings.
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The Credit Facility contains various covenants that limit, among
other things, a borrowers and its respective
subsidiaries ability to incur indebtedness, grant certain
liens supporting indebtedness, merge or consolidate, sell all or
substantially all of its assets, enter into certain affiliate
transactions, make certain distributions during an event of
default and allow any material change to the nature of its
business.
In addition, we are required to maintain a ratio of debt to
EBITDA (each as defined in the Credit Facility) of no greater
than 5.00 to 1.00 for us and our consolidated subsidiaries. For
each of Transco and Northwest Pipeline and their respective
consolidated subsidiaries, the ratio of debt to capitalization
(defined as net worth plus debt) is not permitted to be greater
than 55%. Each of the above ratios is tested at the end of each
fiscal quarter, and the debt to EBITDA ratio will be measured on
a rolling four-quarter basis (with the first full year measured
on an annualized basis).
The Credit Facility also includes customary events of default.
If an event of default with respect to a borrower occurs under
the Credit Facility, the lenders will be able to terminate the
commitments for all borrowers and accelerate the maturity of the
loans of the defaulting borrower under the Credit Facility and
exercise other rights and remedies.
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MATERIAL
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal
income tax consequences of the acquisition, ownership, and
disposition of the notes. It is based on provisions of the
U.S. Internal Revenue Code of 1986, as amended (the
Code), existing and proposed Treasury regulations
promulgated thereunder (the Treasury Regulations),
and administrative and judicial interpretations thereof, all as
of the date hereof and all of which are subject to change,
possibly on a retroactive basis. No ruling from the Internal
Revenue Service (the IRS) has been or will be sought
with respect to any aspect of the transactions described herein.
Accordingly, no assurance can be given that the IRS will agree
with the views expressed in this summary, or that a court will
not sustain any challenge by the IRS in the event of litigation.
The following relates only to notes that are acquired in the
initial offering for an amount of cash equal to their issue
price, which will equal the first price at which a substantial
amount of the notes is sold for cash to the public (not
including bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement
agents, or wholesalers), and that are held as capital assets
(i.e., generally, property held for investment).
This discussion does not address all of the U.S. federal
income tax consequences that may be relevant to particular
holders in light of their personal circumstances, or to certain
types of holders that may be subject to special tax treatment
(such as banks and other financial institutions, employee stock
ownership plans, partnerships or other pass-through entities for
U.S. federal income tax purposes, certain former citizens
or residents of the United States, controlled foreign
corporations, corporations that accumulate earnings to avoid
U.S. federal income tax, insurance companies, tax-exempt
organizations, dealers in securities and foreign currencies,
brokers, persons who hold the notes as a hedge or other
integrated transaction or who hedge the interest rate on the
notes, U.S. holders (as defined below) whose
functional currency is not U.S. dollars, or persons subject
to the alternative minimum tax). In addition, this summary does
not include any description of the tax laws of any state, local,
or
non-U.S. jurisdiction
that may be applicable to a particular holder and does not
consider any aspects of U.S. federal tax law other than
income taxation.
For purposes of this discussion, a
non-U.S. holder
is an individual, corporation, estate, or trust that is a
beneficial owner of the notes and that is not, for
U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States
for U.S. federal income tax purposes;
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a corporation (or other business entity treated as a corporation
for U.S. federal income tax purposes) created or organized
in or under the laws of the United States or any state thereof
or the District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if a court within the United States can exercise primary
supervision over its administration, and one or more United
States persons have the authority to control all of the
substantial decisions of that trust (or the trust was in
existence on August 20, 1996, and validly elected to
continue to be treated as a U.S. trust).
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A U.S. holder is an individual, corporation, estate, or
trust that is a beneficial owner of the notes and is not a
non-U.S. holder.
The U.S. federal income tax treatment of a partner in a
partnership (or other entity classified as a partnership for
U.S. federal income tax purposes) that holds the notes
generally will depend on such partners particular
circumstances and on the activities of the partnership. Partners
in such partnerships should consult their own tax advisors.
U.S.
Federal Income Tax Consequences to U.S. Holders
Treatment
of Interest
Interest on the notes will generally be taxable to a
U.S. holder as ordinary income at the time it is paid or
accrues in accordance with the U.S. holders method of
accounting for U.S. federal income tax purposes.
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Sale,
Exchange, or Other Disposition of the Notes
In general, upon the sale, taxable exchange, redemption,
retirement, or other taxable disposition of a note, a U.S.
holder will recognize taxable gain or loss equal to the
difference between (1) the amount of the cash and the fair
market value of any property received (less any portion
allocable to any accrued and unpaid interest, which will be
taxable as interest to the extent not previously included in
income) and (2) the U.S. holders adjusted tax basis
in the note. Gain or loss realized on the sale, taxable
exchange, redemption, retirement, or other taxable disposition
of a note will generally be capital gain or loss, and will be
long term capital gain or loss if you held the note for more
than one year at the time of the sale, exchange, redemption,
retirement, or other disposition. The deductibility of capital
losses is subject to limitations.
Existence
of the Optional Redemption
We do not intend to treat the possibility of the payment of
additional amounts described in Description of the
Notes Optional Redemption, as (i) giving
rise to original issue discount or recognition of ordinary
income on the sale or other taxable disposition of the notes or
(ii) resulting in the notes being treated as contingent
payment debt instruments under the applicable Treasury
Regulations. It is possible that the IRS may take a different
position, in which case a holder might be required to accrue
interest at a higher rate than the stated interest rate and to
treat as ordinary interest income any gain realized on the
taxable disposition of the notes.
Backup
Withholding and Information Reporting
In general, a U.S. holder of the notes will be subject to
backup withholding with respect to interest on the notes, and
the proceeds of a sale of the notes, at the applicable tax rate,
unless such holder (a) is an entity that is exempt from
withholding (including corporations, tax-exempt organizations
and certain qualified nominees) and, when required, demonstrates
this fact, or (b) provides the payor with its taxpayer
identification number (TIN), certifies that the TIN
provided to the payor is correct and that the holder has not
been notified by the IRS that such holder is subject to backup
withholding due to underreporting of interest or dividends, and
otherwise complies with applicable requirements of the backup
withholding rules. In addition, such payments to
U.S. holders that are not exempt entities will generally be
subject to information reporting requirements. A
U.S. holder who does not provide the payor with its correct
TIN may be subject to penalties imposed by the IRS. The amount
of any backup withholding from a payment to a U.S. holder
will be allowed as a credit against such holders
U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is
timely furnished to the IRS.
New
Legislation
For taxable years beginning after December 31, 2012, newly
enacted legislation is scheduled to impose a 3.8% tax on the
net investment income of certain U.S. citizens
and resident aliens, and on the undistributed net
investment income of certain estates and trusts. Among
other items, net investment income would generally
include gross income from interest, less certain deductions. We
urge U.S. holders to consult their own tax advisors with
respect to the tax consequences of this new legislation.
U.S.
Federal Income Tax Consequences to
Non-U.S.
Holders
Treatment
of Interest
Subject to the discussion of backup withholding below, under the
portfolio interest exemption, a
non-U.S. holder
will generally not be subject to U.S. federal income tax
(or any withholding tax) on payments of interest on the notes if
the interest is not effectively connected with its conduct of a
U.S. trade or business, provided that:
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the
non-U.S. holder
does not actually or constructively own 10% or more of the
capital or profits interest in us; and
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certain certification requirements are met. Under current law,
the certification requirement will be satisfied in any of the
following circumstances:
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If a
non-U.S. holder
provides to us or our paying agent a statement on IRS
Form W-8BEN
(or suitable successor form), together with all appropriate
attachments, signed under penalties of perjury, identifying the
non-U.S. holder
by name and address and stating, among other things, that the
non-U.S. holder
is not a United States person.
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If a note is held through a securities clearing organization,
bank, or another financial institution that holds
customers securities in the ordinary course of its trade
or business, (i) the
non-U.S. holder
provides such a form to such organization or institution, and
(ii) such organization or institution, under penalty of
perjury, certifies to us that it has received such statement
from the beneficial owner or another intermediary and furnishes
us or our paying agent with a copy thereof.
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If a financial institution or other intermediary that holds the
note on behalf of the
non-U.S. holder
has entered into a withholding agreement with the IRS and
submits an IRS
Form W-8IMY
(or suitable successor form) and certain other required
documentation to us or our paying agent.
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If the requirements of the portfolio interest exemption
described above are not satisfied, a 30% withholding tax will
apply to the gross amount of interest on the notes that is paid
to a
non-U.S. holder,
unless either: (a) an applicable income tax treaty reduces
or eliminates such tax, and the
non-U.S. holder
claims the benefit of that treaty by providing a properly
completed and duly executed IRS
Form W-8BEN
(or suitable successor or substitute form) establishing
qualification for benefits under the treaty, or (b) the
interest is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States and the
non-U.S. holder
provides an appropriate statement to that effect on a properly
completed and duly executed IRS
Form W-8ECI
(or suitable successor form).
If a
non-U.S. holder
is engaged in a trade or business in the United States and
interest on a note is effectively connected with the conduct of
that trade or business, the
non-U.S. holder
will be required to pay U.S. federal income tax on that
interest on a net income basis (and the 30% withholding tax
described above will not apply provided the duly executed IRS
Form W-8ECI
is provided to us or our paying agent) generally in the same
manner as a U.S. person. If a
non-U.S. holder
is eligible for the benefits of an income tax treaty between the
United States and its country of residence, and the
non-U.S. holder
claims the benefit of the treaty by properly submitting an IRS
Form W-8BEN,
any interest income that is effectively connected with a
U.S. trade or business will be subject to U.S. federal
income tax in the manner specified by the treaty and generally
will only be subject to tax on a net basis if such income is
attributable to a permanent establishment (or a fixed base in
the case of an individual) maintained by the
non-U.S. holder
in the United States. In addition, a
non-U.S. holder
that is treated as a foreign corporation for U.S. federal
income tax purposes may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of its earnings and
profits for the taxable year, subject to adjustments, that are
effectively connected with its conduct of a trade or business in
the United States.
Sale,
Exchange, or Other Disposition of the Notes
Subject to the discussion of backup withholding below, a
non-U.S. holder
generally will not be subject to U.S. federal income tax
(or any withholding thereof) on any gain (other than any gain
attributable to accrued interest, which will be taxed in the
manner described above under the heading U.S. Federal
Income Tax Consequences to
Non-U.S. Holders
Treatment of Interest) realized by such holder upon a
sale, taxable exchange, redemption, retirement, or other taxable
disposition of a note, unless:
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the
non-U.S. holder
is an individual present in the U.S. for 183 days or
more during the taxable year of disposition and certain other
conditions are met; or
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the gain is effectively connected with the conduct of a
U.S. trade or business of the
non-U.S. holder
(and, if an applicable income tax treaty so provides, the gain
is attributable to a U.S. permanent establishment of the
non-U.S. holder
or a fixed base in the case of an individual).
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If the first exception applies, the
non-U.S. holder
generally will be subject to U.S. federal income tax at a
rate of 30% on the amount by which its
U.S.-source
capital gains exceed its
U.S.-source
capital losses. If the second
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exception applies, the
non-U.S. holder
will generally be subject to U.S. federal income tax on the
net gain derived from the sale, taxable exchange, redemption,
retirement, or other taxable disposition of the notes in the
same manner as a U.S. person. In addition, corporate
non-U.S. holders
may be subject to a 30% branch profits tax on any such
effectively connected gain. If a
non-U.S. holder
is eligible for the benefits of an income tax treaty between the
United States and its country of residence, the
U.S. federal income tax treatment of any such gain may be
modified in the manner specified by the treaty.
Information
Reporting and Backup Withholding
When required, we or our paying agent will report to the IRS and
to each
non-U.S. holder
the amount of any interest paid on the notes in each calendar
year, and the amount of U.S. federal income tax withheld,
if any, with respect to these payments.
Non-U.S. holders
who have provided certification as to their
non-U.S. status
or who have otherwise established an exemption will generally
not be subject to backup withholding tax on payments of interest
if neither we nor our agent have actual knowledge or reason to
know that such certification is unreliable or that the
conditions of the exemption are in fact not satisfied.
Payments of the proceeds from the sale of a note to or through a
foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, additional
information reporting, but generally not backup withholding, may
apply to those payments if the broker has certain relationships
with the United States.
Payment of the proceeds from a sale of a note (including a
retirement or redemption) to or through the United States office
of a broker will be subject to information reporting and backup
withholding unless the
non-U.S. holder
certifies as to its
non-U.S. status
or otherwise establishes an exemption from information reporting
and backup withholding.
The amount of any backup withholding from a payment to a
non-U.S. holder
will be allowed as a credit against such holders
U.S. federal income tax liability, if any, and may entitle
such holder to a refund, provided that the required information
is timely furnished to the IRS.
S-48
UNDERWRITING
Williams Partners intends to offer the notes through the
underwriters named below, for whom Deutsche Bank Securities
Inc., J.P. Morgan Securities LLC and RBC Capital Markets,
LLC are acting as representatives. Subject to the terms and
conditions contained in the underwriting agreement dated the
date of this prospectus supplement between Williams Partners and
the underwriters named below, Williams Partners has agreed to
sell to the underwriters and the underwriters have severally
agreed to purchase, the principal amount of the notes listed
opposite their names below.
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Principal
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Underwriters
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Amount
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Deutsche Bank Securities Inc.
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$
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J.P. Morgan Securities LLC
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$
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RBC Capital Markets, LLC
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$
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Mitsubishi UFJ Securities (USA), Inc.
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$
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Mizuho Securities USA Inc.
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$
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TD Securities (USA) LLC
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$
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The Williams Capital Group, L.P.
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$
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U.S. Bancorp Investments, Inc.
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$
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Total:
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$
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The underwriters are offering the notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the notes, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters have agreed to purchase all of the notes sold
pursuant to the underwriting agreement if any of the notes are
purchased. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in
whole or in part.
The underwriters have advised Williams Partners that they
propose initially to offer the notes to the public at the public
offering price on the cover page of this prospectus supplement,
and to dealers at that price less a concession not in excess
of % of the principal amount of the
notes. The underwriters may allow, and the dealers may reallow,
a discount not in excess of % of
the principal amount of the notes to other dealers. After the
initial offering of the notes to the public, the public offering
price, concession and discount may be changed.
The following table shows the underwriting discounts and
commissions that we are to pay to the underwriters in connection
with this offering (expressed as a percentage of the principal
amount of the notes).
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Paid by Williams
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Partners L.P.
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Per note
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%
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The expenses of the offering, not including the underwriting
discount, are estimated to be $ and
are payable by Williams Partners.
The notes are a new issue of securities with no established
trading market. Williams Partners does not intend to apply for
listing of the notes on any national securities exchange or for
quotation of the notes on any automated dealer quotation system.
Williams Partners cannot assure the liquidity of the trading
market for the notes or that an active public market for the
notes will develop. If an active public trading market for the
notes does not develop, the market price and liquidity of the
notes may be adversely affected.
Williams Partners has agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the
underwriters may be required to make in respect of those
liabilities.
In connection with the offering, the underwriters are permitted
to engage in transactions that stabilize the market price of the
notes. Such transactions consist of bids or purchases to peg,
fix or maintain the price of the notes. If the underwriters
create a short position in the notes in connection with the
offering, i.e., if they sell more notes
S-49
than are on the cover page of this prospectus supplement, the
underwriters may reduce that short position by purchasing notes
in the open market. Purchases of a security to stabilize the
price or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such
purchases.
Neither Williams Partners nor the underwriters make any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of the notes. In addition, neither Williams Partners nor
the underwriters make any representation that the underwriters
will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Extended
Settlement
We expect that delivery of the notes will be made against
payment therefor on or about the closing date specified on the
cover page of this prospectus supplement, which will be
the business day following the date
hereof, or T + . Under
Rule 15c6-1
of the Exchange Act, trades in the secondary market generally
are required to settle in three business days, unless the
parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the notes on the date
of pricing or the next succeeding
business days will be required, by virtue of the fact that the
notes initially will settle in
T + , to specify an alternate
settlement cycle at the time of any such trade to prevent a
failed settlement. Purchasers of the notes who wish to trade the
notes on the date of pricing or the
next succeeding business days
should consult their own advisor.
Relationships
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. In the ordinary course of their various business
activities, the underwriters and their respective affiliates may
make or hold a broad array of investments and actively trade
debt and equity securities (or related derivative securities)
and financial instruments (including bank loans) for their own
account and for the accounts of their customers, and such
investment and securities activities may involve securities
and/or
instruments of the issuer. The underwriters and their respective
affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
Some of the underwriters and their affiliates have engaged, and
may in the future engage, in commercial banking, investment
banking or financial advisory transactions with us, our
affiliates and The Williams Companies, Inc., in the ordinary
course of their business. Such underwriters and their affiliates
have received customary compensation and expenses for these
commercial banking, investment banking or financial advisory
transactions. For instance, JPMorgan Chase Bank, N.A., Deutsche
Bank AG New York Branch, Mizuho Corporate Bank (USA), Royal Bank
of Canada, The Bank of Tokyo-Mitsubishi UFJ, Ltd., The
Toronto-Dominion Bank, New York Branch and U.S. Bank
National Association, which are affiliates of the underwriters,
are lenders under our Credit Facility.
S-50
LEGAL
MATTERS
Certain matters with respect to the issuance and sale of the
notes offered hereby will be passed upon for us by Gibson,
Dunn & Crutcher LLP. Certain tax matters will be
passed upon for us by Andrews Kurth LLP, Houston, Texas. Certain
legal matters with respect to the notes will be passed upon for
the underwriters by Latham & Watkins LLP, New York,
New York.
EXPERTS
The consolidated financial statements of Williams Partners as of
December 31, 2009 and 2008, and for each of the three years
in the period ended December 31, 2009, appearing in our
Current Report on
Form 8-K
filed on May 12, 2010, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon included
therein and incorporated herein by reference, and are
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
The effectiveness of Williams Partners internal control
over financial reporting as of December 31, 2009 has been
audited by Ernst & Young LLP, independent registered
public accounting firm, as set forth in their report thereon
included in Williams Partners Annual Report on
Form 10-K
for the year ended December 31, 2009 and incorporated
herein by reference, which report is incorporated herein by
reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
S-51
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the
Securities Act that registers the offer and sale of the notes
covered by this prospectus supplement. The registration
statement, including the attached exhibits, contains additional
relevant information about us. In addition, we file annual,
quarterly and other reports and other information with the SEC.
You may read and copy any document we file with the SEC at the
SECs Public Reference Room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. Please call
the SEC at
1-800-SEC-0330
for further information on the operation of the SECs
Public Reference Room. The SEC maintains an Internet site that
contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
SEC. Our SEC filings are available on the SECs website at
http://www.sec.gov.
Unless specifically listed below, the information contained on
the SEC website is not intended to be incorporated by reference
in this prospectus supplement and you should not consider that
information a part of this prospectus supplement. You also can
obtain information about us at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference the
information we have filed with the SEC. This means that we can
disclose important information to you without actually including
the specific information in this prospectus supplement or the
accompanying base prospectus by referring you to other documents
filed separately with the SEC. The information incorporated by
reference is an important part of this prospectus supplement and
the accompanying base prospectus. Information that we later
provide to the SEC, and which is deemed to be filed
with the SEC, will automatically update information previously
filed with the SEC, and may replace information in this
prospectus supplement and the accompanying base prospectus and
information previously filed with the SEC.
We incorporate by reference in this prospectus supplement the
following documents that we have previously filed with the SEC:
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Our Annual Report on
Form 10-K
(File
No. 1-32599)
for the year ended December 31, 2009 filed on
February 25, 2010 (provided, however, Items 6, 7 and 8
of the
Form 10-K,
which were subsequently adjusted or recast in our Current
Reports on
Form 8-K
filed on April 20, 2010 or May 12, 2010, are not
incorporated herein);
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Our Quarterly Reports on
Form 10-Q
(File
No. 1-32599)
for the quarters ended March 31, 2010, June 30, 2010
and September 30, 2010, filed on May 5, 2010,
July 29, 2010 and October 28, 2010,
respectively; and
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Our Current Reports on
Form 8-K
(File
No. 1-32599)
filed on January 19, 2010, January 22, 2010 (two filed
on this date), February 2, 2010, February 3, 2010,
February 10, 2010, February 22, 2010, April 20,
2010 (two filed on this date), April 29, 2010, May 12,
2010, July 29, 2010, September 14, 2010,
September 27, 2010, October 7, 2010 and
October 13, 2010.
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These reports contain important information about us, our
financial condition and our results of operations.
All documents that we file with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this prospectus supplement and prior to the
termination of this offering will also be deemed to be
incorporated herein by reference and will automatically update
and supersede information in this prospectus supplement. Nothing
in this prospectus supplement shall be deemed to incorporate
information furnished to, but not filed with, the SEC pursuant
to Item 2.02 or Item 7.01 of
Form 8-K
(or corresponding information furnished under Item 9.01 or
included as an exhibit).
We make available free of charge on or through our Internet
website,
http://www.williamslp.com,
our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Information contained
on our Internet website is not part of this prospectus
supplement and does not constitute a part of this prospectus
supplement.
S-52
You may obtain any of the documents incorporated by reference in
this prospectus supplement from the SEC through the SECs
website at the address provided above. You also may request a
copy of any document incorporated by reference in this
prospectus supplement (excluding any exhibits to those
documents, unless the exhibit is specifically incorporated by
reference in this document), at no cost, by visiting our
Internet website at
http://www.williamslp.com,
or by writing or calling us at the following address:
Investor Relations
Williams Partners L.P.
One Williams Center, Suite 5000
Tulsa, Oklahoma
74172-0172
Telephone:
(918) 573-2078
You should rely only on the information incorporated by
reference or provided in this prospectus supplement. We have not
authorized anyone else to provide you with any information. You
should not assume that the information incorporated by reference
or provided in this prospectus supplement is accurate as of any
date other than the date on the front of each document.
Williams is subject to the information requirements of the
Exchange Act, and in accordance therewith files reports and
other information with the SEC. You may read Williams
filings on the SECs web site and at the SECs Public
Reference Room described above. Williams common stock
trades on the NYSE under the symbol WMB. Reports
that Williams files with the NYSE may be inspected at the
offices of the NYSE described above.
S-53
PROSPECTUS
WILLIAMS PARTNERS L.P.
COMMON UNITS REPRESENTING
LIMITED PARTNER INTERESTS
DEBT SECURITIES
We may from time to time offer and sell common units
representing limited partner interests in Williams Partners L.P.
and debt securities of Williams Partners L.P., at prices and on
terms to be determined by market conditions at the time of our
offerings. Williams Partners Operating LLC, Carbonate Trend
Pipeline LLC,
Mid-Continent
Fractionation and Storage, LLC
and/or
Williams Four Corners LLC may guarantee the debt securities.
This prospectus describes some of the general terms that may
apply to these securities and the general manner in which they
may be offered. Each time we sell securities pursuant to this
prospectus, we will provide a supplement to this prospectus that
contains specific information about the offering and the
specific terms of the securities offered. You should read this
prospectus and the applicable prospectus supplement and the
documents incorporated by reference herein and therein carefully
before you invest in our securities. You should also read the
documents we have referred you to in the Where You Can
Find More Information section of this prospectus for
information about us, including our financial statements.
Our common units are listed for trading on the New York Stock
Exchange under the ticker symbol WPZ. We will
provide information in the applicable prospectus supplement for
the trading market, if any, for any debt securities we may offer.
We will sell these securities directly to investors, or through
agents, dealers or underwriters as designated from time to time,
or through a combination of these methods, on a continuous or
delayed basis.
This prospectus may not be used to consummate sales of our
securities unless it is accompanied by the applicable prospectus
supplement.
You should rely only on the information incorporated by
reference or provided in this prospectus or any prospectus
supplement. We have not authorized anyone else to provide you
with different information or to make additional
representations. We are not making or soliciting an offer of any
securities other than the securities described in this
prospectus and any prospectus supplement. We are not making or
soliciting an offer of these securities in any state or
jurisdiction where the offer is not permitted or in any
circumstances in which such offer or solicitation is unlawful.
You should not assume that the information contained or
incorporated by reference in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the
front of those documents.
Investing in our common units and debt securities involves a
high degree of risk. Limited partnerships are inherently
different from corporations. Please read Risk
Factors referred to on page 6 of this prospectus, and
contained in the applicable prospectus supplement and in the
documents incorporated by reference herein and therein before
you make any investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is October 28, 2009.
TABLE OF
CONTENTS
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2
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement on
Form S-3
we filed with the Securities and Exchange Commission (SEC) using
a shelf registration process. Under this shelf
registration process, we may, over time, offer and sell in one
or more offerings in any combination, an unlimited number and
amount of the common units or debt securities of Williams
Partners L.P. described in this prospectus. This prospectus
generally describes us, the common units of Williams Partners
L.P., the debt securities of Williams Partners L.P. and the
guarantees of the debt securities.
Each time we sell common units or debt securities with this
prospectus, we will describe in a prospectus supplement, which
will be delivered with this prospectus, specific information
about the offering and the terms of the particular securities
offered. The prospectus supplement also may add to, update, or
change the information contained in this prospectus. If there is
any inconsistency between the information contained in this
prospectus and any information incorporated by reference herein,
on the one hand, and the information contained in any applicable
prospectus supplement or incorporated by reference therein, on
the other hand, you should rely on the information in the
applicable prospectus supplement or incorporated by reference
therein.
Wherever references are made in this prospectus to information
that will be included in a prospectus supplement, to the extent
permitted by applicable law, rules, or regulations, we may
instead include such information or add, update, or change the
information contained in this prospectus by means of a
post-effective amendment to the registration statement of which
this prospectus is a part through filings we make with the SEC
that are incorporated by reference into this prospectus or by
any other method as may then be permitted under applicable law,
rules, or regulations.
Statements made in this prospectus, in any prospectus supplement
or in any document incorporated by reference in this prospectus
or any prospectus supplement as to the contents of any contract
or other document are not necessarily complete. In each instance
we refer you to the copy of the contract or other document filed
as an exhibit to the registration statement of which this
prospectus is a part, or as an exhibit to the documents
incorporated by reference. You may obtain copies of those
documents as described in this prospectus under Where You
Can Find More Information.
Neither the delivery of this prospectus nor any sale made
under it implies that there has been no change in our affairs or
that the information in this prospectus is correct as of any
date after the date of this prospectus. You should not assume
that the information in this prospectus, including any
information incorporated in this prospectus by reference, the
accompanying prospectus supplement or any free writing
prospectus prepared by us, is accurate as of any date other than
the date on the front of those documents. Our business,
financial condition, results of operations and prospects may
have changed since that date.
You should rely only on the information contained in or
incorporated by reference in this prospectus or a prospectus
supplement. We have not authorized anyone to provide you with
different information. We are not making an offer to sell
securities in any jurisdiction where the offer or sale of such
securities is not permitted.
Unless the context clearly indicates otherwise, references in
this prospectus to we, our,
us or like terms refer to Williams Partners L.P. and
its subsidiaries. Unless the context clearly indicates
otherwise, references to we, our,
us or like terms include the operations of Wamsutter
LLC (Wamsutter) and Discovery Producer Services LLC (Discovery),
in which we own interests accounted for as equity investments
that are not consolidated in our financial statements. When we
refer to Wamsutter or Discovery by name, we are referring
exclusively to their respective businesses and operations.
ABOUT
WILLIAMS PARTNERS L.P.
We are a publicly traded Delaware limited partnership formed by
The Williams Companies, Inc. (Williams) in February 2005 to own,
operate and acquire a diversified portfolio of complementary
energy assets. We gather, transport, process and treat natural
gas and fractionate and store natural gas liquids (NGLs).
Fractionation is the process by which a mixed stream of NGLs is
separated into its constituent products, such as ethane, propane
and butane. These NGLs result from natural gas processing and
crude oil refining and are used as petrochemical feedstocks,
heating fuels and gasoline additives, among other applications.
3
Operations of our businesses are located in the United States.
We manage our business and analyze our results of operations on
a segment basis. Our operations are divided into three business
segments:
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Gathering and Processing
West. This segment includes a 100% interest in
Williams Four Corners LLC (Four Corners) and ownership interests
in Wamsutter, consisting of (i) 100% of the Class A
limited liability company membership interests and (ii) 68%
of the Class C limited liability company membership
interests (together, the Wamsutter Ownership Interests). Four
Corners owns an approximate 3,800-mile natural gas gathering
system, including three natural gas processing plants and two
natural gas treating plants, located in the San Juan Basin
in Colorado and New Mexico. Wamsutter owns an approximate
1,800-mile natural gas gathering system, including a natural gas
processing plant, located in the Washakie Basin in Wyoming. The
Four Corners and Wamsutter assets generate revenues by providing
natural gas gathering, transporting, processing and treating
services to customers under a range of contractual arrangements.
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Gathering and Processing
Gulf. This segment includes our equity investment
in Discovery and the Carbonate Trend gathering pipeline. We own
a 60% interest in Discovery, which is operated by Williams.
Discovery owns an integrated natural gas gathering and
transportation pipeline system extending from offshore in the
Gulf of Mexico to its natural gas processing plant and NGL
fractionator in Louisiana. Our Carbonate Trend gathering
pipeline is a sour gas gathering pipeline off the coast of
Alabama. These assets generate revenues by providing natural gas
gathering, transporting and processing services and integrated
natural gas fractionating services to customers under a range of
contractual arrangements.
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NGL Services. This segment includes three
integrated NGL storage facilities and a 50% undivided interest
in a NGLs fractionator near Conway, Kansas. These assets
generate revenues by providing stand-alone NGLs fractionation
and storage services using various fee-based contractual
arrangements where we receive a fee or fees based on actual or
contracted volumetric measures.
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Our assets were owned by Williams prior to the initial public
offering of our common units in August 2005, our acquisition of
Four Corners in 2006, our acquisition of an additional 20%
ownership percentage of Discovery in 2007 and our acquisition of
the Wamsutter Ownership Interests in 2007. Williams indirectly
owns an approximate 21.6% limited partnership interest in us and
all of our 2% general partner interest. We account for our
interests in Wamsutter and our 60% interest in Discovery as an
equity investment, and therefore do not consolidate their
financial results.
Williams is an integrated energy company that trades on the New
York Stock Exchange under the symbol WMB. Williams
operates in a number of segments of the energy industry,
including natural gas exploration and production, interstate
natural gas transportation and midstream services. Williams has
been in the midstream natural gas and NGL industry for more than
20 years.
Williams Partners GP LLC, the general partner of Williams
Partners L.P., is an indirect wholly owned subsidiary of
Williams and holds a 2% general partner interest, a 6% limited
partner interest and the incentive distribution rights in
Williams Partners L.P.
Our principal executive offices are located at One Williams
Center, Tulsa, Oklahoma
74172-0172,
and our phone number is
918-573-2000.
THE
SUBSIDIARY GUARANTORS
We are a holding company with no independent assets or
operations. We own a 100% member interest in Williams Partners
Operating LLC, a Delaware limited liability company (Williams
Operating). Williams Operating owns a 100% member interest in
each of Carbonate Trend Pipeline LLC (Carbonate Trend),
Mid-Continent Fractionation and Storage, LLC (Mid-Continent) and
Four Corners.
Occasionally, in this prospectus, we refer to Williams
Operating, Carbonate Trend, Mid-Continent and Four Corners as
the Subsidiary Guarantors. Other than the Subsidiary
Guarantors, our only other consolidated subsidiary is minor. Any
guarantees of our debt securities by the Subsidiary Guarantors
will be full and unconditional and joint and several.
4
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (Exchange Act), and
file reports and other information with the SEC. The public may
read and copy any reports or other information that we file with
the SEC at the SECs public reference room,
100 F Street NE, Washington, D.C.
20549-2521.
The public may obtain information on the operation of the public
reference room by calling the SEC at
1-800-SEC-0330.
Our SEC filings are also available to the public from commercial
document retrieval services and at the website maintained by the
SEC at
http://www.sec.gov.
Unless specifically listed under Incorporation by
Reference below, the information contained on the SEC
website is not intended to be incorporated by reference in this
prospectus and you should not consider that information a part
of this prospectus.
Our SEC filings can also be inspected and copied at the offices
of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005. We will also provide to you, at no cost, a copy
of any document incorporated by reference in this prospectus and
the applicable prospectus supplement and any exhibits
specifically incorporated by reference in those documents. You
may request copies of these filings from us by mail at the
following address, or by telephone at the following telephone
number:
Williams
Partners L.P.
Investor Relations
One Williams Center
Tulsa, Oklahoma
74172-0172
Telephone Number:
(918) 573-2000
You may also inspect our SEC reports on our website at
http://www.williamslp.com.
We make available free of charge on or through our Internet
website our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Information contained
on our website is not intended to be incorporated by reference
in this prospectus, and you should not consider that information
a part of this prospectus.
INCORPORATION
BY REFERENCE
We are incorporating by reference into this prospectus
information we have filed with the SEC, which means we are
disclosing important information to you without actually
including the specific information in this prospectus by
referring you to other documents filed separately with the SEC.
The information incorporated by reference is considered part of
this prospectus, unless we update or supersede that information
by the information contained in this prospectus or the
information we file subsequently that is incorporated by
reference into this prospectus or any prospectus supplement.
Information that we later provide to the SEC, and which is
deemed to be filed with the SEC, automatically will
update information previously filed with the SEC, and may
replace information in this prospectus.
We are incorporating by reference in this prospectus the
following documents that we have filed with the SEC:
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Annual Report on
Form 10-K
(File
No. 1-32599)
for the year ended December 31, 2008 (our 2008
10-K);
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Quarterly Reports on
Form 10-Q
(File
No. 1-32599)
for the quarters ended March 31, 2009 and June 30,
2009;
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Our Current Reports on
Form 8-K
filed with the SEC on February 11, 2009, April 20,
2009, and on October 28, 2009, which included our general
partners consolidated balance sheet as of June 30,
2009 and revised certain items of our 2008
10-K, to the
extent applicable, for the retrospective presentation and
disclosure requirements relating to the adoption of new guidance
regarding the application of the two-class method to calculate
earnings per unit for Master Limited Partnerships (Emerging
Issues Task Force Issue No. 07-4) and noncontrolling interests
in consolidated financial statements (Statement of Financial
Accounting Standards No. 160); and
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The description of our common units contained in our
registration statement on
Form 8-A
(File
No. 1-32599)
filed on August 9, 2005.
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These reports contain important information about us, our
financial condition and our results of operations.
5
All documents that we file with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act),
after the date of this prospectus and prior to the termination
of all offerings made pursuant to this prospectus and the
applicable prospectus supplement also will be deemed to be
incorporated herein by reference. Nothing in this prospectus
shall be deemed to incorporate information furnished to but not
filed with the SEC, including pursuant to Item 2.02 or
Item 7.01 of
Form 8-K
(or corresponding information furnished under Item 9.01 or
included as an exhibit).
RISK
FACTORS
Limited partner interests are inherently different from the
capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be
faced by a corporation engaged in a similar business. Before you
invest in our securities, you should carefully consider those
risk factors included in our most-recent Annual Report on
Form 10-K,
as supplemented by our Quarterly Reports on
Form 10-Q,
that are incorporated herein by reference and those that may be
included in the applicable prospectus supplement, together with
all of the other information included in this prospectus, any
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
actually to occur, our business, financial condition, results of
operations, or cash flow could be materially adversely affected.
In that case, our ability to make distributions to our
unitholders or pay interest on, or the principal of, any debt
securities, may be reduced, the trading price of our securities
could decline and you could lose all or part of your
investment.
FORWARD-LOOKING
STATEMENTS
The information contained or incorporated by reference in this
prospectus includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements relate to anticipated financial
performance, managements plans and objectives for future
operations, business prospects, outcome of regulatory
proceedings, market conditions, and other matters. Words such as
anticipates, believes,
could, continues, estimates,
expects, forecasts, intends,
may, might, objective,
planned, potential,
projects, scheduled, should,
will and other similar expressions identify those
statements that are forward-looking. These statements are based
on managements beliefs and assumptions and on information
currently available to management and include, among others,
statements regarding:
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Amounts and nature of future capital expenditures;
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Expansion and growth of our business and operations;
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Financial condition and liquidity;
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Business strategy;
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Cash flow from operations and results of operations;
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The levels of cash distributions to unitholders;
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Seasonality of certain business segments; and
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Natural gas and natural gas liquids prices and demand.
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Forward-looking statements are based on numerous assumptions,
uncertainties, and risks that could cause future events or
results to be materially different from those stated or implied
in this prospectus. Many of the factors that could adversely
affect our business, results or operations and financial
condition are beyond our ability to control or predict. Specific
factors that could cause actual results to differ from results
contemplated by the forward-looking statements include, among
others, the following:
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Whether we have sufficient cash from operations to enable us to
maintain current levels of cash distributions or to pay the
minimum quarterly distribution following establishment of cash
reserves and payment of fees and expenses, including payments to
our general partner;
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Availability of supplies (including the uncertainties inherent
in assessing and estimating future natural gas reserves), market
demand, volatility of prices, and the availability and cost of
capital;
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Inflation, interest rates and general economic conditions
(including the current economic slowdown and the disruption of
global credit markets and the impact of these events on our
customers and suppliers);
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The strength and financial resources of our competitors;
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Development of alternative energy sources;
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The impact of operational and development hazards;
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Costs of, changes in, or the results of laws, government
regulations (including proposed climate change legislation),
environmental liabilities, litigation and rate proceedings;
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Changes in maintenance and construction costs;
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Changes in the current geopolitical situation;
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Our exposure to the credit risks of our customers;
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Risks related to strategy and financing, including restrictions
stemming from our debt agreements, future changes in our credit
ratings and the availability and cost of credit;
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Risks associated with future weather conditions;
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Acts of terrorism; and
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Additional risks described in our filings with the SEC.
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These factors are not all of the factors that could cause our
actual results to differ materially from forward-looking
statements. Additional information about risks and uncertainties
that could cause actual results to differ materially from
forward-looking statements is contained in the documents
incorporated by reference herein, including Item 1A of
Part I, Risk Factors, of our most-recent annual
report on
Form 10-K,
as supplemented by our quarterly reports on
Form 10-Q,
and may be included in the applicable prospectus supplement. You
should not put undue reliance on any forward-looking statements.
The forward-looking statements included in this prospectus, the
applicable prospectus supplement and the documents incorporated
herein and therein by reference are only made as of the date of
such document and, except as required by securities laws, we
undertake no obligation to publicly update forward-looking
statements to reflect subsequent events or circumstances.
USE OF
PROCEEDS
Unless we specify otherwise in any prospectus supplement, we
will use the net proceeds (after the payment of any offering
expenses and underwriting discounts and commissions) from our
sale of securities for general partnership purposes, which may
include, among other things:
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paying or refinancing all or a portion of our indebtedness
outstanding at the time; and
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funding working capital, capital expenditures or acquisitions
(which may consist of acquisitions of discrete assets or
businesses).
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The actual application of proceeds from the sale of any
particular offering of securities using this prospectus will be
described in the applicable prospectus supplement relating to
such offering. The precise amount and timing of the application
of these proceeds will depend upon our funding requirements and
the availability and cost of other funds.
7
RATIO OF
EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for Williams Partners
L.P. for each of the periods indicated is as follows:
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Six Months Ended
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Years Ended December 31,
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June 30,
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2004
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2005
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2006
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2007
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2008
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2009
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Ratio of Earnings to Fixed Charges
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6.23
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11.53
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13.24
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2.41
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4.40
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2.55
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For purposes of calculating the ratio of earnings to fixed
charges:
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earnings is the aggregate of the following
items: pre-tax income or loss from continuing operations before
income or loss from equity investees; plus fixed charges; plus
distributed income of equity investees; less our share of
pre-tax losses of equity investees for which charges arising
from guarantees are included in fixed charges; and less
capitalized interest.
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fixed charges means the sum of the following:
interest expensed and capitalized; amortized premiums, discounts
and capitalized expenses related to indebtedness; an estimate of
the interest within rental expense; and our share of interest
expense from equity investees where the related pre-tax loss has
been included in earnings.
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DESCRIPTION
OF THE DEBT SECURITIES
The following sets forth certain general terms and provisions of
the base indenture under which the debt securities are to be
issued, unless otherwise specified in a prospectus supplement.
The particular terms of the debt securities to be sold will be
set forth in a prospectus supplement relating to such debt
securities.
As used in this description, the words, we,
us and our refer to Williams Partners
L.P. and not to any of its subsidiaries or affiliates.
The debt securities will represent our unsecured general
obligations, unless otherwise provided in the applicable
prospectus supplement. As indicated in the applicable prospectus
supplement, the debt securities will either be senior debt
securities or subordinated debt securities and, if applicable,
will be the general obligations of the Subsidiary Guarantors.
Unless otherwise specified in the applicable prospectus
supplement, the debt securities will be issued under an
indenture to be entered into between us and The Bank of New York
Mellon Trust Company, N.A., as trustee, that has been filed
as an exhibit to the registration statement of which this
prospectus is a part, subject to such amendments or supplemental
indentures as are adopted from time to time. The following
summary of certain provisions of that indenture does not purport
to be complete and is subject to, and qualified in its entirety
by, reference to all the provisions of that indenture, including
the definitions therein of certain terms. Wherever particular
sections or defined terms of the indenture are referred to, it
is intended that such sections or defined terms shall be
incorporated herein by reference. We urge you to read the
indenture filed as an exhibit to the registration statement of
which this prospectus is a part because that indenture, as
amended or supplemented from time to time, and not this
description, governs your rights as a holder of debt securities.
General
The indenture does not limit the amount of debt securities that
may be issued thereunder. The applicable prospectus supplement
with respect to any debt securities will set forth the terms of
the debt securities offered pursuant thereto, including some or
all of the following:
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the title and series of such debt securities;
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any limit upon the aggregate principal amount of such debt
securities of such series;
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whether such debt securities will be in global or other form;
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the date or dates on which principal and any premium on such
debt securities is payable, or the method or methods by which
such date(s) will be determined;
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the interest rate or rates (or method by which such rate will be
determined), if any;
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the dates on which any such interest will be payable and the
method of payment;
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whether and under what circumstances any additional amounts are
payable with respect to such debt securities;
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the notice, if any, to holders of such debt securities regarding
the determination of interest on a floating rate debt security;
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the basis upon which interest on such debt securities shall be
calculated, if other than that of a
360-day year
of twelve
30-day
months;
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if in addition to or other than the Borough of Manhattan, City
of New York, the place or places where the principal of and
premium, interest or additional amounts, if any, on such debt
securities will be payable;
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the terms and conditions upon which such debt securities may be
redeemed at our option;
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any redemption or sinking fund provisions, or the terms of any
repurchase at the option of the holder of the debt securities;
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the denominations of such debt securities, if other than $2,000
and multiples of $1,000 in excess thereof;
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any rights of the holders of such debt securities to convert the
debt securities into other securities or property;
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the terms, if any, on which payment of principal or any premium,
interest or additional amounts on such debt securities will be
payable in a currency other than U.S. dollars;
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the terms, if any, by which the amount of payments of principal
or any premium, interest or additional amounts on such debt
securities may be determined by reference to an index, formula,
financial or economic measure or other methods;
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if other than the principal amount thereof, the portion of the
principal amount of such debt securities that will be payable
upon declaration of acceleration of the maturity thereof;
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any deletions from, modifications of or additions to the events
of default or covenants described herein;
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whether such debt securities will be subject to defeasance or
covenant defeasance;
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the terms, if any, upon which such debt securities are to be
issuable upon the exercise of warrants;
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any trustees other than The Bank of New York Mellon
Trust Company, N.A., and any authenticating or paying
agents, transfer agents or registrars or any other agents with
respect to such debt securities;
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the terms, if any, on which such debt securities will be
subordinate to other debt of ours;
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whether such debt securities will be guaranteed and the terms
thereof;
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whether such debt securities will be secured by collateral and
the terms of such security; and
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any other specific terms of such debt securities and any other
deletions from or additions to or modifications of the indenture
with respect to such debt securities.
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This description of debt securities will be deemed modified,
amended or supplemented by any description of any series of debt
securities set forth in a prospectus supplement related to that
series.
The prospectus supplement may also describe any material United
States federal income tax consequences or other special
considerations regarding the applicable series of debt
securities, including those relating to:
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debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index or
formula, including changes in prices of particular securities,
currencies or commodities;
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debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency;
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debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that
at the time of issuance is below market rates; and
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variable rate debt securities that are exchangeable for fixed
rate debt securities.
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Debt securities may be presented for exchange, conversion or
transfer in the manner, at the places and subject to the
restrictions set forth in the indenture, as amended or
supplemented, and the applicable prospectus supplement. Such
services will be provided without charge, other than any tax or
other governmental charge payable in connection therewith, but
subject to the limitations provided in the indenture, as amended
or supplemented.
The indenture does not contain any covenant or other specific
provision affording protection to holders of the debt securities
in the event of a highly leveraged transaction or a change in
control of the Company, except to the limited extent described
below under Consolidation, Merger and Sale of
Assets or as provided in any supplemental indenture.
Guarantees
One or more of our subsidiaries may become a guarantor of a
particular series of debt securities if and to the extent
provided in a prospectus supplement and an indenture supplement
or a resolution of the board of directors of our general partner
and accompanying officers certificate relating to such
series of debt securities. Each of our subsidiaries that becomes
a guarantor of the debt securities of such series, and any of
our subsidiaries that is a successor thereto, will fully,
irrevocably, unconditionally and absolutely guarantee the due
and punctual payment of the principal of, and premium, if any,
and interest on such debt securities, and all other amounts due
and payable under the indenture and such debt securities by us
to the trustee and the holders of such debt securities. The
terms of any such guarantees may provide for their release upon
the occurrence of certain events, such as the debt securities of
a series subject to such guarantees achieving an investment
grade rating.
Modification
and Waiver
The indenture provides we and the trustee may enter into one or
more supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of
the provisions of the indenture or of modifying in any manner
the rights of the holders of debt securities of a series under
the indenture or the debt securities of such series, with the
consent of the holders of a majority (or such greater amount as
is provided for with respect to such series) in principal amount
of the outstanding debt securities of such series, voting as a
single class; provided that no such supplemental indenture may,
without the consent of the holder of each such debt security
affected thereby, among other things:
(a) change the stated maturity of the principal of, or any
premium, interest or additional amounts on, such debt
securities, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest or any
additional amounts thereon, or reduce any premium payable on
redemption thereof or otherwise, or reduce the amount of the
principal of debt securities issued with original issue discount
that would be due and payable upon an acceleration of the
maturity thereof or the amount thereof provable in bankruptcy,
or change the redemption provisions or adversely affect the
right of repayment at the option of the holder, or change the
place of payment or currency in which the principal of, or any
premium, interest or additional amounts with respect to, any
debt security is payable, or impair or affect the right of any
holder of debt securities to institute suit for the payment
after such payment is due;
(b) reduce the percentage of outstanding debt securities of
any series, the consent of the holders of which is required for
any such supplemental indenture, or the consent of whose holders
is required for any waiver or reduce the quorum required for
voting;
(c) modify any of the provisions of the sections of the
indenture relating to supplemental indentures with the consent
of the holders or waivers of past defaults or certain covenants,
except to increase any percentage set forth therein or to
provide that certain other provisions of the indenture cannot be
modified or waived without the consent of each holder affected
thereby; or
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(d) make any change that adversely affects the right to
convert or exchange any security into or for common units or
other securities, cash or other property in accordance with the
terms of the applicable debt security.
The indenture provides that a supplemental indenture that
changes or eliminates any covenant or other provision of the
indenture that has expressly been included solely for the
benefit of one or more particular series of debt securities, or
that modifies the rights of the holders of such series with
respect to such covenant or other provision, shall be deemed not
to affect the rights under the indenture of the holders of debt
securities of any other series.
The indenture provides that we and the applicable trustee may,
without the consent of the holders of any series of debt
securities issued thereunder, enter into one or more
supplemental indentures for any of the following purposes:
(a) to evidence the succession of another person and the
assumption by any such successor of our covenants in the
indenture and in the debt securities issued thereunder;
(b) to add to our covenants or to surrender any right or
power conferred on us pursuant to the indenture;
(c) to establish the form and terms of debt securities
issued thereunder;
(d) to evidence and provide for a successor trustee under
the indenture with respect to one or more series of debt
securities issued thereunder or to provide for or facilitate the
administration of the trusts under the indenture by more than
one trustee;
(e) to cure any ambiguity, to correct or supplement any
provision in the indenture that may be defective or inconsistent
with any other provision of the indenture or to make any other
provisions with respect to matters or questions arising under
such indenture; provided that no such action pursuant to this
clause (e) shall adversely affect the interests of the
holders of any series of debt securities issued thereunder in
any material respect;
(f) to add to, delete from or revise the conditions,
limitations and restrictions on the authorized amount, terms or
purposes of issue, authentication and delivery of securities
under the indenture;
(g) to add any additional events of default with respect to
all or any series of debt securities;
(h) to supplement any of the provisions of the indenture as
may be necessary to permit or facilitate the defeasance and
discharge of any series of debt securities, provided that such
action does not adversely affect the interests of any holder of
an outstanding debt security of such series or any other
security in any material respect;
(i) to make provisions with respect to the conversion or
exchange rights of holders of debt securities of any series;
(j) to pledge to the trustee as security for the debt
securities of any series any property or assets;
(k) to add guarantees in respect of the debt securities of
one or more series;
(l) to change or eliminate any of the provisions of the
indenture, provided that any such change or elimination will
become effective only when there is no security of any series
outstanding created prior to the execution of such supplemental
indenture which is entitled to the benefit of such provision;
(m) to provide for certificated securities in addition to
or in place of global securities;
(n) to qualify the indenture under the Trust Indenture
Act of 1939, as amended;
(o) with respect to the debt securities of any series, to
conform the text of the indenture or the debt securities of such
series to any provision of the description thereof in our
offering memorandum or prospectus relating to the initial
offering of such debt securities, to the extent that such
provision, in our good faith judgment, was intended to be a
verbatim recitation of a provision of the indenture or such
securities; or
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(p) to make any other change that does not adversely affect
the rights of holders of any series of debt securities issued
thereunder in any material respect.
Events of
Default
Unless otherwise provided in the supplemental indenture or board
resolution and officers certificate establishing the terms
of any series of debt securities and the prospectus supplement
relating to such series, the following will be events of default
under the indenture with respect to each series of debt
securities issued thereunder:
(a) default for 30 days in the payment when due of
interest on, or any additional amount in respect of, any such
series of debt securities;
(b) default in the payment of principal or any premium on
the debt securities of such series when due;
(c) default in the payment, if any, of any sinking fund
installment when and as due by the terms of any debt security of
such series, subject to any cure period that may be specified in
any debt security of such series;
(d) failure by us for 60 days after receipt of written
notice from the trustee upon instruction from holders of at
least 25% in principal amount of the then outstanding debt
securities of such series to comply with any of the other
agreements in the indenture and stating that such notice is a
Notice of Default under the indenture; provided,
that if such failure cannot be remedied within such
60-day
period, such period shall be automatically extended by another
60 days so long as (i) such failure is subject to cure
and (ii) we are using commercially reasonable efforts to
cure such failure; and provided, further, that a failure to
comply with any such other agreement in the indenture that
results from a change in generally accepted accounting
principles shall not be deemed to be an event of default;
(e) certain events of bankruptcy, insolvency or
reorganization of us; and
(f) any other event of default provided in a supplemental
indenture with respect to a particular series of debt
securities, provided that any event of default that results from
a change in generally accepted accounting principles shall not
be deemed to be an event of default.
In case an event of default specified in clause (a) or
(b) above shall occur and be continuing with respect to any
series of debt securities, holders of at least 25%, and in case
an event of default specified in any clause other than clause
(a), (b) or (e) above shall occur and be continuing
with respect to any series of debt securities, holders of at
least a majority, in aggregate principal amount of the debt
securities of such series then outstanding may declare the
principal (or, in the case of discounted debt securities, the
amount specified in the terms thereof) of such series to be due
and payable. If an event of default described in clause (e)
above shall occur and be continuing then the principal amount
(or, in the case of discounted debt securities, the amount
specified in the terms thereof) of all the debt securities
outstanding shall be and become due and payable immediately,
without notice or other action by any holder or the applicable
trustee, to the full extent permitted by law. Any past or
existing default or event of default with respect to particular
series of debt securities under such indenture may be waived by
the holders of a majority in aggregate principal amount of the
outstanding debt securities of such series, except in each case
a continuing default (1) in the payment of the principal
of, any premium or interest on, or any additional amounts with
respect to, any debt security of such series, or (2) in
respect of a covenant or provision which cannot be modified or
amended without the consent of each holder affected thereby.
The indenture provides that the applicable trustee may withhold
notice to the holders of any default with respect to any series
of debt securities (except in payment of principal of or
interest or premium on, or additional amounts or a sinking fund
payment in respect of, the debt securities) if the applicable
trustee considers it in the interest of holders to do so.
The indenture contains a provision entitling the applicable
trustee to be indemnified by the holders before proceeding to
exercise any trust or power under the indenture at the request
of such holders. The indenture provides that the holders of a
majority in aggregate principal amount of the then outstanding
debt securities of any series may direct the time, method and
place of conducting any proceedings for any remedy available to
the applicable trustee or of exercising any trust or power
conferred upon the applicable trustee with respect to the debt
securities of such series; provided, however, that the
applicable trustee may decline to follow any such direction if,
among other
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reasons, the applicable trustee determines that the actions or
proceedings as directed would be unduly prejudicial to the
holders of the debt securities of such series not joining in
such direction. The right of a holder to institute a proceeding
with respect to a series of debt securities will be subject to
certain conditions precedent including, without limitation, that
in case of an event of default specified in clause (a),
(b) or (e) of the first paragraph above under
Events of Default, holders of at least
25%, or in case of an event of default other than specified in
clause (a), (b) or (e) of the first paragraph above
under Events of Default, holders of at
least a majority, in aggregate principal amount of the debt
securities of such series then outstanding make a written
request upon the applicable trustee to exercise its powers under
such indenture, indemnify the applicable trustee and afford the
applicable trustee reasonable opportunity to act.
Notwithstanding the foregoing, the holder has an absolute right
to receipt of the principal of, premium, if any, and interest on
and additional amounts with respect to the debt securities when
due and to institute suit for the enforcement thereof.
Consolidation,
Merger and Sale of Assets
The indenture provides that we may not directly or indirectly
consolidate with or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or
substantially all of our assets and properties and the assets
and properties of our subsidiaries (taken as a whole) to another
person in one or more related transactions unless we are the
survivor or the successor person is a person organized under the
laws of any domestic jurisdiction and assumes our obligations on
the debt securities issued thereunder, and under the indenture,
and after giving effect thereto no event of default, and no
event that, after notice or lapse of time or both, would become
an event of default, shall have occurred and be continuing, and
certain other conditions are met.
Certain
Covenants
The covenants set forth in the indenture include the following:
Payment of Principal, any Premium, Interest or Additional
Amounts. We will duly and punctually pay the
principal of, and premium and interest on or any additional
amounts payable with respect to, any debt securities of any
series in accordance with their terms.
Maintenance of Office or Agency. We will be
required to maintain an office or agency in each place of
payment for each series of debt securities for notice and demand
purposes and for the purposes of presenting or surrendering debt
securities for payment, registration of transfer or exchange.
Reports. So long as any debt securities of a
particular series are outstanding, we will file with the
trustee, within 30 days after we have filed the same with
the SEC, unless such reports are available on the SECs
Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
filing system (or any successor thereto), copies of the annual
reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may
from time to time by rules and regulations prescribe) which we
may be required to file with the SEC pursuant to Section 13
or Section 15(d) of the Exchange Act; or, if we are not
required to file information, documents or reports pursuant to
either of said Sections, then we shall file with the trustee and
the SEC, in accordance with rules and regulations prescribed
from time to time by the SEC, such of the supplementary and
periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in
such rules and regulations.
Additional Covenants. Any additional covenants
with respect to any series of debt securities will be set forth
in the supplemental indenture or board resolution and
officers certificate and prospectus supplement relating
thereto.
Conversion
Rights
The terms and conditions, if any, upon which the debt securities
of any series are convertible into common units or other
securities will be set forth in the applicable supplemental
indenture or board resolution and officers certificate and
prospectus supplement relating thereto. Such terms will include
the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be
at our option or the option of
13
the holders, the events requiring an adjustment of the
conversion price, provisions affecting conversion in the event
of redemption of such debt securities and any restrictions on
conversion.
Redemption;
Repurchase at the Option of the Holder; Sinking Fund
The terms and conditions, if any, upon which (a) the debt
securities of any series are redeemable at our option,
(b) the holder of debt securities of any series may cause
us to repurchase such debt securities or (c) the debt
securities of any series are subject to any sinking fund will be
set forth in the applicable supplemental indenture or board
resolution and officers certificate and prospectus
supplement relating thereto.
Repurchases
on the Open Market
We or any affiliate of ours may at any time or from time to time
repurchase any debt security in the open market or otherwise.
Such debt securities may, at our option or the option of our
relevant affiliate, be held, resold or surrendered to the
trustee for cancellation.
Discharge,
Defeasance and Covenant Defeasance
The indenture provides, with respect to each series of debt
securities issued thereunder, that we may satisfy and discharge
our obligations under the indenture with respect to debt
securities of such series if:
(a) (i) all debt securities of such series previously
authenticated and delivered, with certain exceptions, have been
accepted by the applicable trustee for cancellation; or
(ii) the debt securities of such series have become due and
payable, or mature within one year, or all of them are to be
called for redemption within one year under arrangements
satisfactory to the applicable trustee for giving the notice of
redemption and we irrevocably deposit in trust with the
applicable trustee, as trust funds solely for the benefit of the
holders of such debt securities, for that purpose, money or
governmental obligations or a combination thereof sufficient (in
the opinion of a nationally recognized independent registered
public accounting firm expressed in a written certification
thereof delivered to the applicable trustee) to pay the entire
indebtedness on the debt securities of such series to maturity
or redemption, as the case may be;
(b) we have paid all other sums payable by us under the
indenture; and
(c) we deliver to the applicable trustee an officers
certificate and an opinion of counsel, in each case stating that
all conditions precedent provided for in the indenture relating
to the satisfaction and discharge of the indenture with respect
to the debt securities of such series have been complied with.
Notwithstanding such satisfaction and discharge, our obligations
to compensate and indemnify the trustee, to pay additional
amounts, if any, in respect of debt securities in certain
circumstances and to convert or exchange debt securities
pursuant to the terms thereof and our obligations and the
obligations of the trustee to hold funds in trust and to apply
such funds pursuant to the terms of the indenture, with respect
to issuing temporary debt securities, with respect to the
registration, transfer and exchange of debt securities, with
respect to the replacement of mutilated, destroyed, lost or
stolen debt securities and with respect to the maintenance of an
office or agency for payment, shall in each case survive such
satisfaction and discharge.
Unless inapplicable to debt securities of a series pursuant to
the terms thereof, the indenture provides that (i) we will
be deemed to have paid and will be discharged from any and all
obligations in respect of the debt securities issued thereunder
of any series, and the provisions of such indenture will, except
as noted below, no longer be in effect with respect to the debt
securities of such series (defeasance) and (ii)
(1) we may omit to comply with the covenant under
Consolidation, Merger and Sale of Assets
and any other additional covenants established pursuant to the
terms of such series, and such omission shall be deemed not to
be an event of default under clause (d) or (f) of the
first paragraph of Events of Default and
(2) the occurrence of any event described in
clause (f) of the first paragraph of
Events of Default shall not be deemed to
be an event of default, in each case with respect
14
to the outstanding debt securities of such series ((1) and
(2) of this clause (ii), covenant defeasance);
provided that the following conditions shall have been satisfied
with respect to such series:
(a) we have irrevocably deposited in trust with the
applicable trustee, as trust funds solely for the benefit of the
holders of the debt securities of such series, for that purpose,
money or government obligations or a combination thereof
sufficient (in the opinion of a nationally recognized
independent registered public accounting firm expressed in a
written certification thereof delivered to the applicable
trustee) without consideration of any reinvestment to pay and
discharge the principal of, premium, if any, and accrued
interest and additional amounts on the outstanding debt
securities of such series to maturity or earlier redemption
(irrevocably provided for under arrangements satisfactory to the
applicable trustee), as the case may be;
(b) such defeasance or covenant defeasance will not result
in a breach or violation of, or constitute a default under, the
indenture or any other material agreement or instrument to which
we are a party or by which we are bound;
(c) no event of default or event which with notice or lapse
of time would become an event of default with respect to such
debt securities of such series shall have occurred and be
continuing on the date of such deposit;
(d) we shall have delivered to such trustee an opinion of
counsel as described in the indenture to the effect that the
holders of the debt securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to
federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred;
(e) we have delivered to the applicable trustee an
officers certificate and an opinion of counsel, in each
case stating that all conditions precedent provided for in the
indenture relating to the defeasance contemplated have been
complied with;
(f) if the debt securities are to be redeemed prior to
their maturity, notice of such redemption shall have been duly
given or provision therefor satisfactory to the trustee shall
have been made; and
(g) any such defeasance or covenant defeasance shall comply
with any additional or substitute terms provided for by the
terms of the debt securities of such series.
Notwithstanding a defeasance, among other obligations, our
obligations with respect to the following will survive with
respect to the debt securities of such series until otherwise
terminated or discharged under the terms of the indenture:
(a) the rights of holders of outstanding debt securities of
such series to receive payments in respect of the principal of,
interest on or premium or additional amounts, if any, payable in
respect of, such debt securities when such payments are due from
the trust referred in clause (a) in the preceding paragraph
and any rights of such holders to convert or exchange such debt
securities for other securities or property;
(b) the issuance of temporary debt securities, the
registration, transfer and exchange of debt securities, the
replacement of mutilated, destroyed, lost or stolen debt
securities and the maintenance of an office or agency for
payment and holding payments in trust;
(c) the rights, powers, trusts, duties and immunities of
the trustee, and our obligations in connection
therewith; and
(d) the defeasance or covenant defeasance provisions of the
indenture.
Limitation
of Liability
Our unitholders, our general partner and its directors, officers
and members will not be liable for our obligations under the
debt securities, the indenture or the guarantees or for any
claim based on, or in respect of, such obligations. By accepting
a debt security, each holder of that debt security will have
agreed to this provision and waived and released any such
liability on the part of our unitholders, our general partner
and its directors, officers and members. This waiver and release
are part of the consideration for our issuance of the debt
securities. It is the
15
view of the SEC that a waiver of liabilities under the federal
securities laws is against public policy and unenforceable.
Applicable
Law
The indenture provides that the debt securities and the
indenture will be governed by and construed in accordance with
the laws of the State of New York.
About the
Trustee
Unless otherwise specified in the applicable prospectus
supplement, The Bank of New York Mellon Trust Company, N.A.
is the trustee under the indenture.
DESCRIPTION
OF THE COMMON UNITS
The
Units
The holders of common units are entitled to participate in
partnership distributions and exercise the rights or privileges
available to limited partners under our partnership agreement.
For a description of the relative rights and preferences of
holders of common units 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.
Transfer
Agent and Registrar
Duties
Computershare Trust Company, N.A. serves as registrar and
transfer agent for the common units. We pay all fees charged by
the transfer agent for transfers of common units, except the
following that must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges;
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special charges for services requested by a holder of a common
unit; and
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other similar fees or charges.
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There is no charge to unitholders for disbursements of our cash
distributions. We will indemnify the transfer agent against all
claims and losses that may arise out of all actions of the
transfer agent or its agents or subcontractors for their
activities in that capacity, except for any liability due to any
gross negligence or willful misconduct of the transfer agent or
its agents or subcontractors.
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
has been appointed and has accepted the appointment within
30 days after notice of the resignation or removal, 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 or the issuance of common units in a
merger or consolidation in accordance with our partnership
agreement, each transferee of common units will be admitted as a
limited partner with respect to the
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common units transferred when such transfer and admission is
reflected in our books and records. Additionally, each
transferee:
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represents that the transferee has the capacity, power and
authority to enter into our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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gives the consents and approvals contained in our partnership
agreement.
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An assignee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. Our
general partner will cause any transfers to be recorded on our
books and records no less frequently than quarterly.
We may, at our discretion, treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial
holders rights are limited solely to those that it has
against the nominee holder as a result of any agreement between
the beneficial owner and the nominee holder.
Common units are securities and are transferable according to
the laws governing transfer of securities. 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.
Subordinated
Units
On February 19, 2008, following fulfillment of the
financial test contained in the partnership agreement, all of
our outstanding subordinated units converted into common units
on a
one-for-one
basis. As a result, we no longer have any outstanding
subordinated units.
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.
Operating
Surplus and Capital Surplus
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 generally means, for each fiscal quarter all cash
on hand at the end of the 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 (including
reserves for future capital expenditures and for our anticipated
credit needs);
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comply with applicable law, any of our debt instruments or other
agreements; or
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provide funds for distribution to our unitholders and to our
general partner for any one or more of the next four quarters;
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plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter for which the determination is
being made. Working capital borrowings are generally borrowings
that will be made under our working capital facility with
Williams and in all cases are used solely for working capital
purposes or to pay distributions to partners.
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17
Wamsutter
Cash Distribution Policy
A substantial portion of our cash available to pay distributions
will be cash we receive as distributions from Wamsutter.
Wamsutters limited liability company agreement, as
amended, provides for the distribution of available cash at
least quarterly, with available cash defined to mean, for each
fiscal quarter, cash generated from Wamsutters business
less reserves that are necessary or appropriate to provide for
the conduct of its business and to comply with applicable law or
any debt instrument or other agreement to which it is a party.
Under Wamsutters limited liability company agreement, the
amount of Wamsutters quarterly distributions, including
the amount of cash reserves not distributed, will be determined
by the member of Wamsutters management committee
representing the Class B Interests. We own 100% of the
Class A interests in Wamsutter and 68% of the Class C
interests in Wamsutter, and an affiliate of Williams owns 100%
of the Class B interests in Wamsutter and the remaining 32%
of the Class C interests. Wamsutters limited
liability agreement may only be amended with the unanimous
approval of all its members.
Discoverys
Cash Distribution Policy
A significant portion of our cash available to pay distributions
is cash we receive as distributions from Discovery. As in our
partnership agreement, Discoverys limited liability
company agreement, as amended, provides for the distribution of
available cash on a quarterly basis, with available cash defined
to mean, for each fiscal quarter, cash generated from
Discoverys business less reserves that are necessary or
appropriate to provide for the conduct of its business and to
comply with applicable law or any debt instrument or other
agreement to which it is a party. Under Discoverys limited
liability company agreement, the amount of Discoverys
quarterly distributions, including the amount of cash reserves
not distributed, is determined by the members of
Discoverys management committee representing a
majority-in-interest
in Discovery. We own a 60% interest in Discovery.
Discoverys limited liability agreement may only be amended
with the unanimous approval of all its members.
Definition
of Operating Surplus
Operating surplus for any period generally means:
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our cash balance on the closing date of our initial public
offering of $12.8 million, which excluded
$24.4 million retained from the proceeds of our initial
public offering to make a capital contribution to Discovery to
fund an escrow account required in connection with the Tahiti
pipeline lateral expansion project; plus
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$10.0 million; plus
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all of our cash receipts after the closing of our initial public
offering, excluding (1) cash from borrowings that are not
working capital borrowings, (2) sales of equity and debt
securities and (3) sales or other dispositions of assets
outside the ordinary course of business; plus
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less
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all of our operating expenditures after the closing of our
initial public offering (including the repayment of working
capital borrowings, but not the repayment of other borrowings)
and maintenance capital expenditures (including capital
contributions to Wamsutter and Discovery to be used for their
respective maintenance capital expenditures); less
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the amount of cash reserves established by our general partner
for future operating expenditures.
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Because operating surplus is a cash accounting concept, the
benefit that we receive from the partial credit for general and
administrative expenses and other reimbursements we receive from
Williams under the omnibus agreement will be part of our
operating surplus.
As described above, operating surplus does not reflect actual
cash on hand that is available for distribution to our
unitholders. For example, it includes a provision that will
enable us, if we choose, to distribute as operating
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surplus up to $22.8 million of cash we receive in the
future from non-operating sources, such as asset sales,
issuances of securities, and long-term borrowings, that would
otherwise be distributed as capital surplus.
We define operating expenditures in our partnership agreement,
and it generally means all of our expenditures, including, but
not limited to, taxes, reimbursement of expenses incurred by our
general partner on our behalf, repayments of working capital
borrowings, debt service payments and capital expenditures
(except as provided in the second bullet below), provided that
operating expenditures will not include:
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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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capital expenditures made for acquisitions or capital
improvements;
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payment of transaction expenses relating to interim capital
transactions (as defined below); and
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distributions to our partners (including distributions in
respect of incentive distribution rights).
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Capital expenditures that are operating expenses, which we also
refer to as maintenance capital expenditures, are made to
replace partially or fully depreciated assets, to maintain the
existing operating capacity of our assets and to extend their
useful lives, or other capital expenditures that are incurred in
maintaining existing system volumes or our asset base. Capital
expenditures made for acquisitions or capital improvements,
which we also refer to as expansion capital expenditures, are
made to increase operating capacity, revenues or cash flow from
operations, whether through construction, acquisition,
replacement or improvement. Expansion capital expenditures
include contributions made by us to an entity in which we have
an equity interest to be used by it for acquisitions or capital
improvements. Pursuant to our partnership agreement, capital
expenditures that are made in part for maintenance capital
purposes and in part for expansion capital purposes will be
allocated by our general partner, with the concurrence of our
conflicts committee.
Definition
of Capital Surplus
We also define capital surplus in our partnership agreement, and
it will generally be generated only by the following, which we
call interim capital transactions:
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borrowings other than working capital borrowings;
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sales of debt and equity securities; and
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sales or other disposition of assets for cash, other than
inventory, accounts receivable and other current assets sold in
the ordinary course of business or non-current assets sold as
part of normal retirements or replacements of assets.
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Characterization
of Cash Distributions
We will treat all available cash distributed as coming from
operating surplus until the sum of all available cash
distributed since we began operations equals the operating
surplus as of the most recent date of determination of available
cash. We will treat any amount distributed in excess of
operating surplus, regardless of its source, as capital surplus.
We do not anticipate that we will make any distributions from
capital surplus.
Distributions
of Available Cash from Operating Surplus
We will make distributions of available cash from operating
surplus for any quarter in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our
general partner, until we distribute for each outstanding unit
an amount equal to the minimum quarterly distribution for that
quarter; and
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thereafter, in the manner described in
Incentive Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
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Incentive
Distribution Rights
Incentive distribution rights represent the right to receive an
increasing percentage of quarterly distributions of available
cash from operating surplus after the minimum quarterly
distribution and the target distribution levels have been
achieved. Our general partner currently holds the incentive
distribution rights, but may transfer these rights separately
from its general partner interest, subject to restrictions in
the partnership agreement.
If for any quarter:
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we have distributed available cash from operating surplus to the
common unitholders in an amount equal to the minimum quarterly
distribution; and
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we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution;
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then, subject to the amendments to our partnership agreement
described below, we will distribute any additional available
cash from operating surplus for that quarter among the
unitholders and our general partner in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our
general partner, until each unitholder receives a total of
$0.4025 per unit for that quarter (the first target
distribution);
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second, 85% to all unitholders, pro rata, and 15% to our
general partner, until each unitholder receives a total of
$0.4375 per unit for that quarter (the second target
distribution);
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third, 75% to all unitholders, pro rata, and 25% to our
general partner, until each unitholder receives a total of
$0.5250 per unit for that quarter (the third target
distribution); and
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thereafter, 50% to all unitholders, pro rata, and 50% to
our general partner.
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In each case, the amount of the target distribution set forth
above is exclusive of any distributions to common unitholders to
eliminate any cumulative arrearages in payment of the minimum
quarterly distribution. The percentage interests set forth above
for our general partner assumes that our general partner
maintains its 2% general partner interest, that our general
partner has not transferred the incentive distribution rights
and that we do not issue additional classes of equity securities.
On April 16, 2009, we amended our partnership agreement to
eliminate any distributions of available cash to our general
partner, as the holder of the incentive distribution rights,
with respect to each quarter ending in 2009. Accordingly, for
2009, the pro rata percentage of available cash from operating
surplus that has been, or will be, distributed to our general
partner under each of the second, third and fourth bullets above
is 2%.
Percentage
Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of
the additional available cash from operating surplus among the
unitholders and our general partner up to the various target
distribution levels. The amounts set forth under Marginal
Percentage Interest in Distributions are the percentage
interests of the unitholders and our general partner in any
available cash from operating surplus we distribute up to and
including the corresponding amount in the column Total
Quarterly Distribution Target Amount, until available cash
from operating surplus we distribute reaches the next target
distribution level, if any. The percentage interests shown for
the unitholders and our general partner for the minimum
quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution. The percentage interests set forth below for our
general partner include its 2% general partner interest and
assume our general partner has contributed additional capital to
maintain
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its 2% general partner interest, that our general partner has
not transferred the incentive distribution rights and that we do
not issue additional classes of equity securities.
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Marginal Percentage
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Total Quarterly
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Interest in Distributions
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Distribution Target Amount
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Unitholders
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General Partner
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Minimum Quarterly Distribution
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$0.3500
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98
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%
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2
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%
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First Target Distribution
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up to $0.4025
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98
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%
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2
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%
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Second Target Distribution
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above $0.4025 up to $0.4375
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85
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%
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15
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%
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Third Target Distribution
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above $0.4375 up to $0.5250
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75
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%
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25
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%
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Thereafter
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above $0.5250
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50
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%
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50
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%
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Distributions
from Capital Surplus
How
Distributions from Capital Surplus Will Be Made
We will make distributions of available cash from capital
surplus, if any, in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to our
general partner, until we distribute for each common unit that
was issued in our initial public offering, an amount of
available cash from capital surplus equal to the initial public
offering price;
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second, 98% to the common unitholders, pro rata, and 2%
to our general partner, until we distribute for each common
unit, an amount of available cash from capital surplus equal to
any unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and
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thereafter, we will make all distributions of available
cash from capital surplus as if they were from operating surplus.
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The preceding discussion is based on the assumption that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
Effect
of a Distribution from Capital Surplus
The partnership agreement treats a distribution of capital
surplus as the repayment of the initial unit price from our
initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital
surplus per unit is referred to as the unrecovered initial
unit price. Each time a distribution of capital surplus is
made, the minimum quarterly distribution and the target
distribution levels will be reduced in the same proportion as
the corresponding reduction in the unrecovered initial unit
price. Because distributions of capital surplus will reduce the
minimum quarterly distribution, after any of these distributions
are made it may be easier for our general partner to receive
incentive distributions. However, any distribution of capital
surplus before the unrecovered initial unit price is reduced to
zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit in an amount equal
to the initial unit price, we will reduce the minimum quarterly
distribution and the target distribution levels to zero. We will
then make all future distributions from operating surplus, with
50% being paid to the holders of units and 50% to our general
partner. The percentage interests shown for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
Adjustment
to the Minimum Quarterly Distribution and Target Distribution
Levels
In addition to adjusting the minimum quarterly distribution and
target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide
our units into a greater number of units, we will
proportionately adjust:
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the minimum quarterly distribution;
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the target distribution levels; and
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the unrecovered initial unit price.
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For example, if a
two-for-one
split of the common units should occur, the minimum quarterly
distribution, the target distribution levels and the unrecovered
initial unit price would each be reduced to 50% of its initial
level. We will not make any adjustment by reason of the issuance
of additional units for cash or property.
In addition, if legislation is enacted or if existing law is
modified or interpreted by a governmental taxing authority so
that we become taxable as a corporation or otherwise subject to
taxation as an entity for federal, state or local income tax
purposes, we will reduce the minimum quarterly distribution and
the target distribution levels for each quarter by multiplying
each distribution level by a fraction, the numerator of which is
available cash for that quarter and the denominator of which is
the sum of available cash for that quarter plus our general
partners estimate of our aggregate liability for the
quarter for such income taxes payable by reason of such
legislation or interpretation. To the extent that the actual tax
liability differs from the estimated tax liability for any
quarter, the difference will be accounted for in subsequent
quarters.
Distributions
of Cash Upon Liquidation
Overview
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
liquidation. We will first apply the proceeds of liquidation to
the payment of our creditors. We will distribute any remaining
proceeds to the unitholders and our general partner, in
accordance with their capital account balances, as adjusted to
reflect any gain or loss upon the sale or other disposition of
our assets in liquidation.
Manner
of Adjustments for Gain
The manner of the adjustment for gain is set forth in the
partnership agreement. If we liquidate, we will allocate any
gain to the partners in the following manner:
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first, to our general partner and the holders of units
who have negative balances in their capital accounts to the
extent of and in proportion to those negative balances;
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second, 98% to the common unitholders, pro rata, and 2%
to our general partner, until the capital account for each
common unit is equal to the sum of:
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(1) the unrecovered initial unit price for that common
unit; and
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs;
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third, 98% to all unitholders, pro rata, and 2% to our
general partner, until we allocate under this paragraph an
amount per unit equal to:
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(1) the sum of the excess of the first target distribution
per unit over the minimum quarterly distribution per unit for
each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the minimum
quarterly distribution per unit that we distributed 98% to the
unitholders, pro rata, and 2% to our general partner, for each
quarter of our existence;
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fourth, 85% to all unitholders, pro rata, and 15% to our
general partner, until we allocate under this paragraph an
amount per unit equal to:
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(1) the sum of the excess of the second target distribution
per unit over the first target distribution per unit for each
quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the first
target distribution per unit that we distributed 85% to the
unitholders, pro rata, and 15% to our general partner for each
quarter of our existence;
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fifth, 75% to all unitholders, pro rata, and 25% to our
general partner, until we allocate under this paragraph an
amount per unit equal to:
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(1) the sum of the excess of the third target distribution
per unit over the second target distribution per unit for each
quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the second
target distribution per unit that we distributed 75% to the
unitholders, pro rata, and 25% to our general partner for each
quarter of our existence; and
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thereafter, 50% to all unitholders, pro rata, and 50% to
our general partner.
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The percentage interests set forth above for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
Manner
of Adjustments for Losses
If we liquidate, we will generally allocate any loss to our
general partner and the unitholders in the following manner:
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first, 98% to the holders of common units in proportion
to the positive balances in their capital accounts and 2% to our
general partner, until the capital accounts of the common
unitholders have been reduced to zero; and
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thereafter, 100% to our general partner.
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The percentage interests set forth above for our general partner
assume that our general partner maintains its 2% general partner
interest, that our general partner has not transferred the
incentive distribution rights and that we do not issue
additional classes of equity securities.
Adjustments
to Capital Accounts
We will make adjustments to capital accounts upon the issuance
of additional units. In doing so, we will allocate any
unrealized and, for tax purposes, unrecognized gain or loss
resulting from the adjustments to the unitholders and our
general partner in the same manner as we allocate gain or loss
upon liquidation. In the event that we make positive adjustments
to the capital accounts upon the issuance of additional units,
we will allocate any later negative adjustments to the capital
accounts resulting from the issuance of additional units or upon
our liquidation in a manner which results, to the extent
possible, in our general partners capital account balances
equaling the amount which they would have been if no earlier
positive adjustments to the capital accounts had been made.
THE
PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. Our partnership agreement is incorporated
by reference as an exhibit to the registration statement of
which this prospectus constitutes a part. We will provide
prospective investors with a copy of this agreement upon request
at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read
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 the Common Units Transfer of
Common Units; and
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with regard to allocations of taxable income and taxable loss,
please read Material Tax Considerations.
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Organization
and Duration
We were organized on February 28, 2005 and have a perpetual
existence.
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Purpose
Our purpose under the partnership agreement is limited to
serving as the sole member of our operating company and engaging
in any business activities that may be engaged in by our
operating company and its subsidiaries or that are approved by
our general partner. The limited liability company agreement of
our operating company provides that it may, directly or
indirectly, engage in:
(1) its operations as conducted immediately before our
initial public offering;
(2) any other activity approved by our general partner but
only to the extent that our general partner determines that, as
of the date of the acquisition or commencement of the activity,
the activity generates qualifying income as this
term is defined in Section 7704 of the Internal Revenue
Code; or
(3) any activity that enhances the operations of an
activity that is described in (1) or (2) above.
Although our general partner has the ability to cause us, our
operating company or its subsidiaries to engage in activities
other than gathering, transporting, processing, and treating
natural gas and the fractionating and storing of NGLs, 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 authorized in general to perform all acts it
determines to be necessary or appropriate to carry out our
purposes and to conduct our business.
Power of
Attorney
Each limited partner and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney to, among other things, execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to make consents and waivers under, our
partnership agreement. Please read Amendment
of the Partnership Agreement below.
Capital
Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
Limited
Liability
Participation
in the Control of Our Partnership
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
our partnership agreement, his liability under the Delaware Act
will be limited, subject to possible exceptions, to the amount
of capital he is obligated to contribute to us for his common
units plus his share of any undistributed profits and assets. If
it were determined, however, that the right, or exercise of the
right, by the limited partners as a group:
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to remove or replace 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 who reasonably believe 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 such a claim in Delaware
case law.
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Unlawful
Partnership Distribution
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.
Failure
to Comply with the Limited Liability Provisions of Jurisdictions
in Which We Do Business
Our subsidiaries may be deemed to conduct business in Kansas,
Louisiana, Alabama, Colorado, New Mexico, and Wyoming. Our
subsidiaries may conduct business in other states in the future.
Maintenance of our limited liability may require compliance with
legal requirements in the jurisdictions in which the operating
company conducts business, including qualifying our subsidiaries
to do business there. Limitations on the liability of limited
partners for the obligations of a limited partnership have not
been clearly established in many jurisdictions. If, by virtue of
our membership 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 the
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as 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.
Voting
Rights
The following matters require the unitholder vote specified
below. Matters requiring the approval of a unit
majority require the approval of a majority of the common
units.
In voting their common units, our general partner and its
affiliates 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 and the limited partners.
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Issuance of additional units |
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No approval right. |
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Amendment of the partnership agreement |
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Certain amendments may be made by 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. Please read Merger, Sale or
Other Disposition of Assets. |
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Amendment of the limited liability company agreement of the
operating company and other action taken by us as the sole
member of our operating company |
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Unit majority if such amendment or other action would adversely
affect our limited partners (or any particular class of limited
partners) in any material respect. Please read
Amendment of the Partnership
Agreement Action Relating to the Operating
Company. |
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Dissolution of our partnership |
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Unit majority. Please read Termination and
Dissolution. |
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Continuation of our partnership upon dissolution |
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Unit majority. Please read Termination and
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, 2015 in a manner which
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
662/3%
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 the general partner interest |
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Our general partner may transfer all, but not less than all, of
the 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, 2015. Please read
Transfer of General Partner Interest. |
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Transfer of incentive distribution rights |
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Except for transfers to an affiliate or another person as part
of our general partners merger or consolidation with or
into, or sale of all or substantially all of its assets to, or
sale of all or substantially all of its equity interest 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 most circumstances for a transfer of
the incentive distribution rights to a third party prior to
June 30, 2015. Please read Transfer of
Incentive Distribution Rights. |
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Transfer of ownership interests in our general partner |
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No approval required at any time. Please read
Transfer of Ownership Interests in Our General
Partner. |
Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities and rights to buy
partnership securities, subject to the limitations imposed by
the New York Stock Exchange, 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 or other equity securities.
Holders of any additional common units we issue will be entitled
to share equally with the then-existing holders of common units
in our distributions of available cash. In addition, the
issuance of additional partnership interests may dilute the
value of the interests of the then-existing holders of common
units in our net assets.
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In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
securities that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit the issuance by our subsidiaries of equity securities,
which may effectively rank senior to our common units.
Upon issuance of additional partnership securities, our general
partner will have the right, but not the obligation, to make
additional capital contributions to the extent necessary to
maintain its 2% general partner interest in us. Our general
partners 2% interest in us will be reduced if we issue
additional units in the future and our general partner does not
contribute a proportionate amount of capital to us to maintain
its 2% general partner interest. Moreover, our general partner
will have the right, which it may from time to time assign in
whole or in part to any of its affiliates, to purchase common
units or other equity securities whenever, and on the same terms
that, we issue those securities to persons other than our
general partner and its affiliates, to the extent necessary to
maintain its and its affiliates percentage interest,
including its interest represented by common units that existed
immediately prior to each issuance. The holders of common units
will not have preemptive rights to acquire additional common
units or other partnership securities.
Amendment
of the Partnership Agreement
General
Amendments to our partnership agreement may be proposed only by
or with the consent of our general partner. However, our general
partner will have no duty or obligation to propose any amendment
and may decline to do so free of any fiduciary duty or
obligation whatsoever to us or the limited partners, including
any duty to act in good faith or in the best interests of us or
the limited partners. In order to adopt a proposed amendment,
other than the amendments discussed below, our general partner
must seek written approval of the holders of the number of units
required to approve the amendment or 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:
(1) 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
(2) 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 may be given or withheld at its
option.
The provision of our partnership agreement preventing the
amendments having the effects described in clauses (1) or
(2) above can be amended upon the approval of the holders
of at least 90% of the outstanding units voting together as a
single class (including units owned by our general partner and
its affiliates). As of October 28, 2009, our general
partner and its affiliates owned approximately 21.6% of the
outstanding units.
No
Unitholder Approval
Our general partner may generally make amendments to our
partnership agreement without the approval of any limited
partner to reflect:
(1) a change in our name, the location of our principal
place of business, our registered agent or our registered office;
(2) the admission, substitution, withdrawal or removal of
partners in accordance with our partnership agreement;
(3) a change that our general partner determines to be
necessary or appropriate for us to qualify or to 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, the operating company
nor its subsidiaries will
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be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;
(4) an amendment that is necessary, in the opinion of our
counsel, to prevent us or our general partner or its directors,
officers, agents, or trustees from in any manner being subjected
to the provisions of the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or plan asset
regulations adopted under ERISA whether or not substantially
similar to plan asset regulations currently applied or proposed;
(5) subject to the limitations on the issuance of
additional partnership securities described above, an amendment
that our general partner determines to be necessary or
appropriate for the authorization of additional partnership
securities or rights to acquire partnership securities;
(6) any amendment expressly permitted in our partnership
agreement to be made by our general partner acting alone;
(7) an amendment effected, necessitated or contemplated by
a merger agreement that has been approved under the terms of our
partnership agreement;
(8) 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;
(9) a change in our fiscal year or taxable year and related
changes;
(10) certain mergers or conveyances as set forth in our
partnership agreement; or
(11) any other amendments substantially similar to any of
the matters described in clauses (1) through
(10) above.
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
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are required to effect the intent of the provisions of the
partnership agreement or are otherwise contemplated by our
partnership agreement.
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Opinion
of Counsel and Unitholder Approval
Our general partner will not be required to obtain an opinion of
counsel that an amendment will not result in a loss of limited
liability to the limited partners or result in our being taxed
as an entity for federal income tax purposes in connection with
any of the amendments described above under No
Unitholder Approval. No other amendments to our
partnership agreement will become effective without the approval
of holders of at least 90% of the outstanding units voting as a
single class unless we obtain an opinion of counsel to the
effect that the amendment will not affect the limited liability
under applicable law of any of our limited partners.
In addition to the above restrictions, any amendment that would
have a material adverse effect on the rights or preferences of
any type or class of outstanding units in relation to other
classes of units will require the approval of at least a
majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required
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to take any action must be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced.
Action
Relating to the Operating Company
Without the approval of the holders of units representing a unit
majority, our general partner is prohibited from consenting on
our behalf, as the sole member of the operating company, to any
amendment to the limited liability company agreement of the
operating company or taking any action on our behalf permitted
to be taken by a member of the operating company, in each case,
that would adversely affect our limited partners (or any
particular class of limited partners) in any material respect.
Merger,
Sale or Other Disposition of Assets
A merger or consolidation of us requires the consent of our
general partner. However, our general partner will have no duty
or obligation to consent to any merger or consolidation and may
decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interests of us or the limited
partners. In addition, the partnership agreement generally
prohibits our general partner, without the prior approval of the
holders of units representing a unit majority, from causing us
to, among other things, sell, exchange or otherwise dispose of
all or substantially all of our assets in a single transaction
or a series of related transactions, including by way of merger,
consolidation or other combination, or approving on our behalf
the sale, exchange or other disposition of all or substantially
all of the assets of our subsidiaries. Our general partner may,
however, mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of our assets without that
approval. Our general partner may also sell all or substantially
all of our assets under a foreclosure or other realization upon
those encumbrances without that approval. Finally, our general
partner may consummate any merger or consolidation without the
prior approval of our unitholders if our general partner has
received an opinion of counsel that the merger or consolidation,
as the case may be, would not result in the loss of the limited
liability of to the limited partners or result in our being
taxed as an entity for federal income tax purposes, we are the
surviving entity in the transaction, the transaction would not
result in an amendment to our partnership agreement that the
could not otherwise be adopted solely by our general partner,
each of our units will be an identical unit of our partnership
following the transaction, and the units to be issued do not
exceed 20% of our outstanding units 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 some or all of our
assets to, a newly formed entity if the sole purpose of that
merger or conveyance is to effect a mere change in our legal
form into another limited liability entity. The unitholders are
not entitled to dissenters rights of appraisal under 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 transaction or event.
Termination
and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
(1) the election of our general partner to dissolve us, if
approved by the holders of units representing a unit majority;
(2) the entry of a decree of judicial dissolution of our
partnership;
(3) 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
withdrawal or removal following approval and admission of a
successor; or
(4) there being no limited partners, unless we are
continued without dissolution in accordance with applicable
Delaware law.
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Upon a dissolution under clause (3) 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 the 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 of
any limited partner; and
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none of 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.
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Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the liquidator authorized to wind
up our affairs will, acting with all of the powers of our
general partner that are necessary or appropriate, liquidate our
assets and apply the proceeds of the liquidation as described in
Provisions of Our Partnership Agreement Relating to Cash
Distributions Distributions of Cash Upon
Liquidation. The liquidator may defer liquidation or
distribution of our assets for a reasonable period at time or
distribute assets to partners in kind if it determines that a
sale would be impractical or would cause undue loss to the
partners.
Withdrawal
or Removal of Our General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as the general partner of our partnership
prior to June 30, 2015 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,
2015, our general partner may withdraw as general partner
without first obtaining approval of any unitholder by giving
90 days written notice, and that withdrawal will not
constitute a violation of our partnership agreement.
Notwithstanding the information above, our general partner may
withdraw without unitholder approval upon 90 days
notice to the limited partners if at least 50% of the
outstanding common units are held or controlled by one person
and its affiliates other than 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 below.
Upon the 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 majority of the outstanding common units
may select a successor to that withdrawing general partner. If a
successor is not elected, or is elected but an opinion of
counsel regarding limited liability and tax matters cannot be
obtained, we will be dissolved, wound up and liquidated, unless
within a specified period of time after that withdrawal, the
holders of a unit majority agree in writing to continue our
business and to appoint a successor general partner. Please read
Termination and Dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than
662/3%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units. The ownership of more than
331/3%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent the
general partners removal. As October 28, 2009, our
general partner and its affiliates owned approximately 21.6% of
the outstanding units.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and units held by our general partner
and its affiliates are not voted in favor of that removal, our
general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests
based on the fair market value of the interests at the time.
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In the event of removal of a general partner under circumstances
where cause exists or withdrawal of a general partner where that
withdrawal violates our partnership agreement, a successor
general partner will have the option to purchase the general
partner interest and incentive distribution rights of the
departing general partner for a cash payment equal to the fair
market value of those interests. Under all other circumstances
where a general partner withdraws or is removed by the limited
partners, the departing general partner will have the option to
require the successor general partner to purchase the general
partner interest of the departing general partner and its
incentive distribution rights for their fair market value. In
each case, this fair market value will be determined by
agreement between the departing general partner and the
successor general partner. If no agreement is reached, an
independent investment banking firm or other independent expert
selected by the departing general partner and the successor
general partner will determine the fair market value. Or, if the
departing general partner and the successor general partner
cannot agree upon an expert, then an expert chosen by agreement
of the experts selected by each of them will determine the fair
market value.
If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest and
its incentive distribution rights will automatically convert
into common units equal to the fair market value of those
interests as determined by an investment banking firm or other
independent expert selected in the manner described in the
preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general
partner, including, without limitation, all employee-related
liabilities, including severance liabilities, incurred for the
termination of any employees employed by the departing general
partner or its affiliates for our benefit.
Transfer
of General Partner Interest
Except for transfer by our general partner of all, but not less
than all, of its general partner interest in us to:
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an affiliate of our general partner (other than an
individual); or
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity,
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our general partner may not transfer all or any part of its
general partner interest in us to another person prior to
June 30, 2015 without the approval of the holders of at
least a majority of the outstanding common units, excluding
common units held by our general partner and its affiliates. As
a condition of this transfer, the transferee must, 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
units to one or more persons without unitholder approval.
Transfer
of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all the ownership interests in the
holder or the sale of all or substantially all of its assets to,
that entity without the prior approval of the unitholders. Prior
to June 30, 2015, other transfers of the 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, 2015, the incentive distribution rights will
be freely transferable.
Transfer
of Ownership Interests in Our General Partner
At any time, the members of our general partner may sell or
transfer all or part of their membership interests in our
general partner to an affiliate or a third party without the
approval of our unitholders.
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Change of
Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove Williams Partners GP LLC as our general partner or
otherwise change our management. If any person or group other
than our general partner and its affiliates acquires beneficial
ownership of 20% or more of any class of units, that person or
group loses voting rights on all of its units. This loss of
voting rights does not apply to any person or group that
acquires the units from our general partner or its affiliates
and any transferees of that person or group approved by our
general partner or to any person or group who acquires the units
with the prior approval of the board of directors of our general
partner.
Our partnership agreement also provides that if our general
partner is removed under circumstances where cause does not
exist and units held by our general partner and its affiliates
are not voted in favor of that removal, our general partner will
have the right to convert its general partner interest and its
incentive distribution rights into common units or to receive
cash in exchange for those interests.
Limited
Call Right
If at any time our general partner and its affiliates hold more
than 80% of the then-issued and outstanding partnership
securities of any class, our general partner will have the
right, but not the obligation, which it may assign in whole or
in part to any of its affiliates or to us, to acquire all, but
not less than all, of the remaining partnership securities of
the class held by unaffiliated persons as of a record date to be
selected by our general partner, on at least 10 but not more
than 60 days notice. The purchase price in the event of
this purchase is the greater of:
(1) the highest price paid by either of our general partner
or any of its affiliates for any partnership securities of the
class purchased within the 90 days preceding the date on
which our general partner first mails notice of its election to
purchase those partnership securities; and
(2) the current market price as of the date three days
before the date the notice is mailed.
As a result of our general partners right to purchase
outstanding partnership securities, a holder of partnership
securities may have his partnership securities purchased at an
undesirable time or price. Our partnership agreement provides
that the resolution of any conflict of interest that is fair and
reasonable will not be a breach of the partnership agreement.
Our general partner may, but it is not obligated to, submit the
conflict of interest represented by the exercise of the limited
call right to the conflicts committee for approval or seek a
fairness opinion from an investment banker. If our general
partner exercises its limited call right, it will make a
determination at the time, based on the facts and circumstances,
and upon the advice of counsel, as to the appropriate method of
determining the fairness and reasonableness of the transaction.
Our general partner is not obligated to obtain a fairness
opinion regarding the value of the common units to be
repurchased by it upon exercise of the limited call right.
There is no restriction in our partnership agreement that
prevents our general partner from issuing additional common
units and exercising its call right. If our general partner
exercised its limited call right, the effect would be to take us
private and, if the units were subsequently deregistered, we
would no longer be subject to the reporting requirements of the
Exchange Act.
The tax consequences to a unitholder of the exercise of this
call right are the same as a sale by that unitholder of his
common units in the market. Please read Material Tax
Considerations Disposition of Common Units.
Meetings;
Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, unitholders who
are record holders of units on the record date will be entitled
to notice of, and to vote at, meetings of our limited partners
and to act upon matters for which approvals may be solicited. In
the case of common units held by our general partner on behalf
of non-citizen assignees, our general partner will distribute
the votes on those common units in the same ratios as the votes
of limited partners on other units are cast.
Our general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action
that is required or permitted to be taken by the unitholders may
be taken either at a meeting of the unitholders or without a
meeting if consents in writing describing the action so taken
are signed by holders of the
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number of units necessary to authorize or take that action at a
meeting. Meetings of the unitholders may be called by our
general partner or by unitholders owning at least 20% of the
outstanding units of the class for which a meeting is proposed.
Unitholders may vote either in person or by proxy at meetings.
The holders of a majority of the outstanding units of the class
or classes for which a meeting has been called, represented in
person or by proxy, will constitute a quorum unless any action
by the unitholders requires approval by holders of a greater
percentage of the units, in which case the quorum will be the
greater percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities
above. However, if at any time any person or group, other than
our general partner and its affiliates, or a direct or
subsequently approved transferee of our general partner or its
affiliates, or a person or group who acquire units with the
prior approval of the board of our general partner 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.
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 any 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 is reflected in our books and
records.
Except as described above under Limited
Liability above, the common units will be fully paid, and
unitholders will not be required to make additional
contributions.
Non-Citizen
Assignees; Redemption
If we are or become subject to federal, state or local laws or
regulations that, in the determination of our general partner,
create a substantial risk of cancellation or forfeiture of any
property in which we have an interest because of the
nationality, citizenship or other related status of any limited
partner we may redeem the units held by the limited partner at
their current market price, in accordance with the procedures
set forth in our partnership agreement. In order to avoid any
cancellation or forfeiture, our general partner may require each
limited partner to furnish information about his nationality,
citizenship or related status. If a limited partner or assignee
fails to furnish information about his nationality, citizenship
or other related status within 30 days after a request for
the information or our general partner determines after receipt
of the information that the limited partner is not an eligible
citizen, the limited partner may be treated as a non-citizen
assignee. A non-citizen assignee is entitled to an interest
equivalent to that of a limited partner for the right to share
in allocations and distributions from us, including liquidating
distributions. A non-citizen assignee does not have the right to
direct the voting of his units and may not receive distributions
in kind upon our liquidation.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
(1) our general partner;
(2) any departing general partner;
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(3) any person who is or was an affiliate of our general
partner (including Williams and its subsidiaries) or any
departing general partner;
(4) any person who is or was an officer, director, member,
partner, fiduciary or trustee of any entity described in (1),
(2) or (3) above;
(5) any person who is or was serving as an officer,
director, member, partner, fiduciary or trustee of another
person at the request of our general partner or any departing
general partner; and
(6) any person designated by our general partner.
Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
not be personally liable for, or have any obligation to
contribute or loan funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under the
partnership agreement.
Books and
Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books are maintained for
both tax and financial reporting purposes on an accrual basis.
For tax and financial reporting purposes, our fiscal year is the
calendar year.
We will furnish or make available to record holders of common
units, within 120 days after the close of each fiscal year,
an annual report containing audited financial statements and a
report on those financial statements by our independent
registered public accounting firm or make such reports available
on the SECs EDGAR System. Except for our fourth quarter,
we will also furnish or make available on EDGAR summary
financial information within 90 days after the close of
each quarter.
We will furnish each record holder of a unit with information
reasonably required for tax reporting purposes within
90 days after the close of each calendar year. This
information is expected to be furnished in summary form so that
some complex calculations normally required of partners can be
avoided. Our ability to furnish this summary information to
unitholders will depend on the cooperation of unitholders in
supplying us with specific information. Every unitholder will
receive information to assist him in determining his federal and
state tax liability and filing his federal and state income tax
returns, regardless of whether he supplies us with information.
Right to
Inspect Our Books and Records
Our partnership agreement provides that a limited partner can,
for a purpose reasonably related to his interest as a limited
partner, upon reasonable demand stating the purpose of such
demand and at his own expense, obtain:
(1) a current list of the name and last known address of
each partner;
(2) a copy of our tax returns;
(3) information as to the amount of cash, and a description
and statement of the net agreed value of any other property or
services, contributed or to be contributed by each partner and
the date on which each became a partner;
(4) copies of our partnership agreement, the certificate of
limited partnership of the partnership, related amendments and
powers of attorney under which they have been executed;
(5) information regarding the status of our business and
financial condition; and
(6) any other information regarding our affairs as is just
and reasonable.
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, could damage us or our business or
that we are required by law or by agreements with third parties
to keep confidential.
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Registration
Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units or other partnership securities proposed
to be sold by our general partner or any of its affiliates or
their assignees if an exemption from the registration
requirements is not otherwise available. These registration
rights continue for two years following any withdrawal or
removal of Williams Partners GP LLC as our general partner. We
are obligated to pay all expenses incidental to the
registration, excluding underwriting discounts and commissions.
Fiduciary
and Other Duties
Our general partner is accountable to us and our unitholders and
has fiduciary, contractual, common law and statutory duties to
us. Fiduciary duties owed to us by our general partner are
prescribed by law and the partnership agreement. The Delaware
Revised Uniform Limited Partnership Act, (Delaware
Act) provides that Delaware limited partnerships may, in
their partnership agreements, expand, restrict or eliminate the
duties (including fiduciary duties) otherwise owed by a general
partner to limited partners and the partnership.
Our partnership agreement contains various provisions modifying
and restricting the duties that might otherwise be owed by our
general partner. We have adopted these provisions to allow our
general partner or its affiliates to engage in transactions with
us that otherwise might be prohibited by state law fiduciary
standards and to take into account the interests of other
parties in addition to our interests when resolving conflicts of
interest. We believe this is appropriate and necessary because
the board of directors of our general partner has fiduciary
duties to manage our general partner in a manner beneficial both
to its owner, Williams, as well as to you. Without these
modifications, the general partners ability to make
decisions involving conflicts of interests would be restricted.
The modifications to the fiduciary standards benefit our general
partner by enabling it to take into consideration all parties
involved in the proposed action. These modifications also
strengthen the ability of our general partner to attract and
retain experienced and capable directors. These modifications
represent a detriment to the common unitholders because they
restrict the remedies available to unitholders for actions that,
without those limitations, might constitute breaches of
fiduciary duty, as described below, and permit our general
partner to take into account the interests of third parties in
addition to our interests when resolving conflicts of interest.
The following is a summary of:
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the fiduciary duties imposed on our general partner by, and the
rights and remedies of unitholders under, the Delaware
Act; and
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material modifications of these duties contained in our
partnership agreement.
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State law fiduciary duty standards and unitholder rights and
remedies
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Fiduciary duties are generally considered to include an
obligation to act with due care and loyalty. The duty of care,
in the absence of a provision in a partnership agreement
providing otherwise, would generally require a general partner
to act for the partnership in the same manner as a prudent
person would act on his own behalf. The duty of loyalty, in the
absence of a provision in a partnership agreement providing
otherwise, would generally prohibit a general partner of a
Delaware limited partnership from taking any action or engaging
in any transaction where a conflict of interest is present.
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. These actions include
actions against a general partner for breach of its duties or of
the partnership agreement. In addition, the statutory or case
law of some jurisdictions may permit a limited partner to
institute legal action on behalf of himself and all other
similarly situated limited partners to recover damages from a
general partner for violations of its duties to the limited
partners.
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Modifications in our partnership agreement
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues as to compliance with duties
or applicable law. For example, our partnership agreement
provides that when our general partner is acting in its capacity
as our general partner, as opposed to in its individual
capacity, it must act in good faith and will not be
subject to any other standard under applicable law. In addition,
our partnership agreement provides that when our general partner
is acting in its individual capacity, as opposed to in its
capacity as our general partner, it may act without any
fiduciary obligation to us or our unitholders whatsoever. These
standards reduce the obligations to which our general partner
would otherwise be held under applicable Delaware law.
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Our partnership agreement generally provides that affiliated
transactions by the partnership and resolutions of conflicts of
interest in the operation of the partnership not involving a
vote of unitholders and that are not approved by the conflicts
committee of the board of directors of our general partner must
be:
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on terms no less favorable to us than
those generally being provided to or available from unrelated
third parties; or
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fair and reasonable to us, taking into
account the totality of the relationships between the parties
involved (including other transactions that may be particularly
favorable or advantageous to us).
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If our general partner does not seek approval from the conflicts
committee and the board of directors of our general partner
determines that the resolution or course of action taken with
respect to the conflict of interest satisfies either of the
standards set forth in the bullet points above, then it will be
presumed that, in making its decision, the board of directors,
which may include board members affected by the conflict of
interest, acted in good faith, and in any proceeding brought by
or on behalf of any limited partner or the partnership, the
person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption. These standards reduce
the obligations to which our general partner would otherwise be
held.
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner, its affiliates and
their officers and directors will not be liable for monetary
damages to us or our limited partners for errors of judgment or
for any acts or omissions unless there has been a final and
non-appealable judgment by a court of competent jurisdiction
determining that our general partner, such affiliate or such
person acted in bad faith or engaged in fraud or willful
misconduct or, in the case of a criminal matter, acted with
knowledge that the conduct was criminal.
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In order to become one of our limited partners, a common
unitholder is required to agree to be bound by the provisions in
the partnership agreement, including the provisions discussed
above. Please read Description of the Common
Units Transfer of Common Units. This is in
accordance with the policy of the Delaware Act favoring the
principle of freedom of contract and the enforceability of
partnership agreements. The failure of a limited partner to sign
our partnership agreement does not render the partnership
agreement unenforceable against that person.
Under the partnership agreement, we must indemnify our general
partner and its officers, directors and managers, to the fullest
extent permitted by law, against liabilities, costs and expenses
incurred by our general partner or these other persons. We must
provide this indemnification unless there has been a final and
non- appealable judgment by a court of competent jurisdiction
determining that these persons acted in bad faith or engaged in
fraud or willful misconduct. We also must provide this
indemnification for criminal proceedings unless our general
partner or these other persons acted with knowledge that their
conduct was unlawful. Thus, our general partner could be
indemnified for its negligent acts if it meets the requirements
set forth above. To the extent that these provisions purport to
include indemnification for liabilities arising under the
Securities Act, in the opinion of the SEC such indemnification
is contrary to public policy and therefore unenforceable. If you
have questions regarding the fiduciary duties of our general
partner please read The Partnership Agreement
Indemnification.
MATERIAL
TAX CONSIDERATIONS
This section is a discussion of the material tax considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States and,
unless otherwise noted in the following discussion, is the
opinion of Andrews Kurth LLP, counsel to our general partner and
us, insofar as it relates to matters of United States
federal income tax law and legal conclusions with respect to
those matters. This section is based upon current provisions of
the Internal Revenue Code of 1986, as amended (Internal
Revenue Code), existing and proposed regulations and
current administrative rulings and court decisions, all of which
are subject to change. Later changes in these authorities may
cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise
requires, references in this section to us or
we are references to Williams Partners L.P. and our
operating company.
The following discussion does not address all federal income tax
matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs), employee
benefit plans or mutual funds. Accordingly, we urge each
prospective unitholder to consult, and depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax
consequences particular to him of the ownership or disposition
of the common units.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions and advice of Andrews Kurth LLP. Unlike a
ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made in
this discussion may not be sustained by a court if contested by
the IRS. Any contest
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of this sort with the IRS may materially and adversely impact
the market for the common units and the prices at which the
common units trade. In addition, the costs of any contest with
the IRS, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our
unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Andrews Kurth LLP and are
based on the accuracy of the representations made by us and our
general partner.
For the reasons described below, Andrews Kurth LLP has not
rendered an opinion with respect to the following specific
federal income tax issues:
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the treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of common units (please read
Tax Consequences of Unit Ownership
Treatment of Short Sales);
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whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (please
read Disposition of Common Units
Allocations Between Transferors and Transferees); and
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whether our method for depreciating Section 743 adjustments
is sustainable in certain cases (please read
Tax Consequences of Unit Ownership
Section 754 Election and Uniformity
of Units).
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Partnership
Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable to the
partner unless the amount of cash distributed is in excess of
the partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists with respect to
publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of qualifying
income. Qualifying income includes income and gains
derived from the transportation, storage and processing of crude
oil, natural gas and products thereof. Other types of qualifying
income include interest (other than from a financial business),
dividends, gains from the sale of real property and gains from
the sale or other disposition of capital assets held for the
production of income that otherwise constitutes qualifying
income. We estimate that less than 3% of our current gross
income is not qualifying income; however, this estimate could
change from time to time. Based on and subject to this estimate,
the factual representations made by us and our general partner
and a review of the applicable legal authorities, Andrews Kurth
LLP is of the opinion that at least 90% of our current gross
income constitutes qualifying income. The portion of our income
that is qualifying income can change from time to time.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status for federal income
tax purposes or whether our operations generate qualifying
income under Section 7704 of the Internal Revenue
Code. Instead, we will rely on the opinion of Andrews Kurth LLP
that, based upon the Internal Revenue Code, its regulations,
published revenue rulings and court decisions and the
representations described below, we will be classified as a
partnership and our operating company will be disregarded as an
entity separate from us for federal income tax purposes.
In rendering its opinion, Andrews Kurth LLP has relied on
factual representations made by us and our general partner. The
representations made by us and our general partner upon which
Andrews Kurth LLP has relied include:
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Neither we nor our operating company has elected or will elect
to be treated as a corporation; and
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For each taxable year, more than 90% of our gross income has
been and will be income that Andrews Kurth LLP has opined or
will opine is qualifying income within the meaning
of Section 7704(d) of the Internal Revenue Code.
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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, we will be
treated as if we had transferred all of our assets, subject to
liabilities, to a newly formed corporation, on the first day of
the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of
their interests in us. This deemed contribution and liquidation
would be tax-free to unitholders and us so long as we, at that
time, do not have liabilities in excess of the tax basis of our
assets. Thereafter, we would be treated as a corporation for
federal income tax purposes.
If we were taxable as a corporation in any taxable year, either
as a result of a failure to meet the Qualifying Income Exception
or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being
passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution
made by us to a unitholder would be treated as either taxable
dividend income, to the extent of our current or accumulated
earnings and profits, or, in the absence of earnings and
profits, a nontaxable return of capital, to the extent of the
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on Andrews Kurth LLPs
opinion that we will be classified as a partnership for federal
income tax purposes.
Limited
Partner Status
Unitholders who have become limited partners of Williams
Partners L.P. will be treated as partners of Williams Partners
L.P. for federal income tax purposes. Also, unitholders whose
common units are held in street name or by a nominee and who
have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common
units will be treated as partners of Williams Partners L.P. for
federal income tax purposes.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit Ownership
Treatment of Short Sales.
Items of our income, gain, loss or deduction would not appear to
be reportable by a unitholder who is not a partner for federal
income tax purposes, and any cash distributions received by a
unitholder who is not a partner for federal income tax purposes
would therefore appear to be fully taxable as ordinary income.
These holders are urged to consult their own tax advisors with
respect to their tax consequences of holding common units in
Williams Partners L.P. for federal income tax purposes. The
references to unitholders in the discussion that
follows are to persons who are treated as partners in Williams
Partners L.P. for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-through
of Taxable Income
We do not pay any federal income tax. Instead, each unitholder
will be required to report on his income tax return his share of
our income, gains, losses and deductions without regard to
whether corresponding cash distributions are received by him.
Consequently, we may allocate income to a unitholder even if he
has not received a cash distribution. Each unitholder will be
required to include in income his allocable share of our income,
gains, losses and deductions for our taxable year or years
ending with or within his taxable year. Our taxable year ends on
December 31.
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Treatment
of Distributions
Distributions by us to a unitholder generally will not be
taxable to the unitholder for federal income tax purposes,
except to the extent the amount of any such cash distribution
exceeds his tax basis in his common units immediately before the
distribution. Our cash distributions in excess of a
unitholders tax basis in his common units generally will
be considered to be gain from the sale or exchange of the common
units, taxable in accordance with the rules described under
Disposition of Common Units below. Any
reduction in a unitholders share of our liabilities for
which no partner, including our general partner, bears the
economic risk of loss, known as nonrecourse
liabilities, will be treated as a distribution of cash to
that unitholder. To the extent our distributions cause a
unitholders at risk amount to be less than
zero at the end of any taxable year, he must recapture any
losses deducted in previous years. Please read
Limitations on Deductibility of Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash, which may
constitute a non-pro rata distribution. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in Section 751 of the Internal Revenue Code, and
collectively, Section 751 Assets. To that
extent, he will be treated as having been distributed his
proportionate share of the Section 751 Assets and having
then exchanged those assets with us in return for the non-pro
rata portion of the actual distribution made to him. This latter
deemed exchange will generally result in the unitholders
realization of ordinary income, which will equal the excess of
the non-pro rata portion of that distribution over the
unitholders tax basis for the share of Section 751
Assets deemed relinquished in the exchange.
Basis
of Common Units
A unitholders initial tax basis for his common units will
be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his
share of our income and by any increases in his share of our
nonrecourse liabilities. That basis generally will be decreased,
but not below zero, by distributions from us, by the
unitholders share of our losses, by any decreases in his
share of our nonrecourse liabilities and by his share of our
expenditures that are not deductible in computing taxable income
and are not required to be capitalized. A unitholder will have
no share of our debt that is recourse to our general partner to
the extent of the general partners net value
as defined in regulations under Section 752 of the Internal
Revenue Code, but will have a share, generally based on his
share of profits, of our nonrecourse liabilities. Please read
Disposition of Common Units
Recognition of Gain or Loss.
Limitations
on Deductibility of Losses
The deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholders stock is
owned directly or indirectly by or for five or fewer individuals
or some tax-exempt organizations, to the amount for which the
unitholder is considered to be at risk with respect
to our activities, if that amount is less than his tax basis. A
unitholder subject to these limitations must recapture losses
deducted in previous years to the extent that distributions
cause his at risk amount to be less than zero at the end of any
taxable year. Losses disallowed to a unitholder or recaptured as
a result of these limitations will carry forward and will be
allowable as a deduction in a later year to the extent that his
tax basis or at risk amount, whichever is the limiting factor,
is subsequently increased, provided such losses are otherwise
allowable. Upon the taxable disposition of a unit, any gain
recognized by a unitholder can be offset by losses that were
previously suspended by the at risk limitation but may not be
offset by losses suspended by the basis limitation. Any excess
loss above that gain previously suspended by the at risk or
basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by (i) any portion of that basis representing
amounts otherwise protected against loss because of a guarantee,
stop loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an
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interest in us, is related to another unitholder who has an
interest in us or can look only to the units for repayment. A
unitholders at risk amount will increase or decrease as
the tax basis of the unitholders units increases or
decreases, other than tax basis increases or decreases
attributable to increases or decreases in his share of our
nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations are permitted to deduct losses from passive
activities, which are generally trade or business activities in
which the taxpayer does not materially participate, only to the
extent of the taxpayers income from those passive
activities. The passive loss limitations are applied separately
with respect to each publicly traded partnership. Consequently,
any passive losses we generate will only be available to offset
our passive income generated in the future and will not be
available to offset income from other passive activities or
investments, including our investments or investments in other
publicly traded partnerships, or a unitholders salary or
active business income. Passive losses that are not deductible
because they exceed a unitholders share of income we
generate may be deducted in full when the unitholder disposes of
his entire investment in us in a fully taxable transaction with
an unrelated party. The passive loss limitations are applied
after other applicable limitations on deductions, including the
at risk rules and the basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations
on Interest Deductions
The deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly traded
partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-Level Collections
If we are required or elect under applicable law to pay any
federal, state, local or foreign income tax on behalf of any
unitholder or our general partner or any former unitholder, we
are authorized to pay those taxes from our funds. That payment,
if made, will be treated as a distribution of cash to the
unitholder on whose behalf the payment was made. If the payment
is made on behalf of a person whose identity cannot be
determined, we are authorized to treat the payment as a
distribution to all current unitholders. We are authorized to
amend our partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units
and to adjust later distributions, so that after giving effect
to these distributions, the priority and characterization of
distributions otherwise applicable under our partnership
agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax
on behalf of an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain
a credit or refund.
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Allocation
of Income, Gain, Loss and Deduction
In general, if we have a net profit, our items of income, gain,
loss and deduction will be allocated among our general partner
and the unitholders in accordance with their percentage
interests in us. At any time that distributions are made to the
common units in excess of distributions to the subordinated
units, or incentive distributions are made to our general
partner, gross income will be allocated to the recipients to the
extent of these distributions. If we have a net loss for the
entire year, that loss will be allocated first to our general
partner and the unitholders in accordance with their percentage
interests in us to the extent of their positive capital accounts
and, second, to our general partner.
Specified items of our income, gain, loss and deduction will be
allocated under Section 704(c) of the Internal Revenue Code
to account for the difference between the tax basis and fair
market value of our assets at the time we issue units in an
offering, referred to in this discussion as Contributed
Property. The effect of these allocations to a unitholder
purchasing common units in such offering will be essentially the
same as if the tax basis of Contributed Property was equal to
its fair market value at the time of such offering. In the event
we issue additional common units or engage in certain other
transactions in the future, reverse Section 704(c)
allocations, similar to the Section 704(c)
allocations described above, will be made to all holders of
partnership interests, including purchasers of common units in
such offering, to account for the difference, at the time of the
future transaction, between the book basis for
purposes of maintaining capital accounts and the fair market
value of all property held by us at the time of the future
transaction. In addition, items of recapture income will be
allocated to the extent possible to the unitholder who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in such amount and manner as is needed to eliminate
the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow and other
nonliquidating distributions; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Andrews Kurth LLP is of the opinion that, with the exception of
the issues described in Tax Consequences of
Unit Ownership Section 754 Election,
Uniformity of Units and
Disposition of Common Units
Allocations Between Transferors and Transferees,
allocations under our partnership agreement will be given effect
for federal income tax purposes in determining a partners
share of an item of income, gain, loss or deduction.
Treatment
of Short Sales
A unitholder whose units are loaned to a short
seller to cover a short sale of units may be considered as
having disposed of those units. If so, 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:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Andrews Kurth LLP has not rendered an opinion regarding the
treatment of a unitholder where common units are loaned to a
short seller to cover a short sale of common units; therefore,
unitholders desiring to assure their status as partners and
avoid the risk of gain recognition from a loan to a short seller
are urged to modify any applicable brokerage account agreements
to prohibit their brokers from loaning their units. The IRS has
announced that it is studying issues relating to the tax
treatment of short sales of partnership interests. Please also
read Disposition of Common Units
Recognition of Gain or Loss.
Alternative
Minimum Tax
Each unitholder will be required to take into account his
distributive share of any items of our income, gain, loss or
deduction for purposes of the alternative minimum tax. The
current minimum tax rate for 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 as to the impact of an
investment in units on their liability for the alternative
minimum tax.
Tax
Rates
In general, the highest effective United States federal income
tax rate for individuals is currently 35% and the maximum United
States federal income tax rate for net capital gains of an
individual is currently 15% if the asset disposed of was a
capital asset held for more than 12 months at the time of
disposition. However, absent new legislation extending the
current rates, beginning January 1, 2011, the highest
marginal United States federal income tax rate applicable to
ordinary income and long-term capital gains of individuals will
increase to 39.6% and 20%, respectively.
Section 754
Election
We have made the election permitted by Section 754 of the
Internal Revenue Code. That election is irrevocable without the
consent of the IRS. The election will generally permit us to
adjust a common unit purchasers tax basis in our assets
(inside basis) under Section 743(b) of the
Internal Revenue Code to reflect his purchase price. This
election does not apply to a person who purchases common units
directly from us. The Section 743(b) adjustment belongs to
the purchaser and not to other unitholders. For purposes of this
discussion, a unitholders inside basis in our assets will
be considered to have two components: (1) his share of our
tax basis in our assets (common basis) and
(2) his Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we have
adopted), Treasury Regulations under Section 743 of the
Internal Revenue Code require a portion of the
Section 743(b) adjustment attributable to recovery property
under Section 168 of the Internal Revenue Code to be
depreciated over the remaining cost recovery period for the
propertys unamortized Book-Tax Disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. Under our partnership agreement, our general partner is
authorized to take a position to preserve the uniformity of
units even if that position is not consistent with these
Treasury Regulations. Please read Uniformity
of Units.
Although Andrews Kurth LLP is unable to opine as to the validity
of this approach because there is no controlling authority on
this issue, we intend to depreciate the portion of a
Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the unamortized
Book-Tax Disparity of the property, or treat that portion as
non-amortizable
to the extent attributable to property the common basis of which
is not amortizable. This method is consistent with the Treasury
Regulations under Section 743 of the Internal Revenue Code
but is arguably inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all
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purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our assets. This kind of aggregate approach may result in lower
annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Units.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation deductions and his share of any
gain or loss on a sale of our assets would be less. Conversely,
a Section 754 election is disadvantageous if the
transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in
loss immediately after the transfer, or if we distribute
property and have a substantial basis reduction. Generally a
basis reduction or a built-in loss is substantial if it exceeds
$250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment we allocated to our tangible
assets to goodwill instead. Goodwill, an intangible asset, is
generally either nonamortizable or amortizable over a longer
period of time or under a less accelerated method than our
tangible assets. We cannot assure you that the determinations we
make will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
Tax
Treatment of Operations
Accounting
Method and Taxable Year
We use the year ending December 31 as our taxable year and the
accrual method of accounting for federal income tax purposes.
Each unitholder will be required to include in income his share
of our income, gain, loss and deduction for our taxable year or
years ending within or with his taxable year. In addition, a
unitholder who has a taxable year different than our taxable
year and who disposes of all of his units following the close of
our taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees.
Initial
Tax Basis, Depreciation and Amortization
The tax basis of our assets is 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 the time we issue units in an offering will be borne by our
general partner, its affiliates and our unitholders as of that
time. Please read Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. Property we subsequently acquire or construct
may be depreciated using accelerated methods permitted by the
Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all
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of those deductions as ordinary income upon a sale of his
interest in us. Please read Tax Consequences
of Unit Ownership Allocation of Income, Gain, Loss
and Deduction and Disposition of Common
Units Recognition of Gain or Loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which we may be able to amortize, and as
syndication expenses, which we may not amortize. 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 tax bases, of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for
prior years and incur interest and penalties with respect to
those adjustments.
Disposition
of Common Units
Recognition
of Gain or Loss
Gain or loss will be recognized on a sale of units equal to the
difference between the unitholders amount realized and the
unitholders tax basis for the units sold. A
unitholders amount realized will be measured by the sum of
the cash or the fair market value of other property received by
him plus his share of our nonrecourse liabilities attributable
to the common units sold. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than 12 months
will generally be taxed at a maximum rate of 15% through
December 31, 2010 and 20% thereafter (absent legislation
extending the current rates). However, a portion of this gain or
loss, which will likely be substantial, will be separately
computed and taxed as ordinary income or loss under
Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or
other unrealized receivables or to inventory
items we own. The term unrealized receivables
includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized
receivables, inventory items and depreciation recapture may
exceed net taxable gain realized 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
ordinary income and a capital loss upon a sale of units. Net
capital losses may offset capital gains and no more than $3,000
of ordinary income each year, in the case of individuals, and
may only be used to offset capital gains in the case of
corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under
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Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an
ascertainable holding period to elect to use the actual holding
period of the common units transferred. Thus, according to the
ruling, a common unitholder will be unable to select high or low
basis common units to sell as would be the case with corporate
stock, but, according to the Treasury Regulations, may designate
specific common units sold for purposes of determining the
holding period of units transferred. A unitholder electing to
use the actual holding period of common units transferred must
consistently use that identification method for all subsequent
sales or exchanges of common units. A unitholder considering the
purchase of additional units or a sale of common units purchased
in separate transactions is urged to consult his tax advisor as
to the possible consequences of this ruling and application of
the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations
Between Transferors and Transferees
In general, our taxable income 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,
which we refer to in this discussion as the Allocation
Date. However, gain or loss realized on a sale or other
disposition of our assets other than in the ordinary course of
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations. Accordingly, Andrews Kurth LLP is unable
to opine on the validity of this method of allocating income and
deductions between unitholders. We use this method because it is
not administratively feasible to make these allocations on a
more frequent basis. 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
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 owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification
Requirements
A unitholder who sells any of his units, other than through a
broker, generally is required to notify us in writing of that
sale within 30 days after the sale (or, if earlier, January
15 of the year following the sale). A purchaser of units who
purchases units from another unitholder is generally required to
notify us in writing of that purchase within 30 days after
the purchase. 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
46
penalties. However, these reporting requirements do not apply to
a sale by an individual who is a citizen of the United States
and who effects the sale or exchange through a broker who will
satisfy such requirements.
Constructive
Termination
We will be considered to have been terminated for tax purposes
if there are sales or exchanges which, in the aggregate,
constitute 50% or more of the total interests in our capital and
profits within a
12-month
period. A constructive termination results in the closing of our
taxable year for all unitholders. In the case of a unitholder
reporting on a taxable year different from our taxable year, the
closing of our taxable year may result in more than
12 months of our taxable income or loss being includable in
his taxable income for the year of termination. A constructive
termination occurring on a date other than December 31 will
result in us filing two tax returns for one fiscal year and the
cost of preparation of these returns will be borne by all
unitholders. We would be required to make new tax elections
after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination.
Uniformity
of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax Consequences of
Unit Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the unamortized Book-Tax Disparity of that
property, or treat that portion as nonamortizable, to the extent
attributable to property which is not amortizable, consistent
with the Treasury Regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury Regulation Section
1.167(c)-1(a)(6), which is not expected to directly apply to a
material portion of our assets. Please read
Tax Consequences of Unit Ownership
Section 754 Election. To the extent that the
Section 743(b) adjustment is attributable to appreciation
in value in excess of the unamortized Book-Tax Disparity, we
will apply the rules described in the Treasury Regulations and
legislative history. If we determine that this position cannot
reasonably be taken, we may adopt a depreciation and
amortization position under which all purchasers acquiring units
in the same month would receive depreciation and amortization
deductions, whether attributable to a common basis or
Section 743(b) adjustment, based upon the same applicable
rate as if they had purchased a direct interest in our property.
If this position is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be
allowable to some unitholders and risk the loss of depreciation
and amortization deductions not taken in the year that these
deductions are otherwise allowable. This position will not be
adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on
the unitholders. If we choose not to utilize this aggregate
method, we may use any other reasonable depreciation and
amortization method to preserve the uniformity of the intrinsic
tax characteristics of any units that would not have a material
adverse effect on the unitholders. Our counsel, Andrews Kurth
LLP, is unable to opine on the validity of any of these
positions. The IRS may challenge any method of depreciating the
Section 743(b) adjustment described in this paragraph. If
this challenge were sustained, the uniformity of units might be
affected, and the gain from the sale of units might be increased
without the benefit of additional deductions. Please read
Disposition of Common Units
Recognition of Gain or Loss.
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Tax-Exempt
Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations and
other foreign persons raises issues unique to those investors
and, as described below, may have substantially adverse tax
consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence, they will be required to file federal tax returns
to report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold tax at the highest
applicable effective tax rate from cash distributions made
quarterly to foreign unitholders. Each foreign unitholder must
obtain a taxpayer identification number from the IRS and submit
that number to our transfer agent on a
Form W-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
that is effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or
otherwise disposes of a unit will be subject to federal income
tax on gain realized on the sale or disposition of that unit to
the extent that this gain is effectively connected with a United
States trade or business of the foreign unitholder. Because a
foreign unitholder is considered to be engaged in a trade or
business in the United States by virtue of the ownership of the
common units, under this ruling, a foreign unitholder who sells
or otherwise disposes of a common unit generally will be subject
to federal income tax on gain realized on the sale or other
disposition of the common units. Apart from the ruling, a
foreign unitholder will not be taxed or subject to withholding
upon the sale or disposition of a unit if he has owned less than
5% in value of the units during the five-year period ending on
the date of the disposition and if the units are regularly
traded on an established securities market at the time of the
sale or disposition.
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 each unitholders share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
counsel, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to
determine each unitholders share of income, gain, loss and
deduction. We cannot assure you that those positions will in all
cases yield a result that conforms to the requirements of the
Internal Revenue Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Andrews Kurth LLP can
assure prospective unitholders that the IRS will not
successfully contend in court that those positions are
impermissible. Any challenge by the IRS could negatively affect
the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return.
Any audit of a unitholders return could result in
adjustments not related to our returns as well as those related
to our returns.
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Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. The partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against unitholders for items in our returns.
The Tax Matters Partner may bind a unitholder with less than a
1% profits interest in us to a settlement with the IRS unless
that unitholder elects, by filing a statement with the IRS, not
to give that authority to the Tax Matters Partner. The Tax
Matters Partner may seek judicial review, by which all the
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate in that action.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee
Reporting
Persons who hold an interest in us as a nominee for another
person are required to furnish to us:
(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee,
(b) whether the beneficial owner is:
(1) a person that is not a United States person
(2) a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing; or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and
(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per failure, up
to a maximum of $100,000 per calendar year, is imposed by the
Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of
the units with the information furnished to us.
Accuracy-Related
Penalties
An additional tax equal to 20% of the amount of any portion of
an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and
substantial valuation misstatements, is imposed by the Internal
Revenue Code. No penalty will be imposed, however, for any
portion of an underpayment if it is shown that there was a
reasonable cause for that portion and that the taxpayer acted in
good faith regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
(a) for which there is, or was, substantial
authority; or
(b) as to which there is a reasonable basis if the
pertinent facts of that position are adequately disclosed on the
return.
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If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules apply
to tax shelters which we do not believe includes us.
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 Internal Revenue 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 Internal Revenue Code
Section 482 transfer price adjustment for the taxable year
exceeds the lesser of $5 million or 10% of the
taxpayers gross receipts. No penalty is imposed unless the
portion of the underpayment attributable to a substantial
valuation misstatement exceeds $5,000 ($10,000 for most
corporations). The penalty is increased to 40% in the event of a
gross valuation misstatement. We do not anticipate making any
valuation misstatements.
Reportable
Transactions
If we were to engage in a reportable transaction, we
(and possibly you and others) would be required to make a
detailed disclosure of the transaction to the IRS. A transaction
may be a reportable transaction based upon any of several
factors, including the fact that it is a type of tax avoidance
transaction publicly identified by the IRS as a listed
transaction or a transaction of interest or
that it produces certain kinds of losses in excess of
$2 million in any single 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 your tax
return) would be audited by the IRS. Please read
Information Returns and Audit Procedures
above.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties,
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability, and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
State,
Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We
currently own property or conduct business in a number of
states. Most of these states impose an income tax on
individuals, corporations and other entities. We may also own
property or do business in other jurisdictions in the future.
Although you may not be required to file a return and pay taxes
in some jurisdictions because your income from that jurisdiction
falls below the filing and payment requirement, you will be
required to file income tax returns and to pay income taxes in
many of the jurisdictions in which we do business or own
property and may be subject to penalties for failure to comply
with those requirements. In some jurisdictions, tax losses may
not produce a tax benefit in the year incurred and may not be
available to offset income in subsequent taxable years. Some
jurisdictions may require us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a
unitholder who is not a resident of the jurisdiction.
Withholding, the amount of which may be greater or less than a
particular unitholders income tax liability to the
jurisdiction, generally does not relieve a
50
nonresident unitholder from the obligation to file an income tax
return. Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax Consequences of Unit
Ownership Entity-Level Collections. Based
on current law and our estimate of our future operations, our
general partner anticipates that any amounts required to be
withheld will not be material.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend on, his
own tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as United States federal tax
returns, that may be required of him. Andrews Kurth LLP has not
rendered an opinion on the state, local or foreign tax
consequences of an investment in us.
Tax
Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of
the acquisition, ownership and disposition of debt securities
will be set forth in the prospectus supplement relating to the
offering of debt securities.
INVESTMENT
IN WILLIAMS PARTNERS L.P. BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of these plans
are usually subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and may also be
subject to similar or additional restrictions imposed by 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,
so-called Keogh plans, simplified employee pension
plans, tax deferred annuities or IRAs, and trusts that fund
medical and other benefits for employees. Among other things,
consideration should be given to:
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whether the investment is consistent with the requirements of
Section 404 of ERISA, which include that plan investments
(i) must be solely in the interest of participants and
beneficiaries, (ii) must be prudent, (iii) must
consider diversification of the plans assets, and
(iv) must be consistent with the plans governing
documents;
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whether the investment is consistent with the requirements of
the Internal Revenue Code, or will result in recognition of
unrelated business taxable income by the plan and, if so, the
potential after-tax investment return. Please read
Material Tax Considerations Tax-Exempt
Organizations and Other Investors.
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The person with investment discretion with respect to the assets
of an employee benefit plan, often called a fiduciary, should
determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for
the plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit employee benefit plans and IRAs from
engaging in specified transactions involving plan
assets with parties that are parties in
interest (under ERISA) or disqualified persons
(under the Internal Revenue Code) with respect to the plan.
These transactions are called prohibited
transactions, and could result in fiduciary liability and
other monetary penalties.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary of an employee benefit
plan should consider whether the plan will, by investing in us,
be deemed to own an undivided interest in our assets, with the
result that our operations would be subject to the regulatory
restrictions of ERISA. For this purpose, the Department of Labor
regulations provide guidance with respect to whether the assets
of an entity in which employee benefit plans acquire equity
interests would be deemed plan assets under some
circumstances. Under these regulations, an entitys assets
would not be considered to be plan assets if, among
other things:
(a) the equity interests acquired by employee benefit plans
are publicly offered securities i.e., the equity
interests are widely held by 100 or more investors independent
of the issuer and each other, freely transferable and registered
under some provisions of the federal securities laws;
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(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 are held by employee
benefit plans (as defined in Section 3(3) of ERISA) subject
to Part 4 of Title I of ERISA, any plan to which
Section 4975 of the Internal Revenue Code applies, and any
entity whose underlying assets include plan assets by reason of
a plans investment in such entity.
Our assets should not be considered plan assets
under these regulations because it is expected that the
investment will satisfy the requirements in (a) above.
Plan fiduciaries contemplating a purchase of common units should
consult with their own counsel regarding the consequences under
ERISA and the Internal Revenue Code in light of the serious
penalties imposed on persons who engage in prohibited
transactions or other violations
PLAN OF
DISTRIBUTION
We may sell the securities being offered hereby directly to
purchasers, through agents, through underwriters or through
dealers.
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 the agents involved in the offer or
sale of the securities and describe any commissions payable by
us to these agents in the prospectus supplement. These agents
may act on a best efforts basis for the period of their
appointment. The agents may be entitled under agreements they
may enter into with us to indemnification by us against
specified 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 use any underwriters in the sale of the securities in
respect of which this prospectus is delivered, we will enter
into an underwriting agreement with those underwriters at the
time of sale to them. We will set forth the names of the
underwriters and the terms of the transaction in a 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 may indemnify the underwriters under
the underwriting agreement against specified liabilities,
including liabilities under the Securities Act. The underwriters
may also be our customers or may engage in transactions with or
perform services for us in the ordinary course of business.
If we use a dealer in the sale of the securities in respect of
which this prospectus is delivered, we will sell those
securities to the dealer, as principal. The dealer may then
resell those securities to the public at varying prices to be
determined by the dealer at the time of resale. We may indemnify
the dealers against specified liabilities, including liabilities
under the Securities Act. The dealers may also be our customers
or may engage in transactions with or perform services for us in
the ordinary course of business.
We may also sell common units and debt securities directly. In
this case, no underwriters or agents would be involved. We may
use electronic media, including the Internet, to sell offered
securities directly.
We will fix the price or prices of our securities at:
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market prices prevailing at the time of sale;
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prices related to market prices; or
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negotiated prices.
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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.
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Because the Financial Industry Regulatory Authority (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 FINRA Conduct Rule 2310.
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a particular 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 over-allot in connection
with offerings, creating a short position in the securities for
their own accounts. For the purpose of covering a syndicate
short position or stabilizing the price of the securities, the
underwriters, brokers or dealers may place bids for the
securities or effect purchases of the securities in the open
market. Finally, the underwriters may impose a penalty whereby
selling concessions allowed to syndicate members or other
brokers or dealers for distribution 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.
LEGAL
MATTERS
Unless otherwise specified in the prospectus supplement
accompanying this prospectus Andrews Kurth LLP will provide
opinions regarding the authorization and validity of the
securities for us, and for any underwriter or agent by counsel
as named in the applicable prospectus supplement.
EXPERTS
The consolidated financial statements of Williams Partners L.P.
for the year ended December 31, 2008, appearing in our
Current Report on
Form 8-K
filed on October 28, 2009, and the effectiveness of
Williams Partners L.P.s internal control over financial
reporting as of December 31, 2008, appearing in our Annual
Report on
Form 10-K,
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their reports
thereon included therein and incorporated herein by reference,
and are incorporated herein by reference in reliance upon such
reports given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Discovery Producer
Services LLC for the year ended December 31, 2008,
appearing in our Annual Report on
Form 10-K
for the year ended December 31, 2008, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon included
therein and incorporated herein by reference, and are
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Wamsutter LLC for the year ended
December 31, 2008, appearing in our Annual Report on
Form 10-K
for the year ended December 31, 2008, have been audited by
Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein
by reference, and are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated balance sheet of Williams Partners GP LLC as of
December 31, 2008, appearing in our Current Report on
Form 8-K
filed on October 28, 2009, has been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon included
therein and incorporated herein by reference, and is
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
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WILLIAMS PARTNERS L.P.
$ % Senior
Notes due
PRELIMINARY PROSPECTUS
SUPPLEMENT
Joint Book-Running Managers
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Deutsche
Bank Securities |
J.P. Morgan |
RBC Capital Markets |
Co-Managers
Mitsubishi UFJ
Securities
Mizuho Securities USA
Inc.
TD Securities
The Williams Capital Group,
L.P.
US Bancorp
November , 2010