As filed with the Securities and Exchange Commission on November 30, 2016
Registration No. 333-208052
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Valero Energy
Partners LP
(Exact name of registrant as specified in its charter)
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Delaware
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90-1006559
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification Number)
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One Valero Way
San Antonio, Texas 78249
(210) 345-2000
(
Address, including zip code, and telephone number, including area code, of registrants principal executive offices
)
Jay D. Browning
Executive
Vice President and General Counsel
Valero Energy Partners LP
One Valero Way
San
Antonio, Texas 78249
(210) 345-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service
)
Copy to:
Gerald M.
Spedale
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713)
229-1234
Approximate date of commencement of proposed sale to the public
:
From time to time after this registration statement becomes
effective.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans,
please check the following box. ☐
If any of the securities being registered on this Form are being offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following
box. ☒
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D.
filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐ (Do not check if a smaller reporting company)
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Smaller reporting company
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☐
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CALCULATION OF REGISTRATION FEE
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Title of each class of
securities to be registered
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Amount
to be
registered
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Proposed
maximum
offering price
per unit
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Proposed
maximum
aggregate
offering price
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Amount of
registration fee(1)
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Common Units Representing Limited Partner Interests
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Preferred Units Representing Limited Partner
Interests
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Debt Securities
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(1)
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An indeterminate aggregate offering price or principal amount or number of the securities is being registered as may be offered from time to time at indeterminate prices. In accordance with Rules 456(b) and 457(r) of
the Securities Act of 1933, which we refer to as the Securities Act, the registrant is deferring payment of all of the registration fees, which will be paid from time to time in connection with one or more offerings of securities to be made
hereunder.
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Explanatory Note
This registration statement is a post-effective amendment to the registration statement on Form S-3 (File No. 333-208052) of Valero
Energy Partners LP (the Registrant) filed with the Securities and Exchange Commission (the SEC) on November 16, 2015 (the Registration Statement). The Registrant previously registered an unlimited number and
amount of common units representing limited partner interests in the Registration Statement. This post-effective amendment to the Registration Statement is being filed for the purpose of (i) registering additional securities pursuant to Rule
413(b) of the Securities Act of 1933 and (ii) filing additional exhibits to the Registration Statement. This post-effective amendment shall become effective immediately upon filing with the SEC. A prospectus to be used in connection with
offerings of the securities registered hereby is included in this Registration Statement.
PROSPECTUS
Common Units
Preferred Units
Debt
Securities
We may offer, from time to time, the following securities under this prospectus:
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common units representing limited partner interests in Valero Energy Partners LP;
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preferred units representing limited partner interests in Valero Energy Partners LP; and
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debt securities of Valero Energy Partners LP.
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We may offer and sell our securities through
one or more underwriters, dealers or agents, or directly to purchasers, on a continuous or delayed basis.
This prospectus describes some
of the general terms that may apply to our securities. The specific terms of any offering of our securities will be included in a supplement to this prospectus.
Our common units are traded on the New York Stock Exchange under the symbol VLP.
Investing in our securities involves risks. You should carefully consider the risk factors described under
Risk Factors
beginning on page 2 of this prospectus 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 whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is November 30, 2016
TABLE OF CONTENTS
We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or
incorporated by reference in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the cover page of this prospectus or that any information we have incorporated by reference is accurate as of any date other than the date of the documents incorporated by reference. Our business,
financial condition, results of operations and prospects may have changed since those dates.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we have filed with the Securities and Exchange Commission (the
SEC) using a shelf registration process. Under this shelf registration process, we may sell, in one or more offerings, the securities described in this prospectus. This prospectus provides you with a general description of us
and our securities.
Each time we sell securities under this prospectus, we will provide a prospectus supplement that will contain
specific information about the terms of that offering. The prospectus supplement also may add to, update or change information in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information in the prospectus supplement. You should read carefully this prospectus, any prospectus supplement and the additional information described below under the heading Where You Can Find More
Information.
This prospectus contains summaries of certain provisions contained in some of the documents described herein, but
reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by reference to the actual documents. For additional information about our business, operations and financial results, please
read the documents incorporated by reference herein as described below in the section entitled Where You Can Find More Information.
As used in this prospectus, we, us and our and similar terms mean Valero Energy Partners LP and its
subsidiaries, unless the context indicates otherwise.
VALERO ENERGY PARTNERS LP
Valero Energy Partners LP (NYSE: VLP) is a fee-based master limited partnership formed by Valero Energy Corporation (NYSE: VLO)
(Valero) in July 2013 to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets.
Our general partner, Valero Energy Partners GP LLC, is a Delaware limited liability company and has ultimate responsibility for conducting our
business and managing our operations.
Our executive offices are located at One Valero Way, San Antonio, Texas 78249, and our telephone
number is (210) 345-2000.
RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the risks described in our filings with the SEC
referred to under the heading Where You Can Find More Information, as well as the risks included and incorporated by reference in this prospectus, including the risk factors incorporated by reference herein from our Annual Report on Form
10-K for the year ended December 31, 2015, as updated by annual, quarterly and other reports and documents we file with the SEC after the date of this prospectus and that are incorporated by reference herein. If any of these risks were to
occur, our business, financial condition or results of operations could be adversely affected. In that case, the trading price of our common units could decline and you could lose all or part of your investment. When we offer and sell our securities
pursuant to a prospectus supplement, we may include additional relevant risk factors in the prospectus supplement.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, any accompanying prospectus supplement and the documents
we incorporate by reference may contain forward-looking statements. You can identify our forward-looking
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statements by the words anticipate, believe, expect, plan, intend, estimate, project, projection,
predict, budget, forecast, goal, guidance, target, could, should, may, and similar expressions.
Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove
to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results and
trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to:
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the suspension, reduction, or termination of Valeros obligations under our commercial agreements and our services and secondment agreement;
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changes in global economic conditions and the effects of the global economic downturn on Valeros business and the business of its suppliers, customers, business partners, and credit lenders;
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a material decrease in Valeros profitability;
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disruptions due to equipment interruption or failure at our facilities, Valeros facilities, or third-party facilities on which our business or Valeros business is dependent;
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the risk of contract cancellation, non-renewal, or failure to perform by Valeros customers, and Valeros inability to replace such contracts and/or customers;
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Valeros ability to remain in compliance with the terms of its outstanding indebtedness;
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the timing and extent of changes in commodity prices and demand for Valeros refined petroleum products;
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our ability to obtain credit and financing on acceptable terms in light of uncertainty and illiquidity in credit and capital markets;
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actions of customers and competitors;
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changes in our cash flows from operations;
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state and federal environmental, economic, health and safety, energy, and other policies and regulations, including those related to climate change and any changes therein, and any legal or regulatory investigations,
delays, or other factors beyond our control;
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operational hazards inherent in refining operations and in transporting and storing crude oil and refined petroleum products;
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earthquakes or other natural disasters affecting operations;
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changes in capital requirements or in execution of planned capital projects;
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the availability and costs of crude oil, other refinery feedstocks, and refined petroleum products;
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changes in the cost or availability of third-party vessels, pipelines, and other means of delivering and transporting crude oil, feedstocks, and refined petroleum products;
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direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war;
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weather conditions affecting our or Valeros operations or the areas in which Valero markets its refined petroleum products;
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seasonal variations in demand for refined petroleum products;
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adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any accruals, which affect us or Valero;
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risks related to labor relations and workplace safety;
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changes in insurance markets impacting costs and the level and types of coverage available;
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political developments; and
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other factors set forth in this prospectus supplement and our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2015.
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Any one of these factors, or a combination of these factors, could materially affect our future results of operations and affect whether any
forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking
statements. We do not intend to update these statements unless we are required by the securities laws to do so.
All subsequent written
and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to publicly release any revisions to any such forward-looking statements
that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
Unless we specify otherwise in any prospectus supplement, we will use the net proceeds we receive from the sale of our 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.
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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.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated are as follows:
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Nine Months Ended
September 30, 2016
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Fiscal Year Ended December 31,(a)
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2015
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2014
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2013
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2012
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2011
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Ratio of earnings to fixed charges
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11.8
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9.4
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(b)
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(b)
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(b)
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(b)
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(a)
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Amounts have been retrospectively adjusted for the acquisitions of businesses under common control.
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(b)
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For the years ended December 31, 2011, 2012, 2013, and 2014, earnings were insufficient to cover fixed charges and the deficiency was $45.0 million, $36.5 million, $24.0 million and $32.8 million, respectively.
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We have computed the ratio of earnings to fixed charges by dividing earnings by fixed charges. For these purposes, earnings
consist of net income before income tax expense and fixed charges (excluding interest capitalized). Fixed charges consist of interest, whether expensed or capitalized, debt expense and one-third (the proportion deemed representative of the interest
factor) of rental expense.
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DESCRIPTION OF DEBT SECURITIES
The debt securities covered by this prospectus will be our general senior unsecured obligations. We will issue the debt securities under the
Indenture dated as of November 30, 2016 between us and U.S. Bank National Association, as trustee, which we refer to herein as the indenture. The terms of each series of debt securities issued pursuant to the indenture will be
established by a board resolution, and set forth in an officers certificate, or established in a supplemental indenture relating to such series. We have summarized selected provisions of the indenture and the debt securities below. This
summary is not complete. For a complete description, we encourage you to read the indenture. We have filed the indenture with the SEC, and we will include any other instrument establishing the terms of any debt securities we offer as exhibits to a
filing we will make with the SEC in connection with that offering. Please read Where You Can Find More Information.
In this
summary description of the debt securities, unless we state otherwise or the context clearly indicates otherwise, all references to we, us, or our are references to Valero Energy Partners LP only.
Ranking
The debt securities will
constitute senior debt and will rank equally with all of our unsecured and unsubordinated debt. The indenture does not limit the amount of debt securities that can be issued under the indenture or the amount of additional indebtedness we or any of
our subsidiaries may incur. We may issue debt securities under the indenture, as amended or supplemented, from time to time in one or more series, each in an amount we authorize prior to issuance. The trustee will authenticate and deliver debt
securities executed and delivered to it by us as set forth in the indenture, as amended or supplemented.
We are organized as a holding
company that owns subsidiary companies. Our subsidiary companies conduct substantially all of our business. The holding company structure results in two principal risks:
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Our subsidiaries may be restricted by contractual provisions or applicable laws from providing us the cash that we need to pay parent company debt service obligations, including payments on the debt securities.
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In any liquidation, reorganization or insolvency proceeding involving us, your claim as a holder of the debt securities will be effectively junior to the claims of holders of any indebtedness or preferred stock of our
subsidiaries.
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Terms
The prospectus supplement relating to any series of debt securities we are offering will include specific terms relating to that offering.
These terms will include some or all of the following:
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the title of the debt securities;
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any limit on the total principal amount of the debt securities;
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the date or dates on which the principal of the debt securities will be payable;
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any interest rate, or the method of determining the interest rate, on the debt securities, the date from which interest will accrue, interest payment dates and record dates;
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any right to defer interest payments by extending the interest payment periods and the duration of the extension;
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if other than as set forth in this prospectus, the place or places where payments on the debt securities will be payable;
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any optional redemption provisions;
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any sinking fund or other provisions that would obligate us to redeem or purchase the debt securities;
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any provisions for the remarketing of the debt securities;
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any changes or additions to the events of default or covenants;
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whether we will issue the debt securities in individual certificates to each holder in registered or bearer form, or in the form of temporary or permanent global securities held by a depositary on behalf of holders;
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the denominations in which we will issue the debt securities, if other than minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof;
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the terms of any right to convert debt securities into our common units or other securities or property;
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whether payments on the debt securities will be payable in foreign currency or currency units (including composite currencies) or another form;
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any provisions that would determine the amount of principal, premium, if any, or interest, if any, on the debt securities by references to an index or pursuant to a formula;
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the portion of the principal amount of the debt securities that will be payable if the maturity is accelerated, if other than the entire principal amount;
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any limit on our right to make distributions with respect to, redeem or purchase any of our limited partner interests; and
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any other terms of the debt securities not inconsistent with the indenture.
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We may sell the
debt securities at a discount, which may be substantial, below their stated principal amount. These debt securities may bear no interest or interest at a rate that at the time of issuance is below market rates. We will describe in the prospectus
supplement any material United States federal income tax consequences applicable to those securities.
If we sell any of the debt
securities for any foreign currency or currency unit or if payments on the debt securities are payable in any foreign currency or currency unit, we will describe in the prospectus supplement the restrictions, elections, tax consequences, specific
terms and other information relating to those debt securities and the foreign currency or currency unit.
Restrictive Covenants
We have agreed to two principal restrictions on our activities for the benefit of holders of the debt securities. Unless waived or amended, the
restrictive covenants summarized below will apply to a series of debt securities issued under the indenture as long as any of those debt securities is outstanding, unless the officers certificate or supplemental indenture for the series, along
with the prospectus supplement for the series, states otherwise. We have used in this summary description terms that we have defined below under Glossary.
Limitations on Liens
We have
agreed that when any debt securities are outstanding neither we nor any of our Subsidiaries will create or assume any liens upon any of our Principal Properties unless those debt securities are secured equally and ratably with or prior to the debt
secured by the lien. This covenant has exceptions that permit:
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subject to certain limitations, any lien created to secure all or part of the purchase price of any Principal Property or to secure a loan made to finance the acquisition of the Principal Property described in such
lien;
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subject to certain limitations, any lien existing on any Principal Property at the time of its acquisition or any lien created on Principal Property acquired or constructed by us not later than 12 months thereafter;
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subject to certain limitations, any lien created in connection with the operation or use of any Principal Property acquired or constructed by us and created within 12 months after the acquisition, construction or
commencement of full operations on the Principal Property;
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any mechanics or materialmens lien or any lien related to workmens compensation or other insurance;
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any lien arising by reason of deposits with or the giving of any form of security to any governmental agency, including for taxes and other governmental charges;
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liens for taxes or charges which are not delinquent or are being contested in good faith;
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liens due to zoning, planning and environmental laws and ordinances and governmental regulations; minor defects or irregularities in or encumbrances on the titles to properties which in the aggregate do not materially
impair the use of our Principal Property; easements, exceptions or reservations in any of our Principal Property granted or reserved for the purpose of pipelines, roads, telecommunication equipment and cable, streets, alleys, highways, railroad
purposes, the removal of oil, gas, coal or other minerals or timber, and other like purposes, or for the joint or common use of real property, facilities and equipment, which do not materially impair the use of our Principal Property, or materially
detract from the value of the Principal Property subject thereto;
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any judgment lien the execution of which has been stayed or which has been adequately appealed and secured;
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any lien incidental to the conduct of our business which was not incurred in connection with the borrowing of money or the obtaining of advances or credit and which does not materially interfere with the conduct of our
business;
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any lien on current assets created to secure indebtedness and letter of credit reimbursement obligations incurred in connection with the extension of working capital financing;
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any lien existing on the date of the indenture;
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liens incurred in connection with the borrowing of funds, if such funds are used within 120 days to repay indebtedness of at least an equal amount secured by a lien on our Principal Property having a fair market value
at least equal to the fair market value of the Principal Property securing the new lien;
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liens incurred within 90 days (or any longer period, not in excess of one year, as permitted by law) after acquisition of the Principal Property subject to such lien arising solely in connection with the transfer of tax
benefits in accordance with any provisions of law similar to former Section 168(f)(8) of the Internal Revenue Code of 1954; or
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subject to an aggregate limit of 15% of our Consolidated Net Tangible Assets, any liens not otherwise permitted by any of the other exceptions set forth in the indenture.
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Limitations on Sale/Leaseback Transactions
We have agreed that neither we nor our Subsidiaries will enter into any sale/leaseback transactions with regard to any Principal Property,
providing for the leasing back to us or a Subsidiary by a third party for a period of more than three years of any asset which has been or is to be sold or transferred by us or such Subsidiary to such third party or to any other person. This
covenant has exceptions that permit transactions of this nature under the following circumstances:
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we would be entitled, pursuant to the Limitations on Liens covenant described above, to incur indebtedness secured by a lien on the Principal Property to be leased, without equally and ratably securing the
debt securities then outstanding; or
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within 120 days after the effective date of such sale/leaseback transaction, we apply an amount equal to the value of such transaction, subject to certain limitations:
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to the voluntary retirement of Funded Debt that is not by its terms, subordinated to the debt securities, or
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to the purchase of another Principal Property.
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In addition, we are permitted to enter into
sale/leaseback transactions in an aggregate principal amount not exceeding, together with indebtedness secured by liens permitted by the last bullet discussed under the Limitations on Liens covenant described above, 15% of our
Consolidated Net Tangible Assets.
Glossary
We define the following terms in the indenture. We use them here with the same definitions. Generally accepted accounting principles should be
used to determine all items in this section, unless otherwise indicated.
Consolidated Net Tangible Assets means the total
amount of assets shown on a consolidated balance sheet of us and our Subsidiaries (excluding goodwill and other intangible assets), less all current liabilities (excluding notes payable, short-term debt and current portion of long-term debt and
capital lease obligations).
Funded Debt means generally any indebtedness for money borrowed, created, issued, incurred,
assumed or guaranteed which would be classified as long-term debt or capital lease obligations.
Principal Property means any
of our or our Subsidiaries pipeline, gathering system, terminal, storage facility, processing plant or other plant or facility located in the United States or any territory or political subdivision thereof owned or leased by us or any of our
Subsidiaries and used in the transportation, distribution, terminalling, gathering, treating, processing, marketing or storage of crude oil, natural gas, natural gas liquids and propane and refined petroleum products except (i) any property or
asset consisting of inventories, furniture, office fixtures and equipment (including data processing equipment), vehicles and equipment used on, or useful with, vehicles (but excluding vehicles that generate transportation revenues) and
(ii) any such property or asset, plant or terminal which, in the good faith opinion of the board of directors of our general partner as evidenced by resolutions of the board of directors of our general partner, is not of material importance to
the total business conducted by us and our Subsidiaries, taken as a whole.
Subsidiary means any entity of which at the time
of determination we or one or more of our Subsidiaries owns or controls directly or indirectly more than 50% of the shares of voting stock or the outstanding partnership or similar interests and any limited partnership (i) of which we or any
one of our Subsidiaries are a general partner and (ii) which is consolidated with us for financial reporting purposes.
Consolidation, Merger and
Sale
We have agreed in the indenture that we will consolidate with, or sell, lease or convey all or substantially all of our assets
to, or merge with or into any entity only if:
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(i) we are the continuing entity or (ii) if we are not the continuing entity, the successor is organized and existing under the laws of any United States jurisdiction and assumes all of our obligations under the
indenture and the debt securities; and
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in either case, immediately after giving effect to the transaction, no default or event of default would occur and be continuing under the indenture.
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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 assets of a person.
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Events of Default
Unless we inform you otherwise in the officers certificate or supplemental indenture with respect to a particular series of debt
securities, and in the prospectus supplement with respect to such series of debt securities, the following are events of default under the indenture, as amended or supplemented, with respect to a series of debt securities issued thereunder:
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our failure to pay interest on any debt security of that series for 30 days;
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our failure to pay principal of or any premium on any debt security of that series when due;
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our failure to make any sinking fund payment for any debt security of that series when due;
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our failure to perform any of our other covenants or breach of any of our other warranties in the indenture, as amended or supplemented, other than a covenant or warranty included in the indenture solely for the benefit
of another series of debt securities, and that failure continues for 60 days after written notice is given or received as provided in the indenture, as amended or supplemented;
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certain bankruptcy, insolvency or reorganization events involving us; and
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any other event of default we may provide for that series.
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If an event of default for any
series of debt securities occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the outstanding debt securities of the series affected by the default may declare the principal amount of all the debt securities
of that series to be due and payable immediately. After any declaration of acceleration of a series of debt securities, but before a judgment or decree for payment has been obtained, the event of default giving rise to the declaration of
acceleration will, without further act, be deemed to have been waived, and such declaration and its consequences will, without further act, be deemed to have been rescinded and annulled if:
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we have paid or deposited with the trustee a sum sufficient to pay
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the principal and premium, if any, due otherwise than by the declaration of acceleration and any interest on such amounts;
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any interest on overdue interest, to the extent legally permitted;
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all amounts due to the trustee under the indenture, and
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all events of default with respect to that series of debt securities, other than the nonpayment of the principal which became due solely by virtue of the declaration of acceleration, have been cured or waived.
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In most cases, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the
request or direction of any of the holders, unless the holders have offered to the trustee indemnity reasonably satisfactory to the trustee. Subject to this provision for indemnification, the holders of a majority in aggregate principal amount of
the outstanding debt securities of any series may direct the time, method and place of:
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conducting any proceeding for any remedy available to the trustee; or
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exercising any trust or power conferred on the trustee, with respect to the debt securities of that series.
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The indenture requires us to furnish to the trustee annually a statement as to our performance of our obligations under the indenture and as
to any default in performance.
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Modification and Waiver
We may modify or amend the indenture without the consent of any holders of the debt securities in certain circumstances, including to:
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evidence the assumption of our obligations under the indenture and the debt securities by a successor;
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add further covenants for the benefit of the holders;
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cure any ambiguity or correct any inconsistency in the indenture, so long as such action will not adversely affect the interests of the holders;
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establish the form or terms of debt securities of any series;
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evidence the acceptance of appointment by a successor trustee; or
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provide any security for, or to add any guarantees of, any series.
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We may modify or amend the
indenture with the consent of the holders of a majority in principal amount of the outstanding debt securities of each series affected by the modification or amendment. Without the consent of the holder of each outstanding debt security affected,
however, no modification may:
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change the stated maturity of the principal of, or any installment of interest on, any debt security;
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reduce the principal amount of, the rate of interest on, or the premium payable on, any debt security;
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reduce the amount of principal of discounted debt securities payable upon acceleration of maturity due to an event of default;
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change the place of payment or the currency in which any debt security is payable;
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impair the right to institute suit for the enforcement of any payment on any debt security; or
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reduce quorum or voting rights.
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The holders of a majority in aggregate principal amount of
the outstanding debt securities of each series may waive past defaults by us under the indenture with respect to the debt securities of that series only. Those holders may not, however, waive any default in any payment on any debt security of that
series or compliance with a provision that cannot be modified or amended without the consent of each holder affected.
Discharge
We will be discharged from all obligations relating to any series of debt securities, except for certain surviving obligations to register the
transfer or exchange of the debt securities and any right by the holders to receive additional amounts under the indenture if:
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all debt securities of that series previously authenticated and delivered under the indenture have been delivered to the trustee for cancellation, or
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all debt securities of that series have become due and payable or will become due and payable within one year, at maturity or by redemption, and we deposit with the trustee, in trust, sufficient money to pay the entire
indebtedness of all the debt securities of that series on the dates the payments are due in accordance with the terms of the debt securities.
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To exercise the right of deposit described above, we must pay all other sums payable under the indenture, and deliver to the trustee an
opinion of counsel and an officers certificate stating that all conditions precedent to the satisfaction and discharge of the indenture have been complied with.
Form, Exchange, Registration and Transfer
Unless we inform you otherwise in the officers certificate or supplemental indenture relating to a series of debt securities, and in the
prospectus supplement relating to such series of debt securities, we will issue the debt
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securities of a series only in fully registered form, without coupons, in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
Debt securities will be exchangeable for other debt securities of the same series, the same total principal amount and the same terms in such
authorized denominations as may be requested. Holders may present debt securities for registration of transfer at the office of the security registrar or any transfer agent we designate. The security registrar or transfer agent will effect the
transfer or exchange when it is satisfied with the documents of title and identity of the person making the request. We will not charge a service charge for any transfer or exchange of the debt securities. We may, however, require payment of any tax
or other governmental charge payable for the registration of the transfer or exchange.
We will appoint the trustee as security registrar
for the debt securities. We are required to maintain an office or agency for transfers and exchanges in each place of payment. We may at any time designate additional offices or agencies for transfers and exchanges of any series of debt securities.
We will not be required:
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to issue, register the transfer of or exchange debt securities of a series during a period beginning 15 business days prior to the day of mailing of a notice of redemption of debt securities of that series selected
for redemption and ending on the close of business on the day of mailing of the relevant notice, or
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to register the transfer of or exchange any debt security, or portion of any debt security, called for redemption, except the unredeemed portion of any debt security we are redeeming in part.
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Payment and Paying Agents
Unless we
inform you otherwise in the officers certificate or supplemental indenture related to a series of debt securities, and in the prospectus supplement related to such series of debt securities, principal and interest will be payable, and the debt
securities of a series will be transferable and exchangeable, at the office or offices of the trustee or any paying agent we designate. At our option, we will pay interest on the debt securities by check mailed to the holders registered
address or by wire transfer for global debt securities. Unless we inform you otherwise in an officers certificate or supplemental indenture related to a series, and in the prospectus supplement related to such series, we will make interest
payments to the persons in whose name the debt securities are registered at the close of business on the record date for each interest payment date.
In most cases, the trustee and paying agent will repay to us upon written request any funds held by them for payments on the debt securities
that remain unclaimed for two years after the date upon which that payment has become due. After payment to us, holders entitled to the money must look to us for payment.
Book-Entry and Settlement
We may issue
the debt securities of a series in the form of one or more global debt securities that would be deposited with a depositary or its nominee identified in the prospectus supplement. The prospectus supplement will describe:
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any circumstances under which beneficial owners may exchange their interests in a global debt security for certificated debt securities of the same series with the same total principal amount and the same terms;
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the manner in which we will pay principal of and any premium and interest on a global debt security; and
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the terms of any depositary arrangement and the rights and limitations of owners of beneficial interests in any global debt security.
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Notices
Notices to holders will be given by mail to the addresses of such holders as they appear in the security register.
Governing Law
New York law will govern
the indenture and the debt securities.
The Trustee
U.S. Bank National Association is the trustee under the indenture.
If an event of default occurs and is continuing, the trustee will be required in the exercise of its powers to use the degree of care and
skill of a prudent person in the conduct of his own affairs. The trustee may resign at any time or the holders of a majority in principal amount of the debt securities may remove the trustee. If the trustee resigns, is removed or becomes incapable
of acting as trustee or if a vacancy occurs in the office of the trustee for any reason, we will appoint a successor trustee in accordance with the provisions of the indenture.
If the trustee becomes one of our creditors, it will be subject to limitations in the indenture on its rights to obtain payment of claims or
to realize on certain property received for any claim, as security or otherwise. The trustee may engage in other transactions with us. If, however, it acquires any conflicting interest, it must eliminate that conflict or resign as required under the
Trust Indenture Act of 1939.
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DESCRIPTION OF THE COMMON UNITS
The Units
The common units represent
limited partner interests in us. The holders of common units are entitled to participate in partnership distributions and are entitled to exercise the rights and privileges available to limited partners under our partnership agreement. For a
description of the rights and preferences of holders of common units in and to partnership distributions, please read Cash Distribution Policy. For a general discussion of the expected federal income tax consequences of owning and
disposing of common units, see Material Federal Income Tax Consequences. For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read Description of Our
Partnership Agreement. Our common units are listed on the NYSE under the symbol VLP.
Transfer Agent and Registrar
Duties
Computershare Investor Services serves as the registrar and transfer agent for our common units. We will pay all fees charged by the transfer
agent for transfers of common units, except the following that must be paid by our unitholders:
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surety bond premiums to replace lost or stolen certificates, or to cover taxes and other governmental charges in connection therewith;
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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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Unless our general partner determines otherwise in respect of
some or all of any classes of our partnership interests, our partnership interests will be evidenced by book entry notation on our partnership register and not by physical certificates.
There will be no charge to our unitholders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and
each of their respective stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.
Resignation or Removal
The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective
upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor 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 in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited
partner with respect to the common units transferred when such transfer and admission are reflected in our books and records. Each transferee, with or without executing our partnership agreement:
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agrees to be bound by the terms and conditions of our partnership agreement;
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represents and warrants that the transferee has the right, power, authority and capacity to enter into our partnership agreement; and
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gives the consents, waivers and approvals contained in our partnership agreement.
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We are entitled to treat the nominee holder of a common unit as the absolute owner in the event
such nominee is the record holder of such common unit. In such 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 the transfer of securities. Until a common unit
has been transferred on our register, we and the transfer agent are entitled to treat the record holder of the common unit as the absolute owner, except as otherwise required by law or stock exchange regulations.
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DESCRIPTION OF THE PREFERRED UNITS
Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities on the terms and conditions
established by our general partner without the approval of any of our limited partners. In accordance with Delaware law and the provisions of the partnership agreement, we may issue additional partnership securities that have special voting rights
to which our common units are not entitled, which we refer to in this prospectus as preferred units. As of the date of this prospectus, we have no preferred units outstanding.
Should we offer preferred units under this prospectus, a prospectus supplement relating to the particular series of preferred units offered
will include the specific terms of those preferred units, including, among other things, the following:
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the designation, stated value and liquidation preference of the preferred units and the number of preferred units offered;
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the initial public offering price at which the preferred units will be issued;
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any conversion or exchange provisions of the preferred units;
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any redemption or sinking fund provisions of the preferred units;
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the distribution rights of the preferred units, if any;
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a discussion of any additional material federal income tax considerations regarding the preferred units; and
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any additional rights, preferences, privileges, limitations and restrictions of the preferred units.
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DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. Our partnership agreement is included as an exhibit to the
registration statement of which this prospectus constitutes a part. We will provide prospective investors with a copy of our partnership agreement upon request at no charge.
We summarize the following provisions of our partnership agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read Cash Distribution Policy;
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with regard to the transfer of common units, please read Description of the Common UnitsTransfer of Common Units; and
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with regard to allocations of taxable income and taxable loss, please read Material Federal Income Tax Consequences.
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Organization and Duration
Our
partnership was organized on July 24, 2013 and will have a perpetual existence unless terminated pursuant to the terms of our partnership agreement.
Purpose
Our purpose under our
partnership agreement is limited to any business activity that is approved by our general partner and that lawfully may be conducted by a limited partnership organized under Delaware law;
provided, however
, that our general partner shall not
cause us to engage, directly or indirectly, in any business activity that our general partner determines would be reasonably likely to cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal
income tax purposes.
Although our general partner has the ability to cause us and our subsidiaries to engage in activities other than the
business of owning, operating, developing and acquiring crude oil and refined petroleum products pipelines, terminals and other transportation and logistics assets, our general partner has no current plans to do so and may decline to do so free of
any duty or obligation whatsoever to us or the limited partners, including any duty to act in the best interests of us or our limited partners, other than the implied contractual covenant of good faith and fair dealing. 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.
Capital
Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under
Limited Liability.
For a discussion of our general partners right to contribute capital to maintain its 2.0%
general partner interest if we issue additional units, please read Issuance of Additional Partnership Interests.
Voting Rights
The following is a summary of the unitholder vote required for the matters specified below. Matters requiring the approval of a
unit majority require the approval of a majority of the outstanding common units.
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In voting their common units, our general partner and its affiliates will have no duty or
obligation whatsoever to us or the limited partners, including any duty to act in the best interests of us or the limited partners, other than the implied covenant of good faith and fair dealing.
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Issuance of additional units
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No unitholder approval right.
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Amendment of our partnership agreement
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Certain amendments may be made by our general partner without the approval of the unitholders. Other amendments generally require the
approval of a unit majority. Please read Amendment of Our Partnership Agreement.
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Merger of our partnership or the sale of all or substantially all of our assets
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Unit majority in certain circumstances. Please read Merger, Consolidation, Conversion, Sale or Other Disposition of
Assets.
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Dissolution of our partnership
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Unit majority. Please read Termination and Dissolution.
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Continuation of our business 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 unitholders holding at least a majority of the outstanding common units, excluding common units
held by our general partner and its affiliates, is required for the withdrawal of our general partner prior to December 31, 2023 in a manner that would cause a dissolution of our partnership. Please read Withdrawal or Removal of Our
General Partner.
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Removal of our general partner
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Not less than 66 2/3% 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 its general partner interest in us without a vote of our unitholders to an
affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to, such person. The approval of a majority of the outstanding 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 December 31, 2023. Please read Transfer of General Partner Units.
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Transfer of incentive distribution rights
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Our general partner may transfer any or all of the incentive distribution rights without a vote of our unitholders. Please read Transfer of Incentive Distribution
Rights.
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Reset of incentive distribution levels
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No unitholder approval required.
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Transfer of ownership interests in our general partner
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No unitholder approval required. Please read Transfer of Ownership Interests in our General Partner.
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Applicable Law; Forum, Venue and Jurisdiction
Our partnership agreement is governed by Delaware law. Our partnership agreement requires that any claims, suits, actions or proceedings:
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arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or
liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us);
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brought in a derivative manner on our behalf;
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asserting a claim of breach of a duty (including a fiduciary duty) owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners;
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asserting a claim arising pursuant to any provision of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act; or
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asserting a claim governed by the internal affairs doctrine
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shall be exclusively brought in the Court of
Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction, any other court located in the State of Delaware with subject matter jurisdiction), regardless of whether such claims, suits, actions or proceedings
sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and
provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or such other Delaware courts) in connection with any such claims, suits, actions or
proceedings. The enforceability of similar choice of forum provisions in other companies certificates of incorporation or similar governing documents have been challenged in legal proceedings, and it is possible that, in connection with any
action, a court could find the choice of forum provisions contained in our partnership agreement to be inapplicable or unenforceable in such action.
Limited Liability
Assuming that a
limited partner does not participate in the control of our business within the meaning of the Delaware Act and that it otherwise acts in conformity with the provisions of our partnership agreement, its liability under the Delaware Act will be
limited, subject to possible exceptions, to the amount of capital it is obligated to contribute to us for its common units plus its 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
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provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of our general partner. While this does not mean that a limited
partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.
Under the Delaware Act, a
limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their limited partner 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 non-recourse
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 its assignor to make contributions to the partnership, except that such person is not obligated for
liabilities unknown to him at the time it became a limited partner and that could not be ascertained from our partnership agreement.
Our
subsidiaries conduct business in several states and we may have subsidiaries that conduct business in other states in the future. Maintenance of our limited liability as a limited partner or member of our operating subsidiaries may require
compliance with legal requirements in the jurisdictions in which our operating subsidiaries conduct business, including qualifying our subsidiaries to do business there.
Limitations on the liability of limited partners or members for the obligations of a limited partnership or limited liability company have not
been clearly established in many jurisdictions. If, by virtue of our limited partner interest in our operating company or otherwise, it were determined that we were conducting business in any state without compliance with the applicable limited
partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace our general partner, to approve some amendments to our partnership agreement, or to take other
action under our partnership agreement constituted participation in the control of our business for purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for our obligations
under the law of that jurisdiction to the same extent as our general partner under the circumstances. We will operate in a manner that our general partner considers reasonable and necessary or appropriate to preserve the limited liability of the
limited partners.
Issuance of Additional Partnership Interests
Our partnership agreement authorizes us to issue an unlimited number of additional partnership interests for the consideration and on the terms
and conditions determined by our general partner without the approval of the unitholders.
It is possible that we will fund acquisitions
through the issuance of additional common units or other partnership interests. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available cash.
In addition, the issuance of additional common units or other partnership interests may dilute the value of the interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership interests that, as
determined by our general partner, may have special voting rights to which the common units are not entitled. In addition, our partnership agreement does not prohibit the issuance by our subsidiaries of equity interests, which may effectively rank
senior to the common units.
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Upon issuance of additional limited partner interests (other than the issuance of common units in
connection with a reset of the incentive distribution target levels or the issuance of common units upon conversion of outstanding partnership interests), our general partner will be entitled, but not required, to make additional capital
contributions up to the amount necessary to maintain its 2.0% general partner interest in us. Our general partners 2.0% interest in us will be reduced if we issue additional units in the future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2.0% general partner interest. Moreover, our general partner will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units or
other partnership interests whenever, and on the same terms that, we issue those interests to persons other than our general partner and its affiliates, to the extent necessary to maintain the percentage interest of our general partner and its
affiliates, including such interest represented by common units, that existed immediately prior to each issuance. The other holders of common units will not have preemptive rights to acquire additional common units or other partnership interests.
Amendment of Our Partnership Agreement
General
Amendments
to our partnership agreement may be proposed only by 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 duty or obligation whatsoever to us or the limited
partners, including any duty to act in the best interests of us or the limited partners, other than the implied contractual covenant of good faith and fair dealing. In order to adopt a proposed amendment, other than the amendments discussed below,
our general partner is required to seek written approval of the holders of the number of units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below,
an amendment must be approved by a unit majority.
Prohibited Amendments
No amendment may be made that would:
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enlarge the obligations of any limited partner without its consent, unless such is deemed to have occurred as a result of an amendment approved by at least a majority of the type or class of limited partner interests so
affected; or
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enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to our general partner or any of its affiliates without
its consent, which consent may be given or withheld at its option.
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The provisions of our partnership agreement preventing
the amendments having the effects described in any of the clauses above can be amended upon the approval of the holders of at least 90.0% of the outstanding units voting together as a single class (including units owned by our general partner and
its affiliates).
No Limited Partner Approval
Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner to reflect:
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a change in our name, the location of our principal office, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under
the laws of any state or to ensure that neither we nor any of our subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;
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a change in our fiscal year or taxable year and any other changes that our general partner determines to be necessary or appropriate as a result of such change;
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an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, trustees or agents 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 the Employee Retirement Income Security Act of 1974, each as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the U.S. Department of Labor;
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an amendment that our general partner determines to be necessary or appropriate for the authorization or issuance of additional partnership interests;
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any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger agreement or plan of conversion that has been approved under the terms of our partnership agreement;
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any amendment that our general partner determines to be necessary or appropriate to reflect and account for the formation by us of, or our investment in, any corporation, partnership joint venture, limited liability
company or other entity, in connection with our conduct of activities permitted by our partnership agreement;
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conversions into, mergers with or conveyances to another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the conversion, merger or conveyance other than those it
receives by way of the conversion, merger or conveyance; or
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any other amendments substantially similar to any of the matters described in the clauses above.
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In addition, our general partner may make amendments to our partnership agreement without the approval of any limited partner if our general
partner determines that those amendments:
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do not adversely affect in any material respect the limited partners considered as a whole or any particular class of partnership interests as compared to other classes of partnership interests;
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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 or admitted to 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 expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement.
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Opinion of Counsel and Unitholder Approval
For amendments of the type not requiring unitholder approval, our general partner will not be required to obtain an opinion of counsel to the
effect that an amendment will not affect the limited liability of any limited partner under Delaware law. No other amendments to our partnership agreement will become effective without the approval of holders of at least 90.0% of the outstanding
units voting as a single class unless we first obtain such an opinion.
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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 partnership interests in relation to other classes of partnership interests will require the approval of at least a majority of the type or class of partnership interests so affected. Any amendment
that would reduce the percentage of units required to take any action, other than to remove our general partner or call a meeting of unitholders, must be approved by the affirmative vote of limited partners whose aggregate outstanding units
constitute not less than the percentage sought to be reduced. Any amendment that would increase the percentage of units required to remove our general partner must be approved by the affirmative vote of limited partners whose aggregate outstanding
units constitute not less than 90.0% of outstanding units. Any amendment that would increase the percentage of units required to call a meeting of unitholders must be approved by the affirmative vote of limited partners whose aggregate outstanding
units constitute at least a majority of the outstanding units.
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets
A merger, consolidation or conversion of our partnership requires the prior consent of our general partner. However, our general partner will
have no duty or obligation to consent to any merger, consolidation or conversion and may decline to do so free of any duty or obligation whatsoever to us or the limited partners, including any duty to act in the best interests of us or the limited
partners, other than the implied contractual covenant of good faith and fair dealing.
In addition, our partnership agreement generally
prohibits our general partner without the prior approval of the holders of a unit majority, from causing us to, 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. 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 any or all of our assets under a
foreclosure or other realization upon those encumbrances without that approval. Finally, our general partner may consummate any merger with another limited liability entity without the prior approval of our unitholders if we are the surviving entity
in the transaction, our general partner has received an opinion of counsel regarding limited liability and tax matters, the transaction would not result in an amendment to our partnership agreement requiring unitholder approval, each of our units
will be an identical unit of our partnership following the transaction, and the partnership interests to be issued by us in such merger do not exceed 20.0% of our outstanding partnership interests immediately prior to the transaction.
If the conditions specified in our partnership agreement are satisfied, our general partner may convert us or any of our subsidiaries into a
new limited liability entity or merge us or any of our subsidiaries into, or convey all of our assets to, a newly formed entity if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into another
limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax matters, and our general partner determines that the governing instruments of the new entity provide the limited partners and our
general partner with the same rights and obligations as contained in our partnership agreement. 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 similar transaction or event.
Termination and Dissolution
We will continue as a limited partnership until dissolved and terminated under our partnership agreement. We will dissolve upon:
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the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner, other than by reason of a transfer of its general partner interest in accordance with our
partnership agreement or a withdrawal or removal followed by approval and admission of a successor;
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the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
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the entry of a decree of judicial dissolution of our partnership; or
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there being no limited partners, unless we are continued without dissolution in accordance with applicable Delaware law.
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Upon a dissolution under the first bullet point above, the holders of a unit majority may also elect, within specific time limitations, to
continue our business on the same terms and conditions described in our partnership agreement by appointing as a successor general partner an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion
of counsel to the effect that:
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the action would not result in the loss of limited liability of any limited partner; and
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neither our partnership nor any of our 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 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 Cash Distribution PolicyDistributions of Cash Upon Liquidation. The
liquidator may defer liquidation or distribution of our assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to our partners.
Withdrawal or Removal of Our General Partner
Except as described below, our general partner has agreed not to withdraw voluntarily as our general partner prior to December 31, 2023
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 December 31, 2023, 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 50.0% of the outstanding 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 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 Units and Transfer of Incentive Distribution Rights.
Upon voluntary withdrawal of our general partner by giving notice to the other partners, the holders of a unit majority 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 after that withdrawal, the holders of a unit majority agree to continue our business by appointing 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 66 2/3% of the outstanding
common units, including units held by our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of 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 33 1/3% of the outstanding units by our general partner and its affiliates would give them the practical ability to prevent our general
partners removal.
Our partnership agreement also provides that, if our general partner is removed as our general partner under
circumstances where cause does not exist and units held by our general partner and its affiliates are not voted in
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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 those interests as of the effective date of its removal.
In the event of removal of our
general partner under circumstances where cause exists or withdrawal of our general partner where that withdrawal violates our partnership agreement, a successor general partner will have the option to purchase the general partner interest and
incentive distribution rights of the departing general partner for a cash payment equal to the fair market value of those interests. Under all other circumstances where our general partner withdraws or is removed by the limited partners, the
departing general partner will have the option to require the successor general partner to purchase the general partner interest of the departing general partner and its incentive distribution rights for fair market value. In each case, this fair
market value will be determined by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert selected by the departing general
partner and the successor general partner will determine the fair market value. Or, if the departing general partner and the successor general partner cannot agree upon an expert, then an expert chosen by agreement of the experts selected by each of
them will determine the fair market value.
If the option described above is not exercised by either the departing general partner or the
successor general partner, the departing general partner will become a limited partner and its general partner interest and its incentive distribution rights will automatically convert into common units pursuant to a valuation 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 Units
Except for transfer by our general partner of all, but not less than all, of its general partner interest to (1) an affiliate of our
general partner (other than an individual), or (2) another entity as part of the merger or consolidation of our general partner with or into such entity or the transfer by our general partner of all or substantially all of its assets to such
entity, our general partner may not transfer all or any part of its general partner interest to another person prior to December 31, 2023 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 assume, among other things, the rights and duties of our general partner, agree to be bound by the provisions of our partnership
agreement, and furnish an opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may at
any time, transfer common units to one or more persons, without unitholder approval.
Transfer of Ownership Interests in Our General Partner
At any time, Valero and its subsidiaries may sell or transfer all or part of their membership interest in our general partner to an affiliate
or third party without the approval of our unitholders.
Transfer of Incentive Distribution Rights
At any time, our general partner may sell or transfer its incentive distribution rights to an affiliate or 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 Valero
Energy 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 20.0% 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 who are notified by our general
partner that they will not lose their voting rights 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 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 units and its incentive distribution rights into common units or to
receive cash in exchange for those interests based on the fair market value of those interests as of the effective date of its removal.
Limited Call
Right
If at any time our general partner and its affiliates own more than 80.0% of the then-issued and outstanding limited partner
interests of any class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the limited partner interests of such class held by unaffiliated
persons as of a record date to be selected by our general partner, on at least 10 but not more than 60 days notice. The purchase price in the event of this purchase is the greater of:
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the highest cash price paid by either of our general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days preceding the date on which our general partner first
mails notice of its election to purchase those limited partner interests; and
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the current market price calculated in accordance with our partnership agreement as of the date three business days before the date the notice is mailed.
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As a result of our general partners right to purchase outstanding limited partner interests, a holder of limited partner interests may
have its limited partner interests purchased at a price that may be lower than market prices at various times prior to such purchase or lower than a unitholder may anticipate the market price to be in the future. The tax consequences to a unitholder
of the exercise of this call right are the same as a sale by that unitholder of its common units in the market. Please read Material Federal Income Tax ConsequencesDisposition of Common Units.
Meetings; Voting
Except as described
below regarding a person or group owning 20.0% or more of any class of units then outstanding, record holders of units on the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for
which approvals may be solicited.
Our general partner does not anticipate that any meeting of 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, if authorized by our general partner, without a meeting if consents in writing describing the action
so taken are signed by holders of the number of units that would be necessary to authorize or take that action at a meeting where all limited partners were present and voted. Meetings of the unitholders may be called by our general partner or by
unitholders owning at least 20.0% 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
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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. The
units representing the general partner interest are units for distribution and allocation purposes, but do not entitle our general partner to any vote other than its rights as general partner under our partnership agreement, will not be entitled to
vote on any action required or permitted to be taken by the unitholders and will not count toward or be considered outstanding when calculating required votes, determining the presence of a quorum, or for similar purposes.
Each record holder of a unit has a vote according to its percentage interest in us, although additional limited partner interests having
special voting rights could be issued. Please read Issuance of Additional Partnership Interests. However, if at any time any person or group, other than our general partner and its affiliates, a direct transferee of our general
partner and its affiliates or a transferee of such direct transferee who is notified by our general partner that it will not lose its voting rights, acquires, in the aggregate, beneficial ownership of 20.0% 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 its nominee provides otherwise.
Any notice, demand, request, report or proxy material required or
permitted to be given or made to record holders of common units under our partnership agreement will be delivered to the record holder by us or by the transfer agent or an exchange agent.
Status as Limited Partner
By transfer of
common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission is reflected in our register. Except as
described under Limited Liability, the common units will be fully paid, and unitholders will not be required to make additional contributions.
Ineligible Holders; Redemption
Under our
partnership agreement, an Eligible Holder is a limited partner whose (a) federal income tax status is not reasonably likely to have a material adverse effect on the rates that can be charged by us on assets that are subject to
regulation by FERC or an analogous regulatory body and (b) nationality, citizenship or other related status would not create a substantial risk of cancellation or forfeiture of any property in which we have an interest, in each case as
determined by our general partner with the advice of counsel.
If at any time our general partner determines, with the advice of counsel,
that one or more limited partners are not Eligible Holders (any such limited partner, an Ineligible Holder), then our general partner may request any limited partner to furnish to our general partner an executed certification or other
information about its federal income tax status and/or nationality, citizenship or related status. If a limited partner fails to furnish such certification or other requested information within 30 days (or such other period as our general partner
may determine) after a request for such certification or other information, or our general partner determines after receipt of the information that the limited partner is not an Eligible Holder, the limited partner may be treated as an Ineligible
Holder. An Ineligible Holder does not have the right to direct the voting of its units and may not receive distributions in kind upon our liquidation.
Furthermore, we have the right to redeem all of the common units of any holder that our general partner concludes is an Ineligible Holder or
fails to furnish the information requested by our general partner. The redemption price in the event of such redemption for each unit held by such unitholder will be the current market price of such unit (the date of determination of which shall be
the date fixed for redemption). The redemption
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price will be paid, as determined by our general partner, in cash or by delivery of a promissory note. Any such promissory note will bear interest at the rate of 5.0% annually and be payable in
three equal annual installments of principal and accrued interest, commencing one year after the redemption date.
Indemnification
Under our partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from
and against all losses, claims, damages or similar events:
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any departing general partner;
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any person who is or was an affiliate of our general partner or any departing general partner;
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any person who is or was a manager, managing member, general partner, director, officer, fiduciary or trustee of us, our subsidiaries or any entity set forth in the preceding three bullet points;
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any person who is or was serving as manager, managing member, general partner, director, officer, fiduciary or trustee of another person owing a fiduciary duty to us or any of our subsidiaries at the request of our
general partner or any departing general partner or any of their affiliates; and
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any person designated by our general partner.
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Any indemnification under these provisions will
only be out of our assets. Unless it otherwise agrees, our general partner will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We will 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 such liabilities under our partnership agreement.
Reimbursement of Expenses
Our
partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our general
partner is entitled to determine in good faith the expenses that are allocable to us. The expenses for which we are required to reimburse our general partner are not subject to any caps or other limits.
Books and Reports
Our general partner is
required to keep appropriate books of our business at our principal offices. The books will be maintained for financial reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar year.
We will mail or make available to record holders of common units, within 105 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 public accountants. Except for our fourth quarter, we will also mail or make available summary financial information within 50 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
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information. Every unitholder will receive information to assist him in determining its federal and state tax liability and filing its federal and state income tax returns, regardless of whether
it 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 its interest as a limited partner, upon
reasonable written demand stating the purpose of such demand and at its own expense, have furnished to him:
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a current list of the name and last known address of each record holder;
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copies of our partnership agreement and our certificate of limited partnership and all amendments thereto; and
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certain information regarding the status of our business and financial condition.
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Our general
partner may, and intends to, keep confidential from the limited partners, trade secrets or other information the disclosure of which our general partner determines is not in our best interests or that we are required by law or by agreements with
third parties to keep confidential. Our partnership agreement limits the right to information that a limited partner would otherwise have under Delaware law.
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 interests 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 will continue for two years following any withdrawal or removal of our general partner. We are obligated to pay all expenses
incidental to the registration, excluding underwriting discounts and commissions.
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CASH DISTRIBUTION POLICY
Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.
Distributions of Available Cash
General
Our
partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date.
Definition of Available Cash
Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter:
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less
, the amount of cash reserves established by our general partner to:
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provide for the proper conduct of our business (including reserves for our future capital expenditures and anticipated future credit needs requirements and refunds of collected rates reasonably likely to be refunded as
a result of a settlement or hearing related to FERC rate proceedings or rate proceedings under applicable law subsequent to that quarter);
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comply with applicable law, any of our or our subsidiaries debt instruments or other agreements; or
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provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for distributions if the
effect of the establishment of such reserves will prevent us from paying the minimum quarterly distribution on all common units for the current quarter);
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plus
, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the
end of such quarter.
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The purpose and effect of the last bullet point above is to allow our general partner, if it so
decides, to use cash from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders. Under our partnership agreement, working
capital borrowings are generally borrowings that are made under a credit facility, commercial paper facility or similar financing arrangement, and in all cases are used solely for working capital purposes or to pay distributions to partners, and
with the intent of the borrower to repay such borrowings within twelve months with funds other than from additional working capital borrowings.
Intent to Distribute the Minimum Quarterly Distribution
We intend to make minimum quarterly distributions to holders of our common units of at least $0.2125 per unit, or $0.85 per unit on an
annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our general partner. However, there is no guarantee that we
will pay the minimum quarterly distribution on our units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay and the decision to make any distribution is determined by our general
partner, taking into consideration the terms of our partnership agreement.
General Partner Interest and Incentive Distribution
Rights
Our general partner is entitled to 2.0% of all quarterly distributions that we make prior to our liquidation. Our general
partner has the right, but not the obligation, to contribute up to a proportionate amount of capital to
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us to maintain its current general partner interest. The general partners 2.0% interest in these distributions 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 2.0% general partner interest.
In addition, our
general partner holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 48.0%, of the cash we distribute from operating surplus (as defined below) in excess of $0.244375 per unit per quarter. The
maximum distribution of 48.0% does not include any distributions that our general partner or its affiliates may receive on common or general partner units that they own. Please read General Partner Interest and Incentive Distribution
Rights below for additional information.
Operating Surplus and Capital Surplus
General
All cash
distributed to unitholders is characterized as either being paid from operating surplus or capital surplus. We treat distributions of available cash from operating surplus differently than distributions of available cash from
capital surplus.
Operating Surplus
We define operating surplus as:
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$50.0 million (as described below);
plus
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all of our cash receipts, excluding cash from interim capital transactions (as defined below),
provided
that cash receipts from the termination of a commodity hedge or interest rate hedge prior to its specified
termination date shall be included in operating surplus in equal quarterly installments over the remaining scheduled life of such commodity hedge or interest rate hedge;
plus
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working capital borrowings made after the end of a quarter but on or before the date of determination of operating surplus for that quarter;
plus
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cash distributions (including incremental distributions on incentive distribution rights) paid in respect of equity issued to finance all or a portion of expansion capital expenditures in respect of the period from the
date that we enter into a binding obligation to commence the construction, development, replacement, improvement or expansion of a capital asset and ending on the earlier to occur of the date the capital asset commences commercial service and the
date that it is abandoned or disposed of;
plus
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cash distributions (including incremental distributions on incentive distribution rights) paid in respect of equity issued to pay interest and related fees on debt incurred, or to pay distributions on equity issued, to
finance the expansion capital expenditures referred to in the prior bullet point;
less
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all of our operating expenditures (as defined below);
less
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the amount of cash reserves established by our general partner to provide funds for future operating expenditures;
less
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all working capital borrowings not repaid within twelve months after having been incurred, or repaid within such twelve month period with the proceeds of additional working capital borrowings.
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As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not
limited to cash generated by our operations. For example, it includes a provision that will enable us, if we choose, to distribute as operating surplus up to $50.0 million of cash we receive from non-operating sources such as asset sales, issuances
of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity interests in operating surplus will be to increase
operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.
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The proceeds of working capital borrowings increase operating surplus and repayments of working
capital borrowings are generally operating expenditures (as described below) and thus reduce operating surplus when repayments are made. However, if working capital borrowings, which increase operating surplus, are not repaid during the twelve-month
period following the borrowing, they will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowings are in fact repaid, they will not be treated as a further reduction in
operating surplus because operating surplus will have been previously reduced by the deemed repayment.
We define interim capital
transactions as (i) borrowings, refinancings or refundings of indebtedness (other than working capital borrowings and items purchased on open account or for a deferred purchase price in the ordinary course of business) and sales of debt
securities; (ii) issuances of equity securities; (iii) sales or other dispositions of assets, other than sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business and sales or other
dispositions of assets as part of normal asset retirements or replacements; and (iv) capital contributions received by a group member.
We define operating expenditures as all of our cash expenditures, including, but not limited to, taxes, reimbursements of expenses of
our general partner and its affiliates, director, officer and employee compensation, debt service payments, payments made in the ordinary course of business under interest rate hedge contracts and commodity hedge contracts (provided that payments
made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to the expiration of its settlement or termination date specified therein will be included in operating expenditures in equal quarterly
installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract and amounts paid in connection with the initial purchase of a rate hedge contract or a commodity hedge contract will be amortized at the
life of such rate hedge contract or commodity hedge contract), maintenance capital expenditures (as discussed in further detail below), and repayment of working capital borrowings;
provided, however
, that operating expenditures will not
include:
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repayments of working capital borrowings where such borrowings have previously been deemed to have been repaid (as described above);
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payments of principal of and premium on indebtedness other than working capital borrowings;
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expansion capital expenditures;
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payment of transaction expenses (including taxes) relating to interim capital transactions;
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distributions to our partners; or
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repurchases of partnership interests (excluding repurchases we make to satisfy obligations under employee benefit plans).
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Capital Surplus
Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus.
Accordingly, except as described above, capital surplus would generally be generated by:
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borrowings other than working capital borrowings;
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sales of our equity and debt securities;
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sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of ordinary course retirement or replacement of assets; and
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capital contributions received.
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Characterization of Cash Distributions
Our partnership agreement requires that we treat all available cash distributed as coming from operating surplus until the sum of all available
cash distributed since the closing of our initial public offering equals our operating surplus from the closing of our initial public offering through the end of the quarter immediately preceding that distribution. Our partnership agreement requires
that we treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from our initial public
offering and as a return of capital. We do not anticipate that we will make any distributions from capital surplus.
Capital Expenditures
Maintenance capital expenditures are cash expenditures (including expenditures for the construction or development of new capital assets or the
replacement, improvement or expansion of existing capital assets) made to maintain, over the long-term, our operating capacity or operating income. Examples of maintenance capital expenditures are expenditures to repair, refurbish and replace
pipelines and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. Maintenance capital expenditures are included in operating expenditures and thus will reduce operating surplus.
Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our
operating income or operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of equipment and the construction, development or acquisition of additional pipeline or terminaling capacity to the extent
such capital expenditures are expected to expand our operating capacity or our operating income. Expansion capital expenditures include interest payments (and related fees) on debt incurred to finance all or a portion of expansion capital
expenditures in respect of the period from the date that we enter into a binding obligation to commence the construction, development, replacement, improvement or expansion of a capital asset and ending on the earlier to occur of the date that such
capital improvement commences commercial service and the date that such capital improvement is abandoned or disposed of.
Capital
expenditures that are made in part for maintenance capital purposes and in part for expansion capital purposes will be allocated as maintenance capital expenditures or expansion capital expenditures by our general partner.
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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|
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first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
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|
thereafter
, in the manner described in General Partner Interest and Incentive Distribution Rights below.
|
The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not
issue additional classes of equity securities.
General Partner Interest and Incentive Distribution Rights
Our partnership agreement provides that our general partner is entitled, with respect to its general partner interest, to 2.0% of all
distributions that we make prior to our liquidation. Our general partner has the right, but not the obligation, to contribute up to a proportionate amount of capital to us in order to maintain its 2.0% general partner interest if we issue additional
units. Our general partners 2.0% interest, and the percentage of our
32
cash distributions to which it is entitled from such 2.0% interest, will be proportionately reduced if we issue additional units in the future (other than the issuance of common units upon a
reset of the incentive distribution rights) and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest. Our partnership agreement does not require that our general
partner fund its capital contribution with cash. It may instead fund its capital contribution by the contribution to us of common units or other property.
Incentive distribution rights represent the right to receive an increasing percentage (13.0%, 23.0% and 48.0%) of the 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.
The following discussion assumes that our general partner maintains its 2.0% general partner interest
and that our general partner continues to own the incentive distribution rights.
If for any quarter we have distributed available cash
from operating surplus to the common unitholders in an amount equal to the minimum quarterly distribution, 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
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives a total of $0.244375 per unit for that quarter (the first target distribution);
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second
, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $0.265625 per unit for that quarter (the second target distribution);
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third
, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives a total of $0.31875 per unit for that quarter (the third target distribution); and
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thereafter
, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
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Percentage
Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of available cash from
operating surplus between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under Marginal Percentage Interest in Distributions are the percentage interests of our general
partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column Target Quarterly Distribution per Unit Target Amount. The percentage interests shown for
our 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 2.0% general partner interest and assume that our general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest and that our general partner has not transferred its incentive
distribution rights.
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Target Quarterly
Distribution per Unit
Target Amount
|
|
Marginal Percentage
Interest in Distributions
|
|
|
|
Unitholders
|
|
|
General Partner
|
|
Minimum Quarterly Distribution
|
|
$0.2125
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
First Target Distribution
|
|
above $0.2125 up to $0.244375
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
Second Target Distribution
|
|
above $0.244375 up to $0.265625
|
|
|
85.0
|
%
|
|
|
15.0
|
%
|
Third Target Distribution
|
|
above $0.265625 up to $0.31875
|
|
|
75.0
|
%
|
|
|
25.0
|
%
|
Thereafter
|
|
$0.31875
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
33
General Partners Right to Reset Incentive Distribution Levels
Right to Reset Incentive Distribution Levels
Our general partner, as the holder of our incentive distribution rights, has the right under our partnership agreement, subject to certain
conditions, to elect to relinquish the right to receive incentive distribution payments based on the initial target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and target distribution levels upon
which the incentive distribution payments to our general partner would be set. If our general partner transfers all or a portion of the incentive distribution rights in the future, then the holder or holders of a majority of our incentive
distribution rights will be entitled to exercise this right. The following discussion assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. Our general partners right to
reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the conflicts committee, at
any time when there are no subordinated units outstanding, we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distributions for each of the four consecutive fiscal quarters
immediately preceding such time and the amount of each such distribution did not exceed the adjusted operating surplus for such quarter. If our general partner and its affiliates are not the holders of a majority of the incentive distribution rights
at the time an election is made to reset the minimum quarterly distribution amount and the target distribution levels, then the proposed reset will be subject to the prior written concurrence of the general partner that the conditions described
above have been satisfied. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that our general
partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset
right in order to facilitate acquisitions or internal expansion projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made
to our general partner.
In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels
and the corresponding relinquishment by our general partner of incentive distribution payments based on the target distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units based on a
predetermined formula described below that takes into account the cash parity value of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters immediately preceding
the reset event as compared to the average cash distributions per common unit during that two-quarter period. In addition, our general partner will be issued the number of general partner units necessary to maintain our general partners
interest in us immediately prior to the reset election.
The number of common units that our general partner (or the then holder of the
incentive distribution rights, if other than our general partner) would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to
the quotient determined by dividing (x) the average aggregate amount of cash distributions received by our general partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately prior to the
date of such reset election by (y) the average of the aggregate amount of cash distributed per common unit during each of these two quarters.
Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount
per common unit for the two fiscal quarters immediately preceding the reset election (which amount we refer to as the reset minimum quarterly distribution) and the target distribution levels will be reset to be correspondingly higher
such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:
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first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives an amount equal to 115.0% of the reset minimum quarterly distribution for that quarter;
|
34
|
|
|
second
, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter;
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third
, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives an amount per unit equal to 150.0% of the reset minimum quarterly distribution for the quarter; and
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|
thereafter
, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
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The
following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner at various cash distribution levels (i) pursuant to the cash distribution provisions of our
partnership agreement in effect as of the date of this prospectus, as well as (ii) following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average quarterly cash
distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $0.50.
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Quarterly Distribution
per Unit Prior to Reset
|
|
Marginal Percentage
Interest in Distribution
|
|
|
Quarter Distribution
per Unit
Following
Hypothetical Reset
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|
Common
Unitholders
|
|
|
General
Partner
Units
|
|
|
Incentive
Distribution
Rights
|
|
|
Minimum Quarterly Distribution
|
|
$0.2125
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
$0.50
|
First Target Distribution
|
|
above $0.2125
up to $0.244375
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
above $0.50
up to $0.575(1)
|
Second Target Distribution
|
|
above $0.244375
up to $0.265625
|
|
|
85.0
|
%
|
|
|
2.0
|
%
|
|
|
13.0
|
%
|
|
above $0.575
up to $0.625(2)
|
Third Target Distribution
|
|
above $0.265625 up to $0.31875
|
|
|
75.0
|
%
|
|
|
2.0
|
%
|
|
|
23.0
|
%
|
|
above $0.625
up to $0.75(3)
|
Thereafter
|
|
above $0.31875
|
|
|
50.0
|
%
|
|
|
2.0
|
%
|
|
|
48.0
|
%
|
|
above $0.75
|
(1)
|
This amount is 115.0% of the hypothetical reset minimum quarterly distribution.
|
(2)
|
This amount is 125.0% of the hypothetical reset minimum quarterly distribution.
|
(3)
|
This amount is 150.0% of the hypothetical reset minimum quarterly distribution.
|
35
The following table illustrates the total amount of available cash from operating surplus that
would be distributed to the unitholders and our general partner and its affiliates, including in respect of incentive distribution rights, based on an average of the amounts distributed for the two quarters immediately prior to the reset. The table
assumes that immediately prior to the reset there would be 67,354,766 common units outstanding, our general partners 2.0% interest has been maintained, and the average distribution to each common unit would be $0.50 per quarter for the two
consecutive non-overlapping quarters prior to the reset.
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Prior to Reset
|
|
|
|
|
|
|
|
|
Cash Distributions to
General Partner and its Affiliates
|
|
|
|
|
(in thousands, except per unit
amounts)
|
|
Quarterly
Distribution
per Unit
|
|
Cash
Distributions
to Public
Common
Unitholders
|
|
|
Common
Units
|
|
|
General
Partner
Units
|
|
|
Incentive
Distribution
Rights
|
|
|
Total
|
|
|
Total
Distributions
|
|
Minimum Quarterly Distribution
|
|
$0.2125
|
|
$
|
4,604
|
|
|
$
|
9,709
|
|
|
$
|
292
|
|
|
$
|
|
|
|
$
|
10,001
|
|
|
$
|
14,605
|
|
First Target Distribution
|
|
above $0.2125 up to $0.244375
|
|
|
691
|
|
|
|
1,456
|
|
|
|
44
|
|
|
|
|
|
|
|
1,500
|
|
|
|
2,191
|
|
Second Target Distribution
|
|
above $0.244375 up to $0.265625
|
|
|
460
|
|
|
|
971
|
|
|
|
34
|
|
|
|
219
|
|
|
|
1,224
|
|
|
|
1,684
|
|
Third Target Distribution
|
|
above $0.265625 up to $0.31875
|
|
|
1,152
|
|
|
|
2,427
|
|
|
|
95
|
|
|
|
1,097
|
|
|
|
3,619
|
|
|
|
4,771
|
|
Thereafter
|
|
above $0.31875
|
|
|
3,927
|
|
|
|
8,281
|
|
|
|
488
|
|
|
|
11,720
|
|
|
|
20,489
|
|
|
|
24,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,834
|
|
|
$
|
22,844
|
|
|
$
|
953
|
|
|
$
|
13,036
|
|
|
$
|
36,833
|
|
|
$
|
47,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates the total amount of available cash from operating surplus that would be
distributed to the unitholders and the general partner and its affiliates, including in respect of incentive distribution rights, with respect to the quarter after the reset occurs. The table reflects that as a result of the reset there would be
93,426,673 common units outstanding, our general partner has maintained its 2.0% general partner interest, and that the average distribution to each common unit would be $0.50. The number of common units issued as a result of the reset was
calculated by dividing (i) $13,035,954 as the average of the amounts received by the general partner in respect of its incentive distribution rights for the two consecutive non-overlapping quarters prior to the reset as shown in the table
above, by (ii) the average of the cash distributions made on each common unit per quarter for the two consecutive non-overlapping quarters prior to the reset as shown in the table above, or $0.50.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Reset
|
|
(in thousands, except per unit
amounts)
|
|
Quarterly
Distribution
per
Unit
|
|
Cash
Distributions
to Public
Common
Unitholders
|
|
|
Cash Distributions to
General Partner and its Affiliates
|
|
|
|
|
|
|
|
Common
Units
|
|
|
General
Partner
Units
|
|
|
Incentive
Distribution
Rights
|
|
|
Total
|
|
|
Total
Distributions
|
|
Minimum Quarterly Distribution
|
|
$0.50
|
|
$
|
10,834
|
|
|
$
|
35,880
|
|
|
$
|
953
|
|
|
$
|
|
|
|
$
|
36,833
|
|
|
$
|
47,667
|
|
First Target Distribution
|
|
above $0.50 up to $0.575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Target Distribution
|
|
above $0.575 up to $0.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Target Distribution
|
|
above $0.625 up to $0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
$0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,834
|
|
|
$
|
35,880
|
|
|
$
|
953
|
|
|
$
|
|
|
|
|
36,833
|
|
|
$
|
47,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Our general partner will be entitled to cause the minimum quarterly distribution amount and the
target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the immediately preceding four consecutive fiscal quarters based on
the highest level of incentive distributions that it is entitled to receive under our partnership agreement.
Adjusted Operating
Surplus
Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and
therefore excludes net drawdowns of reserves of cash established in prior periods. Adjusted operating surplus for a period consists of:
|
|
|
operating surplus generated with respect to that period (excluding any amounts attributable to the item described in the first bullet point under the caption Operating Surplus and Capital
SurplusOperating Surplus above); less
|
|
|
|
any net increase in working capital borrowings with respect to that period; less
|
|
|
|
any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus
|
|
|
|
any net decrease in working capital borrowings with respect to that period; plus
|
|
|
|
any net decrease made in subsequent periods to cash reserves for operating expenditures initially established with respect to that period to the extent such decrease results in a reduction in adjusted operating surplus
in subsequent periods; plus
|
|
|
|
any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
|
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:
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until the minimum quarterly distribution is reduced to zero, as described below under Effect of a Distribution from Capital
Surplus; and
|
|
|
|
thereafter
, as if such distributions were from operating surplus.
|
The preceding
discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.
Effect of a Distribution from Capital Surplus
Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from our 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.
Once we distribute capital surplus on a unit sold in our initial public
offering in an amount equal to the initial unit price, we will reduce the minimum quarterly distribution and the target distribution levels to zero.
37
Thereafter, we will make all future distributions from operating surplus, with 50.0% being paid to the unitholders, pro rata, and 2.0% to our general partner and 48.0% to the holder of our
incentive distribution rights.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we
combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
|
|
|
the minimum quarterly distribution;
|
|
|
|
target distribution levels;
|
|
|
|
the unrecovered initial unit price; and
|
|
|
|
the number of general partner units comprising the general partner interest.
|
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 50.0% of its initial level, and each general partner unit would
be split into two units. We will not make any adjustment by reason of the issuance of additional units for cash or property (including the issuance of additional units under any compensation or benefit plans).
In addition, if legislation is enacted or if the official interpretation of existing law is modified by a governmental authority, so that we
become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the minimum quarterly distribution and the target distribution levels for each
quarter may be reduced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter (reduced by the amount of the estimated tax liability for such quarter payable by reason of such legislation or
interpretation) and the denominator of which is the sum of available cash for that quarter (reduced by the amount of the estimated tax liability for such quarter payable by reason of such legislation or interpretation) 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 may be accounted for in subsequent quarters.
Distributions of Cash Upon Liquidation
General
If we
dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining
proceeds to the unitholders and our general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.
Manner of Adjustments for Gain
The manner of the adjustment for gain is set forth in our partnership agreement. Upon liquidation, we will allocate any gain to the capital
accounts of our partners in the following manner:
|
|
|
first
, to our general partner to the extent of any negative balance in its capital account;
|
|
|
|
second
, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until the capital account for each common unit is equal to the sum of: (i) the unrecovered initial unit price; and
(ii) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;
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third
, 98.0% to all common unitholders, pro rata, and 2.0% to our general partner, until we allocate under
this paragraph an amount per unit equal to: (i) the sum of the excess of the first target
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distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less (ii) the cumulative amount per unit of any distributions of available cash from
operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, for each quarter of our existence;
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fourth
, 85.0% to all common unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (i) the sum of the excess of the second target
distribution per unit over the first target distribution per unit for each quarter of our existence; less (ii) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target
distribution per unit that we distributed 85.0% to the common unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence;
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fifth
, 75.0% to all common unitholders, pro rata, and 25.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (i) the sum of the excess of the third target
distribution per unit over the second target distribution per unit for each quarter of our existence; less (ii) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target
distribution per unit that we distributed 75.0% to the common unitholders, pro rata, and 25.0% to our general partner for each quarter of our existence; and
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thereafter
, 50.0% to all common unitholders, pro rata, and 50.0% to our general partner.
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The percentages set forth above are based on the assumption that our general partner maintains its 2.0% general partner interest, has not
transferred its incentive distribution rights and has not previously exercised its right to reset incentive distribution levels, and that we do not issue additional classes of equity securities.
Manner of Adjustments for Losses
Upon liquidation, we will generally allocate any loss to the capital accounts of our general partner and unitholders in the following manner:
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first,
98.0% to the holders of common units in proportion to the positive balances in their capital accounts and 2.0% to our general partner, until the capital accounts of the common unitholders have been reduced
to zero; and
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thereafter
, 100.0% to our general partner.
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The percentages set forth above are based
on the assumption that our general partner maintains its 2.0% general partner interest and has not transferred its incentive distribution rights and that we do not issue additional classes of equity securities.
Adjustments to Capital Accounts
Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our
partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain upon liquidation. In the event
that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we generally allocate any later negative adjustments to the capital accounts resulting from the issuance of
additional units or upon our liquidation in a manner which results, to the extent possible, in the partners capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had
been made. In contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the
unitholders and our general partner based on their respective percentage ownership of us. If we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units
will be allocated in a manner designed to reverse the prior negative adjustments, and special allocations will be made upon liquidation in a manner that results, to the extent possible, in our unitholders capital account balances equaling the
amounts they would have been if no earlier adjustments for loss had been made.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material tax considerations that may be relevant to prospective unitholders who are individual citizens or
residents of the U.S. and, unless otherwise noted in the following discussion, is the opinion of Baker Botts L.L.P., counsel to our general partner and us, insofar as it relates to legal conclusions with respect to matters of U.S. federal income tax
law. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the Code), existing and proposed Treasury regulations promulgated under the Internal Revenue Code (the Treasury Regulations)
and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise
requires, references in this section to us or we are references to Valero Energy Partners LP and our operating subsidiaries.
The following discussion does not comment on all federal income tax matters affecting us or our unitholders. Moreover, the discussion focuses
on unitholders who are individual citizens or residents of the U.S. and has only limited application to corporations, estates, entities treated as partnerships for U.S. federal income tax purposes, trusts, nonresident aliens, U.S. expatriates and
former citizens or long-term residents of the United States or other unitholders subject to specialized tax treatment, such as banks, insurance companies and other financial institutions, tax-exempt institutions, foreign persons (including,
without limitation, controlled foreign corporations, passive foreign investment companies and non-U.S. persons eligible for the benefits of an applicable income tax treaty with the U.S.), IRAs, real estate investment trusts (REITs) or
mutual funds, dealers in securities or currencies, traders in securities, U.S. persons whose functional currency is not the U.S. dollar, persons holding their units as part of a straddle, hedge, conversion
transaction or other risk reduction transaction, and persons deemed to sell their units under the constructive sale provisions of the Code. In addition, the discussion only comments to a limited extent on state, local and foreign tax
consequences. Accordingly, we encourage each prospective unitholder to consult his own tax advisor in analyzing the state, local and foreign tax consequences particular to him of the ownership or disposition of common units and potential changes in
applicable tax laws.
All statements as to matters of federal income tax law and legal conclusions with respect thereto, but not as to
factual matters, contained in this section, unless otherwise noted, are the opinion of Baker Botts L.L.P. and are based on the accuracy of the representations made by us.
No ruling has been requested from the IRS regarding our characterization as a partnership for tax purposes. Instead, we will rely on opinions
of Baker Botts L.L.P. Unlike a ruling, an opinion of counsel represents only that counsels best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made herein may not be sustained by a court if
contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for the common units and the prices at which common units trade. In addition, the costs of any contest with the IRS, principally legal,
accounting and related fees, will result in a reduction in our distributable cash flow and thus will be borne indirectly by our unitholders and our general partner. Furthermore, the tax treatment of us, or of an investment in us, may be
significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.
For the reasons described below, Baker Botts L.L.P. has not rendered an opinion with respect to the following specific federal income tax
issues: (i) the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read Tax Consequences of Unit OwnershipTreatment of Short Sales); (ii) whether
our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read Disposition of Common UnitsAllocations Between Transferors and Transferees); and (iii) whether
our method for taking into account Section 743 adjustments is sustainable in certain cases (please read Tax Consequences of Unit OwnershipSection 754 Election and Uniformity of Units).
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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 partnership or the partner unless the amount of cash distributed to him is in excess of the partners adjusted basis in his partnership interest.
Section 7704 of the Code provides that publicly traded limited 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 limited 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, processing, storage and marketing of crude oil, natural gas and products thereof. Other types of qualifying income include interest (other than from a financial business),
dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes qualifying income. We estimate that less than 5% of our current gross income
is not qualifying income; however, this estimate could change from time to time. Based upon and subject to this estimate, the factual representations made by us and our general partner and a review of the applicable legal authorities, Baker Botts
L.L.P. is of the opinion that at least 90% of our current gross income constitutes qualifying income. The portion of our income that is qualifying income may change from time to time.
No ruling has been or will be sought from the IRS and the IRS has made no determination as to our status or the status of our operating
subsidiaries for federal income tax purposes or whether our operations generate qualifying income under Section 7704 of the Code. Instead, we will rely on the opinion of Baker Botts L.L.P. on such matters. It is the opinion of Baker
Botts L.L.P. that, based upon the Code, Treasury Regulations, published revenue rulings and court decisions and the representations described below that:
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we will be classified as a partnership for federal income tax purposes; and
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each of our operating subsidiaries will be treated as a partnership or will be disregarded as an entity separate from us for federal income tax purposes.
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In rendering its opinion, Baker Botts L.L.P. has relied on factual representations made by us and our general partner. The representations
made by us and our general partner upon which Baker Botts L.L.P. has relied include:
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neither we nor any of the operating subsidiaries 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 of the type that Baker Botts L.L.P. has opined or will opine is qualifying income within the meaning of
Section 7704(d) of the Code.
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We believe these representations are true and expect that these representations will
continue to be true in the future.
If we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS
to be inadvertent and that is cured within a reasonable time after discovery (in which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts), we will be treated as if we had transferred all of our
assets, subject to liabilities, to a newly formed corporation, on the first day of the year in which we fail to meet the Qualifying Income Exception, in return for stock in that corporation, and then distributed that stock to the unitholders in
liquidation of their interests in us. This deemed contribution and liquidation should be tax-free to unitholders and us so long as we, at that time, do not have liabilities in excess of the tax basis of our assets. Thereafter, we would be treated as
a corporation for federal income tax purposes.
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If we were treated as an association taxable as a corporation in any taxable year, either as a
result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to our unitholders, and our net income would be taxed
to us at corporate rates. In addition, any distribution made to a unitholder would be treated as taxable dividend income, to the extent of our current and accumulated earnings and profits, then a nontaxable return of capital, to the extent of the
unitholders tax basis in his common units, and thereafter as taxable capital gain. 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 Baker Botts L.L.P.s opinion that we will
be classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders who are admitted as limited partners of Valero Energy Partners LP will be treated as partners of Valero Energy Partners LP 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 Valero Energy Partners LP for federal income tax purposes.
A beneficial owner of common units whose units have
been transferred to a short seller to complete a short sale would appear to lose his status as a partner with respect to those units for federal income tax purposes. Please read Tax Consequences of Unit OwnershipTreatment of Short
Sales.
Income, gains, losses or deductions would not appear to be reportable by a unitholder who is not a partner for federal
income tax purposes, and any cash distributions received by a unitholder who is not a partner for federal income tax purposes would therefore appear to be fully taxable as ordinary income. These holders are urged to consult their tax advisors with
respect to the tax consequences to them of holding common units in Valero Energy Partners LP. The references to unitholders in the discussion that follows are to persons who are treated as partners in Valero Energy Partners LP for
federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-through of Taxable Income
Subject to the discussion below under Tax Consequences of Unit OwnershipEntity-level Collections we will not pay any
federal income tax. Instead, each unitholder will be required to report on his income tax return his share of our income, gains, losses and deductions without regard to whether we make cash distributions to him. Consequently, we may allocate income
to a unitholder even if he has not received a cash distribution. The income we allocate to unitholders will generally be taxable as ordinary income. Each unitholder will be required to include in income his allocable share of our income, gains,
losses and deductions for our taxable year ending with or within his taxable year. Our taxable year ends on December 31.
Treatment of Distributions
Distributions by us to a unitholder generally will not be taxable to the unitholder for federal income tax purposes, except to the extent the
amount of any such cash distribution exceeds his tax basis in his common units immediately before the distribution. Our cash distributions in excess of a unitholders tax basis generally will be considered to be gain from the sale or exchange
of the common units, taxable in accordance with the rules described under Disposition of Common Units. Any reduction in a unitholders share of our liabilities for which no partner, including the general partner, bears the
economic risk of loss, known as nonrecourse liabilities, will be treated as a distribution by us of cash to that unitholder. To the extent our distributions cause a unitholders at-risk amount to be less than zero at the
end of any taxable year, he must recapture any losses deducted in previous years. Please read Tax Consequences of Unit OwnershipLimitations on Deductibility of Losses.
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A decrease in a unitholders percentage interest in us because of our issuance of additional
common units will decrease his share of our nonrecourse liabilities, and thus will result in a corresponding deemed distribution of cash. This deemed distribution may constitute a non-pro rata distribution. A non-pro rata distribution of money or
property may result in ordinary income to a unitholder, regardless of his tax basis in his common units, if the distribution reduces the unitholders share of our unrealized receivables, including depreciation recapture and/or
substantially appreciated inventory items, each as defined in the Code, and collectively, Section 751 Assets. To that extent, the unitholder will be treated as having been distributed his proportionate share of the
Section 751 Assets and then having exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to him. This latter deemed exchange will generally result in the unitholders realization of ordinary
income, which will equal the excess of (i) the non-pro rata portion of that distribution over (ii) the unitholders tax basis (generally zero) for the share of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units
A unitholders initial tax basis for his common units will be the amount he paid for the common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our income and by any increases in his share of our nonrecourse liabilities. That basis will be decreased, but not below zero, by distributions from us, by the unitholders share of our
losses, by any decreases in his share of our nonrecourse liabilities and by his share of our expenditures that are not deductible in computing taxable income and are not required to be capitalized. A unitholder will have no share of our debt that is
recourse to our general partner to the extent of the general partners net value as defined in Treasury Regulations under Section 752 of the Code, but will have a share, generally based on his share of profits, of our
nonrecourse liabilities. Please read Disposition of Common UnitsRecognition of Gain or Loss.
Limitations on
Deductibility of Losses
The deduction by a unitholder of his share of our losses will be limited to the tax basis in his units
and, in the case of an individual unitholder, estate, trust, or corporate unitholder (if more than 50% of the value of the corporate unitholders stock is owned directly or indirectly by or for five or fewer individuals or some tax-exempt
organizations) to the amount for which the unitholder is considered to be at risk with respect to our activities, if that is less than his tax basis. A common unitholder subject to these limitations must recapture losses deducted in
previous years to the extent that distributions cause his at-risk amount to be less than zero at the end of any taxable year. Losses disallowed to a unitholder or recaptured as a result of these limitations will carry forward and will be allowable
as a deduction to the extent that his at-risk amount is subsequently increased, provided such losses do not exceed such common unitholders tax basis in his common units. Upon the taxable disposition of a unit, any gain recognized by a
unitholder can be offset by losses that were previously suspended by the at-risk limitation but may not be offset by losses suspended by the basis limitation. Any loss previously suspended by the at-risk limitation in excess of that gain would no
longer be utilizable.
In general, a unitholder will be at risk to the extent of the tax basis of his units, excluding any portion of that
basis attributable to his share of our nonrecourse liabilities, reduced by (i) any portion of that basis representing amounts otherwise protected against loss because of a guarantee, stop loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his units, if the lender of those borrowed funds owns an interest in us, is related to the unitholder or can look only to the units for repayment. A unitholders at-risk amount will
increase or decrease as the tax basis of the unitholders units increases or decreases, other than tax basis increases or decreases attributable to increases or decreases in his share of our nonrecourse liabilities.
In addition to the basis and at-risk limitations on the deductibility of losses, the passive loss limitations generally provide that
individuals, estates, trusts and some closely-held corporations and personal service corporations can deduct losses from passive activities, which are generally trade or business activities in which the taxpayer does not materially participate, only
to the extent of the taxpayers income from those passive
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activities. The passive loss limitations are applied separately with respect to each publicly traded limited partnership. Consequently, any passive losses we generate will only be available to
offset our passive income generated in the future and will not be available to offset income from other passive activities or investments, including our investments or a unitholders investments in other publicly traded limited partnerships, or
the unitholders salary, active business or other income. Passive losses that are not deductible because they exceed a unitholders share of income we generate may be deducted in full when he disposes of his entire investment in us in a
fully taxable transaction with an unrelated party. The passive loss limitations are applied after other applicable limitations on deductions, including the at-risk rules and the basis limitation.
A unitholders share of our net income may be offset by any of our suspended passive losses, but it may not be offset by any other
current or carryover losses from other passive activities, including those attributable to other publicly traded limited partnerships.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayers investment interest expense is generally limited to the amount of that
taxpayers net investment income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.
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The computation of a unitholders investment interest expense will take into account interest on any margin account borrowing or other
loan incurred to purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment or (if applicable) qualified dividend income. The IRS has indicated that the net passive income
earned by a publicly traded limited 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. Please Read
Tax Consequences of Unit OwnershipEntity-level Audits and Adjustments.
Entity-level Audits and Adjustments
Pursuant to the Bipartisan Budget Act of 2015, if the IRS makes audit adjustments to our income tax returns for tax years
beginning after 2017, it may collect any resulting taxes (including any applicable penalties and interest) directly from us. We will generally have the ability to shift any such tax liability to our general partner
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and our unitholders in accordance with their interests in us during the year under audit, but there can be no assurance that we will be able to do so under all circumstances. If we are required
to make payments of taxes, penalties and interest resulting from audit adjustments, our cash available for distribution to our unitholders might be substantially reduced.
Pursuant to this new legislation, we will designate a person (our general partner) to act as the partnership representative who shall have the
sole authority to act on behalf of the partnership with respect to dealings with the IRS under these new audit procedures.
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, 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, as adjusted to take into account the unitholders share of nonrecourse debt, and, second, to our general partner.
Section 704(c) of the Code requires us to assign each asset contributed to us in connection with this offering a book basis
equal to the fair market value of the asset at the time of this offering. Purchasers of units in this offering are entitled to calculate tax depreciation and amortization deductions and other relevant tax items with respect to our assets based upon
that book basis, which effectively puts purchasers in this offering in the same position as if our assets had a tax basis equal to their fair market value at the time of this offering. In this context, we use the term book as
that term is used in Treasury Regulations under Section 704 of the Code. The book basis assigned to our assets for this purpose may not be the same as the book value of our property for financial reporting purposes.
Upon any issuance of units by us after this offering, rules similar to those of Section 704(c) described above will apply for the benefit
of recipients of units in that later issuance. This may have the effect of decreasing the amount of our tax depreciation or amortization deductions thereafter allocated to purchasers of units in this offering or of requiring purchasers of units in
this offering to thereafter recognize remedial income rather than depreciation and amortization deductions.
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 an amount and manner
sufficient 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 under the Section 704(c) principles described above, 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 flows; and
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the rights of all the partners to distributions of capital upon liquidation.
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Baker Botts L.L.P. is of the opinion that, with the exception of the issues described in
Tax Consequences of Unit OwnershipSection 754 Election and Disposition of Common UnitsAllocations Between Transferors and Transferees, and Uniformity of Units, allocations under our
partnership agreement will be given effect for federal income tax purposes in determining a partners share of an item of income, gain, loss or deduction.
Treatment of Short Sales
A unitholder whose units are loaned to a short seller to cover a short sale of units may be considered as having disposed of those
units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period:
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any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those units would be fully taxable; and
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while not entirely free from doubt, all of these distributions would appear to be ordinary income.
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Because there is no direct or indirect controlling authority on the issue relating to partnership interests, Baker Botts L.L.P. has not
rendered an opinion regarding the tax treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk of gain
recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their units. The IRS has
previously announced that it is studying issues relating to the tax treatment of short sales of partnership interests. Please read Disposition of Common UnitsRecognition 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. For 2016, the current minimum tax rate for non-corporate taxpayers is 26% on the first $186,300 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. Both the $186,300 amount and the exemption amount are adjusted for
inflation each year.
Tax Rates
The highest marginal U.S. federal income tax rate applicable to ordinary income of individuals currently is 39.6% and the highest marginal U.S.
federal income tax rate applicable to long-term capital gains (generally, capital gains on certain assets held for more than twelve months) of individuals currently is 20%. Such rates are subject to change by new legislation at any time.
In addition, a 3.8% Medicare tax, or NIIT, on certain net investment income earned by individuals, estates and trusts currently applies. For
these purposes, net investment income generally includes a unitholders allocable share of our income and gain realized by a unitholder from a sale of units. In the case of an individual, the tax will be imposed on the lesser of (i) the
unitholders net investment income and (ii) the amount by which the unitholders modified adjusted gross income exceeds $250,000 (if the unitholder is married and filing jointly or a surviving spouse), $125,000 (if the unitholder is
married and filing separately) or $200,000 (in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed net investment income and (ii) the excess adjusted gross income over the dollar
amount at which the highest income tax bracket applicable to an estate or trust begins. Prospective unitholders are urged to consult with their tax advisors as to the impact of the NIIT on an investment in our common units.
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Section 754 Election
We have made the election permitted by Section 754 of the Code. That election is irrevocable without the consent of the IRS unless there
is a constructive termination of the partnership. Please read Disposition of Common UnitsConstructive Termination. The election generally permits us to adjust a common unit purchasers tax basis in our assets
(inside basis) under Section 743(b) of the Code to reflect his purchase price. This election does not apply with respect to a person who purchases common units directly from us. The Section 743(b) adjustment belongs to the
purchaser and not to other unitholders. For purposes of this discussion, the inside basis in our assets with respect to a unitholder will be considered to have two components: (i) his share of our tax basis in our assets, or common basis, and
(ii) his Section 743(b) adjustment to that basis.
The timing of deductions attributable to a Section 743(b) adjustment to
our common basis will depend upon a number of factors, including the nature of the assets to which the adjustment is allocable, the extent to which the adjustment offsets any Section 704(c) type gain or loss with respect to an asset and certain
elections we make as to the manner in which we apply Section 704(c) principles with respect to an asset with respect to which the adjustment is allocable. Please read Allocation of Income, Gain, Loss and Deduction. The timing
of these deductions may affect the uniformity of our units. 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 built-in loss or a basis reduction is substantial if it exceeds $250,000.
The calculations involved in the
Section 754 election are complex and will be made on the basis of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in accordance with
the Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is generally nonamortizable or amortizable over a longer
period of time or under a less accelerated method than our tangible assets. We cannot assure you that the determinations we make will not be successfully challenged by the IRS and that the deductions resulting from them will not be reduced or
disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our Section 754
election. If permission is granted, a subsequent purchaser of units may be allocated more income than he would have been allocated had the election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the year ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a unitholder who has a taxable year ending on a date other than
December 31 and who disposes of all of his units following the close of our taxable year but before the close of his taxable year must include his share of our income, gain, loss and deduction in income for his taxable year, with the result
that he will be required to include in income for his taxable year his share of more than twelve months of our income, gain, loss and deduction. Please read Disposition of Common UnitsAllocations Between Transferors and
Transferees.
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Initial Tax Basis, Depreciation and Amortization
The tax basis of our assets will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on
the disposition of these assets. The federal income tax burden associated with the difference between the fair market value of our assets and their tax basis immediately prior to (i) this offering will be borne by our general partner and its
affiliates, and (ii) any other offering will be borne by our general partner and all of our unitholders as of that time. Please read Tax Consequences of Unit OwnershipAllocation of Income, Gain, Loss and Deduction.
To the extent allowable, we may elect to use the depreciation and cost recovery methods, including bonus depreciation to the extent available,
that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. Please read Uniformity of Units. Property we subsequently acquire or construct may be
depreciated using accelerated methods permitted by the 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 of those deductions as ordinary income upon a sale of his interest in us. Please read Tax
Consequences of Unit OwnershipAllocation of Income, Gain, Loss and Deduction and Disposition of Common UnitsRecognition of Gain or Loss.
The costs we incur in selling our units (called syndication expenses) must be capitalized and cannot be deducted currently,
ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as syndication expenses.
Valuation and Tax Basis of Our Properties
The federal income tax consequences of the ownership and disposition of units will depend in part on our estimates of the relative fair market
values, and the initial tax bases, of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and
determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deductions
previously reported by unitholders might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of units equal to the difference between the amount realized and the unitholders tax basis for
the units sold. A unitholders amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our nonrecourse liabilities with respect to the 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 that in the aggregate were in excess of cumulative net taxable income for a common unit and, therefore, decreased
a unitholders tax basis in that common unit will, in effect, become taxable income if the common unit is sold at a price greater than the unitholders tax basis in that common unit, even if the price received is less than his original
cost.
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Except as noted below, gain or loss recognized by a unitholder, other than a dealer
in units, on the sale or exchange of a unit will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of units held for more than twelve months will generally be taxed at the U.S. federal income tax rate
applicable to long-term capital gains. However, a portion of this gain or loss, which will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to
assets giving rise to depreciation recapture or other unrealized receivables or to inventory items we own. The term unrealized receivables includes potential recapture items, including depreciation recapture.
Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a unit.
Thus, a unitholder may recognize both ordinary income and a capital loss upon a sale of units. Capital losses may offset capital gains and no more than $3,000 of ordinary income, in the case of individuals, and may only be used to offset capital
gains in the case of corporations. Both ordinary income and capital gain recognized on a sale of units may be subject to the NIIT in certain circumstances. Please read Tax Consequences of Unit OwnershipTax Rates.
The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a
single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an equitable apportionment method, which
generally means that the tax basis allocated to the interest sold equals an amount that bears the same relation to the partners tax basis in his entire interest in the partnership as the value of the interest sold bears to the value of the
partners entire interest in the partnership. Treasury Regulations under Section 1223 of the Code allow a selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use the actual holding
period of the common units transferred. Thus, according to the ruling discussed above, a common unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according to the Treasury
Regulations, he may designate specific common units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding period of common units transferred must consistently use that
identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional units or a sale of common units purchased in separate transactions is urged to consult his tax advisor as to the
possible consequences of this ruling and application of the Treasury Regulations.
Specific provisions of the Code affect the taxation of
some financial products and securities, including partnership interests, by treating a taxpayer as having sold an appreciated partnership interest, one in which gain would be recognized if it were sold, assigned or terminated at its fair
market value, if the taxpayer or related persons enter(s) into:
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an offsetting notional principal contract; or
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a futures or forward contract;
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in each case, with respect to the partnership interest or substantially
identical property.
Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a
futures or forward contract with respect to the partnership interest, the taxpayer will be treated as having sold that 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.
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Allocations Between Transferors and Transferees
In general, our taxable income and losses will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned
among the unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month, which we refer to in this prospectus as the Allocation Date. However,
gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a
unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.
Although simplifying
conventions are contemplated by the Code and most publicly traded limited partnerships use similar simplifying conventions, the use of this method may not be permitted under existing Treasury Regulations. Recently, however, the Department of the
Treasury and the IRS issued Treasury Regulations pursuant to which a publicly traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. However, such Treasury Regulations
do not specifically authorize the use of the proration method we have currently adopted. Accordingly, Baker Botts L.L.P. is unable to opine on the validity of this method of allocating income and deductions between transferor and transferee
unitholders. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholders interest, our taxable income or losses might be reallocated among the unitholders. We are authorized to
revise our method of allocation between transferor and transferee unitholders, as well as unitholders whose interests vary during a taxable year, to conform to a method permitted under applicable law. If a unitholder who owns units at any time
during a quarter and who disposes of them prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and deductions attributable to that quarter through the month of disposition but will
not be entitled to receive that cash distribution.
Notification Requirements
A unitholder who sells any of his units is generally required to notify us in writing of that sale within 30 days after the sale (or, if
earlier, January 15 of the year following the sale). A purchaser of units who purchases units from another unitholder is also generally required to notify us in writing of that purchase within 30 days after the purchase. Upon receiving such
notifications, we are required to notify the IRS of that transaction and to furnish specified information to the transferor and transferee. Failure to notify us of a purchase may, in some cases, lead to the imposition of penalties. However, these
reporting requirements do not apply to a sale by an individual who is a citizen of the U.S. and who effects the sale or exchange through a broker who will satisfy such requirements.
Constructive Termination
We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or
more of the total interests in our capital and profits within a 12-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would,
among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two Schedules K-1 if relief was not available, as described below) for one fiscal
year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may
also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes,
but instead we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections, including a new election under Section 754 of the Code, and could be subject to penalties if
we are unable to determine that a termination occurred. The IRS has
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recently announced a publicly traded limited partnership technical termination relief program whereby, if a publicly traded limited partnership that technically terminated requests publicly
traded limited partnership technical termination relief and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years.
Uniformity of Units
Because we cannot
match transferors and transferees of units, we must maintain uniformity of the economic and tax characteristics of the units to a purchaser of these units. In the absence of uniformity, we may be unable to completely comply with a number of federal
income tax requirements, both statutory and regulatory. Any non-uniformity could have an impact upon the value of our units. The timing of deductions attributable to Section 743(b) adjustments to the common basis of our assets with respect to
persons purchasing units from another unitholder may affect the uniformity of our units. Please read Tax Consequences of Unit OwnershipSection 754 Election.
For example, some types of depreciable assets are not subject to the typical rules governing depreciation (under Section 168 of the Code)
or amortization (under Section 197 of the Code). If we were to acquire any assets of that type, the timing of a unit purchasers deductions with respect to Section 743(b) adjustments to the common basis of those assets might differ
depending upon when and to whom the unit he purchased was originally issued. We do not currently expect to acquire any assets of that type. However, if we were to acquire a material amount of assets of that type, we intend to adopt tax positions as
to those assets that will not result in any such lack of uniformity. Any such tax positions taken by us might result in allocations to some unitholders of smaller depreciation deductions than they would otherwise be entitled to receive. Baker Botts
L.L.P. has not rendered an opinion with respect to those types of tax positions. Moreover, the IRS might challenge those tax positions. If we took such a tax position and the IRS successfully challenged the position, the uniformity of our units
might be affected, and the gain from the sale of our units might be increased without the benefit of additional deductions. Please read Disposition of Common UnitsRecognition of Gain or Loss.
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident aliens, foreign corporations and other foreign
persons raises issues unique to those investors and, as described below to a limited extent, may have substantially adverse tax consequences to them. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before
investing in our common units. Employee benefit plans and most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject to federal income tax on unrelated business taxable
income. Virtually all of our income allocated to a unitholder that is a tax-exempt organization will be unrelated business taxable income and will be taxable to it.
Non-resident aliens and foreign corporations, trusts or estates that own units will be considered to be engaged in business in the U.S.
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 limited partnerships, our quarterly distribution to foreign unitholders will be subject to withholding at the highest applicable effective tax rate. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN, Form W-8BEN-E or applicable substitute form in order to obtain credit for these withholding taxes. A change in applicable law may require us to change
these procedures.
In addition, because a foreign corporation that owns units will be treated as engaged in a U.S. trade or business, that
corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our earnings and profits, as adjusted for changes in the foreign corporations U.S. net equity,
that is effectively connected with the conduct of a U.S. trade or business. That tax may be
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reduced or eliminated by an income tax treaty between the U.S. and the country in which the foreign corporate unitholder is a qualified resident. In addition, this type of unitholder
is subject to special information reporting requirements under Section 6038C of the Code.
A foreign unitholder who sells or
otherwise disposes of a common unit will be subject to U.S. federal income tax on gain realized from the sale or disposition of that unit to the extent the gain is effectively connected with a U.S. trade or business of the foreign unitholder. Under
a ruling published by the IRS, interpreting the scope of effectively connected income, a foreign unitholder would be considered to be engaged in a trade or business in the U.S. by virtue of the U.S. activities of the partnership, and
part or all of that unitholders gain would be effectively connected with that unitholders indirect U.S. trade or business. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign common unitholder generally will be
subject to U.S. federal income tax upon the sale or disposition of a common unit if (i) he owned (directly or constructively applying certain attribution rules) more than 5% of our common units at any time during the five-year period ending on
the date of such disposition and (ii) 50% or more of the fair market value of all of our assets consisted of U.S. real property interests at any time during the shorter of the period during which such unitholder held the common units or the
five-year period ending on the date of disposition. Currently, more than 50% of our assets consist of U.S. real property interests and we do not expect that to change in the foreseeable future. Therefore, foreign unitholders may be subject to
federal income tax on gain from the sale or disposition of their units.
Administrative Matters
Information Returns and Audit Procedures
We intend to furnish to each unitholder, within 90 days after the close of each calendar year, specific tax information, including a Schedule
K-1, which describes his share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have
been mentioned earlier, to determine each unitholders share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the Code, Treasury Regulations or
administrative interpretations of the IRS. Neither we nor Baker Botts L.L.P. can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any challenge by the IRS could negatively
affect the value of the units.
The IRS may audit our federal income tax information returns. Adjustments resulting from an IRS audit may
require each unitholder to adjust a prior years tax liability, and possibly may result in an audit of his return. Any audit of a unitholders return could result in adjustments not related to our returns as well as those related to our
returns.
Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative
adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Code requires
that one partner be designated as the Tax Matters Partner for these purposes. Our partnership agreement names our general partner as our Tax Matters Partner. The Tax Matters Partner has made and will make some elections on our behalf and
on behalf of unitholders. In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1%
profits interest in us to a settlement with the IRS unless a statement is timely filed with the IRS in accordance with applicable Treasury Regulations, either (i) to deny that authority to the Tax Matters Partner or (ii) to become a member
of a notice group (generally, a group of unitholders with an aggregate profits interest in us of 5% or more and that has requested treatment as a notice 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
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by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each unitholder with an interest in the
outcome may participate.
A unitholder must file a statement with the IRS identifying the treatment of any item on his federal income tax
return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of this consistency requirement may subject a unitholder to substantial penalties.
Due to the recent enactment of the Bipartisan Budget Act of 2015, the audit procedures discussed above will change for partnership taxable
years beginning after December 31, 2017. Please read Tax Consequences of Unit OwnershipEntity-level Audits and Adjustments.
Additional Withholding Requirements
Withholding taxes may apply to certain types of payments made to foreign financial institutions (as specially defined in the Code)
and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on interest, dividends and other fixed or determinable annual or periodical gains, profits and income from sources within the U.S. (FDAP Income), or
gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the U.S. (Gross Proceeds) paid to a foreign financial institution or to a non-financial foreign
entity (as specially defined in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting, (ii) the non-financial foreign entity either certifies it does not have any substantial U.S. owners
or furnishes identifying information regarding each substantial U.S. owner or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial
institution and is subject to the diligence and reporting requirements in clause (i) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S.
persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to noncompliant foreign financial institutions and certain other account holders. Foreign financial institutions located in
jurisdictions that have an intergovernmental agreement with the U.S. governing these requirements may be subject to different rules.
These rules generally are currently applicable to payments of FDAP Income and will apply to payments of relevant Gross Proceeds made on or
after January 1, 2019. Thus, to the extent we have FDAP Income, or Gross Proceeds on or after January 1, 2019, that are not treated as effectively connected with a U.S. trade or business (please read Tax-Exempt Organizations
and Other Investors), unitholders who are foreign financial institutions or certain other non-US entities may be subject to withholding on distributions they receive from us, or their distributive share of our income, pursuant to the rules
described above.
Prospective investors should consult their own tax advisors regarding the potential application of these withholding
provisions to their investment in our common units.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
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the name, address and taxpayer identification number of the beneficial owner and the nominee;
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whether the beneficial owner is:
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a person that is not a U.S. person;
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a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or
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the amount and description of units held, acquired or transferred for the beneficial owner; and
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specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from dispositions.
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Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons
and specific information on units they acquire, hold or transfer for their own account. A penalty per failure, which is generally capped at a maximum penalty per calendar year and the amount of which is adjusted for inflation each year, is imposed
by the Code for failure to report that information to us. The nominee is required to supply the beneficial owner of the units with the information furnished to us.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Code. Such penalty may be avoided, however, for any portion of an underpayment if it is
shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.
For
individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted on the return:
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for which there is, or was, substantial authority; or
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as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return.
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If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an
understatement of income for which no substantial authority exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns and to take other actions as may be appropriate to permit unitholders to avoid liability for this penalty. More stringent rules apply to tax shelters, which we do not believe includes us, or any of
our investments, plans or arrangements.
A substantial valuation misstatement exists if (a) the value of any property, or the
adjusted 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 adjusted basis, (b) the price for any property or services (or for the use of property) claimed on any
such return with respect to any transaction between persons described in Code Section 482 is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct amount of such price, or (c) the net Code
Section 482 transfer price adjustment for the taxable year exceeds the lesser of $5.0 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). If the valuation claimed on a return is 200% or more than the correct valuation or certain other thresholds are met, the penalty imposed increases to 40%. We do not anticipate making any
valuation misstatements.
In addition, the 20% accuracy-related penalty also applies to any portion of an underpayment of tax that is
attributable to transactions lacking economic substance. To the extent that such transactions are not disclosed, the penalty imposed is increased to 40%. Additionally, there is no reasonable cause defense to the imposition of this penalty to such
transactions.
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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. Penalties may be imposed for failure to comply with these disclosure requirements. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax
avoidance transaction publicly identified by the IRS as a listed transaction or that it produces certain kinds of losses for partnerships, individuals, S corporations, and trusts in excess of $2 million in any single year, or $4 million
in any combination of six successive tax years (beginning with the year the transaction is entered into). 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 Administrative MattersInformation Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed
transaction, you may be subject to the following additional consequences:
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accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at Administrative MattersAccuracy-Related Penalties;
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for those persons otherwise entitled to deduct interest on federal tax deficiencies, non-deductibility 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.
Recent Legal Developments
The present federal income tax treatment of publicly traded limited partnerships, including us, or an investment in our common units may be
modified by administrative, legislative or judicial interpretation at any time. For example, from time to time, members of Congress and the President propose and consider substantive changes to the existing federal income tax laws that affect
publicly traded limited partnerships. Any modification to the federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a
partnership for federal income tax purposes. Please read Partnership Status. We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us, and any such
changes could negatively impact the value of an investment in our common units.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you 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 do business in Arkansas, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee and Texas. Each of those states imposes an
income or franchise tax on corporations and other entities. Except for Texas, all of those states currently impose a personal income tax on individuals. We may also own property or do business in other jurisdictions in the future. Although you may
not be required to file a return and pay taxes in some jurisdictions because your income from that jurisdiction falls below the filing and payment requirement, you will be required to file income tax returns and to pay income taxes in many of these
jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. In some jurisdictions, tax losses may not produce a tax benefit in the year incurred and may not be available to
offset income in subsequent taxable years. Some of the 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
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a particular unitholders income tax liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. Amounts withheld
will be treated as if distributed to unitholders for purposes of determining the amounts distributed by us. Please read Tax Consequences of Unit OwnershipEntity-level Collections. Based on current law and our estimate of our
future operations, our general partner anticipates that any amounts required to be withheld will not be material.
It is the
responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent states, localities and foreign jurisdictions, of his investment in us. Accordingly, each prospective unitholder is urged to consult his own
tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to file all state, local and foreign, as well as U.S. federal tax returns, that may be required of him. Baker Botts L.L.P. has not
rendered an opinion on the state, local or foreign tax consequences of an investment in us.
56
PLAN OF DISTRIBUTION
We will set forth in the applicable prospectus supplement a description of the plan of distribution of our securities that may be offered
pursuant to this prospectus.
LEGAL MATTERS
The validity of the issuance of certain of the securities offered by this prospectus and certain other legal matters will be passed upon for
us by Baker Botts L.L.P., Houston, Texas. Baker Botts L.L.P. will also render an opinion on the material federal income tax considerations regarding such securities. If certain legal matters in connection with an offering of the securities made by
this prospectus are passed on by counsel for the underwriters of such offering, that counsel will be named in the applicable prospectus supplement related to that offering.
EXPERTS
The consolidated financial statements of Valero Energy Partners LP and its subsidiaries as of December 31, 2015 and 2014, and for each of
the years in the three-year period ended December 31, 2015, and managements assessment of the effectiveness of internal control over financial reporting as of December 31, 2015, have been incorporated by reference herein in reliance
upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The combined financial statements of the Meraux and Three Rivers Terminal Services Business as of December 31, 2015, and for the year
then ended, have been incorporated by reference herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities Act that registers the securities offered by this prospectus. The
registration statement, including the attached exhibits, contains additional relevant information about us. The rules and regulations of the SEC allow us to omit some information included in the registration statement from this prospectus.
In addition, we file annual, quarterly and other reports and other information with the SEC. You may read and copy any document we file at the
SECs public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the operation of the SECs public reference room. Our SEC filings are available on the
SECs web site at http://www.sec.gov. We also make available free of charge on our website at
www.valeroenergypartners.com
all materials that we file electronically with the SEC, including our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, Section 16 reports and amendments to these reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC. Information contained on our
website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.
The
SEC allows us to incorporate by reference the information we have filed with the SEC. This means that we can disclose important information to you without actually including the specific information in this prospectus by referring you to
other documents filed separately with the SEC. These other documents contain
57
important information about us, our financial condition and results of operations. The information incorporated by reference is an important part of this prospectus. Information that we file
later with the SEC will automatically update and may replace information in this prospectus and information previously filed with the SEC.
We incorporate by reference in this prospectus the documents listed below and any subsequent filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (excluding information deemed to be furnished and not filed with the SEC) until all offerings under this registration statement are completed:
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our annual report on Form 10-K for the year ended December 31, 2015, as modified by our current report on Form 8-K filed with the SEC on November 8, 2016;
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our quarterly reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016;
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our current reports on Form 8-K filed on April 1, 2016, August 4, 2016, August 15, 2016, September 1, 2016, September 16, 2016 (concerning the equity distribution agreement),
September 16, 2016 (concerning supplemental consolidated financial statements) and November 8, 2016 (in each case to the extent filed and not furnished); and
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the description of our common units in our registration statement on Form 8-A (File No. 001-36232) filed pursuant to the Securities Exchange Act of 1934 on December 10, 2013.
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You may obtain any of the documents incorporated by reference in this prospectus from the SEC through the SECs web site at the address
provided above. You also may request a copy of any document incorporated by reference in this prospectus (including exhibits to those documents specifically incorporated by reference in those documents), at no cost, by visiting our internet website
at
www.valeroenergypartners.com
, or by writing or calling us at the following address:
Valero Energy Partners LP
Attention: Investor Relations
One
Valero Way
San Antonio, Texas 78249
(210) 345-2000.
58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.
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Other Expenses of Issuance and Distribution.
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Set forth below are
the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby.
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Securities and Exchange Commission Registration Fee
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$
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*
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Legal Fees and Expenses
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**
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Accounting Fees and Expenses
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**
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Printing Expenses
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**
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Miscellaneous
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**
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Total
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$
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**
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*
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The registrant is deferring payment of the registration fee in reliance on Rule 456(b) and 457(r) under the Securities Act of 1933.
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**
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These fees are calculated based on the number of issuances and amount of securities offered and accordingly cannot be estimated at this time.
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Item 15.
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Indemnification of Directors and Officers.
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Valero Energy Partners LP
Subject to any terms, conditions or restrictions set forth in the partnership agreement, Section 17-108 of the Delaware Revised Uniform
Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. The section of the prospectus entitled Our Partnership
AgreementIndemnification discloses that we will generally indemnify officers, directors and affiliates of our general partner to the fullest extent permitted by the law against all losses, claims, damages or similar events and is
incorporated herein by reference.
Any underwriting agreement to be entered into in connection with the sale of the securities offered
pursuant to this registration statement, the form of which will be filed as an exhibit to this registration statement, will provide for indemnification of Valero Energy Partners LP and our general partner, their officers and directors, and any
person who controls our general partner, including indemnification for liabilities under the Securities Act.
Valero Energy Partners GP LLC
Subject to any terms, conditions or restrictions set forth in the limited liability company agreement, Section 18-108 of the Delaware
Limited Liability Company Act empowers a Delaware limited liability company to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.
Under the limited liability agreement of our general partner, in most circumstances, our general partner will indemnify the following persons,
to the fullest extent permitted by law, from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising
from any and all claims, demands, actions, suits or proceedings (whether civil, criminal, administrative or investigative):
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any person who is or was an affiliate of our general partner (other than us and our subsidiaries);
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any person who is or was a member, partner, officer, director, employee, agent or trustee of our general partner or any affiliate of our general partner;
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II-1
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any person who is or was serving at the request of our general partner or any affiliate of our general partner as an officer, director, employee, member, partner, agent, fiduciary or trustee of another person; and
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any person designated by our general partner.
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Our general partner has purchased insurance
covering its officers and directors against liabilities asserted and expenses incurred in connection with their activities as officers and directors of our general partner or any of its direct or indirect subsidiaries.
The following documents are filed as exhibits to this
registration statement:
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Exhibit
Number
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1.1*
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Form of Underwriting Agreement.
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3.1
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Certificate of Limited Partnership of Valero Energy Partners LPincorporated by reference to Exhibit 3.1 to the Partnerships Registration Statement on Form S-1 filed September 19, 2013 (SEC File No.
333-191259).
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3.2
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First Amended and Restated Agreement of Limited Partnership of Valero Energy Partners LP dated December 16, 2013incorporated by reference to Exhibit 3.1 to the Partnerships Current Report on Form 8-K dated
December 16, 2013, and filed December 20, 2013 (SEC File
No. 1-36232).
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3.3
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Certificate of Formation of Valero Energy Partners GP LLCincorporated by reference to Exhibit 3.3 to the Partnerships Registration Statement on Form S-1 filed September 19, 2013 (SEC File No.
333-191259).
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3.4
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First Amended and Restated Limited Liability Company Agreement of Valero Energy Partners GP LLC dated December 16, 2013incorporated by reference to Exhibit 3.2 to the Partnerships Current Report on Form 8-K
dated December 16, 2013, and filed December 20, 2013 (SEC File No. 1-36232).
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4.1
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Indenture dated as of November 30, 2016 between Valero Energy Partners LP and U.S. Bank National Association.
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5.1
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Opinion of Baker Botts L.L.P. as to the legality of the securities being registered.
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8.1
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Opinion of Baker Botts L.L.P. relating to tax matters.
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12.1
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Statement of Computation of Ratios of Earnings to Fixed Charges.
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23.1
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Consent of KPMG LLP.
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23.2
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Consent of KPMG LLP.
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23.3
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Consent of Baker Botts L.L.P. (contained in Exhibits 5.1 and 8.1).
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24.1**
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Power of Attorney.
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25.1
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Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of U.S. Bank National Association, as trustee, on Form T-1.
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*
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To be filed as an exhibit to a current report on Form 8-K of the registrant.
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II-2
I. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20.0% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such information in the registration statement;
provided, however
, that paragraphs (i),
(ii) and (iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrants pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(b) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
II. That, for the purpose of determining liability under the Securities Act to any purchaser:
(a) Each prospectus filed by the registrants pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration statement; and
(b) Each prospectus required to be filed
pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by
section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement
II-3
will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such effective date.
III. That, for the purpose of
determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, each undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(a) Any preliminary
prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(b) Any free
writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(c) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(d) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
IV. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the registrants annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
V.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of any registrant pursuant to the provisions described in Item 15 above, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
VI. The
undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was declared effective.
(b) For the purpose of determining
any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
VII. The undersigned registrant hereby undertakes to file an application
for the purposes of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance with the rules and regulations prescribed by the SEC under Section 305(b)(2) of the Trust
Indenture Act of 1939.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, State of Texas, on November 30, 2016.
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Valero Energy Partners LP
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By:
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Valero Energy Partners GP LLC,
its general
partner
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By:
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/s/ Donna M. Titzman
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Donna M. Titzman
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Senior Vice President, Chief Financial Officer and Treasurer
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Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has
been signed by the following persons, as of November 30, 2016, in the capacities and the dates indicated.
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Name
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Title
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*
Joseph W. Gorder
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Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
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/s/ Donna M. Titzman
Donna M. Titzman
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Senior Vice President, Chief Financial Officer, Treasurer and
Director
(Principal Financial and Accounting Officer)
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*
Richard F. Lashway
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President, Chief Operating Officer and Director
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Robert S. Beadle
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Director
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Timothy J. Fretthold
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Director
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Randall J. Larson
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Director
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R. Lane Riggs
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Director
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Donna M. Titzman hereby signs this post-effective amendment No. 1 to the Registration Statement on behalf of the indicated persons for whom she is attorney-in-fact on November 30, 2016, pursuant to powers of
attorney previously included with the Registration Statement on Form S-3 of Valero Energy Partners LP filed on November 16, 2015 with the Securities and Exchange Commission.
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By:
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/s/ Donna M. Titzman
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Donna M. Titzman
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Senior Vice President, Chief Financial Officer and Treasurer
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II-5
INDEX TO EXHIBITS
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Exhibit
Number
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1.1*
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Form of Underwriting Agreement.
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3.1
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Certificate of Limited Partnership of Valero Energy Partners LPincorporated by reference to Exhibit 3.1 to the Partnerships Registration Statement on Form S-1 filed September 19, 2013 (SEC File No.
333-191259).
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3.2
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First Amended and Restated Agreement of Limited Partnership of Valero Energy Partners LP dated December 16, 2013incorporated by reference to Exhibit 3.1 to the Partnerships Current Report on Form 8-K dated
December 16, 2013, and filed December 20, 2013 (SEC File
No. 1-36232).
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3.3
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Certificate of Formation of Valero Energy Partners GP LLCincorporated by reference to Exhibit 3.3 to the Partnerships Registration Statement on Form S-1 filed September 19, 2013 (SEC File No.
333-191259).
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3.4
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First Amended and Restated Limited Liability Company Agreement of Valero Energy Partners GP LLC dated December 16, 2013incorporated by reference to Exhibit 3.2 to the Partnerships Current Report on Form 8-K
dated December 16, 2013, and filed December 20, 2013 (SEC File No. 1-36232).
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4.1
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Indenture dated as of November 30, 2016 between Valero Energy Partners LP and U.S. Bank National Association.
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5.1
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Opinion of Baker Botts L.L.P. as to the legality of the securities being registered.
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8.1
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Opinion of Baker Botts L.L.P. relating to tax matters.
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12.1
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Statement of Computation of Ratios of Earnings to Fixed Charges.
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23.1
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Consent of KPMG LLP.
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23.2
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Consent of KPMG LLP.
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23.3
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Consent of Baker Botts L.L.P. (contained in Exhibits 5.1 and 8.1).
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24.1**
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Power of Attorney.
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25.1
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Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of U.S. Bank National Association, as trustee, on Form T-1.
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*
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To be filed as an exhibit to a current report on Form 8-K of the registrant.
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