As filed with the Securities and Exchange Commission on May 7, 2015
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
SUNOCO LP
(Exact name of
registrant as specified in its charter)
|
|
|
| Delaware |
|
30-0740483 |
| (State or other jurisdiction of
incorporation or organization) |
|
(I.R.S Employer
Identification Number) |
555 East Airtex Drive
Houston, Texas 77073
(832)
234-3600
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Clara P. McGrory
Sunoco GP
LLC
555 East Airtex Drive
Houston, Texas 77073
(832)
234-3600
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
Jon W.
Daly
Andrews Kurth LLP
600 Travis, Suite 4200
Houston, Texas 77002
(713)
220-4200
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration
statement as determined by market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following box: ¨
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective
upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. x
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.
|
|
|
|
|
|
|
| Large Accelerated Filer |
|
¨ |
|
Accelerated Filer |
|
x |
| Non-Accelerated Filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller Reporting Company |
|
¨ |
CALCULATION OF REGISTRATION FEE
|
|
|
| |
Title of Each Class of
Securities to be Registered |
|
Amount to be Registered/Proposed Maximum Offering
Price Proposed Maximum Aggregate Offering
Price/Amount of Registration Fee(1) |
| Common Units |
|
|
| |
| |
| (1) |
An indeterminate aggregate initial offering price or number of the securities of each identified class is being registered as may from time to time be offered hereunder at indeterminate prices. In accordance with Rules
456(b) and 457(r) under the Securities Act of 1933, the registrant is deferring payment of all of the registration fee. |
PROSPECTUS
Sunoco LP
Common Units
We may from time to time, in one or more offerings, offer and sell common units representing limited partner interests in Sunoco LP described
in this prospectus.
This prospectus describes only the general terms of these common units and the general manner in which we or any
selling unitholder will offer them. The specific terms of any common units that we or any selling unitholder offer will be included in a supplement to this prospectus. The prospectus supplement will describe the specific manner in which the common
units will be offered and also may add, update or change information contained in this prospectus. The names of any underwriters and the specific terms of a plan of distribution will be stated in the prospectus supplement. You should carefully read
this prospectus and the applicable prospectus supplement before you invest in our common units. You should also read the documents to which we have referred you to in the “Information We Incorporate By Reference” section of this prospectus
for additional information about us and our financial statements.
Our common units may be offered and sold in amounts, at prices and on
terms to be determined by market conditions and other factors at the time of the offering. No common units may be sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering of
the common units.
Investing in our common units involves risks. Limited partnerships are inherently different from corporations. You should carefully
consider the factors described under “Risk Factors” beginning on page 5 of this prospectus and any similar section contained in the applicable prospectus supplement before you make an investment in our common
units.
Our common units are listed on the New York Stock Exchange, or NYSE, under the symbol “SUN.”
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of
this prospectus is May 7, 2015
TABLE OF CONTENTS
In making your investment decision, you should rely only on the information contained in this prospectus,
any prospectus supplement and the documents we have incorporated by reference in this prospectus. We have not authorized any other person to provide you with any other information. If anyone provides you with different or inconsistent information,
you should not rely on it.
You should not assume that the information contained in this prospectus or in any prospectus supplement
is accurate as of any date other than the date on the front cover of those documents. You should not assume that the information contained in the documents incorporated by reference in this prospectus or in any prospectus supplement is accurate as
of any date other than the respective dates of those documents. Our business, financial condition, results of operations and prospects may have changed since those dates. We will disclose any material changes in our affairs in an amendment to this
prospectus, a prospectus supplement or a future filing with the Securities and Exchange Commission, or the SEC, incorporated by reference in this prospectus.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the SEC using a “shelf” registration process. Under this
shelf registration process, we may, over time, offer and sell common units in one or more offerings. This prospectus generally describes Sunoco LP and our common units. Each time we offer common units with this prospectus, we will provide you with a
prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add to, update or change information in this prospectus. Before you invest in our common units, you should carefully
read this prospectus and any prospectus supplement and the additional information described under the headings “Where You Can Find More Information” and “Information We Incorporate By Reference.” To the extent information in this
prospectus is inconsistent with information contained in a prospectus supplement, you should rely on the information in the prospectus supplement.
Unless the context clearly indicates otherwise, references in this prospectus to the “partnership,” “SUN,” “we,”
“our,” “us” or similar terms refer to Sunoco LP, our predecessors and our consolidated subsidiaries, as applicable and appropriate. References in this prospectus to our “general partner” refer to Sunoco GP LLC, a
Delaware limited liability company and the general partner of the partnership. References to “ETP” refer to Energy Transfer Partners, L.P., a Delaware limited partnership that indirectly owns and controls our general partner. References in
this prospectus to “Susser” refer to Susser Holdings Corporation, an indirect wholly owned subsidiary of ETP.
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus and the documents we incorporate by reference
contain statements that we believe are “forward-looking statements”. These forward-looking statements generally can be identified by use of phrases such as “believe,” “plan,” “expect,” “anticipate,”
“intend,” “forecast” or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, costs, anticipated capital expenditures, expected cost savings and benefits are also forward-looking
statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or
implied by such forward-looking statements, including:
| |
• |
|
ETP’s and Susser’s business strategy and operations and ETP’s and Susser’s conflicts of interest with us; |
| |
• |
|
Changes in the price of and demand for the motor fuel that we distribute and our ability to hedge any motor fuel we hold in inventory; |
| |
• |
|
Our dependence on limited principal suppliers and our dependence on Susser and certain customers for significant portions of our revenue; |
| |
• |
|
Competition in the wholesale motor fuel distribution industry and convenience store industry; |
| |
• |
|
Changing customer preferences for alternate fuel sources or improvement in fuel efficiency; |
| |
• |
|
Our ability to make, complete and integrate acquisitions from affiliates or third-parties; |
| |
• |
|
Environmental, tax and other federal, state and local laws and regulations; |
| |
• |
|
The fact that we are not fully insured against all risks incident to our business; |
| |
• |
|
Dangers inherent in the storage and transportation of motor fuel; |
| |
• |
|
Our reliance on senior management, supplier trade credit and information technology; and |
| |
• |
|
Our partnership structure, which may create conflicts of interest between us and our general partner and its affiliates, and limits the fiduciary duties of our general partner and its affiliates. |
1
When considering these forward-looking statements, you should keep in mind the risk factors and
other cautionary statements in this prospectus or incorporated by reference herein, including those described in the “Risk Factors” section of our most recent Annual Report on Form 10-K and, to the extent applicable, our Quarterly Reports
on Form 10-Q, other subsequent filings with the SEC and any prospectus supplement. The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all
forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements contained in this prospectus are based on, and include, our estimates as of the filing of this prospectus. The
forward-looking statements speak only as of the date made, and, other than as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
2
ABOUT SUNOCO LP
We are a growth-oriented Delaware limited partnership formed by Susser and formerly known as Susser Petroleum Partners LP, or
“SUSP”, to engage in the primarily fee-based wholesale distribution of motor fuels to Susser and third parties in Texas, New Mexico, Oklahoma, Louisiana, Kansas, Maryland, Virginia, Tennessee, Georgia and Hawaii. We are also engaged in the
retail sale of motor fuel and the operation of convenience stores through subsidiaries that are classified as corporations for U.S. federal income tax purposes. We closed the initial public offering of our common units on September 25, 2012 and
our common units began trading on the NYSE under the symbol “SUSP”.
On August 29, 2014, Susser completed its merger with
ETP and certain other related entities, under which ETP acquired the then outstanding common shares of Susser. By acquiring Susser, ETP also owns the general partner interest and IDRs in the partnership. On October 27, 2014, we changed our name
from Susser Petroleum Partners LP to Sunoco LP (ticker symbol: SUN). Our general partner, Sunoco GP LLC, is a Delaware limited liability company and a wholly owned subsidiary of ETP. We are managed and controlled by our general partner.
Our principal executive offices are located at 555 East Airtex Drive, Houston, Texas, 77073, and our phone number is (832) 234-3600.
For additional information as to our business, properties and financial condition, see “Where You Can Find More Information” and
“Information We Incorporate By Reference.”
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities Act of 1933, as amended, or the Securities Act, that registers the
common units 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 SEC’s 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 their public reference room. Our SEC filings
are also available at the SEC’s website at http://www.sec.gov. We also make available free of charge on our website, at http://www.sunocolp.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.
Additionally, you can obtain information about us through the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which our common units are listed.
INFORMATION WE INCORPORATE BY REFERENCE
The SEC allows us to “incorporate by reference” the information we have filed with the SEC. This means that we can disclose
important information to you without actually including the specific information in this prospectus by referring you to other documents filed separately with the SEC. These other documents contain important information about us, our financial
condition and results of operations. The information incorporated by reference is an important part of this prospectus. Information that we file later with the SEC will automatically update and may supersede information in this prospectus and
information previously filed with the SEC.
We incorporate by reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(e), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act,
3
between the date of this prospectus and the termination of the registration statement (excluding any information furnished pursuant to Item 2.02 or Item 7.01 of any Current Report on
Form 8-K):
| |
• |
|
our Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 27, 2015; |
| |
• |
|
our Current Reports on Form 8-K, or 8-K/A, filed October 21, 2014, January 26, 2015, February 2, 2015, February 23, 2015, March 2, 2015, March 13, 2015,
March 23, 2015, April 2, 2015, April 13, 2015 and May 5, 2015; and |
| |
• |
|
the description of our common units contained in the Registration Statement on Form 8-A, filed September 17, 2012, and any subsequently filed amendments and reports updating such description. |
You may obtain any of the documents incorporated by reference in this prospectus from the SEC through the SEC’s website at the
address provided above. You also may request a copy of any document incorporated by reference in this prospectus (including exhibits to those documents specifically incorporated by reference in this document), at no cost, by visiting our internet
website at www.sunocolp.com, or by writing or calling us at the following address:
Sunoco LP
Attn: Investor Relations
555 East
Airtex Drive
Houston, Texas 77073
(832) 234-3600
IR@sunocolp.com
You should rely only on the information contained in or incorporated by reference in this prospectus or any prospectus supplement. We
have not authorized anyone else to provide you with any information. We are not making an offer of our common units in any state where the offer is not permitted. You should not assume that the information incorporated by reference or provided in
this prospectus or any prospectus supplement is accurate as of any date other than its respective date.
4
RISK FACTORS
An investment in our common units involves risks. Before you invest in our common units, you should carefully consider the risk factors
included in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and those that may be included in any applicable prospectus supplement, as well as risks described in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and cautionary notes regarding forward-looking
statements included or incorporated by reference herein, together with all of the other information included or incorporated by reference in this prospectus, any prospectus supplement and the documents we incorporate by reference.
If any of these risks were to materialize, our business, results of operations, cash flows and financial condition could be materially
adversely affected. In that case, we may be unable to pay distributions to our unitholders. In that event, the trading price of our common units could decline and you could lose all or part of your investment.
5
USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus supplement, we will use the net proceeds (after the payment of offering expenses and
underwriting discounts and commissions) we receive from the sale of the common units covered by this prospectus for general partnership purposes, which may include repayment or repurchase of outstanding indebtedness, acquisitions, other capital
expenditures and additions to working capital.
Any specific allocation of the net proceeds we receive from any particular offering of our
common units using this prospectus will be determined at the time of the offering and will be described in the applicable prospectus supplement relating to such offering.
6
DESCRIPTION OF THE COMMON UNITS
General
The common units and the
subordinated units are separate classes of limited partner interests in us. The holders of units are entitled to participate in partnership distributions and exercise the rights or privileges available to limited partners under our partnership
agreement. For a description of the relative rights and preferences of holders of common units and subordinated units in and to partnership distributions, please read this section and “Cash Distribution Policy and Restrictions on
Distributions.” For a description of other rights and privileges of limited partners under our partnership agreement, including limited voting rights, please read “The Partnership Agreement.”
Our common units are listed on the NYSE under the symbol “SUN.”
Transfer Agent and Registrar
Duties
Computershare Trust Company, N.A. serves as registrar and transfer agent for our common units. We pay all fees charged by the transfer agent
for transfers of common units except the following, which must be paid by our unitholders:
| |
• |
|
surety bond premiums to replace lost or stolen certificates or to cover taxes and other governmental charges; |
| |
• |
|
special charges for services requested by a common unitholder; and |
| |
• |
|
other similar fees or charges. |
There is no charge to our unitholders for disbursements of our
cash distributions. We 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 their activities in that
capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.
Resignation or
Removal
The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will
become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor is appointed, our general partner may act as the transfer agent and registrar until a successor is appointed.
Transfer of Common Units
Upon the
transfer of a common unit in accordance with our partnership agreement, the transferee of the common unit 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:
| |
• |
|
represents that the transferee has the capacity, power and authority to become bound by our partnership agreement; |
| |
• |
|
automatically becomes bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and |
| |
• |
|
gives the consents, waivers and approvals contained in our partnership agreement. |
In addition
to other rights acquired upon transfer, the transferor gives the transferee the right to become a substituted limited partner in our partnership for the transferred common units. A transferee will become a
7
substituted limited partner of our partnership for the transferred common units automatically upon the recording of the transfer on our books and records. Our general partner will cause any
transfers to be recorded on our books and records no less frequently than quarterly.
Until a common unit has been transferred on our
books, we and the transfer agent may treat the record holder of the common unit as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.
We may, at our discretion, treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holder’s rights
are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are securities and any transfers are subject to the laws governing the transfer of securities.
8
CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
Rationale for Our Cash Distribution Policy
Our partnership agreement requires us to distribute all of our available cash quarterly. Our cash distribution policy reflects a fundamental
judgment that our unitholders generally will be better served by our distributing rather than retaining our available cash. Our partnership agreement generally defines available cash as cash on hand at the end of a quarter after the payment of
expenses, less the amount of cash reserves established by our general partner to provide for the conduct of our business, to comply with applicable law, any of our debt instruments or other agreements or to provide for future distributions to our
unitholders for any one or more of the next four quarters. Our available cash also may include, if our general partner so determines, all or any portion of the cash on hand immediately prior to the date of distribution of available cash for the
quarter resulting from working capital borrowings made subsequent to the end of such quarter. Because we are not subject to an entity-level federal income tax, we expect to have more cash to distribute to our unitholders than would be the case if we
were subject to entity-level federal income tax.
Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
There is no guarantee that we will distribute quarterly cash distributions to our unitholders. We do not have a legal obligation
to pay our minimum quarterly distribution or any other distribution except as provided in our partnership agreement. Our cash distribution policy may be changed at any time and is subject to certain restrictions and uncertainties, including the
following:
| |
• |
|
Our cash distribution policy is subject to restrictions on distributions under our revolving credit facility and the indenture governing our senior notes, which contains financial tests and covenants that we must
satisfy. Should we be unable to satisfy these covenants or if we are otherwise in default under our revolving credit facility, we will be prohibited from making cash distributions to you notwithstanding our stated cash distribution policy.
|
| |
• |
|
Our general partner has the authority to establish cash reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of or increase in those reserves could
result in a reduction in cash distributions from levels we currently anticipate pursuant to our stated cash distribution policy. Our partnership agreement does not set a limit on the amount of cash reserves that our general partner may establish.
Any decision to establish cash reserves made by our general partner in good faith will be binding on our unitholders. |
| |
• |
|
Prior to making any distribution on our common units, we reimburse our general partner and its affiliates for all direct and indirect expenses they incur on our behalf pursuant to our partnership agreement and the
omnibus agreement. Neither our partnership agreement nor the omnibus agreement limits the amount of expenses for which our general partner and its affiliates may be reimbursed. Our partnership agreement provides that our general partner will
determine in good faith the expenses that are allocable to us. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates reduces the amount of available cash. |
| |
• |
|
While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions contained therein, may be amended. Our
partnership agreement generally may not be amended during the subordination period without the approval of our public common unitholders, except in certain limited circumstances when our general partner can amend our partnership agreement without
unitholder approval. However, after the subordination period has ended, our partnership agreement can be amended with the consent of our general partner and the approval of a majority of the outstanding common units (including common units held by
ETP or a wholly owned subsidiary of ETP). As of May 6, 2015, ETP owned, directly or indirectly, approximately 44.1% of our limited partner interests. Please read “The Partnership Agreement—Amendment of the Partnership Agreement.”
|
9
| |
• |
|
Even if our cash distribution policy is not modified or revoked, the decisions regarding the amount of distributions to pay under our cash distribution policy and whether to pay any distribution are made by our general
partner, taking into consideration the terms of our partnership agreement. |
| |
• |
|
Under Section 17-607 of the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets. |
| |
• |
|
We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating or general and
administrative expenses, principal and interest payments on our outstanding debt, tax expenses, working capital requirements or anticipated cash needs. |
| |
• |
|
Our ability to make distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make distributions to us may be
restricted by, among other things, the provisions of existing and future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations. |
10
PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH
DISTRIBUTIONS
Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash
distributions.
Distributions of Available Cash
General
Our partnership agreement
requires that, within 60 days after the end of each quarter we distribute all of our available cash to unitholders of record on the applicable record date.
Definition of Available Cash
Available cash, for any quarter, generally consists of all cash and cash equivalents on hand at the end of that quarter:
| |
• |
|
less, the amount of cash reserves established by our general partner to: |
| |
• |
|
provide for the proper conduct of our business; |
| |
• |
|
comply with applicable law, any of our debt instruments or other agreements or any other obligation; or |
| |
• |
|
provide funds for distributions to our unitholders for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for the payment of distributions unless it determines
that the establishment of such reserves will not prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter); |
| |
• |
|
plus, if our general partner so determines on the date of determination, all or any portion of the cash on hand immediately prior to the date of distribution of available cash for the quarter, including cash on
hand resulting from working capital borrowings made after the end of the quarter. |
The purpose and effect of the last bullet
point above is to allow our general partner, if it so decides, to use cash received by us after the end of the quarter but on or before the date of distribution of available cash for that quarter, including cash on hand resulting from working
capital borrowings made after the end of the quarter, to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are borrowings that are made under a credit agreement, commercial paper facility or similar
financing arrangement with the intent to repay such borrowings within twelve months from sources other than additional working capital borrowings, and that are used solely for working capital purposes or to pay distributions to partners.
Intent to Distribute the Minimum Quarterly Distribution
We intend to distribute to our common and subordinated unitholders at least the minimum quarterly distribution of $0.4375 per unit, or $1.75 on
an annualized basis, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. However, there is no guarantee that
we will pay the minimum quarterly distribution on our units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by
our general partner, taking into consideration the terms of our partnership agreement.
General Partner Interest and Incentive Distribution Rights
Our general partner owns a 0.0% non-economic general partner interest. ETP holds all of our incentive distribution rights, which
entitles it to receive increasing percentages, up to a maximum of 50.0%, of the cash we
11
distribute from operating surplus (as defined below) in excess of $0.503125 per unit per quarter. The maximum distribution of 50.0% does not include any distributions that ETP may receive on any
limited partner units that it owns.
Operating Surplus and Capital Surplus
General
All cash distributed to
our unitholders is characterized as being paid from either “operating surplus” or “capital surplus.” Our partnership agreement requires that we distribute available cash from operating surplus differently than available cash from
capital surplus. Operating surplus distributions will be made to our unitholders and, if we make quarterly distributions above the first target distribution level described below, to the holder of our incentive distribution rights. We do not
anticipate that we will make any distributions from capital surplus. In such an event, however, any capital surplus distribution would be made pro rata to all unitholders, but the holder of the incentive distribution rights would generally not
participate in any capital surplus distributions with respect to those rights.
Operating Surplus
We define operating surplus as:
| |
• |
|
$25 million (as described below); plus |
| |
• |
|
All of our cash receipts, excluding cash from interim capital transactions (as defined below), provided that cash receipts from the termination of any hedge contract prior to its stipulated settlement or termination
date will be included in equal quarterly installments over the remained scheduled life of such hedge contract had it not been terminated; plus |
| |
• |
|
working capital borrowings made after the end of a period but on or before the date of distribution of operating surplus for that period; plus |
| |
• |
|
cash distributions paid on equity issued (including incremental distributions on incentive distribution rights), 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, acquisition or improvement of a capital asset until the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of;
plus |
| |
• |
|
cash distributions paid on equity issued (including incremental distributions on incentive distribution rights), to pay the construction period interest on debt incurred, or to pay construction period distributions on
equity issued, to finance the expansion capital expenditures referred to above, in each case, in respect of the period from the date that we enter into a binding obligation to commence the construction, acquisition or improvement of a capital asset
until the earlier to occur of the date the capital asset is placed in service and the date that it is abandoned or disposed of; less |
| |
• |
|
all of our operating expenditures (as defined below); less |
| |
• |
|
the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less |
| |
• |
|
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; less
|
| |
• |
|
any cash loss realized on the disposition of an investment capital expenditure. |
As described
above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by our operations. For example, it includes a basket of $25 million that enables us, if we
choose, to distribute as operating surplus up to that amount of cash we receive from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise
12
be distributed as capital surplus. In addition, the effect of including certain cash distributions on equity interests in operating surplus, as described above, 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 that amount of cash that we receive from non-operating sources.
The proceeds of working capital borrowings increase operating surplus and repayments of working capital borrowings are generally operating
expenditures, as described below, and thus reduce operating surplus when made. However, if a working capital borrowing is not repaid during the twelve-month period following the borrowing, it will be deemed repaid at the end of such period, thus
decreasing operating surplus at such time. When such working capital borrowing is in fact repaid, it will be excluded from operating expenditures because operating surplus will have been previously reduced by the deemed repayment.
We define operating expenditures as all of our cash expenditures, including, but not limited to, taxes, reimbursement of expenses to our
general partner or its affiliates, payments made in the ordinary course of business under interest rate hedge agreements or commodity hedge agreements (provided that (1) payments made in connection with the initial purchase of an interest rate
hedge contract or a commodity hedge contract will be amortized over the life of the applicable interest rate hedge contract or commodity hedge contract and (2) payments made in connection with the termination of any interest rate hedge contract
or commodity hedge contract prior to its stipulated settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such contract), compensation of officers, directors
and employees of our general partner, repayment of working capital borrowings, debt service payments and maintenance capital expenditures (as discussed in further detail below), provided that operating expenditures do not include:
| |
• |
|
repayment of working capital borrowings deducted from operating surplus pursuant to the penultimate bullet point of the definition of operating surplus above when such repayment actually occurs; |
| |
• |
|
payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than working capital borrowings; |
| |
• |
|
expansion capital expenditures; |
| |
• |
|
investment capital expenditures; |
| |
• |
|
payment of transaction expenses relating to interim capital transactions; |
| |
• |
|
distributions to our partners (including distributions in respect of our incentive distribution rights); or |
| |
• |
|
repurchases of equity interests (other than repurchases to satisfy obligations under employee benefit plans) or reimbursements of our general partner for such purchases. |
Interim Capital Transactions
We
define cash from interim capital transactions to include proceeds from:
| |
• |
|
borrowings other than working capital borrowings; |
| |
• |
|
sales of our equity and debt securities; and |
| |
• |
|
sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or assets sold or disposed of as part of normal retirement or replacement of
assets. |
Capital Surplus
Capital surplus is defined as any distribution of available cash in excess of our operating surplus. Although the cash proceeds from interim
capital transactions do not increase operating surplus, all distributions of available
13
cash from whatever source are deemed to be from operating surplus until cumulative distributions of available cash exceed cumulative operating surplus. Thereafter, all distributions of available
cash are deemed to be from capital surplus to the extent they continue to exceed cumulative operating surplus.
Characterization of Cash
Distributions
Our partnership agreement requires that we treat all available cash distributed by us as coming from operating
surplus until the sum of all available cash distributed since the closing of our initial public offering equals the 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. As described above, operating surplus includes a basket of $25 million, and therefore
does not reflect actual cash on hand that is available for distribution to our unitholders. Rather, this provision enables us, if we choose, to distribute as operating surplus up to that amount of cash we receive in the future from interim capital
transactions that would otherwise be distributed as capital surplus. We do not anticipate that we will make any distributions from capital surplus.
Capital Expenditures
Maintenance capital
expenditures reduce operating surplus, but expansion capital expenditures and investment capital expenditures do not. Under our partnership agreement, maintenance capital expenditures are capital expenditures made to maintain our long-term operating
income or operating capacity, while expansion capital expenditures are capital expenditures that we expect will increase our operating income or operating capacity over the long term. Examples of maintenance capital expenditures include those
expenditures we make to maintain existing contract volumes or renew existing distribution contracts, maintain our real estate leased to third-party dealers in leaseable condition or maintain our company operated convenience stores. Maintenance
capital expenditures also include interest (and related fees) on debt incurred and distributions in respect of equity issued (including incremental distributions on incentive distribution rights), other than equity issued in any offering, to finance
all or any portion of the construction or development of a replacement asset that are paid in respect of the period that begins when we enter into a binding obligation to commence construction or development of a replacement asset and ending on the
earlier to occur of the date that such replacement asset commences commercial service and the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes are not considered maintenance capital expenditures.
Expansion capital expenditures are capital expenditures made to increase our operating capacity over the long term. Examples of expansion
capital expenditures include the acquisition of new properties or equipment, to the extent such capital expenditures are expected to expand our long-term operating capacity. Expansion capital expenditures also include interest (and related fees) on
debt incurred and distributions in respect of equity issued (including incremental distributions on incentive distribution rights) to finance all or any portion of the construction of a capital improvement paid in respect of the period that
commences when we enter into a binding obligation to commence construction of a capital improvement and ending on the earlier to occur of date such capital improvement commences commercial service and the date that it is disposed of or abandoned.
Capital expenditures made solely for investment purposes are not be considered expansion capital expenditures.
Investment capital
expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capital expenditures. Investment capital expenditures largely consist of capital expenditures made for investment purposes. Examples of
investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures,
such as the acquisition of a capital asset for investment purposes or the development of assets that are in excess of those needed for the maintenance of our existing operating capacity, but which are not expected to expand, for more than the short
term, our operating capacity.
As described above, neither investment capital expenditures nor expansion capital expenditures are included
in operating expenditures, and thus do not reduce operating surplus. Because expansion capital expenditures
14
include interest payments (and related fees) on debt incurred to finance all or a portion of the construction, acquisition or development of a capital improvement during the period that begins
when we enter into a binding obligation to commence construction, acquisition or development of a capital improvement and ending on the earlier to occur of the date such capital improvement commences commercial service and the date that it is
abandoned or disposed of, such interest payments also do not reduce operating surplus. Losses on the disposition of an investment capital expenditure will reduce operating surplus when realized and cash receipts from an investment capital
expenditure will be treated as a cash receipt for purposes of calculating operating surplus only to the extent the cash receipt is a return on principal.
Capital expenditures that are made in part for maintenance capital purposes, investment capital purposes and/or expansion capital purposes are
allocated as maintenance capital expenditures, investment capital expenditures or expansion capital expenditure by our general partner.
Subordinated
Units
General
Our
partnership agreement provides that, during the subordination period (which we define below), the common units will have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $0.4375 per
common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of
available cash from operating surplus may be made on the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units will not be entitled to
receive any distributions from operating surplus until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Furthermore, no arrearages will be
paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during the subordination period there will be sufficient available cash from operating surplus to pay the minimum quarterly
distribution on the common units. ETP owns, directly or indirectly, all of our subordinated units.
Subordination Period
The subordination period will expire on the first business day after a distribution to unitholders has been made in respect of any quarter,
beginning with the quarter ending on or after September 30, 2015, if each of the following has occurred:
| |
• |
|
distributions of available cash from operating surplus on each of the outstanding common and subordinated units equaled or exceeded the annualized minimum quarterly distribution for each of the three consecutive,
non-overlapping four-quarter periods immediately preceding that date; |
| |
• |
|
the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the
minimum quarterly distributions on all of the outstanding common and subordinated units during those periods on a fully diluted, weighted-average basis; and |
| |
• |
|
there are no arrearages in the payment of the minimum quarterly distribution on the common units. |
Early
Termination of Subordination Period
Notwithstanding the foregoing, the subordination period will automatically terminate on the
first business day after a distribution to unitholders has been made in respect of any quarter, if each of the following has occurred:
| |
• |
|
distributions of available cash from operating surplus on each of the outstanding common and subordinated units exceeded $2.625 (150.0% of the annualized minimum quarterly distribution) for the four-quarter period
immediately preceding that date; |
15
| |
• |
|
the “adjusted operating surplus” (as defined below) generated during the four-quarter period immediately preceding that date equaled or exceeded the sum of (i) $2.625 (150.0% of the annualized minimum
quarterly distribution) on all of the outstanding common and subordinated units during that period on a fully diluted, weighted-average basis and (ii) the distributions made on the incentive distribution rights; and |
| |
• |
|
there are no arrearages in the payment of the minimum quarterly distribution on the common units. |
In addition, if the unitholders remove our general partner other than for cause:
| |
• |
|
the subordinated units held by any person will immediately and automatically convert into common units on a one-for-one basis, provided (i) neither such person nor any of its affiliates voted any of its units in
favor of the removal and (ii) such person is not an affiliate of the successor general partner; and |
| |
• |
|
if all of the subordinated units convert pursuant to the foregoing, all cumulative common unit arrearages on the common units will be extinguished and the subordination period will end. |
Effect of Expiration of the Subordination Period
When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will then participate pro-rata
with the other common units in distributions of available cash.
Adjusted Operating Surplus
Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net
changes in working capital borrowings and net changes in reserves of cash established in prior periods. Adjusted operating surplus consists of:
| |
• |
|
operating surplus generated with respect to that period (excluding any amount attributable to the item described in the first bullet point under the caption “—Operating Surplus and Capital
Surplus—Operating Surplus” above); less |
| |
• |
|
any net increase in working capital borrowings with respect to that period; less |
| |
• |
|
any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus |
| |
• |
|
any net decrease in working capital borrowings with respect to that period; plus |
| |
• |
|
any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium; plus |
| |
• |
|
any net decrease made in subsequent periods in cash reserves for operating expenditures initially established with respect to such period to the extent such decrease results in a reduction of adjusted operating surplus
in subsequent periods pursuant to the third bullet point above. |
Distributions of Available Cash From Operating Surplus During the
Subordination Period
Our partnership agreement requires that we make distributions of available cash from operating surplus for any
quarter during the subordination period in the following manner:
| |
• |
|
first, to the common unitholders, pro rata, until we distribute for each common unit an amount equal to the minimum quarterly distribution for that quarter; |
| |
• |
|
second, to the common unitholders, pro rata, until we distribute for each common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters
during the subordination period; |
| |
• |
|
third, to the subordinated unitholders, pro rata, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and |
16
| |
• |
|
thereafter, in the manner described in “—Incentive Distribution Rights” below. |
The preceding discussion is based on the assumption that we do not issue additional classes of equity interests.
Distributions of Available Cash From Operating Surplus After the Subordination Period
Our partnership agreement requires that we make distributions of available cash from operating surplus for any quarter after the subordination
period in the following manner:
| |
• |
|
first, to the common unitholders, pro rata, until we distribute for each common unit an amount equal to the minimum quarterly distribution for that quarter; and |
| |
• |
|
thereafter, in the manner described in “—Incentive Distribution Rights” below. |
The preceding discussion is based on the assumption that we do not issue additional classes of equity interests.
General Partner Interest
Our general
partner owns a 0.0% non-economic general partner interest in us, which does not entitle it to receive cash distributions. However, our general partner may in the future own common units or other equity interests in us, and will be entitled to
receive distributions on such interests.
Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing percentage (15.0%, 25.0% and 50.0%) of quarterly distributions of
available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. ETP currently holds all of our incentive distribution rights, but may transfer these rights, subject to the
restrictions set forth in our partnership agreement.
The following discussion assumes that there are no arrearages on the common units
and that ETP continues to own the incentive distribution rights.
If for any quarter:
| |
• |
|
we have distributed available cash from operating surplus to the common and any subordinated unitholders in an amount equal to the minimum quarterly distribution; and |
| |
• |
|
we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in the payment of the minimum quarterly distribution;
|
then, our partnership agreement requires that we distribute any additional available cash from operating surplus for that quarter among the
unitholders and ETP (in its capacity as the holder of our incentive distribution rights) in the following manner:
| |
• |
|
first, to all unitholders, pro rata, until each unitholder receives a total of $0.503125 per unit for that quarter (the “first target distribution”); |
| |
• |
|
second, 85.0% to all unitholders, pro rata, and 15.0% to ETP (in its capacity as the holder of our incentive distribution rights), until each unitholder receives a total of $0.546875 per unit for that quarter
(the “second target distribution”); |
| |
• |
|
third, 75.0% to all unitholders, pro rata, and 25.0% to ETP (in its capacity as the holder of our incentive distribution rights), until each unitholder receives a total of $0.65625 per unit for that quarter (the
“third target distribution”); and |
17
| |
• |
|
thereafter, 50.0% to all unitholders, pro rata, and 50.0% to ETP (in its capacity as the holder of our incentive distribution rights). |
Percentage Allocations of Available Cash From Operating Surplus
The following table illustrates the percentage allocations of available cash from operating surplus between our unitholders and ETP (in its
capacity as the holder of our incentive distribution rights) based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of ETP (in its
capacity as the holder of our incentive distribution rights) and our unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Common Unit
and Subordinated Unit.” The percentage interests shown for our unitholders and ETP (in its capacity as the holder of our incentive distribution rights) 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 ETP (in its capacity as the holder of our incentive distribution rights) assume that ETP has not transferred its incentive distribution rights and
that there are no arrearages on common units.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Quarterly Distribution
Per Common Unit and
Subordinated Unit |
|
|
Marginal Percentage Interest
in Distributions |
|
| |
|
Unitholders |
|
|
ETP (in its
Capacity as the
Holder of Our
Incentive
Distribution
Rights) |
|
| Minimum Quarterly Distribution |
|
|
$0.4375 |
|
|
|
100 |
% |
|
|
— |
|
| First Target Distribution |
|
|
Above $0.4375 up to $0.503125 |
|
|
|
100 |
% |
|
|
— |
|
| Second Target Distribution |
|
|
Above $0.503125 up to $0.546875 |
|
|
|
85 |
% |
|
|
15 |
% |
| Third Target Distribution |
|
|
Above $0.546875 up to $0.656250 |
|
|
|
75 |
% |
|
|
25 |
% |
| Thereafter |
|
|
Above $0.656250 |
|
|
|
50 |
% |
|
|
50 |
% |
ETP’s Right to Reset Incentive Distribution Levels
ETP, as the current holder of all of our incentive distribution rights, has the right under our partnership agreement to elect to relinquish
the right to receive incentive distribution payments based on the initial 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 ETP would be based. If ETP transfers all or a portion of our 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 ETP holds all of the incentive distribution rights at the time that a reset election is made. The right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive
distributions are based may be exercised, without approval of our unitholders or the conflicts committee of the board of directors of our general partner, at any time when there are no subordinated units outstanding and we have made cash
distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for each of the four most recently completed fiscal quarters (and the amount of each such distribution did not exceed adjusted operating
surplus for such quarter). 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 there will be no
incentive distributions paid under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that ETP would exercise this reset right in order to facilitate acquisitions or
internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to ETP.
In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding
relinquishment by ETP of incentive distribution payments based on the target
18
distributions prior to the reset, ETP 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 of the cash distributions related to the incentive distribution rights received by ETP for the two quarters prior to the reset event as compared to the average of the cash distributions per common unit during this
period.
The number of common units that ETP 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 of the aggregate cash distributions received by ETP 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 cash distributed per common unit during each of those two quarters.
Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average of the cash
distributions 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, after payment of the reset minimum quarterly distribution, as follows:
| |
• |
|
first, to all unitholders, pro rata, until each unitholder receives an amount per unit equal to 115.0% of the reset minimum quarterly distribution for that quarter; |
| |
• |
|
second, 85.0% to all unitholders, pro rata, and 15.0% to ETP (in its capacity as the holder of our incentive distribution rights), until each unitholder receives an amount per unit equal to 125.0% of the reset
minimum quarterly distribution for the quarter; |
| |
• |
|
third, 75.0% to all unitholders, pro rata, and 25.0% to ETP (in its capacity as the holder of our incentive distribution rights), until each unitholder receives an amount per unit equal to 150.0% of the reset
minimum quarterly distribution for the quarter; and |
| |
• |
|
thereafter, 50.0% to all unitholders, pro rata, and 50.0% to ETP (in its capacity as the holder of our incentive distribution rights). |
The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and ETP (in its
capacity as the holder of our incentive distribution rights) at various cash distribution levels (1) pursuant to the cash distribution provisions of our partnership agreement currently in effect as well as (2) following a hypothetical
reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average of the quarterly cash distributions per common unit during the two fiscal quarters immediately preceding the reset election was
$0.70.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Marginal Percentage
Interest in Distributions |
|
|
|
| |
|
Quarterly Distribution
Per Unit Prior to Reset |
|
Unitholders |
|
|
ETP (in its
Capacity as
the Holder
of Our
Incentive
Distribution
Rights) |
|
|
Quarterly Distribution Per Unit
Following
Hypothetical Reset |
| Minimum Quarterly Distribution |
|
$0.4375 |
|
|
100.0 |
% |
|
|
— |
|
|
$0.70(1) |
| First Target Distribution |
|
above $0.4375
up to $0.503125 |
|
|
100.0 |
% |
|
|
— |
|
|
above $0.70(1) up to $0.805(2) |
| Second Target Distribution |
|
above $0.503125 up to $0.546875 |
|
|
85.0 |
% |
|
|
15.0 |
% |
|
above $0.805(1) up to $0.875(3) |
| Third Target Distribution |
|
above $0.546875 up to $0.656250 |
|
|
75.0 |
% |
|
|
25.0 |
% |
|
above $0.875(3) up to $1.05(4) |
| Thereafter |
|
above $0.656250 |
|
|
50.0 |
% |
|
|
50.0 |
% |
|
above $1.05(4) |
| (1) |
This amount is equal to the hypothetical reset minimum quarterly distribution. |
19
| (2) |
This amount is 115.0% of the hypothetical reset minimum quarterly distribution. |
| (3) |
This amount is 125.0% of the hypothetical reset minimum quarterly distribution. |
| (4) |
This amount is 150.0% of the hypothetical reset minimum quarterly distribution. |
ETP will be
entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for
the prior four consecutive fiscal quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.
Distributions From Capital Surplus
How
Distributions From Capital Surplus Will Be Made
Our partnership agreement requires that we make distributions of available cash
from capital surplus, if any, in the following manner:
| |
• |
|
first, to all unitholders, pro rata, until the minimum quarterly distribution level has been reduced to zero as described below; |
| |
• |
|
second, to the common unitholders, pro rata, until we distribute for each common unit an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and |
| |
• |
|
thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus. |
The preceding paragraph assumes that we do not issue additional classes of equity interests.
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. Our 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 that the distribution had to the fair market value of the common units immediately prior to the announcement of the distribution (or the average of the
closing prices for the 20 consecutive trading days immediately prior to the ex-dividend date). Because distributions of capital surplus will reduce the minimum quarterly distribution and target distribution levels after any of these distributions
are made, it may be easier for ETP (in its capacity as the holder of our incentive distribution rights) to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus
before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.
Once we distribute capital surplus on a unit issued in our initial public offering in an amount equal to the initial unit price, our
partnership agreement specifies that the minimum quarterly distribution and the target distribution levels will be reduced to zero. Our partnership agreement specifies that we will then make all future distributions from operating surplus, with
50.0% being paid to our unitholders and 50.0% to ETP (in its capacity as the holder of our incentive distribution rights), assuming that ETP has not transferred the incentive distribution rights.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we
combine our common units into fewer common units or subdivide our common units into a greater number of common units, our partnership agreement specifies that the following items will be proportionately adjusted:
| |
• |
|
the minimum quarterly distribution; |
20
| |
• |
|
the target distribution levels; |
| |
• |
|
the unrecovered initial unit price; |
| |
• |
|
the per unit amount of any outstanding arrearages in payment of the minimum quarterly distribution on the common units; and |
| |
• |
|
the number of common units into which a subordinated unit is convertible. |
For example, if a
two-for-one split of the common units should occur, the minimum quarterly distribution, each target distribution level and the unrecovered initial unit price would be reduced to 50.0% of its initial level, and each subordinated unit would be
convertible into two subordinated units. Our partnership agreement provides that we will not make any adjustment by reason of the issuance of additional units for cash or property.
In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental taxing authority, so that we become
taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the minimum quarterly distribution and the target distribution levels for each quarter
may, in the sole discretion of our general partner, 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)
and the denominator of which is the sum of available cash for that quarter before any adjustment for estimated taxes. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be
accounted for in subsequent quarters.
Distributions of Cash Upon Liquidation
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 the holders of our incentive distribution rights, 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.
The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle our common unitholders to a preference over
our subordinated unitholders upon our liquidation, to the extent required to permit common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any
unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable our common unitholders to fully recover all of these amounts, even though there may be
cash available for distribution to our subordinated unitholders. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights.
Manner of Adjustments for Gain
The manner of the adjustment for gain is set forth in our partnership agreement. If our liquidation occurs before the end of the subordination
period, we will generally allocate any gain to our partners in the following manner:
| |
• |
|
first, to our common unitholders, pro rata, until the capital account for each common unit is equal to the sum of: (1) the unrecovered initial unit price; (2) the unpaid amount of the minimum quarterly
distribution for the quarter during which our liquidation occurs; and (3) any unpaid arrearages in payment of the minimum quarterly distribution; |
| |
• |
|
second, to our subordinated unitholders, pro rata, until the capital account for each subordinated unit is equal to the sum of: (1) the unrecovered initial unit price; and (2) the unpaid amount of the
minimum quarterly distribution for the quarter during which our liquidation occurs; |
21
| |
• |
|
third, to all unitholders, pro rata, until we allocate under this paragraph an amount per unit equal to: (1) the excess of the first target distribution per unit over the minimum quarterly distribution per
unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed to the unitholders, pro
rata, for each quarter of our existence; |
| |
• |
|
fourth, 85.0% to all unitholders, pro rata, and 15.0% to ETP (in its capacity as the holder of our incentive distribution rights), until we allocate under this paragraph an amount per unit equal to: (1) the
excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of
the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to ETP (in its capacity as the holder of our incentive distribution rights) for each quarter of our existence; |
| |
• |
|
fifth, 75.0% to all unitholders, pro rata, and 25.0% to ETP (in its capacity as the holder of our incentive distribution rights), until we allocate under this paragraph an amount per unit equal to: (1) the
excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of
the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to ETP (in its capacity as the holder of our incentive distribution rights) for each quarter of our existence; and |
| |
• |
|
thereafter, 50.0% to all unitholders, pro rata, and 50.0% to ETP (in its capacity as the holder of our incentive distribution rights). |
If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will
disappear, so that clause (3) of the first bullet point above and all of the second bullet point above will no longer be applicable.
We may make special allocations of gain among the partners in a manner to create economic uniformity among the common units into which the
subordinated units convert and the common units held by public unitholders.
Manner of Adjustments for Losses
If our liquidation occurs before the end of the subordination period, we will generally allocate any loss to our unitholders in the following
manner:
| |
• |
|
first, to our subordinated unitholders, pro rata, until the capital accounts of the subordinated unitholders have been reduced to zero; and |
| |
• |
|
thereafter, to our common unitholders, pro rata, until the capital accounts of the common unitholders have been reduced to zero. |
If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will
disappear, so that all of the first bullet point above will no longer be applicable.
We may make special allocations of loss among the
partners in a manner to create economic uniformity among the common units into which the subordinated units convert and the common units held by public unitholders.
Adjustments to Capital Accounts
We will make adjustments to capital accounts upon the issuance of additional units. In doing so, we generally will allocate any unrealized and,
for tax purposes, unrecognized gain resulting from the adjustments to
22
the unitholders and the holders of our incentive distribution rights in the same manner as we allocate gain upon liquidation. By 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 based on their percentage ownership of us. In this manner, prior to the end
of the subordination period, we generally will allocate any such loss equally with respect to our common and subordinated units. In the event 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.
23
CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
Conflicts of Interest
Conflicts of
interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates, including ETP, on the one hand, and us and our public unitholders, on the other hand. Conflicts may arise as a result of the
duties of our general partner to act for the benefit of its owners, which may conflict with our interests and the interests of our public unitholders. The directors and officers of our general partner, who are responsible for managing our business,
have fiduciary duties to manage our general partner in a manner beneficial to its owners. At the same time, our general partner has a duty under our partnership agreement to manage us in good faith.
Whenever a conflict of interest arises between our general partner, on the one hand, and us or any other public unitholder, on the other hand,
our general partner will resolve that conflict of interest. Our partnership agreement contains provisions that replace default fiduciary duties under applicable law with contractual corporate governance standards as set forth therein. Our
partnership agreement also restricts the remedies available to unitholders for actions taken that, without such replacement, might constitute breaches of fiduciary duty.
Our general partner will not be in breach of its obligations under our partnership agreement or its duties to us or our unitholders if the
resolution or course of action taken with respect to a conflict of interest is:
| |
• |
|
approved by a majority of the members of the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval; or |
| |
• |
|
approved by the vote of a majority of the outstanding common units, excluding any units owned by our general partner or any of its affiliates, although our general partner is not obligated to seek such approval.
|
Our general partner may, but is not required to, seek the approval of such resolution from the conflicts committee of its
board of directors or from our common unitholders. Because our partnership agreement only requires that the conflicts committee have at least one member, during any time that the conflicts committee only has one member, that single member of the
conflicts committee will be able to approve resolutions of conflicts of interest. It is possible that a single-member committee may not function as effectively as a multiple-member committee and, if we pursue a transaction with an affiliate while
the conflicts committee has only one member, our limited partners will be deemed to have approved that transaction through the approval of that single-member conflicts committee, in the same manner as would have occurred had the conflicts committee
consisted of more directors.
If our general partner does not seek approval from the conflicts committee or from a majority of the common
units, as described above, and the board of directors of our general partner approves the resolution or course of action taken with respect to the conflict of interest, then it will be presumed that, in making its decision, the board of directors of
our general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the
resolution of a conflict of interest is specifically provided for in our partnership agreement, the board of directors of our general partner or the conflicts committee of the board of directors of our general partner may consider any factors they
determine in good faith to consider when resolving a conflict. An independent third party is not required to evaluate the resolution. Under our partnership agreement, a determination, other action or failure to act by our general partner, the board
of directors of our general partner or any committee thereof (including the conflicts committee) will be deemed to be “in good faith” unless our general partner, the board of directors of our general partner or any committee thereof
(including the conflicts committee) believed such determination, other action or failure to act was adverse to the interests of the partnership. For the avoidance of doubt, any potential conflict of interest that exists or arises between our general
partner or its affiliates, on the one hand, and the partnership or any other person who is bound by our partnership agreement, on the other hand, may be resolved by the conflicts committee or a vote of the common unitholders as
24
described above or as directed by the board of directors of our general partner, provided that the board of directors of our general partner makes, takes or declines to take any action to resolve
the conflict in accordance with the standard of care set forth in our partnership agreement.
Conflicts of interest could arise in the
situations described below, among others.
Our general partner’s affiliates may compete with us.
Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as
our general partner, acting as the general partner or managing member of its affiliates, those activities incidental to its ownership of interests in us and its affiliates, acquiring, owning or disposing of debt securities or equity interests in us
or its affiliates and the provision of management, advisory and administrative services to its affiliates or to other persons. Certain members of our executive management team on whom we rely to manage important aspects of our business may, from
time to time, face conflicts regarding the allocation of their time. In addition, except as provided in our partnership agreement and in the omnibus agreement, affiliates of our general partner, including ETP and Susser, are not prohibited from
engaging in other businesses or activities, including those that might be in direct competition with us. Further, after the expiration of the ten-year terms in the omnibus agreement, Susser will no longer be obligated to provide us with a right to
supply fuel at newly constructed Stripes® stores or consignment locations or with a right to participate with Susser in acquisition opportunities.
Affiliates of our general partner, including ETP and Susser, are not required to share business opportunities with us.
Our partnership agreement provides that affiliates of our general partner, including ETP and Susser, are permitted to engage in separate
businesses which directly compete with us and are not required to share or communicate or offer any potential business opportunities to us even if the opportunity is one that we might reasonably have pursued. Our partnership agreement provides that
affiliates of our general partner, including ETP and Susser, will not be liable to us or any unitholder for breach of any duty or obligation by reason of the fact that such person or entity pursued or acquired for itself any business opportunity.
Our general partner is allowed to take into account the interests of parties other than us (such as ETP or Susser) in exercising certain rights
under our partnership agreement.
Our partnership agreement contains provisions that reduce the default standards to which our
general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner.
This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples
include the exercise of its call right, its voting rights with respect to the units it owns, its registration rights and the determination of whether to consent to any merger or consolidation of the partnership or amendment of our partnership
agreement.
Our general partner has limited its liability in our partnership agreement and replaced default fiduciary duties with contractual
corporate governance standards set forth therein, thereby restricting the remedies available to our unitholders for actions that, without such replacement, might constitute breaches of fiduciary duty.
In addition to the provisions described above, our partnership agreement contains provisions that restrict the remedies available to our
unitholders for actions that might otherwise constitute breaches of fiduciary duty. For example, our partnership agreement:
| |
• |
|
permits our general partner to make a number of decisions in its individual capacity, as opposed to its capacity as general partner, thereby entitling our general partner to consider only the interests and factors that
it desires, and imposes no duty or obligation on our general partner to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner; |
25
| |
• |
|
provides that our general partner shall not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning it believed that the decision was
not adverse to the partnership; |
| |
• |
|
provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners for any acts or omissions unless there has been a final and non-appealable judgment
entered by a court of competent jurisdiction determining that our general partner or its officers or directors acted in bad faith or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and |
| |
• |
|
provides that in resolving conflicts of interest, it will be presumed that in making its decision our general partner, the board of directors of our general partner or the conflicts committee of the board of directors
of our general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. |
By purchasing a common unit, a common unitholder will agree to become bound by the provisions in our partnership agreement, including the
provisions discussed above. Please read “—Fiduciary Duties.”
Except in limited circumstances, our general partner has the power and
authority to conduct our business without unitholder approval.
Under our partnership agreement, our general partner has full power
and authority to do all things, other than those items that require unitholder approval or with respect to which our general partner has sought conflicts committee approval, on such terms as it determines to be necessary or appropriate to conduct
our business including, but not limited to, the following:
| |
• |
|
the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including
indebtedness that is convertible into our securities, and the incurring of any other obligations; |
| |
• |
|
the purchase, sale or other acquisition or disposition of our securities, or the issuance of additional options, rights, warrants and appreciation rights relating to our securities; |
| |
• |
|
the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets; |
| |
• |
|
the negotiation, execution and performance of any contracts, conveyances or other instruments; |
| |
• |
|
the exercise of our option pursuant to the omnibus agreement to purchase up to 75 new or recently completed Stripes® convenience stores from Susser and lease them
back to Susser; |
| |
• |
|
the distribution of our cash; |
| |
• |
|
the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring; |
| |
• |
|
the maintenance of insurance for our benefit and the benefit of our partners; |
| |
• |
|
the formation of, or acquisition of an interest in, the contribution of property to, and the making of loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity;
|
| |
• |
|
the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity, otherwise engaging in the conduct of litigation, arbitration or mediation and the
incurring of legal expense and the settlement of claims and litigation; |
| |
• |
|
the indemnification of any person against liabilities and contingencies to the extent permitted by law; |
26
| |
• |
|
the making of tax, regulatory and other filings, or the rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets; and |
| |
• |
|
the entering into of agreements with any of its affiliates to render services to us or to itself in the discharge of its duties as our general partner. |
Our partnership agreement provides that our general partner must act in “good faith” when making decisions on our behalf, and our
partnership agreement further provides that in order for a determination to be made in “good faith,” our general partner must believe that the determination is in our best interests. Please read “The Partnership Agreement—Voting
Rights” for information regarding matters that require unitholder approval.
Our general partner determines the amount and timing of asset
purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and the creation, reduction or increase of reserves, each of which can affect the amount of cash that is distributed to our unitholders.
The amount of cash that is available for distribution to our unitholders is affected by decisions of our general partner regarding
such matters as:
| |
• |
|
amount and timing of asset purchases and sales; |
| |
• |
|
issuance of additional units; and |
| |
• |
|
the creation, reduction, or increase of reserves in any quarter. |
Our general partner
determines the amount and timing of any capital expenditures and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating
surplus. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Capital Expenditures” for a discussion on when a capital expenditure constitutes a maintenance capital expenditure or an expansion capital
expenditure. This determination can affect the amount of cash that is distributed to our unitholders and to our general partner and the ability of the subordinated units to convert. Please read “Provisions of Our Partnership Agreement Relating
to Cash Distributions—Subordinated Units.”
In addition, our general partner may use an amount, initially equal to $25 million,
which would not otherwise constitute available cash from operating surplus, in order to permit the payment of cash distributions on its units and ETP’s incentive distribution rights. All of these actions may affect the amount of cash
distributed to our unitholders and our general partner and may facilitate the conversion of subordinated units into common units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”
In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders,
including borrowings that have the purpose or effect of:
| |
• |
|
enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or |
| |
• |
|
accelerating the expiration of the subordination period. |
For example, in the event we have
not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common and subordinated units, our partnership agreement permits us to borrow funds, which would enable us to make this distribution on all of our
outstanding units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units.”
Our partnership agreement provides that we and our subsidiaries may borrow funds from our general partner and its affiliates. Our general
partner and its affiliates may borrow funds from us, or our operating company and its operating subsidiaries.
27
Our general partner and its affiliates are not required to own any of our common units. If our general
partner’s affiliates were to sell all or substantially all of their common units, this would heighten the risk that our general partner would act in ways that are more beneficial to itself than our common unitholders.
ETP currently owns 44.1% of our outstanding units, but there is no requirement that ETP continue to do so. ETP and its affiliates are permitted
to sell all of their common units, subject to certain limitations contained in our partnership agreement. If ETP does not own any of our common units, this would heighten the risk that our general partner would act in ways that are more beneficial
to ETP than our common unitholders.
Our general partner determines which of the costs it incurs on our behalf are reimbursable by us.
We will reimburse our general partner and its affiliates for the costs incurred in managing and operating us, including costs incurred in
rendering corporate staff and support services to us pursuant to the omnibus agreement with Susser. Neither our partnership agreement nor the omnibus agreement limits the amount of expenses for which our general partner and its affiliates may be
reimbursed. Our partnership agreement provides that our general partner will determine in good faith such other expenses that are allocable to us. The fully allocated basis charged by our general partner does not include a profit component.
Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or from
entering into additional contractual arrangements with any of these entities on our behalf.
Our partnership agreement allows our
general partner to determine, in good faith, any amounts to pay itself or its affiliates for any services rendered to us. Our general partner may also enter into additional contractual arrangements with any of its affiliates on our behalf. Neither
our partnership agreement nor any of the other agreements, contracts or arrangements between us, on the one hand, and our general partner and its affiliates, on the other hand, are the result of arm’s-length negotiations. Similarly, agreements,
contracts or arrangements between us and our general partner and its affiliates that are entered into in the future may not be negotiated on an arm’s-length basis, although, in some circumstances, our general partner may determine that the
conflicts committee of our general partner may make a determination on our behalf with respect to such arrangements.
Our general partner
will determine, in good faith, the terms of any such transactions.
Our general partner and its affiliates will have no obligation to
permit us to use any of its or its affiliates’ facilities or assets, except as may be provided in contracts entered into specifically for such use. There is no obligation of our general partner or its affiliates to enter into any contracts of
this kind.
Our general partner intends to limit its liability regarding our obligations.
Except in the case of our credit facilities, our general partner intends to limit its liability under contractual arrangements so that
counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of
our general partner’s fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability.
Common units
are subject to our general partner’s call right.
If at any time our general partner and its affiliates own more than 80% of
our common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of our common units held by public unitholders at a price not less than
their then-current market price, as calculated pursuant to the terms of our partnership agreement. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may
also incur a tax liability upon a sale of your common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call right. There is no restriction
in our partnership agreement that prevents our manager from issuing additional
28
common units and exercising its call right. Our general partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. See “The
Partnership Agreement—Limited Call Right.”
Common unitholders will have no right to enforce obligations of our general partner and its
affiliates under agreements with us.
Any agreements between us, on the one hand, and our general partner and its affiliates, on
the other, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.
Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.
The attorneys, independent accountants and others who have performed services for us regarding this offering have been retained by our general
partner. Attorneys, independent accountants and others who perform services for us are selected by our general partner or the conflicts committee and may perform services for our general partner and its affiliates. We may retain separate counsel for
ourselves or the common unitholders in the event of a conflict of interest between our general partner and its affiliates, on the one hand, and us or the common unitholders, on the other, depending on the nature of the conflict. We do not intend to
do so in most cases.
ETP may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related
to ETP’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or our unitholders. This election may result in lower distributions to our common unitholders in certain
situations.
ETP has the right, at any time when there are no subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (50.0%) for the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution at the time of the exercise of
the reset election. Following a reset election by ETP, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution per common unit for the two fiscal quarters immediately preceding the reset election (such
amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.
We anticipate that ETP would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be
sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that ETP could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time
when ETP expects that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, ETP may be experiencing, or may expect to experience, declines in the cash distributions it receives related to its
incentive distribution rights and may therefore desire to be issued our common units, which are entitled to specified priorities with respect to our distributions and which therefore may be more advantageous for ETP to own in lieu of the right to
receive incentive distribution payments based on target distribution levels that are less certain to be achieved in the then current business environment. As a result, a reset election may cause our common unitholders to experience dilution in the
amount of cash distributions that they would have otherwise received had we not issued new common units to ETP in connection with resetting the target distribution levels related to ETP’s incentive distribution rights. Please read
“Provisions of Our Partnership Agreement Relating to Cash Distributions—Incentive Distribution Rights.”
Fiduciary Duties
Our general partner is accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our general partner are
prescribed by law and our partnership agreement. The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, modify, restrict or expand the fiduciary duties otherwise owed by a general partner to limited
partners and the partnership.
29
Our partnership agreement contains various provisions modifying and restricting the fiduciary
duties that might otherwise be owed by our general partner. We have adopted these restrictions to allow our general partner or its affiliates to engage in transactions with us that would otherwise be prohibited by state-law fiduciary duty standards
and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because our general partner’s board of directors will have fiduciary duties
to manage our general partner in a manner that is beneficial to its owners, as well as to our unitholders.
Without these modifications,
our general partner’s ability to make decisions involving conflicts of interest would be restricted. The modifications to the fiduciary standards enable our general partner to take into consideration all parties involved in the proposed action.
These modifications also enable our general partner to attract and retain experienced and capable directors. However, these modifications disadvantage our public common unitholders because they restrict the remedies available to unitholders for
actions that, without those limitations, might constitute breaches of fiduciary duty, as described below, and permit our general partner to take into account the interests of third parties in addition to our interests when resolving conflicts of
interest. The following is a summary of the material restrictions of:
| |
• |
|
the default fiduciary duties under by the Delaware Act; |
| |
• |
|
material modifications of these duties contained in our partnership agreement that replace the default fiduciary duties; |
| |
• |
|
certain rights and remedies of limited partners contained in the Delaware Act; and |
| |
• |
|
the standards contained in our partnership agreement that restrict those rights and remedies. |
|
|
|
| State law fiduciary duty standards |
|
Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would
generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally
require that any action taken or transaction engaged in be entirely fair to the partnership. |
|
|
| Partnership agreement modified standards |
|
Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might
otherwise raise issues about compliance with fiduciary duties or applicable law. For example, our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual
capacity, it must act in “good faith” and will not be subject to any other standard under applicable law. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it
may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partner would otherwise be held.
If our general partner does not obtain approval from the conflicts committee or our common unitholders, excluding common units owned by our general partner or
its affiliates, and the board of directors of our general partner approves the resolution or course of action taken with respect to the conflict of interest, then it will be presumed that, in making its decision, the board of directors, which may
include board members affected by the conflict of interest, acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of
overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held. |
30
|
|
|
|
|
| Rights and remedies of unitholders |
|
The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from
a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or
of our partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of himself and all other similarly situated limited partners to recover damages from a
general partner for violations of its fiduciary duties to the limited partners. The
Delaware Act provides that, unless otherwise provided in a partnership agreement, a partner or other person shall not be liable to a limited partnership or to another partner or to another person that is a party to or is otherwise bound by a
partnership agreement for breach of fiduciary duty for the partner’s or other person’s good faith reliance on the provisions of our partnership agreement. Under our partnership agreement, to the extent that, at law or in equity an
indemnitee has duties (including fiduciary duties) and liabilities relating thereto to us or to our partners, our general partner and any other indemnitee acting in connection with our business or affairs shall not be liable to us or to any partner
for its good faith reliance on the provisions of our partnership agreement. |
|
|
| Partnership agreement modified standard |
|
In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary
damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our general partner or its officers and
directors acted in bad faith or, in the case of a criminal matter, acted with knowledge that such person’s conduct was unlawful. |
By purchasing our common units, each common unitholder automatically agrees to be bound by the provisions in
our partnership agreement, including the provisions discussed above. This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited
partner to sign a partnership agreement does not render our partnership agreement unenforceable against that person.
Under our
partnership agreement, we must indemnify our general partner and its officers, directors, managers and certain other specified persons, to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our general partner
or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith. We must also provide this indemnification
for criminal proceedings unless our general partner or these other persons acted with knowledge that their conduct was unlawful. Thus, our general partner or these other persons could be indemnified for their negligent or grossly negligent acts if
they meet the requirements set forth above. To the extent these provisions purport to include indemnification for liabilities arising under the Securities Act in the opinion of the SEC, such indemnification is contrary to public policy and,
therefore, unenforceable. Please read “The Partnership Agreement—Indemnification.”
31
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. We will provide prospective investors with a copy of our
partnership agreement upon request at no charge.
We summarize the following provisions of our partnership agreement elsewhere in this
prospectus:
| |
• |
|
with regard to distributions of available cash, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions” and “Cash Distribution Policy and Restrictions on Distributions”;
|
| |
• |
|
with regard to the fiduciary duties of our general partner, please read “Conflicts of Interest and Fiduciary Duties”; |
| |
• |
|
with regard to the transfer of common units, please read “Description of the Common Units—Transfer of Common Units”; and |
| |
• |
|
with regard to allocations of taxable income and taxable loss, please read “Material U.S. Federal Income Tax Consequences.” |
Organization and Duration
Our
partnership was organized in June 2012 and will have a perpetual existence unless terminated pursuant to the terms of our partnership agreement.
Purpose
Our purpose, as set forth in our
partnership agreement, is limited to any business activity that is approved by our general partner and that lawfully may be conducted by a limited partnership organized under Delaware law.
Although our general partner has the ability to cause us and our subsidiaries to engage in activities other than the business of the wholesale
distribution of motor fuels and other petroleum products and the owning and leasing of real estate used as sites for convenience stores, our general partner has no plans to do so and may decline to do so free of any fiduciary duty or obligation
whatsoever to us or our limited partners, including any duty to act in good faith or in the best interests of us or our limited partners. Our general partner is generally authorized to perform all acts it determines to be necessary or appropriate to
carry out our purposes and to conduct our business.
Cash Distributions
Our partnership agreement specifies the manner in which we make cash distributions to holders of our common units and other partnership
securities as well as to ETP in respect of incentive distribution rights. For a description of these cash distribution provisions, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”
Capital Contributions
Unitholders are
not obligated to make additional capital contributions, except as described below under “—Limited Liability.”
Voting Rights
The following is a summary of the unitholder vote required for approval of the matters specified below. Matters that require the approval of a
“unit majority” require:
| |
• |
|
during the subordination period, the approval of a majority of the common units, excluding those common units held by our general partner and its affiliates, and a majority of the subordinated units, voting as separate
classes; |
32
| |
• |
|
after the subordination period, the approval of a majority of the common units, voting as a single class. |
By virtue of the exclusion of the common units held by our general partner and its affiliates from the required vote, and their ownership of
all of our subordinated units, during the subordination period our general partner and its affiliates do not have the ability to ensure the approval of, but do have the ability to ensure the defeat of, any matter that requires the approval of a unit
majority.
In voting their common and subordinated units, ETP and its affiliates have no fiduciary duty or obligation whatsoever to us or
our limited partners, including any duty to act in good faith or in the best interests of us or our limited partners.
The incentive
distribution rights may be entitled to vote in certain circumstances.
|
|
|
| Issuance of additional units |
|
No approval right. Please read “—Issuance of Additional Partnership Interests.” |
|
|
| Amendment of our partnership agreement |
|
Certain amendments may be made by our general partner without the approval of our unitholders. Other amendments generally require the approval of a unit majority. Please read “—Amendment of the Partnership
Agreement.” |
|
|
| Merger of our partnership or the sale of all or substantially all of our assets |
|
Unit majority in certain circumstances. Please read “—Merger, Consolidation, Conversion, Sale or Other Disposition of Assets.” |
|
|
| Dissolution of our partnership |
|
Unit majority in certain circumstances. Please read “—Dissolution.” |
|
|
| Continuation of our business upon dissolution |
|
Unit majority. Please read “—Dissolution.” |
|
|
| Withdrawal of our general partner |
|
Under most circumstances, the approval of the holders of a majority of our common units, excluding common units held by our general partner and its affiliates, is required for the withdrawal of our general partner prior to
September 30, 2022, in a manner that would cause a dissolution of our partnership. Please read “—Withdrawal or Removal of Our General Partner.” |
|
|
| Removal of our general partner |
|
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.” |
|
|
| Transfer of our general partner interest |
|
No approval right. Please read “—Transfer of General Partner Interest.” |
|
|
| Transfer of incentive distribution rights |
|
No approval right. Please read “—Transfer of Subordinated Units and Incentive Distribution Rights.” |
|
|
| Transfer of ownership interests in our general partner |
|
No approval right. Please read “—Transfer of Ownership Interests in our General Partner.” |
If any person or group other than our general partner and its affiliates acquires beneficial ownership of 20%
or more of any class of units then outstanding, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires the units from our general partner or its affiliates and any
transferees of that person or group approved by our general partner or to any person or group who acquires the units with the specific approval of our general partner.
33
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:
| |
• |
|
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 our limited partners or of our limited partners to us, or the rights or powers of, or restrictions on, our limited partners or us); |
| |
• |
|
brought in a derivative manner on our behalf; |
| |
• |
|
asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners; |
| |
• |
|
asserting a claim arising pursuant to any provision of the Delaware Act; or |
| |
• |
|
asserting a claim governed by the internal affairs doctrine, |
shall be exclusively brought in the Court of
Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction). By purchasing a common unit, a limited partner is irrevocably
consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware in connection with any such claims, suits, actions or
proceedings.
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that he
otherwise acts in conformity with the provisions of our partnership agreement, his liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to us for his common units
plus his share of any undistributed profits and assets. However, if it were determined 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 the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of Delaware, to the same extent as our general partner. This liability would extend to persons who
transact business with us under the reasonable belief that the limited partner is a general partner. Neither our partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner
were to lose limited liability through any fault of our general partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.
Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the
limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of
the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors is limited shall be
included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the
distribution that the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the distribution for three years. Under the Delaware Act, a substituted limited partner of a limited partnership is
34
liable for the obligations of its assignor to make contributions to the partnership, except that such person is not obligated for liabilities unknown to it at the time it became a limited partner
and that could not be ascertained from our partnership agreement.
Our subsidiaries currently 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 owner of our operating subsidiaries may require compliance with legal requirements in the jurisdictions in which the operating
subsidiaries conduct business, including qualifying our subsidiaries to do business there.
Limitations on the liability of members or
limited partners for the obligations of a limited liability company or limited partnership have not been clearly established in many jurisdictions. If, by virtue of our ownership interest in our subsidiaries or otherwise, it were to be determined
that we were conducting business in any jurisdiction 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 our limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our general partner under the circumstances. We will operate in a manner that our general
partner considers reasonable and necessary or appropriate to preserve the limited liability of our 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 our unitholders.
It is possible
that we will fund acquisitions through the issuance of additional common units, subordinated units or other partnership interests. Holders of any additional common units we issue will be entitled to share equally with the then-existing common
unitholders 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 common unitholders 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 or be senior in right of distribution to the common units. In addition, our partnership agreement does not prohibit our subsidiaries from
issuing equity interests which effectively rank senior to the common units.
Our general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to purchase common units, subordinated units or other partnership interests whenever, and on the same terms that, we issue partnership interests to persons other than our general partner and
its affiliates, to the extent necessary to maintain the percentage interest of itself and its affiliates, including such interest represented by common and subordinated units, that existed immediately prior to each issuance. The unitholders will not
have preemptive rights under our partnership agreement to acquire additional common units or other partnership interests.
Amendment of the Partnership
Agreement
General
Amendments to our partnership agreement may be proposed only by our general partner. However, our general partner has no duty or obligation to
propose any amendment and may decline to do so free of any fiduciary duty or obligation whatsoever to us or our limited partners, including any duty to act in good faith or in
35
the best interests of us or our limited partners. In order to adopt a proposed amendment, other than the amendments discussed under “—No Unitholder Approval” below, our general
partner is required to seek written approval of the holders of the number of units required to approve the amendment or to call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below, an
amendment must be approved by a unit majority.
Prohibited Amendments
No amendment may be made that would:
| |
• |
|
enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected; or |
| |
• |
|
enlarge the obligations of, restrict, change or modify in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to, our general partner or any of its
affiliates without the consent of our general partner, which consent may be given or withheld at its option. |
The provisions
of our partnership agreement preventing the amendments having the effects described in the clauses above can be amended upon the approval of the holders of at least 90.0% of the outstanding units, voting as a single class (including units owned by
our general partner and its affiliates).
No Unitholder Approval
Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner to reflect:
| |
• |
|
a change in our name, the location of our principal place of business, our registered agent or our registered office; |
| |
• |
|
the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement; |
| |
• |
|
a change that our general partner determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership or 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 (other than Susser Petroleum Property Company LLC (“Propco”) and Aloha Petroleum, Ltd. (“Aloha”)) will be treated as an association taxable as a
corporation or otherwise taxed as an entity for U.S. federal income tax purposes; |
| |
• |
|
an amendment that is necessary, in the opinion of our counsel, to prevent us, our general partner or its directors, officers, agents or trustees from in any manner being subjected to the provisions of the Investment
Company Act of 1940, the Investment Advisers Act of 1940 or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently
applied or proposed; |
| |
• |
|
an amendment that our general partner determines to be necessary or appropriate in connection with the creation, authorization or issuance of additional partnership interests or the right to acquire partnership
interests; |
| |
• |
|
any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone; |
| |
• |
|
an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our partnership agreement; |
| |
• |
|
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, as otherwise permitted by our partnership agreement; |
36
| |
• |
|
a change in our fiscal year or taxable year and related changes; |
| |
• |
|
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 |
| |
• |
|
any other amendments substantially similar to any of the matters described in the clauses above. |
In addition, our general partner may make amendments to our partnership agreement, without the approval of any limited partner, if our general
partner determines that those amendments:
| |
• |
|
do not adversely affect the limited partners (or any particular class of limited partners) in any material respect; |
| |
• |
|
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; |
| |
• |
|
are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are
or will be listed for trading; |
| |
• |
|
are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of our partnership agreement; or |
| |
• |
|
are required to effect the intent expressed in the prospectus used in our initial public offering or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement.
|
Opinion of Counsel and Unitholder Approval
Any amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to
other classes of units will require the approval of at least a majority of the type or class of units so affected. Any amendment that would reduce or increase the voting percentage required to take any action other than to remove our general partner
or call a meeting of unitholders is required to be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced or increased.
For amendments of the type not requiring unitholder approval, our general partner will not be required to obtain an opinion of counsel that an
amendment will neither result in a loss of limited liability to the limited partners nor result in our being treated as a taxable entity for federal income tax purposes in connection with any of the amendments. No other amendments to our partnership
agreement will become effective without the approval of holders of at least 90% of the outstanding units, voting as a single class, unless we first obtain an opinion of counsel to the effect that the amendment will not affect the limited liability
under applicable law of any of our limited partners.
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets
A merger or consolidation of us requires the prior consent of our general partner. However, our general partner has no duty or obligation to
consent to any merger or consolidation and may decline to do so free of any fiduciary duty or obligation whatsoever to us or our limited partners, including any duty to act in good faith or in the best interest of us or our limited partners. Our
general partner may, however, consummate any merger without the prior approval of our unitholders if we are the surviving entity in the transaction, our general partner has received an opinion of counsel regarding limited liability and tax matters,
the transaction would not result in an amendment to our partnership agreement (other than an amendment that our general partner could adopt without the consent of other partners), each of our partnership interests will be an identical partnership
interest following the transaction and the partnership interests to be issued do not exceed 20% of our outstanding partnership interests (other than incentive distribution rights) immediately prior to the transaction.
37
In addition, our partnership agreement generally prohibits our general partner, without the prior
approval of the holders of a unit majority, from causing us to sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, including by way of merger, consolidation or
other combination. Our general partner may, however, mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without such approval. Our general partner may also sell all or substantially all of our assets
under a foreclosure or other realization upon those encumbrances without such approval. If the conditions specified in our partnership agreement are satisfied, our general partner may also 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 limited liability entity that has no assets, liabilities or operations, if the sole purpose of that conversion, merger or conveyance is to
effect a mere change in our legal form into another limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax matters and the governing instruments of the new entity provide the limited
partners and our general partner with substantially the same rights and obligations as those contained in our partnership agreement. Our unitholders are not entitled to dissenters’ rights of appraisal under our partnership agreement or
applicable Delaware law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets or any other similar transaction or event.
Dissolution
We will continue as a
limited partnership until dissolved under our partnership agreement. We will dissolve upon:
| |
• |
|
the election of our general partner to dissolve us, if approved by the holders of a unit majority; |
| |
• |
|
there being no limited partners, unless we are continued without dissolution in accordance with applicable Delaware law; |
| |
• |
|
the entry of a decree of judicial dissolution of our partnership pursuant to the provisions of the Delaware Act; or |
| |
• |
|
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 0.0% non-economic general partner interest in
accordance with our partnership agreement, unless a successor general partner is admitted pursuant to our partnership agreement. |
Upon a dissolution under the last clause above, the holders of a unit majority may 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 a unit majority, subject to our receipt of an opinion of counsel to the effect that:
| |
• |
|
the action would not result in the loss of limited liability under Delaware law of any limited partner; and |
| |
• |
|
neither we nor any of our subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for U.S. federal income tax purposes upon the exercise of that right to continue
(to the extent not already so treated or taxed). |
Liquidation and Distribution of Proceeds
Upon our dissolution, unless our business is continued, the liquidator authorized to wind up our affairs will, acting with all of the powers of
our general partner that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as described in “Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions 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.
38
Withdrawal or Removal of Our General Partner
Except as described below, our general partner has agreed not to withdraw voluntarily as our general partner on or prior to September 30,
2022 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. After September 30, 2022, our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days’ advance 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’ advance notice to the limited partners if at least 50% 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, in some instances, to sell or otherwise transfer all of its 0.0% non-economic general partner
interest in us without the approval of the unitholders. Please read “—Transfer of General Partner Interest.”
Upon
withdrawal of our general partner under any circumstances, other than as a result of a transfer by our general partner of all or a part of its 0.0% non-economic general partner interest in us, the holders of a unit majority may elect 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 in writing to continue our business and to appoint a successor general partner. Please read “—Dissolution.”
Our general partner may not be removed unless that removal is approved by the vote of the holders of not less than 66 2/3% of the outstanding
units, voting together as a single class, including units held by our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of our general partner is also subject to the
approval of a successor general partner by the vote of the holders of a majority of the outstanding common units, voting as a separate class, and the outstanding subordinated units, voting as a separate class including, in each case, units held by
our general partner and its affiliates. The ownership of more than 33 1/3% of the outstanding units by our general partner and its affiliates gives them the ability to prevent our general partner’s removal.
Our partnership agreement also provides that if our general partner is removed as our general partner under circumstances where cause does not
exist:
| |
• |
|
the subordinated units held by any person will immediately and automatically convert into common units on a one-for-one basis, provided (i) neither such person nor any of its affiliates voted any of its units in
favor of the removal and (ii) such person is not an affiliate of the successor general partner; and |
| |
• |
|
if all of the subordinated units convert pursuant to the foregoing, all cumulative common unit arrearages on the common units will be extinguished and the subordination period will end. |
In the event of the removal of our general partner under circumstances where cause exists or withdrawal of our general partner where that
withdrawal violates our partnership agreement, a successor general partner will have the option to purchase the general partner interest of the departing general partner and the incentive distribution rights of its affiliates 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 the incentive distribution rights of its affiliates for fair market value. In each case, this fair market value will be determined by agreement between the departing
general partner and the successor general partner. If no agreement is reached within 30 days after the effective date of the departing general partner’s withdrawal or removal, 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. If the departing general partner and the successor general partner cannot agree upon an expert within 45 days after the withdrawal or
removal, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.
39
If the option described above is not exercised by either the departing general partner or the
successor general partner, the departing general partner’s general partner interest and all of its affiliates’ incentive distribution rights will automatically convert into common units with a value equal to the fair market value of those
interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.
In addition, we will be required to reimburse the departing general partner for all amounts due the departing general partner, including,
without limitation, all employee-related liabilities, including severance liabilities, incurred as a result of the termination of any employees employed for our benefit by the departing general partner or its affiliates.
Transfer of General Partner Interest
Our
general partner may at its option transfer all or any part of its general partner interest without approval from the unitholders, so long as:
| |
• |
|
the transferee agrees to assume the rights and duties of our general partner under our partnership agreement and agrees to be bound by the provisions of our partnership agreement; |
| |
• |
|
we receive an opinion of counsel that such transfer would not result in the loss of limited liability under the Delaware Act of any unitholders or cause us to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed); and |
| |
• |
|
such transferee also agrees to purchase all (or the appropriate portion thereof, if applicable) of the partnership or membership interest held by our general partner as the general partner or managing member, if any, of
any of our subsidiaries. |
In the case of a transfer of the general partner interest, the transferee or successor will be
subject to compliance with the terms of our partnership agreement and will be admitted as our general partner effective immediately prior to the transfer of the general partner interest.
Our general partner and its affiliates may, at any time, transfer common units, subordinated units or incentive distribution rights to one or
more persons, without unitholder approval, except that they may not transfer subordinated units to us.
Transfer of Ownership Interests in our General
Partner
At any time, the owner of our general partner may sell or transfer all or part of its ownership interests in our general
partner to an affiliate or a third party without the approval of our unitholders.
Transfer of Subordinated Units and Incentive Distribution Rights
At any time, our general partner and its affiliates may sell or transfer all or a portion of their subordinated units or incentive
distribution rights to an affiliate or third party without the approval of our unitholders.
By transfer of subordinated units or
incentive distribution rights in accordance with our partnership agreement, each transferee of subordinated units or incentive distribution rights will be admitted as a limited partner with respect to the subordinated units or incentive distribution
rights transferred when such transfer and admission is reflected in our books and records. Each transferee:
| |
• |
|
represents that the transferee has the capacity, power and authority to become bound by our partnership agreement; |
| |
• |
|
automatically becomes bound by the terms and conditions of our partnership agreement; and |
40
| |
• |
|
gives the consents, waivers and approvals contained in our partnership agreement. |
Our general
partner will cause any transfers to be recorded on our books and records.
We may, at our discretion, treat the nominee holder of
subordinated units or incentive distribution rights as the absolute owner. In that case, the beneficial holder’s 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.
Subordinated units or incentive distribution rights are securities and any transfers are subject to the laws
governing transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a limited partner for the transferred subordinated units or incentive distribution rights.
Until a subordinated unit or incentive distribution right has been transferred on our books, we and the transfer agent may treat the record
holder of the unit or right as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.
Change of
Management Provisions
Our partnership agreement contains specific provisions that are intended to discourage a person or group from
attempting to remove Sunoco GP LLC as our general partner or from otherwise changing our management. Please read “—Withdrawal or Removal of Our General Partner” for a discussion of certain consequences of the removal of our general
partner. If any person or group, other than our general partner and its affiliates, acquires beneficial ownership of 20% or more of any class of partnership interests, that person or group loses voting rights on all of such person’s or
group’s partnership interests. This loss of voting rights does not apply in certain circumstances. Please read “—Meetings; Voting.”
Limited Call Right
If at any time our
general partner and its affiliates own more than 80% of the then-issued and outstanding limited partner interests of any class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or 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:
| |
• |
|
the highest price paid by our general partner or any of its affiliates for any limited partner interests of such 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 |
| |
• |
|
the average of the daily closing prices of the partnership securities of such class over the 20 consecutive trading days immediately preceding the date three days before the date the notice is mailed. |
As a result of our general partner’s right to purchase outstanding limited partner interests, a holder of limited partner interests may
have his limited partner interests purchased at an undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his common units in the market. Please read
“Material U.S. Federal Income Tax Consequences—Disposition of Common Units.”
Non-Taxpaying Holders; Redemption
To avoid any adverse effect on the maximum applicable rates chargeable to customers by us or any of our future subsidiaries, or in order to
reverse an adverse determination that has occurred regarding such maximum rate, our partnership agreement provides our general partner the power to amend the agreement. If our general
41
partner, with the advice of counsel, determines that our not being treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes,
coupled with the tax status (or lack of proof thereof) of one or more of our limited partners, has, or is reasonably likely to have, a material adverse effect on the maximum applicable rates chargeable to customers by our subsidiaries, then our
general partner may adopt such amendments to our partnership agreement as it determines necessary or advisable to:
| |
• |
|
obtain proof of the U.S. federal income tax status of our limited partners (and their owners, to the extent relevant); and |
| |
• |
|
permit us to redeem the units held by any person whose tax status has or is reasonably likely to have a material adverse effect on the maximum applicable rates or who fails to comply with the procedures instituted by
our general partner to obtain proof of the U.S. federal income tax status. The redemption price in the case of such a redemption will be the average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the
date set for redemption. |
Non-Citizen Assignees; Redemption
If our general partner, with the advice of counsel, determines we are subject to U.S. federal, state or local laws or regulations that, in the
reasonable determination of our general partner, create a substantial risk of cancellation or forfeiture of any property that we have an interest in because of the nationality, citizenship or other related status of any limited partner, then our
general partner may adopt such amendments to our partnership agreement as it determines necessary or advisable to:
| |
• |
|
obtain proof of the nationality, citizenship or other related status of our limited partners (and their owners, to the extent relevant); and |
| |
• |
|
permit us to redeem the units held by any person whose nationality, citizenship or other related status creates substantial risk of cancellation or forfeiture of any property or who fails to comply with the procedures
instituted by our general partner to obtain proof of the nationality, citizenship or other related status. The redemption price in the case of such a redemption will be the average of the daily closing prices per unit for the 20 consecutive trading
days immediately prior to the date set for redemption. |
Meetings; Voting
Except as described below regarding certain persons or groups owning 20% or more of any class of partnership interests then outstanding, record
holders of limited partner interests on the record date are entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited.
Our general partner does not anticipate that any meeting of our unitholders will be called in the foreseeable future. Any action that is
required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize
or take that action at a meeting. Meetings of the unitholders may be called by our general partner or by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or
by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum, unless any action by the unitholders requires approval
by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.
Each record holder of a unit
has a vote according to his percentage interest in us, although additional limited partner interests having special voting rights could be issued. Please read “—Issuance of Additional 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 or its affiliates or a purchaser specifically approved by our general partner,
42
acquires, in the aggregate, beneficial ownership of 20% or more of any class of partnership interests then outstanding, that person or group will lose voting rights on all of its partnership
interests and the partnership interests may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other
similar purposes. Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee
provides otherwise. Except as our partnership agreement otherwise provides, subordinated units will vote together with common units, as a single class.
Any notice, demand, request, report or proxy material required or permitted to be given or made to record common unitholders under our
partnership agreement will be delivered to the record holder by us or by the transfer agent.
Voting Rights of Incentive Distribution Rights
If a majority of the incentive distribution rights are held by our general partner and its affiliates, the holders of our incentive
distribution rights will have no right to vote in respect of such rights on any matter, unless otherwise required by law, and the holders of our incentive distribution rights, in their capacity as such, shall be deemed to have approved any matter
approved by our general partner.
If less than a majority of the incentive distribution rights are held by our general partner and its
affiliates, the incentive distribution rights will be entitled to vote on all matters submitted to a vote of unitholders, other than amendments and other matters that our general partner determines do not adversely affect the holders of our
incentive distribution rights in any material respect. On any matter in which the holders of our incentive distribution rights are entitled to vote, such holders will vote together with the subordinated units, prior to the end of the subordination
period, or together with the common units, thereafter, in either case as a single class (except in the case of any amendment to our partnership agreement that would have a material adverse effect on the rights of any class and require the separate
approval of the class affected under the provisions of our partnership agreement), and such incentive distribution rights shall be treated in all respects as subordinated units or common units, as applicable, when sending notices of a meeting of our
limited partners to vote on any matter (unless otherwise required by law), calculating required votes, determining the presence of a quorum or for other similar purposes under our partnership agreement. The relative voting power of the holders of
our incentive distribution rights and the subordinated units or common units, depending on which class the holders of our incentive distribution rights are voting with, will be set in the same proportion that the cumulative cash distributions, if
any, in respect of the incentive distribution rights for the four consecutive quarters prior to the record date for the vote bear to the cumulative cash distributions in respect of such class of units for such four quarters.
Status as Limited Partner
By transfer of
common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission are reflected in our books and records.
Except as described under “—Limited Liability,” the common units will be fully paid, and unitholders will not be required to make additional contributions.
Indemnification
Under our partnership
agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar liabilities:
| |
• |
|
any departing general partner; |
| |
• |
|
any person who is or was an affiliate of our general partner or any departing general partner; |
43
| |
• |
|
any person who is or was a manager, managing member, general partner, director, officer, employee, agent, fiduciary or trustee of our partnership, our subsidiaries, our general partner, any departing general partner or
any of their affiliates; |
| |
• |
|
any person who is or was serving at the request of our general partner, any departing general partner, or any of their affiliates as a manager, managing member, general partner, director, officer, employee, agent,
fiduciary or trustee of another person owing a fiduciary duty to us or our subsidiaries; |
| |
• |
|
any person who controls our general partner or any departing general partner; and |
| |
• |
|
any person designated by our general partner. |
Any indemnification under these provisions will
only be out of our assets. Unless our general partner otherwise agrees, it will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance
against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against 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 will 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 the expenses that are allocable to us. Neither our partnership agreement nor the omnibus agreement limit the amount of expenses for which our general partner and its affiliates may be reimbursed.
Books and Reports
Our general partner is
required to keep appropriate books of our business at our principal offices. These books will be maintained for both tax and financial reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar
year.
We furnish or make available to record holders of our units or other partnership interests 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 registered public accounting firm. Except for our fourth quarter, we also furnish or make available unaudited
financial information within 50 days after the close of each quarter. We are deemed to have made any such report available if we file such report with the SEC on EDGAR or make the report available on a publicly available website which we maintain.
We furnish each record holder with information reasonably required for U.S. federal, state and local tax reporting purposes within 90
days after the close of each calendar year. This information is expected to be furnished in summary form so that some complex calculations normally required of partners can be avoided. Our ability to furnish this summary information to our
unitholders depends on their cooperation in supplying us with specific information. Every unitholder will receive information to assist him in determining his U.S. federal and state tax liability and in filing his U.S. federal and state income tax
returns, regardless of whether he supplies us with the necessary information.
44
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can, for a purpose reasonably related to his interest as a limited partner, upon
reasonable written demand stating the purpose of such demand and at his own expense, have furnished to him:
| |
• |
|
true and full information regarding the status of our business and financial condition (provided that obligation shall be satisfied to the extent the limited partner is furnished our most recent annual report and any
subsequent quarterly or periodic reports required to be filed (or which would be required to be filed) with the SEC pursuant to Section 13 of the Exchange Act); |
| |
• |
|
a current list of the name and last known address of each record holder; and |
| |
• |
|
a copy of our partnership agreement, our certificate of limited partnership and all amendments thereto, together with copies of the executed copies of all powers of attorney under which they have been executed.
|
Our general partner may, and intends to, keep confidential from the limited partners trade secrets or other information the
disclosure of which our general partner believes is not in our best interests, could damage us or our business or that we are required by law or by agreements with third parties to keep confidential.
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, subordinated units or other limited partner interests proposed to be sold by our general partner or any of
its affiliates, including ETP or their assignees if an exemption from the registration requirements is not otherwise available. These registration rights continue for two years following any withdrawal or removal of our general partner. We are
obligated to pay all expenses incidental to the registration, excluding underwriting discounts.
45
INVESTMENT IN SUNOCO LP BY EMPLOYEE BENEFIT PLAN
An investment in us by an employee benefit plan is subject to additional considerations because the investments of these plans are subject to
the fiduciary responsibility and prohibited transaction provisions of ERISA and restrictions imposed by Section 4975 of the Internal Revenue Code. For these purposes the term “employee benefit plan” includes, but is not limited to,
qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs established or maintained by an employer or employee organization. Among other things, consideration should be
given to:
| |
• |
|
whether the investment is prudent under Section 404(a)(1)(B) of ERISA; |
| |
• |
|
whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and |
| |
• |
|
whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return. Please read “Material U.S. Federal Income Tax
Consequences—Tax-Exempt Organizations and Other Investors.” |
The person with investment discretion with respect to
the assets of an employee benefit plan, often called a fiduciary, should determine whether an investment in us is authorized by the appropriate governing instrument and is a proper investment for the plan or IRA.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit plans, and also IRAs that are not
considered part of an employee benefit plan, from engaging in specified transactions involving “plan assets” with parties that are “parties in interest” under ERISA or “disqualified persons” under the Internal Revenue
Code with respect to the plan.
In addition to considering whether the purchase of common units is a prohibited transaction, a fiduciary
of an employee benefit plan should consider whether the plan will, by investing in us, be deemed to own an undivided interest in our assets, with the result that our operations would be subject to the regulatory restrictions of ERISA, including its
prohibited transaction rules, as well as the prohibited transaction rules of the Internal Revenue Code.
The Department of Labor
regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be deemed “plan assets” under some circumstances. Under these regulations, an entity’s assets
would not be considered to be “plan assets” if, among other things:
(1) the equity interests acquired by
employee benefit plans are publicly offered securities—i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal
securities laws;
(2) the entity is an “operating company”—i.e., it is primarily engaged in the production
or sale of a product or service other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries; or
(3) there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of
each class of equity interest is held by the employee benefit plans referred to above, and IRAs that are subject to ERISA or Section 4975 of the Internal Revenue Code.
Our assets should not be considered “plan assets” under these regulations because it is expected that the investment will satisfy
the requirements in (1) and (2) above.
Plan fiduciaries contemplating a purchase of common units should consult with their own
counsel regarding the consequences under ERISA and the Internal Revenue Code in light of the serious penalties imposed on persons who engage in prohibited transactions or other violations.
46
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material tax consequences 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 Andrews Kurth LLP, counsel to our general partner and us, insofar as it relates to legal conclusions with respect to matters of U.S. federal income tax
law. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), existing and proposed Treasury regulations promulgated under the Internal Revenue Code (the “Treasury
Regulations”) and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the
context otherwise requires, references in this section to “us” or “we” are references to Sunoco LP and our operating subsidiaries.
The following discussion does not comment on all federal income tax matters affecting us or our unitholders and does not describe the
application of the alternative minimum tax that may be applicable to certain unitholders. Moreover, the discussion focuses on unitholders who are individual citizens or residents of the 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 United States), individual retirement accounts (IRAs), real estate investment trusts (REITs) or mutual funds, dealers in securities or currencies, traders in securities, U.S. persons whose
“functional currency” is not the U.S. dollar, persons holding their units as part of a “straddle,” “hedge,” “conversion transaction” or other risk reduction transaction, and persons deemed to sell their units
under the constructive sale provisions of the Internal Revenue Code. In addition, the discussion only comments to a limited extent on state, local and foreign tax consequences. Accordingly, we encourage each prospective unitholder to consult his own
tax advisor in analyzing the state, local and foreign tax consequences particular to him of the ownership or disposition of common units and potential changes in applicable tax laws.
No ruling has been requested from the IRS regarding our characterization as a partnership for tax purposes. Instead, we will rely on opinions
of Andrews Kurth LLP. Unlike a ruling, an opinion of counsel represents only that counsel’s 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 cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders. Furthermore, the tax treatment of us, or of an investment in us, may be significantly
modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.
All statements as to matters of federal income tax law and legal conclusions with respect thereto, but not as to factual matters, contained in
this section, unless otherwise noted, are the opinion of Andrews Kurth LLP and are based on the accuracy of the representations made by us.
For the reasons described below, Andrews Kurth LLP has not rendered an opinion with respect to the following specific federal income tax
issues: (i) the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read “—Tax Consequences of Unit Ownership—Treatment 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 Units—Allocations 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 Ownership—Section 754 Election” and “—Uniformity of Units”).
47
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 partner’s adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the “Qualifying Income Exception,” exists with respect to
publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of “qualifying income.” Qualifying income includes (i) income and gains derived from the refining, transportation, storage,
processing and marketing of crude oil, natural gas and products thereof (including motor fuels), (ii) certain rents from the leasing of real property, (iii) interest (other than from a financial business), (iv) dividends,
(v) gains from the sale of real property and (vi) 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. The portion of our income that is qualifying income may change from time to time.
It is the opinion of Andrews Kurth LLP that, based upon the Internal Revenue Code, its regulations, published revenue rulings and court
decisions and the representations described below that:
| |
• |
|
We are classified as a partnership for federal income tax purposes; and |
| |
• |
|
Each of our operating subsidiaries, other than Propco and Aloha, will be treated as a partnership or will be disregarded as an entity separate from us or Propco for federal income tax purposes. |
In rendering its opinion, Andrews Kurth LLP has relied on factual representations made by us and our general partner. The representations made
by us and our general partner upon which Andrews Kurth LLP has relied include, but are not limited to, the following:
| |
• |
|
Except for Propco and Aloha, neither we nor any of our operating subsidiaries has elected or will elect to be treated as a corporation; and |
| |
• |
|
For each taxable year since and including the year of our initial public offering, more than 90% of our gross income has been and will be income of a character that Andrews Kurth LLP has opined or will opine is
“qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code. |
We believe that
these representations have been true in the past and expect that these representations will continue to be true in the future.
If we fail
to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts), we will be treated as if we had transferred all of our assets, subject to liabilities, to a newly formed corporation, on the first day of the year in which we fail to meet the Qualifying Income Exception, in
return for stock in that corporation, and then distributed that stock to the unitholders in liquidation of their interests in us. This deemed contribution and liquidation should be tax-free to unitholders and us so long as we, at that time, do not
have liabilities in excess of the tax basis of our assets. Thereafter, we would be treated as a corporation for federal income tax purposes.
The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified
by administrative, legislative or judicial interpretation at any time. For example, from time to time, the administration and members of the U.S. Congress propose and consider substantive changes to the existing federal income tax laws that affect
publicly traded partnerships. One such recent administration budget proposal for fiscal year 2016 would, if enacted, tax publicly traded partnerships with “fossil fuels” activities as corporations for U.S. federal income tax purposes
beginning in 2021. 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 may be applied retroactively. Any such changes could negatively impact the value of an
investment in our units.
48
If we were treated as an association taxable as a corporation in any taxable year, either as a
result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to our unitholders, and our net income would be taxed
to us at corporate rates. In addition, any distribution made to a unitholder would be treated as taxable dividend income, to the extent of our current and accumulated earnings and profits, or, in the absence of earnings and profits, a nontaxable
return of capital, to the extent of the unitholder’s tax basis in his common units, or taxable capital gain, after the unitholder’s tax basis in his common units is reduced to zero. Accordingly, taxation as a corporation would result in a
material reduction in a unitholder’s cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.
The discussion below is based on Andrews Kurth LLP’s opinion that Sunoco LP will be classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders of Sunoco LP will be treated as partners of Sunoco 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 Sunoco 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 Ownership—Treatment 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 Sunoco LP. The references to “unitholders” in the discussion that follows are to persons who are treated as partners in Sunoco LP for federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-Through of
Taxable Income
Subject to the discussion below under “—Entity-Level Collections” and aside from any taxes paid by
Propco, our subsidiary treated as parent of the federal consolidated group of corporations, including Aloha, we will not pay any federal income tax. Instead, each unitholder will be required to report on his income tax return his share of our
income, gains, losses and deductions without regard to whether we make cash distributions to him. Consequently, we may allocate income to a unitholder even if he has not received a cash distribution. Each unitholder will be required to include in
income his allocable share of our income, gains, losses and deductions for our taxable year ending with or within his taxable year. Our taxable year ends on December 31.
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 unitholder’s 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 unitholder’s share of our liabilities for which no 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 unitholder’s “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 Ownership—Limitations on Deductibility of Losses.”
49
A decrease in a unitholder’s 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 unitholder’s share of our “unrealized receivables,” including depreciation recapture and/or
substantially appreciated “inventory items,” each as defined in the Internal Revenue Code, and collectively, “Section 751 Assets.” To that extent, the unitholder will be treated as having been distributed his proportionate
share of the Section 751 Assets and then having exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to him. This latter deemed exchange will generally result in the unitholder’s realization
of ordinary income, which will equal the excess of (1) the non-pro rata portion of that distribution over (2) the unitholder’s tax basis (often zero) for the share of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units
A
unitholder’s 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 unitholder’s 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 generally have a share of our nonrecourse liabilities based on his share of our profits. Please read “—Disposition of Common
Units—Recognition of Gain or Loss.”
Limitations on Deductibility of Losses
The deduction by a unitholder of his share of our losses will be limited to the tax basis in his units and, in the case of an individual
unitholder, estate, trust, or corporate unitholder (if more than 50% of the value of the corporate unitholder’s 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 unitholder’s 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 unitholder’s at-risk amount will increase or decrease as the tax
basis of the unitholder’s 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 taxpayer’s income from those passive activities. The passive loss limitations are applied separately with respect to each publicly traded partnership.
50
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 unitholder’s investments in other publicly traded partnerships, or the unitholder’s salary, active business or other income. Passive losses that are not deductible because they exceed a
unitholder’s 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 unitholder’s share of our net income may be offset by any of
our suspended passive losses, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer’s “investment interest expense” is generally limited to the amount of that
taxpayer’s “net investment income.” Investment interest expense includes:
| |
• |
|
interest on indebtedness properly allocable to property held for investment; |
| |
• |
|
our interest expense attributed to portfolio income; and |
| |
• |
|
the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income. |
The computation of a unitholder’s investment interest expense will take into account interest on any margin account borrowing or other
loan incurred to purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment or (if applicable) qualified dividend income. The IRS has indicated that the net passive income
earned by a publicly traded partnership will be treated as investment income to its unitholders. In addition, the unitholder’s 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 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 the intrinsic tax characteristics of units and to adjust later distributions, so that after giving effect to these distributions, the priority and
characterization of distributions otherwise applicable under our partnership agreement is maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in
which event the unitholder would be required to file a claim in order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction
In general, if we have a net profit, our items of income, gain, loss and deduction will be allocated among our 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 we make incentive distributions, 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 to the unitholders in accordance with their percentage interests in us.
51
Specified items of our income, gain, loss and deduction will be allocated to account for any
difference between the tax basis and fair market value of any property contributed to us that exists at the time of such contribution, referred to in this discussion as the “Contributed Property.” The effect of these allocations, referred
to as “Section 704(c) Allocations,” to a unitholder purchasing common units from us in an offering will be essentially the same as if the tax bases of our assets were equal to their fair market values at the time of the offering. In
the event we issue additional common units or engage in certain other transactions in the future, “reverse Section 704(c) Allocations,” similar to the Section 704(c) Allocations described above, will be made to all of our
unitholders immediately prior to such issuance or other transactions to account for the difference between the “book” basis for purposes of maintaining capital accounts and the fair market value of all property held by us at the time of
such issuance or future transaction. In addition, items of recapture income will be allocated to the extent possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize
the recognition of ordinary income by some unitholders. Finally, although we do not expect that our operations will result in the creation of negative capital accounts, 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 by the Internal Revenue Code to eliminate the difference between a partner’s “book” capital account, credited with the fair market value of Contributed Property,
and “tax” capital account, credited with the tax basis of Contributed Property, referred to in this discussion as the “Book-Tax Disparity,” will generally be given effect for federal income tax purposes in determining a
partner’s share of an item of income, gain, loss or deduction only if the allocation has “substantial economic effect.” In any other case, a partner’s 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:
| |
• |
|
his relative contributions to us; |
| |
• |
|
the interests of all the partners in profits and losses; |
| |
• |
|
the interest of all the partners in cash flow; and |
| |
• |
|
the rights of all the partners to distributions of capital upon liquidation. |
Andrews Kurth
LLP is of the opinion that, with the exception of the issues described in “—Tax Consequences of Unit Ownership—Section 754 Election” and “—Disposition of Common Units—Allocations Between Transferors and
Transferees,” allocations under our partnership agreement will be given effect for federal income tax purposes in determining a partner’s 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:
| |
• |
|
any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder; |
| |
• |
|
any cash distributions received by the unitholder as to those units would be fully taxable; and |
| |
• |
|
while not entirely free from doubt, all of these distributions would appear to be ordinary income. |
Because there is no direct or indirect controlling authority on the issue relating to partnership interests, Andrews Kurth LLP has not
rendered an opinion regarding the tax treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk of gain
recognition from a loan to a short seller are urged to consult a tax
52
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 Units—Recognition of Gain or Loss.”
Tax Rates
Under current law, the
highest marginal U.S. federal income tax rate applicable to ordinary income of individuals is 39.6% and the highest marginal U.S. federal income tax rate applicable to long-term capital gains (generally, capital gains on certain assets held for more
than twelve months) of individuals is 20%. Such rates are subject to change by new legislation at any time.
In addition, a 3.8% Medicare
tax, or NIIT, is imposed on certain net investment income earned by individuals, estates and trusts. For these purposes, net investment income generally includes a unitholder’s 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 unitholder’s net investment income and (ii) the amount by which the unitholder’s 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.
Section 754 Election
We have
made the election permitted by Section 754 of the Internal Revenue Code. That election is irrevocable without the consent of the IRS unless there is a constructive termination of the partnership. Please read “—Disposition of Common
Units—Constructive Termination.” The election will generally permit us to adjust a common unit purchaser’s tax basis in our assets (“inside basis”) under Section 743(b) of the Internal Revenue Code to reflect his
purchase price. This election does not apply with respect to a person who purchases common units directly from us. The Section 743(b) adjustment belongs to the purchaser and not to other unitholders. For purposes of this discussion, the inside
basis in our assets with respect to a unitholder will be considered to have two components: (1) his share of our tax basis in our assets (“common basis”) and (2) his Section 743(b) adjustment to that basis.
We have adopted the remedial allocation method as to all our properties. Where the remedial allocation method is adopted, the Treasury
Regulations under Section 743 of the Internal Revenue Code require a portion of the Section 743(b) adjustment that is attributable to recovery property that is subject to depreciation under Section 168 of the Internal Revenue Code and
whose book basis is in excess of its tax basis to be depreciated over the remaining cost recovery period for the property’s unamortized Book-Tax Disparity. Under Treasury Regulation Section 1.167(c)-1(a)(6), a Section 743(b)
adjustment attributable to property subject to depreciation under Section 167 of the Internal Revenue Code, rather than cost recovery deductions under Section 168, is generally required to be depreciated using either the straight-line
method or the 150% declining balance method. Under our partnership agreement, our general partner is authorized to take a position to preserve the uniformity of units even if that position is not consistent with these and any other Treasury
Regulations. Please read “—Uniformity of Units.”
We depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or amortization method and useful life
applied to the property’s unamortized Book-Tax Disparity, or treat that portion as non-amortizable to the extent attributable to property which is not amortizable. This method is consistent with the methods employed by other publicly traded
partnerships but is arguably inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not
53
expected to directly apply to any of our assets. To the extent this Section 743(b) adjustment is attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we
will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be taken, we may take a depreciation or amortization position under which all purchasers acquiring units in the
same month would receive depreciation or amortization, whether attributable to common basis or a Section 743(b) adjustment, based upon the same applicable rate as if they had purchased a direct interest in our assets. This kind of aggregate
approach may result in lower annual depreciation or amortization deductions than would otherwise be allowable to some unitholders. Please read “—Uniformity of Units.” A unitholder’s tax basis for his common units is reduced by
his share of our deductions (whether or not such deductions were claimed on an individual’s income tax return) so that any position we take that understates deductions will overstate the common unitholder’s basis in his common units, which
may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “—Disposition of Common Units—Recognition of Gain or Loss.” Andrews Kurth LLP is unable to opine as to whether our method for
taking into account Section 743 adjustments is sustainable for property subject to depreciation under Section 167 of the Internal Revenue Code or if we use an aggregate approach as described above, as there is no direct or indirect
controlling authority addressing the validity of these positions. Moreover, the IRS may challenge our position with respect to depreciating or amortizing the Section 743(b) adjustment we take to preserve the uniformity of the units. If such a
challenge were sustained, the gain from the sale of units might be increased without the benefit of additional deductions.
A
Section 754 election is advantageous if the transferee’s 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 transferee’s tax
basis in his units is lower than those units’ share of the aggregate tax basis of our assets immediately prior to the transfer. Thus, the fair market value of the units may be affected either favorably or unfavorably by the election. A basis
adjustment is required regardless of whether a Section 754 election is made in the case of a transfer of an interest in us if we have a substantial built-in loss immediately after the transfer, or if we distribute property and have a
substantial basis reduction. Generally, a built-in loss or a basis reduction is substantial if it exceeds $250,000.
The calculations
involved in the Section 754 election are complex and will be made on the basis of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in
accordance with the Internal Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is generally nonamortizable
or amortizable over a longer period of time or under a less accelerated method than our tangible assets. We cannot assure you that the determinations we make will not be successfully challenged by the IRS and that the deductions resulting from them
will not be reduced or disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our
Section 754 election. If permission is granted, a subsequent purchaser of units may be allocated more income than he would have been allocated had the election not been revoked.
Tax Treatment of Operations
Accounting Method and
Taxable Year
We use the year ending December 31 as our taxable year and the accrual method of accounting for federal income
tax purposes. Each unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a unitholder who has a taxable year ending on a date
other than December 31 and who disposes of all of his units following the close of our taxable year but before the close of his taxable year must include his share of our income, gain, loss and deduction in income for his taxable year, with the
result that he will be required to include in income for his taxable year his share of more than twelve months of our income, gain, loss and deduction. Please read “—Disposition of Common Units—Allocations Between Transferors and
Transferees.”
54
Tax Basis, Depreciation and Amortization
The tax basis of our assets will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on
the disposition of these assets. The federal income tax burden associated with the difference between the fair market value of our assets and their tax basis immediately prior to an offering will be borne by unitholders holding interests in us prior
to such offering. Please read “—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction.”
To the extent allowable, we may elect to use the depreciation and cost recovery methods, including bonus depreciation to the extent available,
that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. Please read “—Uniformity of Units.” Property we subsequently acquire or construct may be
depreciated using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable 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 Ownership—Allocation of Income, Gain, Loss and Deduction” and “—Disposition of Common Units—Recognition of Gain or Loss.”
The costs we incur in selling our units (called “syndication expenses”) must be capitalized and cannot be deducted currently,
ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as syndication expenses.
Valuation and Tax Basis of Our Properties
The federal income tax consequences of the ownership and disposition of units will depend in part on our estimates of the relative fair market
values, and the initial tax bases, of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and
determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deductions
previously reported by unitholders might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or
Loss
Gain or loss will be recognized on a sale of units equal to the difference between the amount realized and the
unitholder’s tax basis for the units sold. A unitholder’s amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our nonrecourse liabilities. Because the amount
realized includes a unitholder’s 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 unitholder’s tax basis in that common unit will, in effect, become taxable income if the common unit is sold at a price greater than the unitholder’s tax basis in that common unit, even if the price received is less than his original
cost.
55
Except as noted below, gain or loss recognized by a unitholder, other than a “dealer”
in units, on the sale or exchange of a unit will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of units held for more than twelve months will generally be taxed at the U.S. federal income tax rate
applicable to long-term capital gains. However, a portion of this gain or loss, which will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code to the extent
attributable to 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 Ownership—Tax 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 partner’s tax basis in his entire interest in the partnership as the value of the interest sold bears to the value of the
partner’s entire interest in the partnership. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use
the actual holding period of the common units transferred. Thus, according to the ruling discussed above, a common unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according
to the Treasury Regulations, he may designate specific common units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding period of common units transferred must consistently use
that identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional units or a sale of common units purchased in separate transactions is urged to consult his tax advisor as to the
possible consequences of this ruling and application of the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect
the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold an “appreciated” partnership interest, one in which gain would be recognized if it were sold, assigned or
terminated at its fair market value, if the taxpayer or related persons enter(s) into:
| |
• |
|
an offsetting notional principal contract; or |
| |
• |
|
a futures or forward contract; |
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.
56
Allocations Between Transferors and Transferees
In general, our taxable income and losses will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned
among the unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month, which we refer to in this prospectus as the “Allocation Date.” However,
gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a
unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.
Although simplifying
conventions are contemplated by the Internal Revenue Code and most publicly traded partnerships use similar simplifying conventions, the use of this method may not be permitted under existing Treasury Regulations as there is no direct or indirect
controlling authority on this issue. The U.S. Department of the Treasury and the IRS have issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly traded partnership may use a similar monthly simplifying
convention to allocate tax items among transferor and transferee unitholders, although such tax items must be prorated on a daily basis. Existing publicly traded partnerships are entitled to rely on these proposed Treasury Regulations; however, they
are not binding on the IRS and are subject to change until final Treasury Regulations are issued. Accordingly, Andrews Kurth LLP is unable to opine on the validity of this method of allocating income and deductions between transferor and transferee
unitholders because the issue has not been finally resolved by the IRS or the courts. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholder’s interest, our taxable income
or losses might be reallocated among the unitholders. We are authorized to revise our method of allocation between transferor and transferee unitholders, as well as unitholders whose interests vary during a taxable year, to conform to a method
permitted under future Treasury Regulations. A unitholder who owns units at any time during a quarter and who disposes of them prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss
and deductions attributable to that quarter 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 twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would,
among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two schedules K-1 if relief was not available, as described below) for one fiscal
year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may
also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes,
but instead we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections, including a new election under Section 754 of the
57
Internal Revenue Code, and could be subject to penalties if we are unable to determine that a termination occurred. The IRS has announced a publicly traded partnership technical termination
relief program whereby, if a publicly traded partnership that technically terminates requests relief and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the
year notwithstanding two partnership tax years.
Uniformity of Units
Because we cannot match transferors and transferees of units, we must maintain uniformity of the economic and tax characteristics of the units
to a purchaser of these units. In the absence of uniformity, we may be unable to completely comply with a number of federal income tax requirements, both statutory and regulatory. A lack of uniformity can result from a literal application of
Treasury Regulation Section 1.167(c)-1(a)(6). Any non-uniformity could have a negative impact on the value of the units. Please read “—Tax Consequences of Unit Ownership—Section 754 Election.” We depreciate the portion
of a Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the property’s unamortized Book-Tax Disparity, or treat that portion as nonamortizable, to the extent attributable to property the common basis of which is not amortizable, consistent with the
regulations under Section 743 of the Internal Revenue Code, even though that position may be inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to any of our assets.
Please read “—Tax Consequences of Unit Ownership —Section 754 Election.” To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be
taken, we may adopt a depreciation and amortization position under which all purchasers acquiring units in the same month would receive depreciation and amortization deductions, whether attributable to common basis or a Section 743(b)
adjustment, based upon the same applicable rate as if they had purchased a direct interest in our assets. If this position is adopted, it may result in lower annual depreciation and amortization deductions than would otherwise be allowable to some
unitholders and risk the loss of depreciation and amortization deductions not taken in the year that these deductions are otherwise allowable. This position will not be adopted if we determine that the loss of depreciation and amortization
deductions will have a material adverse effect on the unitholders. If we choose not to utilize this aggregate method, we may use any other reasonable depreciation and amortization method to preserve the uniformity of the intrinsic tax
characteristics of any units that would not have a material adverse effect on the unitholders. In either case, and as stated above under “—Tax Consequences of Unit Ownership—Section 754 Election,” Andrews Kurth LLP has not
rendered an opinion with respect to these methods. Moreover, the IRS may challenge any method of depreciating the Section 743(b) adjustment described in this paragraph. If this challenge were sustained, the uniformity of units might be
affected, and the gain from the sale of units might be increased without the benefit of additional deductions. Please read “—Disposition of Common Units—Recognition of Gain or Loss.”
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident aliens, foreign corporations and other 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.
58
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 partnerships, our quarterly distribution to foreign unitholders will be subject to withholding at the highest applicable effective tax rate. Each foreign
unitholder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN, W-8BEN-E or applicable substitute form in order to obtain credit for these withholding taxes. A change in
applicable law may require us to change these procedures.
In addition, because a foreign corporation that owns units will be treated as
engaged in a U.S. trade or business, that corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our earnings and profits, as adjusted for changes in the foreign
corporation’s “U.S. net equity,” that is effectively connected with the conduct of a U.S. trade or business. That tax may be reduced or eliminated by an income tax treaty between the 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 Internal Revenue Code.
A foreign unitholder who sells or otherwise disposes of a common unit will be subject to U.S. federal income tax on gain realized from the
sale or disposition of that unit to the extent the gain is effectively connected with a U.S. trade or business of the foreign unitholder. Under a ruling published by the IRS, interpreting the scope of “effectively connected income,” a
foreign unitholder would be considered to be engaged in a trade or business in the U.S. by virtue of the U.S. activities of the partnership, and part or all of that unitholder’s gain would be effectively connected with that unitholder’s
indirect U.S. trade or business. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign unitholder generally will be subject to U.S. federal income tax upon the sale or disposition of a 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. More than 50% of our assets may consist of U.S. real
property interests. 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 unitholder’s share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the
Internal Revenue Code, Treasury Regulations or administrative interpretations of the IRS. Neither we nor Andrews Kurth LLP can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible.
Any challenge by the IRS could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year’s tax liability, and possibly may result in an audit of his return. Any audit of a unitholder’s 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
59
income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Internal Revenue Code requires that one partner be
designated as the “Tax Matters Partner” for these purposes. Our partnership agreement names Susser Holdings Corporation, or such other partner as designated by the general partner, as our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf and on behalf of unitholders. In addition, the Tax Matters Partner can extend
the statute of limitations for assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that unitholder
elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders are bound, of a final partnership administrative adjustment and, if the
Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one
action for judicial review will go forward, and each unitholder with an interest in the outcome may participate.
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.
FATCA Withholding Requirements
Under Sections 1471 through 1474 of the Internal Revenue Code (“FATCA”), a withholding agent may be required to withhold 30% of any
interest, dividends and other fixed or determinable annual or periodical gains, profits, and income from sources within the United States (“FDAP Income”) or gross proceeds from the sale or other disposition of any property of a type which
can produce interest or dividends from sources within the United States (“Gross Proceeds”) (if such sale or other disposition occurs after December 31, 2016) paid to a “foreign financial institution” or a “non-financial
foreign entity” (each as defined in the Internal Revenue Code) unless (a) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, perform diligence
with respect to its account holders and perform reporting with respect to its U.S. account holders (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners);
(b) in the case of a non-financial foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Internal Revenue Code) or provides the withholding agent with a certification
identifying its direct and indirect substantial United States owners; or (c) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation. Foreign
financial institutions located in jurisdictions that have an intergovernmental agreement with the United States may be subject to different rules. For purposes of the FATCA rules, a “foreign financial institution” is defined broadly to
include various types of investment entities, including foreign hedge funds or private equity funds, foreign-broker-dealers, clearing organizations and investment companies.
Accordingly, to the extent we have FDAP Income or Gross Proceeds that are not treated as effectively connected income, unitholders that are
foreign financial institutions or non-financial foreign entities or are persons (including “United States persons,” as defined in the Internal Revenue Code) that hold their units through such foreign entities, may be subject to FATCA
withholding on distributions received from us or on their distributive shares of FDAP Income or Gross Proceeds.
If a prospective
unitholder is a foreign financial institution or non-financial foreign entity or will hold its units through one of these entities, the prospective unitholder is urged to consult its tax advisor regarding the implications of FATCA withholding on an
investment in our units.
60
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
| |
• |
|
the name, address and taxpayer identification number of the beneficial owner and the nominee; |
| |
• |
|
whether the beneficial owner is: |
| |
• |
|
a person that is not a U.S. person; |
| |
• |
|
a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or |
| |
• |
|
the amount and description of units held, acquired or transferred for the beneficial owner; and |
| |
• |
|
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.
|
Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons
and specific information on units they acquire, hold or transfer for their own account. A penalty of $100 per failure, up to a maximum of $1,500,000 per calendar year, is imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with the information furnished to us.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed, however, for any
portion of an underpayment if it is shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.
For individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater
of 10% of the tax required to be shown on the return for the taxable year or $5,000 ($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:
| |
• |
|
for which there is, or was, “substantial authority”; or |
| |
• |
|
as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return. |
If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an
“understatement” of income for which no “substantial authority” exists, we must disclose the 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 Internal Revenue Code Section 482 is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct amount of such price, or (c) the
net Internal Revenue Code Section 482 transfer price adjustment for the taxable year exceeds the
61
lesser of $5 million or 10% of the taxpayer’s 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.
Reportable Transactions
If
we were to engage in a “reportable transaction,” we (and possibly you and others) would be required to make a detailed disclosure of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several
factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a “listed transaction” or that it produces certain kinds of losses for partnerships, individuals, S corporations, and trusts in
excess of $2 million in any single year, or $4 million in any combination of six successive tax years. Our participation in a reportable transaction could increase the likelihood that our federal income tax information return (and possibly
your tax return) would be audited by the IRS. Please read “—Administrative Matters—Information Returns and Audit Procedures.”
Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed
transaction, you may be subject to the following additional consequences:
| |
• |
|
accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at “—Administrative Matters—Accuracy-Related Penalties”;
|
| |
• |
|
for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability; and |
| |
• |
|
in the case of a listed transaction, an extended statute of limitations. |
We do not expect to
engage in any “reportable transactions.”
Recent Legislative Developments
The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by
administrative, legislative or judicial interpretation at any time. For example, from time to time, the administration and members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly
traded partnerships. Any modification to the federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for
federal income tax purposes. 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, unitholders may be subject to other taxes, including state, local and foreign income taxes, unincorporated
business taxes, and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which we conduct business or own property now or in the future or in which the unitholder is a resident. We currently own property or do
business in a substantial number of states, virtually all of which impose a personal income tax and many impose an income tax on corporations and other
62
entities. We may also own property or do business in other states in the future. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider
their potential impact on his investment in us.
Although you may not be required to file a return and pay taxes in some jurisdictions
because your income from that jurisdiction falls below the filing and payment requirement, you will be required to file income tax returns and to pay income taxes in many of the jurisdictions in which we do business or own property and may be
subject to penalties for failure to comply with those requirements. 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 a particular unitholder’s 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 Ownership—Entity-Level Collections.”
It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, of its
investment in us. We urge each prospective unitholder to consult, and depend on, its 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 it. Andrews Kurth LLP has not rendered an opinion on the state, local, alternative minimum tax or non-U.S. tax consequences of an investment in us.
63
SELLING UNITHOLDERS
We are registering for resale an indeterminate number of our common units held by certain of our unitholders to be named in a prospectus
supplement.
The prospectus supplement for any offering of our common units by a selling unitholder hereunder will include, among other
things, the following information:
| |
• |
|
the name of the each selling unitholder; |
| |
• |
|
the nature of any position, office or other material relationship which each selling unitholder has had within the last three years with us or any of our predecessors or affiliates; |
| |
• |
|
the number of common units held by each selling unitholder prior to the offering; |
| |
• |
|
the number of common units to be offered for each selling unitholder’s account; and |
| |
• |
|
the number and (if one percent or more) the percentage of common units held by each of the selling unitholders after the offering. |
LEGAL MATTERS
The validity of the common units offered by this prospectus will be passed upon for us by Andrews Kurth LLP, Houston, Texas. Andrews Kurth LLP
will also render an opinion on material income tax consequences. Legal counsel to any underwriters may pass upon legal matters for such underwriters and will be named in the applicable prospectus supplement.
EXPERTS
The consolidated financial statements of Sunoco LP appearing in Sunoco LP’s Annual Report (Form 10-K) for the year ended
December 31, 2014, and the effectiveness of Sunoco LP’s internal control over financial reporting as of December 31, 2014 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in
their reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Mid-Atlantic Convenience Stores, LLC (successor) and subsidiaries and MACS Holdings,
LLC (predecessor) and subsidiaries as of December 31, 2013 (successor) and for the period from October 3, 2013 to December 31, 2013 (successor) and the period from January 1, 2013 to October 2, 2013 (predecessor),
incorporated by reference in this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the report of Grant Thornton LLP, independent certified public accountants, upon the authority of said
firm as experts in accounting and auditing.
The consolidated and combined financial statements of Sunoco, LLC as of December 31,
2014 and 2013 and for the years then ended, incorporated by reference in this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the report of Grant Thornton LLP, independent certified
public accountants, upon the authority of said firm as experts in accounting and auditing.
The audited consolidated historical financial
statements of MACS Holdings, LLC and its subsidiaries as of December 31, 2012 and for each of the two years in the period ended December 31, 2012, included in Sunoco LP’s Current Report on Form 8-K/A dated October 21, 2014 have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
64
The financial statements of Aloha Petroleum, Ltd. as of December 31, 2013 and 2012 and for
each of the three years in the period ended December 31, 2013 incorporated by reference in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated by reference
herein. Such financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
65
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
| Item 14. |
Other Expenses of Issuance and Distribution. |
The following table sets forth all
expenses payable by Sunoco LP (other than underwriting discounts and commissions) in connection with the issuance and distribution of the common units registered hereby.
|
|
|
|
|
| Registration Fee |
|
$ |
* |
|
| Printing expenses |
|
|
** |
|
| Fees and expenses of legal counsel |
|
|
** |
|
| Accounting fees and expenses |
|
|
** |
|
| Transfer Agent fees |
|
|
** |
|
| Miscellaneous |
|
|
** |
|
|
|
|
|
|
| Total |
|
$ |
** |
|
|
|
|
|
|
| * |
The registrant is deferring payment of the registration fee in reliance on Rule 456(b) and Rule 457(r). Accordingly, the registration fee will be paid at the time of a particular offering of common units, and is
therefore not currently determinable. |
| ** |
These fees are calculated based on the number of issuances and amount of common units offered and accordingly cannot be estimated at this time. |
| Item 15. |
Indemnification of Directors and Officers. |
The section of the prospectus entitled
“The Partnership Agreement—Indemnification” is incorporated herein by reference. Subject to any terms, conditions or restrictions set forth in our 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 all claims and demands whatsoever.
(a) See the Exhibit Index on the page immediately preceding the exhibits for
a list of exhibits filed as part of this registration statement on Form S-3, which Exhibit Index is incorporated herein by reference.
(b)
Financial Statement Schedules
Not Applicable.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(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.
II-1
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 Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20
percent 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 registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act 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.
(2) 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.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser:
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement
as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) 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 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 the prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or
made in any such document immediately prior to such effective date; or
(5) That, for the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of
the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
II-2
(ii) 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;
(iii) 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
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the
registrant’s 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 plan’s 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.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance 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.
(2) 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on May 7, 2015.
|
|
|
| SUNOCO LP |
|
|
| By: |
|
Sunoco GP LLC, |
|
|
its general partner |
|
|
| By: |
|
/s/ Clare McGrory |
|
|
Clare McGrory |
|
|
Executive Vice President and Chief Financial Officer |
II-4
POWER OF ATTORNEY
Each person whose signature appears immediately below hereby constitutes and appoints Robert W. Owens and Clare McGrory, and each of them, his
or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities indicated and on the 7th day of May, 2015.
|
|
|
| Signature |
|
Title |
|
|
(of Sunoco GP LLC) |
|
|
| /s/ Robert W. Owens |
|
President, Chief Executive Officer and Director |
| Robert W. Owens |
|
(Principal Executive Officer) |
|
|
| /s/ Clare McGrory |
|
Executive Vice President and |
| Clare McGrory |
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
| /s/ Leta McKinley |
|
Controller |
| Leta McKinley |
|
(Principal Accounting Officer) |
|
|
| /s/ Matthew S. Ramsey |
|
Chairman of the Board |
| Matthew S. Ramsey |
|
|
|
|
| /s/ Richard D. Brannon |
|
Director |
| Richard D. Brannon |
|
|
|
|
| /s/ James W. Bryant |
|
Director |
| James W. Bryant |
|
|
|
|
| /s/ Christopher Curia |
|
Director |
| Christopher Curia |
|
|
|
|
| /s/ K. Rick Turner |
|
Director |
| K. Rick Turner |
|
|
II-5
EXHIBIT INDEX
|
|
|
|
|
| 1.1** |
|
— |
|
Form of Underwriting Agreement. |
|
|
|
| 4.1 |
|
— |
|
First Amended and Restated Agreement of Limited Partnership of Susser Petroleum Partners LP (incorporated by reference to Exhibit 3.1 of our current report on Form 8-K filed with the Commission on September 25,
2012). |
|
|
|
| 4.2 |
|
— |
|
Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Susser Petroleum Partners LP (incorporated by reference to Exhibit 3.2 of our current report on Form 8-K filed with the Commission on
October 28, 2014). |
|
|
|
| 5.1* |
|
— |
|
Opinion of Andrews Kurth LLP as to the validity of the securities being registered. |
|
|
|
| 8.1* |
|
— |
|
Opinion of Andrews Kurth LLP relating to tax matters. |
|
|
|
| 23.1* |
|
— |
|
Consent of Andrews Kurth LLP (contained in Exhibit 5.1). |
|
|
|
| 23.2* |
|
— |
|
Consent of Andrews Kurth LLP (contained in Exhibit 8.1). |
|
|
|
| 23.3* |
|
— |
|
Consent of Deloitte & Touche LLP, independent auditors. |
|
|
|
| 23.4* |
|
— |
|
Consent of Ernst & Young LLP, independent registered public accounting firm. |
|
|
|
| 23.5* |
|
— |
|
Consent of Grant Thornton LLP, independent certified public accountants. |
|
|
|
| 23.6* |
|
— |
|
Consent of Grant Thornton LLP, independent certified public accountants. |
|
|
|
| 23.7* |
|
— |
|
Consent of PricewaterhouseCoopers LLP, independent accountants. |
|
|
|
| 24.1* |
|
— |
|
Powers of Attorney (included on the signature pages). |
| ** |
To be filed by amendment or as an exhibit to a Current Report on Form 8-K and incorporated by reference in this registration statement. |
II-6
Exhibit 5.1
|
|
|
|
|
600 Travis, Suite 4200 Houston, Texas
77002 713.220.4200 Phone 713.220.4285 Fax
andrewskurth.com |
May 7, 2015
Sunoco LP
555 East Airtex Drive
Houston, Texas 77073
|
|
|
| Re: |
|
Registration Statement on Form S-3 filed
with the U.S. Securities and Exchange Commission. |
Ladies and Gentlemen:
We have acted as special counsel to Sunoco LP, a Delaware limited partnership (the “Partnership”), in connection with the
preparation of a registration statement on Form S-3 (the “Registration Statement”), filed by the Partnership with the U.S. Securities and Exchange Commission (the “SEC”) on May 7, 2015, pursuant
to the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement relates to the offering from time to time, as set forth in the Registration Statement, the form of prospectus contained therein (the
“Prospectus”) and one or more supplements to the Prospectus, of common units (“Common Units”) representing limited partner interests in the Partnership.
This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
In rendering the opinions set forth herein, we have examined and relied on (a) the Registration Statement and the exhibits thereto,
(b) the Prospectus and (c) originals or copies, certified or otherwise identified to our satisfaction, of the Partnership’s First Amended and Restated Agreement of Limited Partnership dated September 25, 2012, as amended by
Amended No. 1 thereto dated October 27, 2014, and such other instruments and other certificates of public officials, officers and representatives of the Partnership, the general partner of the Partnership and such other persons as we have
deemed appropriate as a basis for the opinions expressed below. In our examination, we have assumed without independent investigation (a) the genuineness of the signatures on all documents that we have examined, (b) the legal capacity of
all natural persons, (c) the authenticity of all documents supplied to us as originals and (d) the conformity to the authentic originals of all documents supplied to us as certified, photostatic or faxed copies.
Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion
that once (a) the general partner of the Partnership has duly taken all necessary action (pursuant to action by the board of directors of such general partner) to authorize and approve the issuance by the Partnership of such Common Units and
the terms of the offering thereof and (b) such Common Units have been paid for,
Sunoco LP
May 7, 2015
issued and delivered in accordance with the terms of the applicable definitive purchase, underwriting or similar agreement so authorized and approved by the general partner of the Partnership (on
behalf of the Partnership), the Common Units will be validly issued, and purchasers of such Common Units will have no obligation, solely by reason of their ownership of such Common Units, to make any contributions to the Partnership or any further
payments for their purchase of such Common Units, and such purchasers will have no personal liability, solely by reason of their ownership of such Common Units, to creditors of the Partnership for any of its debts, liabilities or other obligations.
Our opinions expressed herein are limited to the Delaware Revised Uniform Limited Partnership Act and the Delaware Limited Liability
Company Act. We express no opinion as to the laws of any other jurisdiction.
We consent to the filing by you of this opinion as an
exhibit to the Registration Statement, and we further consent to the use of our name under the caption “Legal Matters” in the Prospectus. In giving this consent, we do not thereby admit that we are included in the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and regulations of the SEC. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or
assumed herein or of any subsequent changes in law.
Very truly yours,
/s/ Andrews Kurth LLP
|
|
|
|
|
Andrews Kurth LLP 600 Travis, Suite
4200 Houston, Texas 77002 +1.713.220.4200 Phone
+1.713.220.4285 Fax andrewskurth.com |
EXHIBIT 8.1
May 7, 2015
Sunoco GP LLC
Sunoco LP
555 East Airtex Drive
Houston, Texas 77073
Ladies and Gentlemen:
We have acted as special counsel to Sunoco LP, a Delaware limited partnership (the “Partnership”), in connection with the
preparation of a registration statement on Form S-3 (the “Registration Statement”), filed with the Securities and Exchange Commission (the “SEC”) on May 7, 2015, relating to the registration of the offering and
sale (the “Offering”) from time to time, as set forth in the Registration Statement and the forms of prospectus contained therein, of common units (“Units”) representing limited partner interests of the Partnership.
In connection therewith, we have participated in the preparation of the discussion set forth under the caption “Material Federal
Income Tax Consequences” (the “Discussion”) in the Registration Statement. The Discussion, subject to the qualifications and assumptions stated in the Discussion and the limitations and qualifications set forth herein,
constitutes our opinion as to the material United States federal income tax consequences for purchasers of the Units pursuant to the Offering.
This opinion letter is limited to the matters set forth herein, and no opinions are intended to be implied or may be inferred beyond those
expressly stated herein. Our opinion is rendered as of the date hereof, and we assume no obligation to update or supplement this opinion or any matter related to this opinion to reflect any change of fact, circumstances, or law after the effective
date of the Registration Statement. In addition, our opinion is based on the assumption that the matter will be properly presented to the applicable court.
Furthermore, our opinion is not binding on the Internal Revenue Service or a court. In addition, we must note that our opinion represents
merely our best legal judgment on the matters
Austin Beijing Dallas Dubai
Houston London New York Research Triangle Park The Woodlands Washington, DC
Page 2
presented and that others may disagree with our conclusion. There can be no assurance that the Internal Revenue Service will not take a contrary position or that a court would agree with our
opinion if litigated.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references
to our firm and this opinion contained in the Discussion. In giving this consent, we do not admit that we are “experts” under the Securities Act of 1933, or under the rules and regulations of the SEC relating thereto, with respect to any
part of the Registration Statement, including this exhibit to the Registration Statement.
Very truly yours,
/s/ Andrews Kurth LLP
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We
consent to the incorporation by reference in this Registration Statement on Form S-3 of Sunoco LP of our report dated April 29, 2014 (October 21, 2014, as to Note 11), related to the financial statements of Aloha
Petroleum, Ltd. as of December 31, 2013 and 2012, and for each of the three years in the period ended December 31, 2013, appearing in the Current Report on Form 8-K/A of Sunoco LP dated October 21, 2014 and to the
reference to us under the heading “Experts” in the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Honolulu, Hawaii
May 7, 2015
Exhibit 23.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption “Experts” in this Registration Statement (Form S-3) and related Prospectus of Sunoco LP
for the registration of common units representing limited partner interests and to the incorporation by reference therein of our reports dated February 27, 2015, with respect to the consolidated financial statements of Sunoco LP, and the
effectiveness of internal control over financial reporting of Sunoco LP, included in its Annual Report (Form 10-K) for the year ended December 31, 2014, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Houston, TX
April 30, 2015
Exhibit 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 21, 2014 with respect to the consolidated financial statements of Mid-Atlantic Convenience Stores, LLC
(successor) and subsidiaries and MACS Holdings, LLC (predecessor) and subsidiaries as of December 31, 2013 (successor) and for the period from October 3, 2013 to December 31, 2013 (successor) and the period from January 1, 2013
to October 2, 2013 (predecessor) included in the Current Report on Form 8-K/A dated October 21, 2014 of Sunoco LP, which is incorporated by reference in this Registration Statement. We consent to the incorporation by reference in the
Registration Statement of the aforementioned report, and to the use of our name as it appears under the caption “Experts.”
/s/ GRANT THORNTON
LLP
Dallas, Texas
May 7, 2015
Exhibit 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 16, 2015 with respect to the consolidated and combined financial statements of Sunoco, LLC as of December 31,
2014 and 2013 and for the years then ended included in the Current Report on Form 8-K dated March 23, 2015 of Sunoco LP, which is incorporated by reference in this Registration Statement. We consent to the incorporation by reference in the
Registration Statement of the aforementioned report, and to the use of our name as it appears under the caption “Experts.”
/s/ GRANT THORNTON
LLP
Dallas, Texas
May 7, 2015
Exhibit 23.7
Consent of Independent Accountants
We
hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of Sunoco LP of our report dated April 15, 2013 relating to the consolidated financial statements of MACS Holdings, LLC and its subsidiaries as of
December 31, 2012 and for each of the two years in the period ended December 31, 2012, which appears in the Current Report on Form 8-K/A dated October 21, 2014.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
May 7, 2015
Sunoco (NYSE:SUN)
Historical Stock Chart
From Mar 2024 to Apr 2024
Sunoco (NYSE:SUN)
Historical Stock Chart
From Apr 2023 to Apr 2024
