As filed with the Securities and Exchange Commission on April 2, 2004
Registration No. 333-113523
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
Amendment No. 1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
ATLAS PIPELINE PARTNERS, L.P.
and the Additional Registrants listed below
(Exact name of registrant as specified in its charter)
Delaware 23-3011077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road
Moon Township, PA 15108
(412) 262-2830
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
Michael L. Staines
Atlas Pipeline Partners GP, LLC
311 Rouser Road
Moon Township, PA 15108
(412) 262-2830
(Address, including zip code, and telephone number, including area code, of
agent for service)
Please send copies of communications to:
Lisa A. Ernst, Esq.
Ledgewood Law Firm, P.C.
1521 Locust Street
Philadelphia, PA 19102
(215) 731-9450
Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or 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, 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, 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 delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
TABLE OF ADDITIONAL REGISTRANTS
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Exact names of each subsidiary guarantor I.R.S. Employer
additional registrant as specified in its State of Identification
charter organization Number
-------------------------------------------------- --------------------- -----------------------
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Atlas Pipeline Operating Partnership, L.P. Delaware 23-3015646
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Atlas Pipeline New York, LLC Pennsylvania 25-1850095
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-------------------------------------------------- --------------------- -----------------------
Atlas Pipeline Ohio, LLC Pennsylvania 25-1849435
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Atlas Pipeline Pennsylvania, LLC Pennsylvania 25-1849453
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The registrant and the additional registrants hereby amend this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant and the additional registrants shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell nor does it seek an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
$250,000,000
ATLAS PIPELINE PARTNERS, L.P.
Common Units
Subordinated Units
Debt Securities
Warrants
We may offer from time to time the following types of securities:
o our common units representing limited partner interests;
o our subordinated units representing limited partner interests;
o our debt securities, in one or more series, which may be senior debt
securities or subordinated debt securities, in each case consisting of
notes or other evidences of indebtedness;
o warrants to purchase any of the other securities that may be sold under
this prospectus; or
o any combination of these securities, individually or as units.
The securities will have an aggregate initial offering price of up to
$250,000,000. The securities may be offered separately or together in any
combination and as a separate series. This prospectus also covers guarantees, if
any, of our payment obligations under any debt securities, which may be given by
certain of our subsidiaries on terms to be determined at the time of the
offering.
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any prospectus supplement, as
well as the documents incorporated or deemed to be incorporated by reference in
this prospectus, carefully before you invest. This prospectus may not be used to
consummate sales of securities unless accompanied by the applicable prospectus
supplement.
Our common units are quoted on the American Stock Exchange under the symbol
"APL."
You should read "Risk Factors" beginning on page 14 of this prospectus, as well
as those which may be contained in any supplement to this prospectus, for a
discussion of important factors that you should consider before you invest.
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.
We may sell these securities directly, through agents, dealers or underwriters
as designated from time to time, or through a combination of these methods. We
reserve the sole right to accept, and together with our agents, dealers and
underwriters reserve the right to reject, in whole or in part, any proposed
purchase of securities to be made directly or through agents, dealers or
underwriters. If any agents, dealers or underwriters are involved in the sale of
any securities, the relevant prospectus supplement will set forth any applicable
commissions or discounts. Our net proceeds from the sale of securities also will
be set forth in the relevant prospectus supplement.
Prospectus dated April 5, 2004
2
PROSPECTUS SUMMARY
About this Prospectus
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under this shelf process, we may, from time to time, offer any combination of
the securities described in this prospectus in one or more offerings up to a
total dollar amount of $250,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we use this prospectus to
offer these securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. Please carefully read this prospectus and the prospectus supplement
together with the additional information described under the heading "Where You
Can Find More Information."
Atlas Pipeline
We own and operate natural gas pipeline gathering systems through our
operating partnership and its operating subsidiaries. Our primary assets consist
of approximately 1,380 miles of intrastate gathering systems located in eastern
Ohio, western New York and western Pennsylvania. In September 2003, we entered
into a purchase and sale agreement with SEMCO Energy, Inc. (NYSE: SEN) under
which we or our designee will purchase all of the outstanding equity of SEMCO's
wholly-owned subsidiary, Alaska Pipeline Company, which owns a 354-mile
intrastate natural gas transmission pipeline that delivers gas to metropolitan
Anchorage. The total consideration, payable in cash at closing, will be
approximately $95 million, subject to an adjustment based on the amount of
working capital that Alaska Pipeline has at closing.
Currently, our gathering systems serve approximately 4,500 wells with
an average daily throughput for the year ended December 31, 2003 of 52.5 million
cubic feet, or mmcf, of natural gas. Our gathering systems provide a means
through which well owners and operators can transport the natural gas produced
by their wells to public utility pipelines for delivery to customers. To a
lesser extent, our gathering systems transport natural gas directly to
customers. Our gathering systems currently connect with public utility pipelines
operated by Peoples Natural Gas Company, National Fuel Gas Supply, Tennessee Gas
Pipeline Company, National Fuel Gas Distribution Company, East Ohio Gas Company,
Columbia of Ohio, Consolidated Natural Gas Co., Texas Eastern Pipeline, Columbia
Gas Transmission Corp. and Equitable Utilities. We do not engage in storage or
gas marketing programs, nor do we currently engage in the purchase and resale
for our own account of natural gas transported through our gathering systems.
We originally acquired the gathering systems of Atlas America, Inc. and
its affiliates, all of which are subsidiaries of Resource America, Inc. (NASDAQ:
REXI), when we commenced operations in January 2000. Throughout this prospectus,
we refer to the Resource America energy subsidiaries with which we have
contractual relationships, including Atlas America, collectively as "Atlas
America," unless specifically stated otherwise. Atlas America and its affiliates
sponsor limited and general partnerships to raise funds from investors to
explore for natural gas, and produce natural gas and, to a lesser extent, oil
from locations in eastern Ohio, western New York and western Pennsylvania. Our
gathering systems are connected to 4,100 of those wells. Atlas America drilled
and connected 270 wells to our gathering systems during the year ended December
31, 2003, 195 wells during the year ended December 31, 2002 and 196 wells during
the year ended December 31, 2001.
We are party to an omnibus agreement with Atlas America that is
intended to maximize the use and expansion of our gathering systems and the
amount of natural gas they transport. Among other things, the omnibus agreement
requires Atlas America to install required flow lines and connect wells it
operates that are located within 2,500 feet of one of our gathering systems.
3
We are also party to natural gas gathering agreements with Atlas
America under which it pays us gathering fees generally equal to a percentage,
generally 16%, of the gross or weighted average sales price of the natural gas
we transport subject, in certain cases, to minimum prices of $.35 or $.40 per
thousand cubic feet, or mcf. Our business, therefore, depends in large part on
the prices at which the natural gas we transport is sold. Due to the volatility
of natural gas prices, our gross revenues can vary materially from period to
period. During the year ended December 31, 2003, we received gathering fees
averaging $.82 per mcf, while during the previous year, our average gathering
fee was $.58 per mcf.
Objectives and Strategy
Our objective is to increase cash flow, earnings and returns to our
unitholders by:
o expanding our revenue base through:
o construction of extensions necessary to service additional
wells drilled by Atlas America and others and
o accretive acquisitions of mid-stream energy assets such as
natural gas gathering, transmission, processing and storage
facilities and liquid gathering, transmission and storage
facilities;
o limiting operating costs through achievement of economies of
scale as a result of expanding our operations through extensions
and acquisitions; and
o continuing to strengthen our balance sheet by financing our
growth with a combination of long-term debt and equity to provide
the financial flexibility to fund future opportunities.
Since commencing operations in January 2000, we have pursued these
objectives by:
o adding 372 miles of pipeline to our original system;
o connecting 829 wells to our pipeline, 770 of which were drilled
by Atlas America;
o acquiring gathering systems in Ohio and Pennsylvania, aggregating
120 miles of pipeline, with approximately 433 wells connected to
those systems;
o agreeing in September 2003 to acquire Alaska Pipeline, which we
believe will add a significant source of stable income and
distributable cash flow; and
o upgrading our system and substantially expanding our capacity.
4
Partnership Information
We were formed in May 1999 as a Delaware limited partnership and, under
our partnership agreement, will be required to dissolve no later than December
31, 2098. We own a 98.9899% limited partnership interest in Atlas Pipeline
Operating Partnership, L.P., also a Delaware limited partnership, which owns our
current gathering systems through subsidiaries. We recently formed APC
Acquisition, LLC, in which we currently own 100% of the membership interests, in
order to acquire Alaska Pipeline. We have no significant assets other than our
limited partnership interest in the operating partnership. Our general partner
has sole responsibility for conducting our business and managing our operations.
As is commonly the case with publicly traded limited partnerships, we do not
directly employ any of the persons responsible for our management or operation.
Rather, Atlas America personnel manage and operate our business. Our general
partner also acts as general partner of the operating partnership. As a
consequence, the affairs of the operating partnership are controlled by our
general partner and not by us. However, our general partner may not, without the
consent of all of our limited partners, consent to any act that would make it
impossible to carry on our ordinary business and may not, without the consent of
limited partners holding a majority of the outstanding common units and
subordinated units, voting as separate classes, dispose of all or substantially
all of our assets or the assets of the operating partnership.
Our common units are entitled to receive cash distributions of $.42 per
quarter, or $1.68 on an annualized basis, before any distributions are paid on
our existing subordinated units. We expect this priority to continue until
January 1, 2005. Our general partner owns all of our outstanding 1,641,026
subordinated units.
Our principal executive offices are located at 311 Rouser Road, Moon
Township, Pennsylvania 15108 and our telephone number is (412) 262-2830.
5
Summary of Conflicts of Interest and Fiduciary Responsibilities
Our general partner has a fiduciary duty to manage us in a manner
beneficial to us and our unitholders. However, because our general partner is a
corporate subsidiary of Atlas America, its officers and directors have fiduciary
duties to manage its business in a manner beneficial to Atlas America. As a
result, conflicts of interest may arise in the future between us and our
unitholders, on the one hand, and Atlas America and its affiliates, on the other
hand.
The following situations, among others, could give rise to conflicts of
interest:
o our general partner determines the amount and timing of asset
purchases and sales, capital expenditures, issuances of additional
common units, borrowings and reserves, which can impact the amount of
distributions to unitholders;
o our general partner may take actions on our behalf that have the
effect of enabling our general partner to receive distributions on
its subordinated units;
o some of the officers of our general partner who provide services to
us also devote significant time to the businesses of our general
partner's affiliates, and competition for their services may develop;
o the officers of our general partner may make decisions on behalf of
Atlas America, as the operator of natural gas wells connected to our
gathering systems, as to the volume of gas produced by these wells,
and these decisions may affect the volume of natural gas transported
by us and, thus, our revenues; and
o our general partner makes decisions that affect the obligations of
Atlas America to us in constructing gathering systems, providing
financing for that construction and identifying gathering systems for
possible acquisition.
Our general partner has a conflicts committee, consisting of three
independent members of its managing board, that is available to review matters
involving conflicts of interest.
Our partnership agreement limits the liability and reduces the
fiduciary duties of our general partner to our unitholders. Our partnership
agreement also restricts the remedies available to unitholders for actions that
might otherwise constitute breaches of its fiduciary duty. By purchasing a
common unit, you are treated as having consented to these restrictions, and to
various actions contemplated in the partnership agreement and to conflicts of
interest that might otherwise be considered a breach of fiduciary or other
duties under applicable state law.
Distributions and Payments to Our General Partner and Its Affiliates
The following summarizes the distributions and payments we make to our
general partner and its affiliates in connection with our operation and
liquidation. These distributions and payments were determined by and among
affiliated entities and, consequently, are not the result of arm's length
negotiations.
6
Cash distributions to our general partner........... Cash distributions are generally made 98% to the
unitholders, including to our general partner as
holder of our existing subordinated units, and 2% to
our general partner. If distributions exceed specified
target levels, our general partner will receive from
15% to 50% of the excess distributions. We refer to
these distributions as our general partner's
"incentive distribution rights." For the year ended
December 31, 2003, our general partner received
distributions of $4,561,100, including $594,000 of
incentive distributions, $192,700 on its general
partner interest and $3,774,400 on its subordinated
units.
Payments to our general partner..................... Our general partner does not receive management fees or other
compensation for managing us. We reimburse our general partner
for all direct, indirect and capital expenditures it incurs on
our behalf. For the year ended December 31, 2003, we reimbursed
$11,715,600 to our general partner, consisting of $2,420,500 in
transportation and compression costs, $1,660,900 in general and
administrative costs and $7,634,200 in capital expenditures.
Withdrawal or removal of our general
partner............................................. If our general partner withdraws or is removed, its general partner
interest and incentive distribution rights will either be sold to
the new general partner for cash or converted into common units,
in each case for an amount equal to the fair market value of those
interests.
Liquidation......................................... Upon our liquidation and after payment of our creditors, the
partners, including our general partner, will be entitled to
receive liquidating distributions according to their
particular capital account balances. For a description of how
capital account balances are determined and adjusted upon
liquidation, see "Cash Distribution Policy--Distributions of
Cash Upon Liquidation."
Our Partnership Agreement
Cash distributions.................................. We must distribute all of our cash on hand at the end of each
quarter, less reserves established by our general partner in its
discretion. The amount of this cash may be greater than or less
than the minimum quarterly distribution referred to in the next
paragraph. We generally make cash distributions within 45 days
after the end of each quarter.
In general, we make cash distributions each quarter based on the
following priorities:
7
o first, 98% to the common units and 2% to our general partner until
each common unit has received a minimum quarterly distribution of
$.42, plus any arrearages in the payment of the minimum quarterly
distribution from prior quarters;
o second, 98% to our existing subordinated units and 2% to our
general partner until each subordinated unit has received a
minimum quarterly distribution of $.42;
o third, 85% to all units and 15% to our general partner until each unit has
received a total distribution of $.52 in that quarter;
o fourth, 75% to all units and 25% to our general partner until each
unit has received a total distribution of $.60 in the quarter; and
o after that, 50% to all units and 50% to our general partner.
The distributions to our general partner in the third through fifth
distribution levels are incentive distributions and are
disproportionate to its 2% interest in us as our general partner.
If we make a distribution from capital surplus, which generally
means distributions from cash generated other than from operations
or from working capital reserves, it is treated as if it were
repayment of the unit price from our initial public offering of
common units, which was $13.00 per common unit. To reflect
repayment, distribution levels, including the minimum quarterly
distributions, will be adjusted downward by multiplying each
distribution amount by a fraction. This fraction is determined as
follows:
o the numerator is the unrecovered initial unit price of the common
unit immediately after giving effect to the repayment, and
o the denominator is the unrecovered initial unit price of the
common units immediately before the repayment.
The unrecovered initial unit price is the initial public offering
price per common unit of $13.00 less any distributions from capital
surplus. Distributions from capital surplus will not reduce the
minimum quarterly distribution or target or other distribution
levels for the quarter in which they are distributed. We do not
anticipate that there will be significant distributions from capital
surplus.
8
Upon liquidation, we will distribute any cash remaining, after we
have paid our creditors, to unitholders and our general partner in
accordance with their capital account balances. To the extent
proceeds of liquidation are available, we will adjust the capital
accounts of our general partner and the common unitholders to give
our general partner amounts representing incentive distributions.
Existing subordinated units;
subordination period................................ Our existing subordinated units are a separate class of interest in
us whose rights to distributions are subordinate to those of the
common units during the subordination period. The subordination
period will end on January 1, 2005 unless the financial tests in the
partnership agreement are not met. When the subordination period
ends, all of these subordinated units will convert into common units
on a one-for-one basis. The subordinated units will similarly
convert to common units if our general partner is removed without
cause. Converted subordinated units will have the same rights as
common units and will thus participate equally with the other common
units in distributions.
Issuance of additional units........................ We are permitted to issue common units, subordinated units, debt and
other securities without restriction under our partnership agreement
except that, during the subordination period for our existing
subordinated units, we cannot issue securities having rights to
distribution or in liquidation ranking prior or senior to our common
units without unitholder consent.
Amendment of our partnership
agreement........................................... Our partnership agreement may generally be amended by a vote of
persons holding a majority of the common units and existing
subordinated units, voting as separate classes, provided that we
obtain an opinion of counsel that the amendment will not materially
adversely affect the limited liability of the limited partners.
Amendments may be proposed only by or with the consent of our
general partner, which may withhold its consent in its sole
discretion. Our general partner may, without the consent of
unitholders, amend our partnership agreement to accommodate
administrative functions such as admission, withdrawal or
substitution of limited partners, to effect our qualification to do
business in a jurisdiction or to prevent us from being deemed an
investment company. No amendment may be made that would enlarge the
obligations of any limited partner without that partner's consent;
enlarge, restrict or reduce the rights, obligations, or amounts
distributable or reimbursable to our general partner; change our
term or modify the nature of those events causing our dissolution.
9
Limited liability of limited partners............... The liability of a person purchasing common units or subordinated
units will be limited to the amount of the purchaser's investment
plus the purchaser's share of any of our undistributed profits or
assets, so long as the purchaser does not participate in the control
of our business within the meaning of Delaware law and otherwise
acts in conformity with our partnership agreement.
Limited voting rights............................... Holders of common units and subordinated units do not have voting
rights except with respect to the following matters, for which the
partnership agreement requires unitholder approval:
o a sale or exchange of all or substantially all of our
assets;
o the removal or withdrawal of our general partner;
o the election of a successor general partner;
o our dissolution or reconstitution;
o a merger;
o termination or material modification of the master natural gas
gathering agreement and omnibus agreement with Atlas America;
o approval of the transfer by our general partner of its general
partner interest or incentive distribution rights, except in a
merger or to an affiliate; and
o in general, amendments to the partnership agreement.
Change of control................................... Any person or group, other than our general partner and its
affiliates or a direct transferee of our general partner or its
affiliates, that acquires beneficial ownership of 20% or more of our
common units will lose its voting rights with respect to all of its
common units.
Removal or withdrawal of our general
partner............................................. Our general partner may be removed by the vote of at least 66 2/3%
of our outstanding common units and the election of a successor
general partner by the vote of a majority of the outstanding common
units, excluding in both cases common units held by our general
partner and its affiliates.
10
Our general partner may not withdraw as our general partner without
the vote of at least a majority of the outstanding common units,
excluding common units held by our general partner and its
affiliates. However, our general partner may withdraw without
approval of our common units if at least 50% of our common units are
held or controlled by one person or its affiliates other than our
general partner and its affiliates.
Consequences of removal of our general
partner............................................. If our general partner is removed other than for cause, all of our
existing subordinated units will immediately convert into common
units on a one-for-one basis. Any existing arrearages in the payment
of the minimum quarterly distribution to the common units will be
extinguished, and our general partner will have the right to convert
its general partner interest and its right to receive incentive
distributions into common units or to receive cash in exchange for
such interests. In addition, the omnibus agreement will terminate
and the master natural gas gathering agreement will terminate with
respect to future wells drilled and completed by Atlas America.
11
Summary Financial Data
We derived the financial data set forth below as of and for the three
years ended December 31, 2003 from our consolidated financial statements for
those periods, which have been audited by Grant Thornton LLP, independent
accountants. You should read the financial data in this table together with, and
such financial data is qualified by reference to, our consolidated financial
statements, the notes to our consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere or incorporated by reference in this prospectus.
For the years ended December 31,
-----------------------------------
2003 2002 2001
------- ------- -------
(in thousands, except per unit data)
Income statement data:
Revenues............................................. $15,749 $10,667 $13,129
======= ======= =======
Total transportation and compression, general and
administrative expenses............................. $ 4,081 $ 3,544 $ 3,042
======= ======= =======
Depreciation and amortization........................ $ 1,770 $ 1,476 $ 1,356
======= ======= =======
Net income........................................... $ 9,639 $ 5,398 $ 8,556
======= ======= =======
Net income per limited partner unit - basic and $ 2.17 $ 1.54 $ 2.30
diluted.............................................. ======= ======= =======
Distributions declared per common unit............... $ 2.39 $ 2.14 $ 2.50
======= ======= =======
At December 31,
-----------------------------------
2003 2002 2001
------- ------- -------
(in thousands)
Balance sheet data:
Total assets......................................... $49,512 $28,515 $26,002
======= ======= =======
Long-term debt....................................... $ - $ 6,500 $ 2,089
======= ======= =======
Common unitholders' capital.......................... $43,551 $19,164 $20,129
Subordinated unitholder's capital.................... 354 684 1,661
General partner's capital (deficit).................. 340 (161) (116)
------- ------- -------
Total partners' capital.............................. $44,245 $19,687 $21,674
======= ======= =======
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Summary Operating Data
The following table summarizes information concerning the volumes of
natural gas we transported during the years ended December 31, 2003, 2002 and
2001 as well as the average transportation rate we received during those
periods.
For the years ended December 31,
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Total volume of natural gas transported (in
mcf).......................................... 19,152,300 18,382,600 17,125,000
=========== =========== ===========
Average daily volume of natural gas transported
(in mcf)...................................... 52,472 50,363 46,918
=========== =========== ===========
Average transportation rate per mcf.............. $ .82 $ .58 $ .76
=========== =========== ===========
Available cash from operating surplus(1)......... $10,800,000 $ 7,385,300 $ 9,284,600
=========== =========== ===========
-----------------
(1) We define available cash from operating surplus under "Our Partnership
Agreement--Cash Distribution Policy--Distributions of Available Cash from
Operating Surplus." Available cash from operating surplus is not a measure
of cash flow as determined by generally accepted accounting principles. We
have included information concerning available cash from operating surplus
because it provides investors and management additional information as to
our ability to pay distributions to common unitholders and fixed charges
and is presented solely as a supplemental financial measure. Available cash
from operating surplus should not be considered as an alternative to, or
more meaningful than, net income or cash flow as determined in accordance
with generally accepted accounting principles or as an indicator of our
operating performance or liquidity. Available cash from operating surplus
is not necessarily comparable to a similarly titled measure of another
company. The table below shows how we calculated available cash from
operating surplus.
For the years ended December 31,
--------------------------------
2003 2002 2001
-------- ------- -------
(in thousands)
Net cash provided by operating activities........... $ 13,702 $ 8,138 $10,268
Net borrowings less capital expenditures
and acquisitions................................. (14,134) (820) (1,039)
Capital contributions and net proceeds from
offering......................................... 25,720 - 45
Increase in other assets............................ (2,468) (61) (38)
(Increase) decrease in cash reserves................ (12,020) 128 49
-------- ------- -------
Available cash from operating surplus............... $ 10,800 $7,385 $ 9,285
======== ======= =======
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RISK FACTORS
Limited partner interests are inherently different from the capital
stock of a corporation, although many of the business risks we encounter are
similar to those that would be faced by a corporation engaged in a similar
business. You should consider the following risk factors together with all of
the other information included in this prospectus in evaluating an investment in
our securities. If any of the following risks actually occurs, our business,
financial condition or results of operations could be materially adversely
affected. In that case, the trading price of our securities could decline and
you may lose some or all of your investment.
Our cash distributions are not assured and may fluctuate with our performance.
The amounts of cash that we generate may not be sufficient to pay the
minimum quarterly distributions established in our partnership agreement or any
other level of distributions. The actual amounts of cash we generate will depend
upon numerous factors relating to our business which may be beyond our control,
including:
o the demand for and price of natural gas;
o the volume of natural gas we transport;
o continued development of wells for connection to our gathering
systems;
o the expenses we incur in providing our gathering services;
o the cost of acquisitions and capital improvements;
o our issuance of equity securities;
o required principal and interest payments on our debt;
o fluctuations in working capital;
o prevailing economic conditions;
o fuel conservation measures;
o alternate fuel requirements;
o government regulations; and
o technical advances in fuel economy and energy generation devices.
Our ability to make cash distributions depends primarily on our cash
flow. Cash distributions do not depend directly on our profitability, which is
affected by non-cash items. Therefore, cash distributions may be made during
periods when we record losses and may not be made during periods when we record
profits.
The failure of Atlas America to perform its obligations under the natural gas
gathering agreements may adversely affect our revenues.
Our revenues currently consist of the fees we receive under the master
natural gas gathering agreement and other transportation agreements we have with
Atlas America and its affiliates. While Atlas America receives gathering fees
from the well owners, it is contractually obligated to pay our fees even if the
gathering fees paid to it by well owners are less than the fees it must pay us.
Our cash flow could be materially adversely affected if Atlas America failed to
discharge its obligations to us.
14
The amount of natural gas we transport will decline over time unless new wells
are connected to our gathering systems.
Production of natural gas from a well generally declines over time
until the well can no longer economically produce natural gas and is plugged and
abandoned. Failure to connect new wells to our gathering systems could,
therefore, result in the amount of natural gas we transport reducing
substantially over time and could, upon exhaustion of the current wells, cause
us to abandon one or more of our gathering systems and, possibly, cease
operations. As a consequence, our revenues and, thus, our ability to make
distributions to unitholders would be materially adversely affected.
We entered into the omnibus agreement with Atlas America to, among
other things, increase the number of natural gas wells connected to our
gathering systems. However, well connections resulting from that agreement
depend principally upon the success of Atlas America in sponsoring drilling
investment partnerships and completing wells for these partnerships in areas
where our gathering systems are located. If Atlas America cannot or does not
continue to organize these partnerships, if the amount of money raised by these
partnerships decreases, or if the number of wells actually drilled and completed
as commercial producing wells decreases, our revenues and ability to make cash
distributions will be materially adversely affected.
The amount of natural gas we transport may be reduced if the public utility
pipelines to which we deliver gas cannot or will not accept the gas.
Our gathering systems principally serve as intermediate transportation
facilities between sales lines from wells connected to our systems and the
public utility pipelines to which we deliver natural gas. If one or more of
these public utility pipelines has service interruptions, capacity limitations
or otherwise does not accept the natural gas we transport, and we cannot arrange
for delivery to other public utility pipelines, local distribution companies or
end users, the amount of natural gas we transport may be reduced. Since our
revenues depend upon the volumes of natural gas we transport, this could result
in a material reduction in our revenues.
We may not be able to complete the acquisition of Alaska Pipeline.
Completion of the acquisition of Alaska Pipeline is subject to a number
of conditions, including receipt of governmental and non-governmental consents
and approvals and the absence of a material adverse change in Alaska Pipeline's
business. Among the required governmental authorizations are approval of the
Regulatory Commission of Alaska. The purchase and sale agreement may be
terminated by either SEMCO or us if the transaction is not completed by June 16,
2004.
We will incur substantial indebtedness to acquire Alaska Pipeline which may
restrict our liquidity and, if interest rates increase, affect cash flow from
the acquisition.
We intend to finance the Alaska Pipeline acquisition in part through
borrowing all of the $20 million available under our existing credit facility.
Unless the borrowing is paid down, or the amount of availability increased, we
will not have further borrowing capacity to finance future acquisitions, capital
expenditures or other liquidity needs. Moreover, since this borrowing, and the
$50 million borrowing that APC Acquisition will also make to finance the
15
acquisition, are at variable interest rates, any increase in interest rates will
adversely affect the cash flow we expect to derive from the acquisition. We
intend to use the proceeds of one or more offerings of our securities pursuant
to this prospectus to reduce some of these borrowings. However, we cannot assure
you that we and Alaska Pipeline will generate sufficient cash flow from
operations to satisfy our and its future liquidity needs.
Governmental regulation of our pipelines could increase our operating costs.
Currently our gathering of natural gas from wells is exempt from
regulation under the Natural Gas Act. However, the implementation of new laws or
policies could subject us to regulation by the Federal Energy Regulatory
Commission under the Natural Gas Act. We expect that any such regulation would
increase our costs, decrease our revenues, or both.
Gas gathering operations are subject to regulation at the state level.
Matters subject to regulation include rates, service and safety. We have been
granted an exemption from regulation as a public utility in Ohio. Presently, our
rates are not regulated in New York and Pennsylvania. Changes in state
regulations, or our status under these regulations that subject us to further
regulation, could increase our operating costs or require material capital
expenditures.
Litigation or governmental regulation relating to environmental protection and
operational safety may result in substantial costs and liabilities.
Our operations are subject to federal and state environmental laws
under which owners of natural gas pipelines can be liable for clean-up costs and
fines in connection with any pollution caused by their pipelines. We may also be
held liable for clean-up costs resulting from pollution which occurred before
our acquisition of the gathering systems. In addition, we are subject to federal
and state safety laws that dictate the type of pipeline, quality of pipe
protection, depth, methods of welding and other construction-related standards.
Any violation of environmental, construction or safety laws could impose
substantial liabilities and costs on us.
We are also subject to the requirements of the Occupational Health and
Safety Act, or OSHA, and comparable state statutes. Any violation of OSHA could
impose substantial costs on us.
We cannot predict whether or in what form any new legislation or
regulatory requirements might be enacted or adopted, nor can we predict our
costs of compliance. In general, we expect that new regulations would increase
our operating costs and, possibly, require us to obtain additional capital to
pay for improvements or other compliance action necessitated by those
regulations.
We may not be able to fully execute our growth strategy.
Our strategy contemplates substantial growth through both the
acquisition of other gathering systems and the development of our existing
system. Typically, we have paid for system development in cash and have made
acquisitions either for cash or a combination of cash and common units. As a
result, limitations on our access to capital or on the market for our common
units will impair our ability to execute our growth strategy. In addition, our
strategy of growth through acquisitions involves numerous risks, including:
o we may not be able to identify suitable acquisition candidates;
o we may not be able to make acquisitions on economically
acceptable terms;
16
o our costs in seeking to make acquisitions may be material, even
if we cannot complete any acquisition we have pursued;
o irrespective of estimates at the time we make an acquisition, the
acquisition may prove to be dilutive to earnings and operating
surplus;
o we may encounter difficulties in integrating operations and
systems; and
o we may acquire assets located outside of our core geographic
area of operations or acquire businesses or operations that
differ in nature from traditional gas pipeline or gathering
activities, and we may incur difficulties or delays in
successfully operating such new businesses;
A decline in natural gas prices could adversely affect our revenues.
Our gathering fees are generally equal to a percentage of either the
gross or weighted average sales price of the natural gas we transport, although
in some cases we receive a flat fee per mcf of gas transported. Our income
therefore depends upon the prices at which the natural gas we transport is sold.
Historically, the price of natural gas has been volatile; as a result, our
income may vary widely from period to period.
Gathering system operations are subject to operational hazards and unforeseen
interruptions.
The operations of our gathering systems are subject to hazards and
unforeseen interruptions, including natural disasters, adverse weather,
accidents or other events beyond our control. A casualty occurrence might result
in injury and extensive property or environmental damage. Our insurance coverage
may not be sufficient for any casualty loss we may incur.
17
USE OF PROCEEDS
Unless we indicate otherwise in an accompanying prospectus supplement,
we intend to use the net proceeds from the sale of the securities offered by
this prospectus for general partnership purposes, which may include, but not be
limited to, refinancing of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges for
the periods indicated.
Inception
through
Year ended December 31, December 31,
---------------------------- ------------
2003 2002 2001 2000
---- ---- ---- -----
Ratio of earnings to fixed
charges..................... 29.2 18.0 36.9 753.8
PRO FORMA FINANCIAL DATA
Following are our unaudited pro forma financial statements as of and
for the year ended December 31, 2003. The unaudited pro forma balance sheet is
prepared as though the acquisition of Alaska Pipeline described in this
prospectus occurred as of December 31, 2003, and the unaudited pro forma
statement of operations is prepared as though the acquisition occurred as of
January 1, 2003. The acquisition adjustments are described in the notes to the
unaudited pro forma financial statements. The unaudited pro forma financial
statements and accompanying notes should be read together with our "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our and Alaska Pipeline's historical financial statements and related notes
included elsewhere, or incorporated by reference, in this prospectus.
We accounted for the acquisition of Alaska Pipeline in the unaudited
pro forma financial statements using the purchase method in accordance with the
guidance of Statement of Financial Accounting Standards No. 141, "Business
Combinations." For purposes of developing the unaudited pro forma financial
information, we have allocated the purchase price to Alaska Pipeline's gas
gathering and transmission facilities based on fair market value.
The unaudited pro forma financial statements are for informational
purposes only and are based upon available information and assumptions that we
believe are reasonable under the circumstances. You should not construe the
unaudited pro forma financial statements as indicative of the combined financial
position or results of operations that we and Alaska Pipeline would have
achieved had the transaction been consummated on the dates assumed. Moreover,
they do not purport to represent our and Alaska Pipeline's combined financial
position or results of operations for any future date or period or a
representation that we will complete the Alaska Pipeline acquisition. See "Risk
Factors--We may not be able to complete the acquisition of Alaska Pipeline."
18
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2003
(in thousands)
Historical Historical
Atlas Alaska Acquisition Pro forma
Pipeline Pipeline adjustments consolidated
---------- ---------- ----------- ------------
ASSETS
Current assets:
Cash and cash
equivalents............ $ 15,078 $ - $ - $ 15,078
Accounts receivable...... - 714 (714) (a) -
Accounts receivable -
affiliates............. 12 11,555 (11,555) (a) 12
Prepaid expenses......... 67 124 (124) (a) 67
-------- --------- ------------ ------------
Total current assets... 15,157 12,393 (12,393) 15,157
Property and equipment:
Gas gathering and
transmission
facilities............. 37,018 58,888 36,885 (b) 132,791
Less - accumulated
depreciation........... (7,390) (12,212) 12,212 (b) (7,390)
--------- ---------- ----------- -------------
Net property and
equipment............ 29,628 46,676 49,097 125,401
Goodwill.................... 2,305 46,472 (46,472) (a) 2,305
Other assets................ 2,422 267 3,315 (a)(b)(c) 6,004
-------- --------- ----------- ------------
$ 49,512 $ 105,808 $ (6,453) $ 148,867
======== ========= =========== ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and
accrued liabilities.... $ 521 $ 8,245 $ (8,245) (a) $ 521
Accounts payable -
affiliates............. 1,673 - 4,355 (a)(b)(c) 6,028
Distribution payable..... 3,073 - - 3,073
-------- --------- ----------- ------------
Total current
liabilities.......... 5,267 8,245 (3,890) 9,622
Long-term debt.............. - 35,900 34,100 (a)(b) 70,000
Regulatory liability........ - 1,819 (1,819) (b) -
Deferred income taxes....... - 6,947 (6,947) (a) -
Preferred equity
subject to
redemption............... - - 25,000 (b) 25,000
Stockholder's equity........ - 52,897 (52,897) (a) -
Members equity.............. - - - (a)(b) -
Partners' capital:
Common unitholders....... 43,551 - - 43,551
Subordinated
unitholders............ 354 - - 354
General partner.......... 340 - - 340
-------- --------- ----------- ------------
Total partners'
capital.............. 44,245 - - 44,245
-------- --------- ----------- ------------
$ 49,512 $ 105,808 $ (6,453) $ 148,867
======== ========= =========== ============
See notes to pro forma financial statements
19
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands, except per unit data)
Historical Historical
Atlas Alaska Acquisition Pro forma
Pipeline Pipeline adjustments consolidated
--------- ---------- ----------- ------------
Revenues:
Transportation and
compression............ $ 15,651 $ 67,733 $ (52,581) (d) $ 30,803
Pipeline management
services............... - 3,110 (3,110) (d) -
--------- --------- ----------- ---------
15,651 70,843 (55,691) 30,803
Costs and expenses:
Transportation and
compression............ 2,421 - - 2,421
Cost of gas sold......... - 55,549 (55,549) (d) -
General and
administrative......... 1,661 3,575 (2,104) (e) 3,132
Operations and
maintenance............ - 4,007 (1,470) (e) 2,537
Depreciation and
amortization........... 1,770 3,265 (293) (g)(h) 4,742
--------- --------- ------------ ---------
5,852 66,396 (59,416) 12,832
--------- --------- ------------ ---------
Operating income......... 9,799 4,447 3,725 17,971
--------- --------- ----------- ---------
Other income
(deductions):
Interest expense....... (258) (2,937) (4,674) (f)(i) (7,869)
Other.................. 98 263 (263) (d) 98
--------- --------- ------------ ---------
(160) (2,674) (4,937) (7,771)
--------- --------- ----------- ---------
Income before
income taxes............. 9,639 1,773 (1,212) 10,200
Provision for income taxes.. - 733 (733) (j) -
--------- --------- ------------ ---------
Net income............... $ 9,639 $ 1,040 $ (479) $ 10,200
========= ========= =========== =========
Net income - limited
partners................. $ 8,651 $ 7,593
========= =========
Net income - general
partner.................. $ 988 $ 2,607
========= =========
Basic and diluted net
income per limited
partner ................. $ 2.17 $ 1.91
========= =========
Weighted average units
outstanding.............. 3,981 3,981
========= =========
Per unit distributions -
limited partner.......... $ 2.39 $ 2.84 (k)
========== =========
See notes to pro forma financial statements
20
Atlas Pipeline Partners, L.P.
Notes to Unaudited Pro Forma Financial Statements
a. Immediately prior to the closing, Alaska Pipeline will convert from a
corporation to a Delaware limited liability company ("LLC"), transfer
its pipeline assets to the newly formed LLC, and dividend all of its
remaining net assets to SEMCO.
b. To reflect our purchase of 100% of the interest in the LLC for $96.5
million including estimated transaction costs and the payment of
$250,000 for the tower license fee and $450,000 for the gas control
services fee. The acquisition will be financed by a $25 million
preferred equity mezzanine investment, a $50 million revolving credit
facility and $20 million from bank borrowings under our existing credit
facility. The remaining $1.5 million is funded through borrowings from
our parent, which appear as an increase to accounts payable -
affiliates.
c. To reflect the payment of $2.9 million of estimated financing costs
which appear in the pro forma balance sheet as an increase in accounts
payable - affiliates.
d. Reflects the adjustment to gas sales and transportation and compression
revenue in accordance with the terms of the Special Contract for Gas
Transportation to be entered into with ENSTAR Natural Gas Company (the
division of SEMCO which conducts its Alaska distribution business) in
connection with the acquisition and the elimination of Alaska
Pipeline's pipeline management services and other income. The
adjustment also reflects the elimination of Alaska Pipeline's cost of
gas sold. The revenue Alaska Pipeline earned for gas sales and the
expense it recognized for the cost of gas sold are the result of an
intercompany gas sales agreement with ENSTAR that requires Alaska
Pipeline to sell ENSTAR the gas volumes it purchases from gas producing
entities.
e. Reflects the general and administrative costs in accordance with the
terms of the Operation and Maintenance and Administrative Services
Agreement to be entered into with ENSTAR in connection with the
acquisition.
f. Reflects the adjustment to interest expense resulting from the $25
million preferred equity (treated as debt for financial reporting
purposes) bearing a fixed interest rate of 12% and the $50 million of
new borrowings bearing an interest rate of LIBOR plus 350 basis points,
assumed to be 4.82% for the six months ended June 30, 2003 and 4.55%
for the six months ended December 31, 2003. In addition, reflects
borrowings under our existing credit facility and inter-company line
with our parent bearing an interest rate of LIBOR plus 200 basis
points, assumed to be 3.32% for the six months ended June 30, 2003 and
3.05% for the six months ended December 31, 2003.
g. Reflects the adjustment to depreciation expense based upon the cost of
the acquired gas gathering and transmission facilities using a 33 year
depreciable life and using the straight-line method.
h. Reflects the amortization of the gas control services and tower license
fees on a straight line basis over the 10 year term of the contract.
i Reflects the amortization of deferred financing costs related to the
various borrowing facilities to finance the acquisition over their
respective terms.
j. Reflects the elimination of federal and state income taxes following
the conversion of Alaska Pipeline to a LLC and its acquisition by us, a
master limited partnership not subject to income taxes.
k. Reflects the impact to limited partner distributions from adjusting our
distributable cash flow as a result of the acquisition of Alaska
Pipeline.
21
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Conflicts of Interest
General
Conflicts of interest exist and may arise in the future as a result of
the relationships between our general partner and Atlas America and its
affiliates, on the one hand, and us and our limited partners, on the other hand.
The managing board members and officers of our general partner have fiduciary
duties to manage our general partner in a manner beneficial to Atlas America and
its affiliates as members. At the same time, our general partner has a fiduciary
duty to manage us in a manner beneficial to us and our unitholders.
Our partnership agreement contains provisions that allow our general
partner to take into account the interests of parties in addition to ours in
resolving conflicts of interest. In effect, these provisions limit our general
partner's fiduciary duty to the unitholders. The partnership agreement also
restricts the remedies available to unitholders for actions taken that might,
without those limitations, constitute breaches of fiduciary duty.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us or any partner, on the other, our general
partner has the responsibility to resolve that conflict. A conflicts committee
of our general partner's managing board will, at the request of our general
partner, review conflicts of interest. The conflicts committee consists of the
independent managing board members, currently William R. Bagnell, Donald W.
Delson and Murray S. Levin. Our general partner will not be in breach of its
obligations under the partnership agreement or its duties to us or our
unitholders if the resolution of the conflict is considered to be fair and
reasonable to us. Any resolution is considered to be fair and reasonable to us
if that resolution is:
o approved by the conflicts committee, although no party is
obligated to seek approval and our general partner may adopt a
resolution or course of action that has not received approval;
o on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
o fair to us, taking into account the totality of the
relationships between the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
In resolving a conflict, our general partner may, unless the resolution
is specifically provided for in the partnership agreement, consider:
o the relative interest of the parties involved in the conflict or
affected by the action;
o any customary or accepted industry practices or historical
dealings with a particular person or entity; and
o generally accepted accounting practices or principles and other
factors as it considers relevant, if applicable.
22
Conflicts of interest could arise in the situations described below,
among others:
Actions taken by our general partner may affect the amount of cash available for
distribution to unitholders or accelerate the conversion of subordinated units.
The amount of cash that is available for distribution to unitholders is
affected by decisions of our general partner regarding various matters,
including:
o amount and timing of asset purchases and sales;
o cash expenditures;
o borrowings;
o issuances of additional units; and
o the creation, reduction or increase of reserves in any quarter.
In addition, our borrowings do not constitute a breach of any duty owed
by our general partner to the unitholders, including borrowings that have the
purpose or effect of:
o enabling our general partner and its affiliates to receive
distributions on any subordinated units held by them or the
incentive distribution rights or
o hastening the expiration of the subordination period.
Our partnership agreement provides that we and the operating
partnership may borrow funds from our general partner and its affiliates. Our
general partner and its affiliates may not borrow funds from us or the operating
partnership. The partnership agreement limits the amount of debt we may incur,
including amounts borrowed from our general partner.
We do not have any employees and rely on the employees of our general partner
and its affiliates.
We do not have any officers or employees and rely solely on officers
and employees of our general partner and its affiliates. Affiliates of our
general partner conduct business and activities of their own in which we have no
economic interest. If these separate activities are significantly greater than
our activities, there could be material competition between us, our general
partner and affiliates of our general partner for the time and effort of the
officers and employees who provide services to our general partner. The officers
of our general partner who provide services to us are not required to work full
time on our affairs. These officers may devote significant time to the affairs
of our general partner's affiliates and be compensated by these affiliates for
the services rendered to them. There may be significant conflicts between us and
affiliates of our general partner regarding the availability of these officers
to manage us.
We must reimburse our general partner and its affiliates for expenses.
We must reimburse our general partner and its affiliates for costs
incurred in managing and operating us, including costs incurred in rendering
corporate staff and support services properly allocable to us.
23
Our general partner intends to limit its liability regarding our obligations.
Our general partner intends to limit its liability under contractual
arrangements so that the other party has recourse only as to all or particular
assets of ours and not against our general partner or its assets. The
partnership agreement provides that any action taken by our general partner to
limit our or 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 unitholders 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
those affiliates in favor of us.
Determinations by our general partner may affect its obligations and the
obligations of Atlas America.
We have agreements with Atlas America regarding, among other things,
transporting natural gas from wells controlled by it and its affiliates,
construction of expansions to our gathering systems, financing that construction
and identification of other gathering systems for acquisition. Determinations
made by our general partner will significantly affect the obligations of Atlas
America under these agreements. For example, a determination by our general
partner to seek outside financing to expand our gathering systems would reduce
the amount of additional investment Atlas America would be required to make in
us. A determination not to acquire a gathering system identified by Atlas
America could result in the acquisition of that system by Atlas America.
Contracts between us, on the one hand, and our general partner and Atlas America
and its affiliates, on the other, will not be the result of arm's-length
negotiations.
The partnership agreement allows our general partner to pay itself or
its affiliates for any services rendered, provided these services are on terms
fair and reasonable to us. Our general partner may also enter into additional
contractual arrangements with any of its affiliates on our behalf. Neither the
partnership agreement nor any of the other agreements, contracts and
arrangements between us, on the one hand, and our general partner and its
affiliates on the other, are or will be the result of arm's length negotiations.
In addition, our general partner will negotiate the terms of any acquisitions
from Atlas America subject to the approval of the conflicts committee consisting
of persons unaffiliated with Atlas America.
We may not retain separate counsel or other professionals.
Attorneys, independent public accountants and others who perform
services for us are selected by our general partner or the conflicts committee
and may also perform services for our general partner and Atlas America and its
affiliates. We may retain separate counsel in the event of a conflict of
interest arising between our general partner and its affiliates, on the one
hand, and us or the holders of common units, on the other, depending on the
nature of that conflict. We do not intend to do so in most cases.
24
Fiduciary Duties
State Law Fiduciary Duty Standards
Fiduciary duties are generally considered to include an obligation to
act with due care and loyalty. The duty of care, in the absence of a provision
in a partnership agreement providing otherwise, would generally require a
general partner to act for the partnership in the same manner as a prudent
person would act on his own behalf. The duty of loyalty, in the absence of a
provision in a partnership agreement providing otherwise, would generally
prohibit a general partner of a Delaware limited partnership from taking any
action or engaging in any transaction where a conflict of interest is present.
The Delaware Revised Uniform Limited Partnership Act provides that a
limited partner may institute legal action on our behalf to recover damages from
a third party where our general partner has refused to institute the action or
where an effort to cause our general partner to do so is not likely to succeed.
In addition, the statutory or case law 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.
Partnership Agreement Modified Standards; Limitations on Remedies of Unitholders
Our partnership agreement contains provisions that waive or consent to
conduct by our general partner and its affiliates that might otherwise raise
issues as to compliance with fiduciary duties or applicable law. For example,
the partnership agreement permits our general partner to make a number of
decisions in its "sole discretion." This entitles our general partner to
consider only the interests and factors that it desires; it has no duty or
obligation to give any consideration to any interest of, or factors affecting,
us, our affiliates or any limited partner. Other provisions of the partnership
agreement provide that our general partner's actions must be made in its
reasonable discretion. These standards reduce the obligations to which our
general partner would otherwise be held and limit the remedies that would
otherwise be available to unitholders for actions by our general partner that,
in the absence of those standards, might constitute breaches of fiduciary duty
to unitholders.
Our partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest not involving a required
vote of unitholders must be "fair and reasonable" to us under the factors
previously described. In determining whether a transaction or resolution is
"fair and reasonable," our general partner may consider interests of all parties
involved, including its own. Unless our general partner has acted in bad faith,
the action taken by our general partner will not constitute a breach of its
fiduciary duty. These standards reduce the obligations to which our general
partner would otherwise be held and limit the remedies that would otherwise be
available to unitholders for actions by our general partner that, in the absence
of those standards, might constitute breaches of fiduciary duty to unitholders.
Our partnership agreement specifically provides that, subject only to
the obligations of Atlas America and its affiliates to us under the omnibus
agreement, the master natural gas gathering agreement or similar agreements, it
will not be a breach of our general partner's fiduciary duty if its affiliates
engage in business interests and activities in preference to or to the exclusion
of us. Also, our general partner and its affiliates have no obligation to
present business opportunities to us except for the obligation of Atlas America
to us in connection with the identification of potential acquisitions of
existing gathering systems. These standards reduce the obligations to which our
general partner would otherwise be held and limit the remedies that would
otherwise be available to unitholders for actions by our general partner that,
in the absence of those standards, might constitute breaches of fiduciary duty
to unitholders.
25
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 managing board members will not be
liable for monetary damages to us, our limited partners or assignees for errors
of judgment or for any acts or omissions if our general partner and those other
persons acted in good faith.
In order to become a limited partner, a unitholder is required to agree
to be bound by the provisions of our partnership agreement, including the
provisions discussed above. This is in accordance with the policy of the
Delaware Revised Uniform Limited Partnership Act favoring the principle of
freedom of contract and the enforceability of partnership agreements. The
failure of a limited partner or assignee to sign a partnership agreement does
not render the partnership agreement unenforceable against that person.
We are required to indemnify our general partner and its officers,
managing board members, employees, affiliates, partners, members, agents and
trustees, to the fullest extent permitted by law, against liabilities, costs and
expenses incurred by our general partner or these other persons. This
indemnification is required if our general partner or the other persons acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
our best interests. Indemnification is required for criminal proceedings if our
general partner or these other persons had no reasonable cause to believe their
conduct was unlawful. See "Our Partnership Agreement--Indemnification."
26
GENERAL DESCRIPTION OF SECURITIES THAT WE MAY SELL
We, directly or through agents, dealers or underwriters that we may
designate, may offer and sell, from time to time, up to $250,000,000 aggregate
initial offering price of:
o our common units representing limited partner interests;
o our subordinated units representing limited partner interests;
o our debt securities, in one or more series, which may be senior debt
securities or subordinated debt securities, in each case consisting
of notes or other evidences of indebtedness;
o warrants to purchase any of the other securities that may be sold
under this prospectus; or
o any combination of these securities, individually or as units.
We may offer and sell these securities either individually or as units
consisting of one or more of these securities, each on terms to be determined at
the time of sale. We may issue debt securities that are exchangeable for and/or
convertible into common units or any of the other securities that may be sold
under this prospectus. When particular securities are offered, a supplement to
this prospectus will be delivered with this prospectus, which will describe the
terms of the offering and sale of the offered securities.
DESCRIPTION OF COMMON UNITS
We describe our common units under the heading "Our Partnership
Agreement." The prospectus supplement relating to the common units offered will
state the number of units offered, the initial offering price and the market
price, distribution information and any other relevant information. Rules of the
American Stock Exchange, on which our common units trade, may limit the amount
of common units we may issue. Current AMEX rules require us to seek unitholder
approval if a proposed issuance of common units as consideration for an
acquisition of assets or stock of another company would increase our outstanding
common equity by more than 20%.
DESCRIPTION OF SUBORDINATED UNITS
The subordinated units will be a separate class of limited partner
interest. We currently have outstanding 1,641,026 subordinated units which we
expect will convert into common units on January 1, 2005, as described under
"Our Partnership Agreement." The rights of holders of new subordinated units to
participate in distributions to partners will differ from, and be subordinated
to, the rights of the holders of common units. The prospectus supplement
relating to the new subordinated units offered will state the number of units
offered, the initial offering price and the market price, the terms of the
subordination, any ways in which the new subordinated units will differ from
common units, distribution information and any other relevant information.
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities either separately, or together with, or
upon the conversion of or in exchange for, other securities. The debt securities
may be our unsubordinated obligations, which we refer to as "senior debt
securities," or our subordinated obligations, which we refer to as "subordinated
debt securities." The subordinated debt securities of any series may be our
senior subordinated obligations, subordinated obligations, junior subordinated
obligations or may have such other ranking as will be described in the relevant
prospectus supplement. We may issue any of these types of debt securities in one
or more series.
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Our senior debt securities may be issued from time to time under a
senior debt securities indenture. Our subordinated debt securities may be issued
from time to time under a subordinated debt securities indenture. Each of the
senior debt securities indenture and the subordinated debt securities indenture
is referred to individually as an "indenture" and they are referred to
collectively as the "indentures." Each trustee is referred to individually as a
"trustee" and the trustees are collectively referred to as the "trustees."
This section summarizes selected terms of the debt securities that we
may offer. The applicable prospectus supplement and the form of applicable
indenture relating to any particular debt securities offered will describe the
specific terms of that series, which may be in addition to or different from the
general terms summarized in this section. If any particular terms of the debt
securities described in a prospectus supplement differ from any of the terms
described in this prospectus, then the terms described in the applicable
prospectus supplement will supersede the terms described in this prospectus. The
following summary and any description of our debt securities contained in an
applicable prospectus supplement do not describe every aspect of the applicable
indenture or the debt securities. When evaluating the debt securities, you also
should refer to all provisions of the applicable indenture and the debt
securities. The forms of indentures have been filed as exhibits to the
registration statement of which this prospectus is a part.
General
We can issue an unlimited amount of debt securities under the
indentures. However, certain of our existing or future debt agreements may limit
the amount of debt securities we may issue. We can issue debt securities from
time to time and in one or more series as determined by us. In addition, we can
issue debt securities of any series with terms different from the terms of debt
securities of any other series and the terms of particular debt securities
within any series may differ from each other, all without the consent of the
holders of previously issued series of debt securities.
The applicable prospectus supplement relating to the series of debt
securities will describe the specific terms of the debt securities being
offered, including, where applicable, the following:
o the title and series designation of the series of debt securities
and whether the debt securities of the series will be senior debt
securities or subordinated debt securities;
o any limit on the aggregate principal amount of debt securities of
the series;
o the price or prices at which the debt securities of the series
will be issued;
o whether the debt securities of the series will be guaranteed and
the terms of any such guarantees;
o the date or dates on which the principal amount and premium, if
any, are payable;
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o the interest rate or rates or the method for calculating the
interest rate, which may be fixed or variable, at which the debt
securities of the series will bear interest, if any, the date or
dates from which interest will accrue and the interest payment
date on which interest will be payable, subject to our right, if
any, to defer or extend an interest payment date and the duration
of that deferral or extension;
o the date or dates on which interest, if any, will be payable and
the record dates for payment of interest;
o the place or places where the principal and premium, if any, and
interest, if any, will be payable and where the debt securities
of the series can be surrendered for transfer, conversion or
exchange;
o our right, if any, to redeem the debt securities and the terms
and conditions upon which the debt securities of the series may
be redeemed, in whole or in part;
o any mandatory or optional sinking fund or analogous provisions;
o if the debt securities of the series will be secured, any
provisions relating to the security provided;
o whether the debt securities of the series are convertible or
exchangeable into other debt or equity securities, and, if so,
the terms and conditions upon which such conversion or exchange
will be effected;
o whether any portion of the principal amount of the debt
securities of the series will be payable upon declaration or
acceleration of the maturity thereof pursuant to an event of
default;
o whether the debt securities of the series, in whole or any
specified part, will not be defeasible pursuant to the applicable
indenture and, if other than by an officers' certificate, the
manner in which any election by us to defease the debt securities
of the series will be evidenced;
o any deletions from, modifications of or additions to the events
of default or our covenants pertaining to the debt securities of
the series;
o any terms applicable to debt securities of any series issued at
an issue price below their stated principal amount, including the
issue price thereof and the rate or rates at which the original
issue discount will accrue;
o whether the debt securities of the series are to be issued or
delivered (whether at the time of original issuance or at the
time of exchange of a temporary security of such series or
otherwise), or any installment of principal or any premium or
interest is to be payable only, upon receipt of certificates or
other documents or satisfaction of other conditions in addition
to those specified in the applicable indenture;
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o whether the debt securities of the series are to be issued in
fully registered form without coupons or are to be issued in the
form of one or more global securities in temporary global form or
permanent global form;
o whether the debt securities of the series are to be issued in
registered or bearer form, the terms and conditions relating the
applicable form, including, but not limited to, tax compliance,
registration and transfer procedures and, if in registered form,
the denominations in which we will issue the registered
securities if other than $1,000 or a multiple thereof and, if in
bearer form, the denominations in which we will issue the bearer
securities;
o any special United States federal income tax considerations
applicable to the debt securities of the series;
o any addition to or change in the covenants set forth in the
indenture which apply to the debt securities of the series; and
o any other terms of the debt securities of the series not
inconsistent with the provisions of the applicable indenture.
The prospectus supplement relating to any series of subordinated debt
securities being offered also will describe the subordination provisions
applicable to that series, if different from the subordination provisions
described in this prospectus. In addition, the prospectus supplement relating to
a series of subordinated debt will describe our rights, if any, to defer
payments of interest on the subordinated debt securities by extending the
interest payment period.
Debt securities may be issued as original issue discount securities to
be sold at a discount below their principal amount or at a premium above their
principal amount. In the event of an acceleration of the maturity of any
original issue discount security, the amount payable to the holder upon
acceleration will be determined in the manner described in the applicable
prospectus supplement.
The above is not intended to be an exclusive list of the terms that may
be applicable to any debt securities and we are not limited in any respect in
our ability to issue debt securities with terms different from or in addition to
those described above or elsewhere in this prospectus, provided that the terms
are not inconsistent with the applicable indenture. Any applicable prospectus
supplement also will describe any special provisions for the payment of
additional amounts with respect to the debt securities.
Guarantees
Debt securities may be guaranteed by certain of our subsidiaries, if so
provided in the applicable prospectus supplement. The prospectus supplement will
describe the terms of any guarantees, including, among other things, the method
for determining the identity of the guarantors and the conditions under which
guarantees will be added or released. Any guarantees will be joint and several
obligations of the guarantors. The obligations of each guarantor under its
guarantee will be limited as necessary to prevent that guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
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Subordination Provisions Relating to Subordinated Debt
Debt securities may be subject to contractual subordination provisions
contained in the subordinated debt securities indenture. These subordination
provisions may prohibit us from making payments on the subordinated debt
securities in certain circumstances before a defined class of "senior
indebtedness" is paid in full or during certain periods when a payment or other
default exists with respect to certain senior indebtedness. If we issue
subordinated debt securities, the applicable prospectus supplement relating to
the subordinated debt securities will include a description of the subordination
provisions and the definition of senior indebtedness that apply to the
subordinated debt securities.
If the trustee under the subordinated debt indenture or any holder of
the series of subordinated debt securities receives any payment or distribution
that is prohibited under the subordination provisions, then the trustee or the
holders will have to repay that money to the holders of senior indebtedness.
Even if the subordination provisions prevent us from making any payment
when due on the subordinated debt securities of any series, we will be in
default on our obligations under that series if we do not make the payment when
due. This means that the trustee under the subordinated debt indenture and the
holders of that series can take action against us, but they will not receive any
money until the claims of the holders of senior indebtedness have been fully
satisfied.
Unless otherwise indicated in an applicable prospectus, if any series
of subordinated debt securities is guaranteed by certain of our subsidiaries,
then the guarantee will be subordinated to the senior indebtedness of such
guarantor to the same extent as the subordinated debt securities are
subordinated to the senior indebtedness.
Conversion and Exchange Rights
The debt securities of a series may be convertible into or exchangeable
for any of our other securities, if at all, according to the terms and
conditions of an applicable prospectus supplement. Such terms will include the
conversion or exchange price and any adjustments thereto, the conversion or
exchange period, provisions as to whether conversion or exchange will be
mandatory, at our option or at the option of the holders of that series of debt
securities and provisions affecting conversion or exchange in the event of the
redemption of that series of debt securities.
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Form, Exchange, Registration and Transfer
The debt securities of a series may be issued as registered securities,
as bearer securities (with or without coupons attached) or as both registered
securities and bearer securities. Debt securities of a series may be issuable in
whole or in part in the form of one or more global debt securities, as described
below under "-Global Debt Securities." Unless otherwise indicated in an
applicable prospectus supplement, registered securities will be issuable in
denominations of $1,000 and integral multiples thereof.
Registered securities of any series will be exchangeable for other
registered securities of the same series of any authorized denominations and of
a like aggregate principal amount and tenor. Debt securities may be presented
for exchange as provided above, and unless otherwise indicated in an applicable
prospectus supplement, registered securities may be presented for registration
of transfer, at the office or agency designated by us as registrar or
co-registrar with respect to any series of debt securities, without service
charge and upon payment of any taxes, assessments or other governmental charges
as described in the applicable indenture. The transfer or exchange will be
effected on the books of the registrar or any other transfer agent appointed by
us upon the registrar or transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request. We
intend to initially appoint the trustee as registrar and the name of any
different or additional registrar designated by us with respect to the debt
securities of any series will be included in the applicable prospectus
supplement. If a prospectus supplement refers to any transfer agents (in
addition to the registrar) designated by us with respect to any series of debt
securities, we may at any time rescind the designation of any transfer agent or
approve a change in the location through which any transfer agent acts, except
that, if debt securities of a series are issuable only as registered securities,
we will be required to maintain a transfer agent in each place of payment for
that series. We may at any time designate additional transfer agents with
respect to any series of debt securities.
In the event of any redemption of debt securities of any series, we
will not be required to:
o issue, register the transfer of or exchange debt securities of
that series during a period beginning at the opening of business
15 days before any selection of debt securities of that series to
be redeemed and ending at the close of business on the day of
mailing of the relevant notice of redemption; or
o register the transfer of or exchange any registered security, or
portion thereof, called for redemption, except the unredeemed
portion of any registered security being redeemed in part.
Payment and Paying Agents
Unless otherwise indicated in an applicable prospectus supplement,
payment of principal of, premium, if any, and interest, if any, on registered
securities will be made at the office of the paying agent or paying agents
designated by us from time to time, except that at our option, payment of
principal and premium, if any, or interest also may be made by wire transfer to
an account maintained by the payee. Unless otherwise indicated in an applicable
prospectus supplement, payment of any installment of interest on registered
securities will be made to the person in whose name the registered security is
registered at the close of business on the regular record date for the interest
payment.
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Unless otherwise indicated in an applicable prospectus supplement, the
trustee will be designated as our sole paying agent for payments with respect to
debt securities which are issuable solely as registered securities. We may at
any time designate additional paying agents or rescind the designation of any
paying agent or approve a change in the office through which any paying agent
acts, except that, if debt securities of a series are issuable only as
registered securities, we will be required to maintain a paying agent in each
place of payment for that series.
All monies paid by us to a paying agent for the payment of principal
of, premium, if any, or interest, if any, on any debt security which remains
unclaimed at the end of two years after that principal or interest will have
become due and payable will be repaid to us, and the holder of the debt security
or any coupon will thereafter look only to us for payment of those amounts.
Global Debt Securities
The debt securities of a series may be issued in whole or in part in
global form. A global debt security will be deposited with, or on behalf of, a
depositary, which will be identified in an applicable prospectus supplement. A
global debt security may be issued in either registered or bearer form and in
either temporary or permanent form. A global debt security may not be
transferred except as a whole to the depositary for the debt security or to a
nominee or successor of the depositary. If any debt securities of a series are
issuable in global form, the applicable prospectus supplement will describe the
circumstances, if any, under which beneficial owners of interests in a global
debt security may exchange their interests for definitive debt securities of
that series of like tenor and principal amount in any authorized form and
denomination, the manner of payment of principal of, premium, if any, and
interest, if any, on the global debt securities and the specific terms of the
depositary arrangement with respect to any global debt security.
Covenants
Reports. Except as otherwise set forth in an applicable prospectus
supplement, so long as any debt securities of a series are outstanding, we will
furnish to the holders of debt securities of that series, within the time
periods specified in the rules and regulations of the SEC:
o our reports on Forms 10-Q and 10-K, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a
report on the audited financial statements by our certified
independent accountants; and
o all current reports on Form 8-K.
We also will file a copy of all of the foregoing information and reports with
the SEC for public availability within the time periods specified in the SEC's
rules and regulations (unless the SEC will not accept such a filing) and make
such information available to securities analysts and prospective investors upon
request.
Any additional covenants with respect to any series of debt securities
will be set forth in the applicable prospectus supplement. Unless otherwise
indicated in an applicable prospectus supplement, the indentures do not include
covenants restricting our ability to enter into a highly leveraged transaction,
including a reorganization, restructuring, merger or similar transaction
involving us that may adversely affect the holders of the debt securities, if
the transaction is a permissible consolidation, merger or similar transaction.
In addition, unless otherwise specified in an applicable prospectus supplement,
the indentures do not afford the holders of the debt securities the right to
require us to repurchase or redeem the debt securities in the event of a highly
leveraged transaction. See "-Merger, Consolidation and Sale of Assets."
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Merger, Consolidation and Sale of Assets
Except as otherwise set forth in an applicable prospectus supplement,
we may not, directly or indirectly:
o consolidate with or merge into any other person (whether or not
we are the surviving corporation); or
o sell, assign, transfer, convey or otherwise dispose of all or
substantially all of our properties and assets, unless
o either
o we are the continuing corporation; or
o the person formed by or surviving any such consolidation or
merger (if other than us) or to which such sale, assignment,
transfer, conveyance or disposition will have been made is a
corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia
and that person assumes all of our obligations under the debt
securities of such series and the indenture relating thereto
pursuant to agreements reasonably satisfactory to the
applicable trustee; and
o any other conditions specified in the applicable prospectus
supplement have been satisfied.
In addition, we may not, directly or indirectly, lease all or
substantially all of our properties or assets in one or more related
transactions to any other person. This covenant will not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or among
us and any guarantors, if applicable.
Events of Default and Remedies
Under each indenture, unless otherwise specified with respect to a
series of debt securities, the following events will constitute an event of
default with respect to any series of debt securities:
o default for 30 days in the payment when due of any interest on
any debt securities of that series;
o default in payment when due of the principal of, or premium, if
any, on any debt security of that series;
o failure to comply with the provisions described under the caption
"-Merger, Consolidation and Sale of Assets";
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o failure for 60 days after notice to comply with any of the other
agreements in the indenture;
o except as permitted by the indenture, if debt securities of a
series are guaranteed, any guarantee shall be held in any final,
non-appealable judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect or
any guarantor, or any person acting on behalf of any guarantor,
shall deny, or disaffirm its obligations under its guarantee
(unless such guarantor could be released from its guarantee in
accordance with the applicable terms of the indenture);
o certain events of bankruptcy or insolvency described in the
indenture with respect to us or any of our significant
subsidiaries, as defined below; and
o any other event of default applicable to the series of debt
securities and set forth in the applicable prospectus supplement.
For purposes of this section, "significant subsidiary" means any
subsidiary that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act.
Each indenture provides that in the case of an event of default arising
from certain events of bankruptcy or insolvency relating to us with respect to a
series of debt securities, all outstanding debt securities of that series will
become due and payable immediately without further action or notice. If any
other event of default occurs and is continuing, the trustee or the holders of
at least 25% in principal amount of the then outstanding debt securities of that
series may declare all the debt securities of that series to be due and payable
immediately.
Holders of the debt securities of a series may not enforce the
indenture or the debt securities of that series except as provided in the
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding debt securities of a series may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the debt securities of a series notice of any continuing default or
event of default if it determines that withholding notice is in their interest,
except a default or event of default relating to the payment of principal or
interest.
Each indenture provides that we are required to deliver to the trustee
annually a statement regarding compliance with the indenture. Upon becoming
aware of any default or event of default, we are required to deliver to the
trustee a statement specifying such default or event of default.
The holders of a majority in aggregate principal amount of the debt
securities of a series then outstanding by notice to the trustee may on behalf
of the holders of all of the debt securities of that series waive any existing
default or event of default and its consequences under the indenture except a
continuing default or event of default in the payment of interest or premium on,
or the principal of, the debt securities of that series.
Such limitations do not apply, however, to a suit instituted by a
holder of any debt security for the enforcement of the payment of the principal
of, premium, if any, and interest in respect of a debt security on the date
specified for payment in the debt security. Unless otherwise specified with
respect to a series of debt securities, the holders of at least a majority in
aggregate principal amount of the then outstanding debt securities of that
series may, on behalf of the holders of the debt securities of any series, waive
any past defaults under the applicable indenture, other than:
35
o a default in any payment of the principal of, and premium, if
any, or interest on, any debt security of the series; or
o any default in respect of the covenants or provisions in the
applicable indenture which may not be modified without the
consent of the holder of each outstanding debt security of the
series affected.
Amendment, Supplement and Waiver
Each indenture permits us and the applicable trustee, with the consent
of the holders of at least a majority in aggregate principal amount of the
outstanding debt securities of the series affected by the supplemental
indenture, to execute a supplemental indenture to add provisions to, or change
in any manner or eliminate any provisions of, the indenture with respect to that
series of debt securities or modify in any manner the rights of the holders of
the debt securities of that series and any related coupons under the applicable
indenture. However, the supplemental indenture will not, without the consent of
the holder of each outstanding debt security of that series affected thereby:
o change the stated maturity of the principal of, or any
installment of principal or interest on, the debt securities of
that series or any premium payable upon redemption thereof;
o reduce the principal amount of, or premium, if any, or the rate
of interest on, the debt securities of that series;
o change the place or currency of payment of principal and premium,
if any, or interest, if any, on the debt securities of that
series;
o impair the right to institute suit for the enforcement of any
payment after the stated maturity date on any debt securities of
that series, or in the case of redemption, on or after the
redemption date;
o reduce the principal amount of outstanding debt securities of
that series necessary to modify or amend or waive compliance with
any provisions of the indenture;
o release any applicable guarantor from any of its obligations
under its guarantee or the indenture, except in accordance with
the indenture;
o modify the foregoing amendment and waiver provisions, except to
increase the percentage in principal amount of outstanding debt
securities of any series necessary for such actions or to provide
that certain other provisions of the indenture cannot be modified
or waived without the consent of the holder of each debt security
of a series affected thereby; and
o change such other matters as may be specified in an applicable
prospectus supplement for any series of debt securities.
The indentures also permit us, the guarantors, if any, and the
applicable trustee to execute a supplemental indenture without the consent of
the holders of the debt securities:
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o to cure any ambiguity, defect or inconsistency;
o to provide for uncertificated debt securities in addition to or
in place of certificated debt securities;
o to provide for the assumption of our obligations or, if
applicable, a guarantor's obligations to holders of debt
securities of a series in the case of a merger or consolidation
or sale of all or substantially all of our assets or, if
applicable, a guarantor's assets;
o to make any change that would provide any additional rights or
benefits to the holders of debt securities of a series or that
does not adversely affect the legal rights under the indenture of
any such holder;
o to comply with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act;
o to add a guarantor under the indenture;
o to evidence and provide the acceptance of the appointment of a
successor trustee under the applicable indenture;
o to mortgage, pledge, hypothecate or grant a security interest in
favor of the trustee for the benefit of the holders of debt
securities of any series as additional security for the payment
and performance of our or any applicable guarantor's obligations
under the applicable indenture, in any property or assets;
o to add to, change or eliminate any provisions of the applicable
indenture (which addition, change or elimination may apply to one
or more series of debt securities), provided that, any such
addition, change or elimination:
o shall neither:
o apply to any debt security of any series created prior to the
execution of such supplemental indenture and entitled to the
benefit of such provision nor
o modify the rights of the holders of such debt securities with
respect to such provisions or
o shall become effective only when there is no such outstanding
debt securities of such series; and
o to establish the form and terms of debt securities of any series
as permitted by the indenture.
The holders of a majority in principal amount of outstanding debt
securities of any series may waive compliance with certain restrictive covenants
and provisions of the applicable indenture.
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Discharge
Unless otherwise indicated in an applicable prospectus supplement, each
indenture provides that we may satisfy and discharge our obligations thereunder
with respect to the debt securities of any series, when either:
o all debt securities of that series that have been authenticated,
except lost, stolen or destroyed debt securities of that series
that have been replaced or paid and debt securities of that
series for whose payment money has been deposited in trust and
thereafter repaid to us, have been delivered to the trustee for
cancellation; or
o all debt securities of that series that have not been delivered
to the trustee for cancellation have become due and payable by
reason of the mailing of a notice of redemption or otherwise or
will become due and payable within one year and we or, if
applicable, any guarantor has irrevocably deposited or caused to
be deposited with the trustee as trust funds in trust solely for
the benefit of the holders of debt securities of that series,
cash, non-callable U.S. government securities, or a combination
thereof, in amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire
indebtedness on the debt securities of that series not delivered
to the trustee for cancellation for principal, premium, if any,
and accrued interest to the date of maturity or redemption.
Defeasance
Unless otherwise indicated in an applicable prospectus supplement, each
indenture provides that we may, at our option and at any time, elect to have all
of our obligations discharged with respect to the outstanding debt securities of
a series and, if applicable, all obligations of the guarantors discharged with
respect to their guarantees ("legal defeasance") except for:
o the rights of holders of the outstanding debt securities of that
series to receive payments in respect of the principal of, or
premium or interest, if any, on the debt securities of that
series when such payments are due from the trust referred to
below;
o our obligations with respect to the debt securities of that
series concerning issuing temporary securities, registration of
securities, mutilated, destroyed, lost or stolen securities and
the maintenance of an office or agency for payment and money for
security payments held in trust;
o the rights, powers, trusts, duties and immunities of the
applicable trustee, our obligations and, if applicable, the
guarantor's obligations in connection therewith; and
o the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and, if applicable, the guarantors' obligations released with
respect to certain covenants in respect of the debt securities of any series
that are described in the indenture ("covenant defeasance") and thereafter any
omission to comply with those covenants will not constitute a default or event
of default with respect to the debt securities of that series. In the event
covenant defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"--Events of Default and Remedies" will no longer constitute an event of default
with respect to the debt securities of that series.
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In order to exercise either legal defeasance or covenant defeasance we
are required to meet specified conditions, including:
o we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the debt securities of that series,
cash, non-callable U.S. government securities, or a combination
thereof, in amounts as will be sufficient to pay the principal
of, or premium and interest, if any, on the outstanding debt
securities of that series on the stated maturity or on the
applicable redemption date, as the case may be;
o in the case of legal defeasance, we have delivered to the
applicable trustee an opinion of counsel reasonably acceptable to
the trustee confirming that (a) we have received from, or there
has been published by, the Internal Revenue Service a ruling or
(b) since the date of the indenture, there has been a change in
the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel will
confirm that, the holders of the outstanding debt securities of
that series will not recognize income, gain or loss for federal
income tax purposes as a result of such legal defeasance and will
be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
legal defeasance had not occurred; and
o in the case of covenant defeasance, we have delivered to the
trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding debt
securities of that series will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred.
The Trustees under the Indentures
If a trustee becomes a creditor of ours or any guarantor, the indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
Each trustee will be permitted to engage in other transactions with us and/or
the guarantors, if any; however, if any trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
debt securities of a series will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
trustee, subject to certain exceptions. The indenture provides that in case an
event of default occurs and is continuing, a trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of its own affairs. Subject to such provisions, a trustee will be under
no obligation to exercise any of its rights or powers under the indenture at the
request of any holder of debt securities, unless such holder has offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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Applicable Law
The debt securities and the indentures will be governed by and
construed in accordance with the laws of the State of Delaware.
DESCRIPTION OF WARRANTS
We may issue, either separately or together with other securities,
warrants for the purchase of any of the other types of securities that we may
sell under this prospectus.
This section summarizes the general terms of the warrants that we may
offer. The warrants will be issued under warrant agreements to be entered into
between us and a bank or trust company, as warrant agent. The prospectus
supplement relating to a particular series of warrants will describe the
specific terms of that series, which may be in addition to or different from the
general terms summarized in this section. The summaries in this section and the
prospectus supplement do not describe every aspect of the warrants. If any
particular terms of a series of warrants described in a prospectus supplement
differ from any of the terms described in this prospectus, then the terms
described in the applicable prospectus supplement will be deemed to supersede
the terms described in this prospectus. When evaluating the warrants, you also
should refer to all the provisions of the applicable warrant agreement, the
certificates representing the warrants and the specific descriptions in the
applicable prospectus supplement. The applicable warrant agreement and warrant
certificates will be filed as exhibits to or incorporated by reference in the
registration statement.
General
The prospectus supplement will describe the terms of the warrants in
respect of which this prospectus is being delivered as well as the related
warrant agreement and warrant certificates, including the following, where
applicable:
o the principal amount of, or the number of securities, as the case
may be, purchasable upon exercise of each warrant and the initial
price at which the principal amount or number of securities, as
the case may be, may be purchased upon such exercise;
o the designation and terms of the securities, if other than common
units, purchasable upon exercise thereof and of any securities,
if other than common units, with which the warrants are issued;
o the procedures and conditions relating to the exercise of the
warrants;
o the date, if any, on and after which the warrants, and any
securities with which the warrants are issued, will be separately
transferable;
o the offering price of the warrants, if any;
o the date on which the right to exercise the warrants will
commence and the date on which that right will expire;
o a discussion of any special United States federal income tax
considerations applicable to the warrants;
o whether the warrants represented by the warrant certificates will
be issued in registered or bearer form, and, if registered, where
they may be transferred and registered;
o call provisions of the warrants, if any;
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o antidilution provisions of the warrants, if any; and
o any other material terms of the warrants.
Exercise of Warrants
Each warrant will entitle the holder to purchase for cash that
principal amount of or number of securities, as the case may be, at the exercise
price set forth in, or to be determined as set forth in, the applicable
prospectus supplement relating to the warrants. Unless otherwise specified in
the applicable prospectus supplement, warrants may be exercised at the corporate
trust office of the warrant agent or any other office indicated in the
applicable prospectus supplement at any time up to 5:00 p.m. Eastern Standard
Time on the expiration date set forth in the applicable prospectus supplement.
After 5:00 p.m. Eastern Standard Time on the expiration date, unexercised
warrants will become void. Upon receipt of payment and the warrant certificate
properly completed and duly executed, we will, as soon as practicable, issue the
securities purchasable upon exercise of the warrant. If less than all of the
warrants represented by the warrant certificate are exercised, a new warrant
certificate will be issued for the remaining amount of warrants.
No Rights of Security Holder Prior to Exercise
Prior to the exercise of their warrants, holders of warrants will not
have any of the rights of holders of the securities purchasable upon the
exercise of the warrants and will not be entitled to:
o in the case of warrants to purchase debt securities, payments of
principal of, premium, if any, or interest, if any, on the debt
securities purchasable upon exercise; or
o in the case of warrants to purchase equity securities, the right
to vote or to receive dividend payments or similar distributions
on the securities purchasable upon exercise.
Exchange of Warrant Certificates
Warrant certificates will be exchangeable for new warrant certificates
of different denominations at the corporate trust office of the warrant agent or
any other office indicated in the applicable prospectus supplement.
OUR PARTNERSHIP AGREEMENT
The following is a summary of our current partnership agreement which
relates to our common units and our existing subordinated units. Accordingly,
references to "subordinated units" and the "subordination period" are to the
existing subordinated units and the subordination period relating to those
units. Pursuant to our partnership agreement and this prospectus we may issue
additional limited partner interests having different rights and
characteristics. These rights and characteristics will be set forth in a
prospectus supplement with respect to the issuance of any of these securities.
Organization and Duration
We were formed in May 1999. We will dissolve on December 31, 2098,
unless sooner dissolved under the terms of our partnership agreement.
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Purpose
Our purpose under our partnership agreement is limited to serving as
the limited partner of our operating partnership and engaging in any business
activity that may be engaged in by our operating partnership or that is approved
by our general partner. The operating partnership agreement provides that our
operating partnership may, directly or indirectly, engage in:
o operations as conducted on February 2, 2000, including the
ownership and operation of our gathering systems;
o any other activity approved by our general partner, but only to
the extent that our general partner reasonably determines that,
as of the date of the acquisition or commencement of the
activity, the activity generates "qualifying income" as that term
is defined in Section 7704 of the Internal Revenue Code; or
o any activity that enhances the operations described above.
The Units
Our common units and the subordinated units represent 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 to
partnership distributions, together with a description of the circumstances
under which subordinated units may convert into common units, see "--Cash
Distribution Policy" and "--Description of the Subordinated Units."
Description of the Subordinated Units
The subordinated units are a separate class of interest and the rights
of holders to participate in distributions to partners differ from, and are
subordinated to, the rights of the holders of common units. For any given
quarter, any available cash is first distributed to our general partner and to
the holders of common units, plus any arrearages on the common units, and then
distributed to the holders of subordinated units.
The subordination period will extend until the first day of any quarter
beginning after December 31, 2004 that each of the following three events
occurs:
o distributions of available cash from operating surplus on the
common units and the subordinated units equal or exceed the sum
of the minimum quarterly distributions on all of the outstanding
common units and the subordinated units for each of the 12
consecutive quarters immediately preceding that date;
o the adjusted operating surplus generated during each of the 12
immediately preceding quarters equals or exceeds the sum of the
minimum quarterly distributions on all of the outstanding common
units and the subordinated units during those periods on a fully
diluted basis and the related distributions on the general
partner interests during those periods; and
o there are no arrearages in the payment of the minimum quarterly
distribution on the common units.
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Once the subordination period ends, all existing subordinated units
will convert into common units on a one-for-one basis and will participate, pro
rata, with the other common units in distributions of available cash.
Limited Voting Rights
Holders of common units generally vote as a class separate from the
holders of subordinated units and have similarly limited voting rights. During
the subordination period, common units and subordinated units vote separately as
a class on the following matters:
o a sale or exchange of all or substantially all of our assets;
o our dissolution or reconstitution;
o our merger;
o termination or material modification of the omnibus agreement or
master natural gas gathering agreement; and
o substantive amendments to our partnership agreement, including
any amendment that would cause us to become taxable as a
corporation.
Only the common units are entitled to vote on approval of the removal
or voluntary withdrawal of our general partner or the transfer by our general
partner of its general partner interest or incentive distribution rights during
the subordination period, except that our general partner may transfer all of
its general partner interest and incentive distribution rights to an affiliate
or in connection with a merger of our general partner without approval of the
common unitholders. Removal of our general partner requires a two-thirds vote of
all outstanding common units, excluding those held by our general partner and
its affiliates. Our partnership agreement permits our general partner generally
to make amendments to it that do not materially adversely affect unitholders
without the approval of any unitholders.
Cash Distribution Policy
Quarterly Distributions of Available Cash. Our operating partnership is
required by the operating partnership agreement to distribute to us, within 45
days of the end of each fiscal quarter, all of its available cash for that
quarter. We, in turn, distribute to our partners all of the available cash
received from our operating partnership for that quarter.
Available cash generally means, for any of our fiscal quarters, all
cash on hand at the end of the quarter less cash reserves that our general
partner determines are appropriate to provide for our operating costs, including
potential acquisitions, and to provide funds for distributions to the partners
for any one or more of the next four quarters. We generally make distributions
of all available cash within 45 days after the end of each quarter to holders of
record on the applicable record date.
For each quarter during the subordination period, to the extent there
is sufficient available cash, the holders of common units have the right to
receive the minimum quarterly distribution of $.42 per unit, plus any arrearages
on the common units, before any distribution is made to the holders of
subordinated units. This subordination feature enhances our ability to
distribute the minimum quarterly distribution on the common units during the
subordination period.
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We make distributions of available cash to unitholders regardless of
whether the amount distributed is less than the minimum quarterly distribution.
If distributions from available cash on the common units for any quarter during
the subordination period are less than the minimum quarterly distribution of
$.42 per common unit, holders of common units will be entitled to arrearages.
Common unit arrearages will accrue and be paid in a future quarter after the
minimum quarterly distribution is paid for that quarter. Subordinated units will
not accrue any arrearages on distributions for any quarter.
The holders of subordinated units will have the right to receive the
minimum quarterly distribution only after the common units have received the
minimum quarterly distribution plus any arrearages in payment of the minimum
quarterly distribution. Upon expiration of the subordination period, the
subordinated units will convert into common units on a one-for-one basis, and
will then participate pro rata with the other common units in distributions of
our available cash.
Distributions of Available Cash from Operating Surplus. Cash
distributions are characterized as distributions from either operating surplus
or capital surplus. This distinction affects the amounts distributed to
unitholders relative to our general partner, and also determines whether holders
of subordinated units receive any distributions.
Operating surplus means:
o our cash balance, excluding cash constituting capital surplus, less
o all of our operating expenses, debt service payments, maintenance
costs, capital expenditures and reserves established for future
operations.
Capital surplus means capital generated only by borrowings other than
working capital borrowings, sales of debt and equity securities and sales or
other dispositions of assets for cash, other than inventory, accounts receivable
and other assets disposed of in the ordinary course of business.
We treat all available cash distributed from any source as distributed
from operating surplus until the sum of all available cash distributed since we
began operations equals our total operating surplus from the date we began
operations until the end of the quarter that immediately preceded the
distribution. This method of cash distribution avoids the difficulty of trying
to determine whether available cash is distributed from operating surplus or
capital surplus. We treat any excess available cash, irrespective of its source,
as capital surplus, which would represent a return of capital, and we will
distribute it accordingly. For a discussion of distributions of capital surplus,
see "--Distributions of Capital Surplus" below.
We distribute available cash from operating surplus for any quarter
during the subordination period in the following manner:
o first, 98% to the common units, pro rata, and 2% to our general
partner, until we have distributed for each outstanding common unit
an amount equal to the minimum quarterly distribution for that
quarter;
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o second, 98% to the common units, pro rata, and 2% to our general
partner, until we have distributed for each outstanding common unit
an amount equal to any arrearages in payment of the minimum quarterly
distribution on the common units;
o third, 98% to the subordinated units, pro rata, and 2% to our general
partner, until we have distributed for each outstanding subordinated
unit an amount equal to the minimum quarterly distribution for that
quarter; and
o after that, in the manner described in "-Incentive Distribution
Rights" below.
The 2% allocation of available cash from operating surplus to our
general partner includes our general partner's percentage interest in
distributions from us and our operating partnership on a combined basis,
exclusive of its interest as a subordinated unitholder.
We distribute available cash from operating surplus for any quarter
after the subordination period in the following manner:
o first, 98% to all units, pro rata, and 2% to our general partner,
until we have distributed for each unit an amount equal to the
minimum quarterly distribution for that quarter;
o second, 98% to the common units, pro rata, and 2% to our general
partner, until we have distributed for each outstanding common unit
an amount equal to any arrearages in payment of the minimum quarterly
distribution on the common units; and
o after that, in the manner described in "-Incentive Distribution
Rights" below.
Adjusted operating surplus for any period generally means operating
surplus generated during that period, less:
o any net increase in working capital borrowings during that period and
o any net reduction in cash reserves for operating expenditures during
that period not relating to an operating expenditure made during that
period,
and plus:
o any net decrease in working capital borrowings during that period and
o any net increase in cash reserves for operating expenditures during
that period required by any debt instrument for the repayment of
principal, interest or premium.
Operating surplus generated during a period is equal to the difference
between:
o the operating surplus determined at the end of that period and
o the operating surplus determined at the beginning of that period.
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Incentive Distribution Rights. By "incentive distribution rights" we
mean the general partner's right to receive an increasing percentage of
quarterly distributions of available cash from operating surplus after we have
made the minimum quarterly distributions and we have met specified target
distribution levels, as described below. Our general partner may transfer its
incentive distribution rights separately from its general partner interest
subject, during the subordination period, to the consent of a majority of the
common units and the subordinated units voting as separate classes. After the
subordination period no consent is required.
We make incentive distributions to our general partner for any quarter
in which each of the following occurs:
o we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the minimum
quarterly distribution and
o we have distributed available cash from operating surplus on the
common units in an amount necessary to eliminate any cumulative
common unit arrearages.
If these conditions have been satisfied, the remaining available cash
will be distributed as follows:
o first, 85% to all units, pro rata, and 15% to our general partner,
until each unitholder has received a total of $.52 per unit for that
quarter, in addition to any distributions to common unitholders to
eliminate any cumulative arrearages in payment of the minimum
quarterly distribution on the common units;
o second, 75% to all units, pro rata, and 25% to our general partner,
until each unitholder has received a total of $.60 per unit for that
quarter, in addition to any distributions to common unitholders to
eliminate any cumulative arrearages in payment of the minimum
quarterly distribution on the common units; and
o after that, 50% to all units, pro rata, and 50% to our general
partner.
The distributions to our general partner that exceed its aggregate 2%
general partner interest represent the incentive distribution rights.
Distributions from Capital Surplus. We distribute available cash from
capital surplus in the following manner:
o first, 98% to all units, pro rata, and 2% to our general partner,
until each common unit has received distributions equal to $13.00 per
unit;
o second, 98% to the common units, pro rata, and 2% to our general
partner, until each common unit has received an aggregate amount
equal to any unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and
o after that, we will distribute all available cash from capital
surplus, as if it were from operating surplus.
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When we make a distribution from capital surplus, we will treat it as
if it were a repayment of your investment in your common units. For these
purposes, the partnership agreement deems the investment to be $13.00 per common
unit, which is the unit price from our initial public offering, regardless of
the price you actually pay for your common units in this offering. To reflect
this repayment, we will reduce the amount of the minimum quarterly distribution
and the distribution levels at which our general partner's incentive
distribution rights begin, which we refer to in this prospectus as "target
distribution levels," by multiplying each amount by a fraction, determined as
follows:
o the numerator is $13.00 less all distributions from capital surplus
including the distribution just made, and
o the denominator is $13.00 less all distributions from capital surplus
excluding the distribution just made.
We refer to the initial public offering price of $13.00 per common
unit, less any distributions from capital surplus, as the "unrecovered unit
price." This adjustment to the minimum quarterly distribution may accelerate the
dates at which the subordinated units convert into common units.
After the minimum quarterly distribution and the target distribution
levels have been reduced to zero, we will treat all distributions of available
cash from all sources as if they were from operating surplus. Because the
minimum quarterly distribution and the target distribution levels will have been
reduced to zero, our general partner will then be entitled to receive 50% of all
distributions of available cash in its capacity as general partner and holder of
the incentive distribution rights, in addition to any distributions to which it
may be entitled as a holder of units.
Distributions from capital surplus will not reduce the minimum
quarterly distribution or target distribution levels for the quarter in which
they are distributed.
Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels. In addition to adjustments made upon a distribution of available cash
from capital surplus, we will proportionately adjust each of the following
upward or downward, as appropriate, if any combination or subdivision of units
occurs:
o the minimum quarterly distribution,
o the target distribution levels,
o the unrecovered unit price,
o the number of common units issuable upon conversion of the
subordinated units, and
o other amounts calculated on a per unit basis.
For example, if a two-for-one split of the common units occurs, we will reduce
the minimum quarterly distribution, the target distribution levels and the
unrecovered initial unit price of the common units to 50% of their initial
levels.
We will not make any adjustment for the issuance of additional common
units for cash or property.
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We may also adjust the minimum quarterly distribution and the target
distribution levels if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us or our operating partnership to become
taxable as a corporation or otherwise subject to taxation as an entity for
federal, state or local income tax purposes. In this event, we will reduce the
minimum quarterly distribution and the target distribution levels for each
quarter after that time to amounts equal to the product of:
o the minimum quarterly distribution and each of the target
distribution levels multiplied by
o one minus the sum of:
o the highest marginal federal income tax rate which could apply to
the partnership that is taxed as a corporation plus
o any increase in the effective overall state and local income tax
rate that would have been applicable in the preceding calendar year
as a result of the new imposition of the entity level tax, after
taking into account the benefit of any deduction allowable for
federal income tax purposes for the payment of state and local
income taxes, but only to the extent of the increase in rates
resulting from that legislation or interpretation.
For example, assuming we are not previously subject to state and local income
tax, if we became taxable as a corporation for federal income tax purposes and
subject to a maximum marginal federal, and effective state and local, income tax
rate of 40%, then we would reduce the minimum quarterly distribution and the
target distribution levels to 60% of the amount immediately before the
adjustment.
Distributions of Cash Upon Liquidation. When we commence dissolution
and liquidation, we will sell or otherwise dispose of our assets and adjust the
partners' capital account balances to reflect any resulting gain or loss. We
will first apply the proceeds of liquidation to the payment of our creditors in
the order of priority provided in our partnership agreement and by law. After
that, we will distribute the proceeds to the unitholders and our general partner
in accordance with their capital account balances, as so adjusted.
We maintain capital accounts in order to ensure that the partnership's
allocations of income, gain, loss and deduction are respected under the Internal
Revenue Code. The balance of a partner's capital account also determines how
much cash or other property the partner will receive on liquidation of the
partnership. A partner's capital account is credited with (increased by) the
following items:
o the amount of cash and fair market value of any property (net of
liabilities) contributed by the partner to the partnership, and
o the partner's share of "book" income and gain (including income and
gain exempt from tax).
A partner's capital account is debited with (reduced by) the following items:
o the amount of cash and fair market value (net of liabilities) of
property distributed to the partner, and
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o the partner's share of loss and deduction (including some items not
deductible for tax purposes).
Partners are entitled to liquidating distributions in accordance with
their capital account balances. The allocations of gains and losses upon
liquidation are intended, to the extent possible, to entitle common unitholders
to a preference over the subordinated unitholders upon our liquidation to the
extent required to permit common unitholders to receive the unrecovered initial
public offering unit price described in "-Distributions from Capital Surplus,"
above, plus any unpaid arrearages in payment of the minimum quarterly
distributions. Thus, we will allocate net losses recognized upon our liquidation
to the holders of the subordinated units to the extent of their capital account
balances before we allocate any loss to the holders of the common units. Also we
will allocate net gains recognized upon our liquidation first to restore
negative balances in the capital account of our general partner and any
unitholders and then to the common unitholders until their capital account
balances equal the unrecovered initial unit price plus unpaid arrearages in
payment of the minimum quarterly distributions. However, we cannot assure you
that there will be sufficient gain upon our liquidation to enable the holders of
common units to fully recover all of these amounts, even though there may be
cash available for distribution to the holders of subordinated units.
If our liquidation occurs before the end of the subordination period,
any gain, or unrealized gain attributable to assets distributed in kind, will be
allocated to the partners in the following manner:
o first, to our general partner and the holders of units who have
negative balances in their capital accounts to the extent of and in
proportion to those negative balances;
o second, 98% to the common units, pro rata, and 2% to our general
partner, until the capital account for each common unit is equal to
the sum of:
o the unrecovered unit price,
o the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs, and
o any unpaid arrearages in payment of the minimum quarterly
distribution;
o third, 98% to the subordinated units, pro rata, and 2% to our general
partner, until the capital account for each subordinated unit is
equal to the sum of:
o the unrecovered capital on that subordinated unit and
o the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs;
o fourth, 85% to all units, pro rata, and 15% to our general partner,
until there has been allocated under this paragraph an amount per
unit equal to:
o the excess of the $.52 target distribution per unit over the
minimum quarterly distribution per unit for each quarter of our
existence less
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o the cumulative amount per unit of any distribution of available
cash from operating surplus in excess of the minimum quarterly
distribution per unit that was distributed 85% to the units, pro
rata, and 15% to our general partner for each quarter of our
existence;
o fifth, 75% to all units, pro rata, and 25% to our general partner,
until there has been allocated under this paragraph an amount per
unit equal to:
o the excess of the $.60 target distribution per unit over the $.52
target distribution per unit for each quarter of our existence less
o the cumulative amount per unit of any distributions of available
cash from operating surplus in excess of the first target
distribution per unit that was distributed 75% to the units, pro
rata, and 25% to our general partner for each quarter of our
existence; and
o after that, 50% to all units, pro rata, and 50% to our general
partner.
If our liquidation occurs after the end of the subordination period, the
distinction between common units and subordinated units will disappear, so that
the second and third priorities above will no longer be applicable.
Upon our liquidation, any loss will generally be allocated to our
general partner and the unitholders in the following manner:
o first, 98% to holders of subordinated units in proportion to the
positive balances in their capital accounts and 2% to our general
partner, until the capital accounts of the holders of the
subordinated units have been reduced to zero;
o second, 98% to the holders of common units in proportion to the
positive balances in their capital accounts and 2% to our general
partner, until the capital accounts of the common unitholders have
been reduced to zero; and
o after that, 100% to our general partner.
If our liquidation occurs after the subordination period, the distinction
between common units and subordinated units will disappear, so that all of the
first priority above will no longer be applicable.
In addition, we will make interim adjustments to the capital accounts
at the time we issue additional equity interests or make distributions of
property. We will base these adjustments on the fair market value of the
interests or the property distributed and we will allocate any gain or loss
resulting from the adjustments to the unitholders and our general partner in the
same manner as we allocate gain or loss upon liquidation. In the event that we
make positive interim adjustments to the capital accounts, we will allocate any
later negative adjustments to the capital accounts resulting from the issuance
of additional equity interests, our distributions of property, or upon our
liquidation, in a manner which results, to the extent possible, in the capital
account balances of our general partner equaling the amount which would have
been our general partner's capital account balances if we had not made any
earlier positive adjustments to the capital accounts.
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Power of Attorney
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application, grants to our
general partner and, if appointed, a liquidator, a power of attorney to, among
other things, execute and file documents required for our qualification,
continuance or dissolution and the amendment of our partnership agreement, and
to make consents and waivers under our partnership agreement.
Capital Contributions
Unitholders are not obligated to make additional capital contributions,
except as described below under "--Limited Liability."
Limited Liability
So long as a limited partner does not participate in the control of our
business within the meaning of the Delaware Revised Uniform Limited Partnership
Act and otherwise acts in conformity with the provisions of our partnership
agreement, the limited partner's liability under the Delaware Act will be
limited to the amount of capital he is obligated to contribute to us for his
common units plus his share of any undistributed profits and assets. If it were
determined that a limited partner participated in the control of our business,
then the limited partner could be held personally liable for our obligations
under Delaware law to the same extent as our general partner. This liability
would extend only to persons who transact business with us who reasonably
believe that the limited partner is a general partner. However, what constitutes
participating in the control of a limited partnership's business has not been
clearly established in all states. If it were determined, for example, that the
right, or exercise of a right, by the limited partners to:
o remove our general partner,
o approve some amendments to our partnership agreement, or
o take other action under our partnership agreement
constituted participation in the control of our business, then limited partners
could be held liable for our obligations to the same extent as our general
partner.
Under the Delaware Act, we cannot make a distribution to a partner if,
after the distribution, all our liabilities, other than liabilities to partners
on account of their partnership interests and liabilities for which the recourse
of creditors is limited to specific property, exceed the fair value of our
assets. 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 is
liable to the limited partnership for the amount of the distribution for three
years. Under the Delaware Act, an assignee who becomes a substituted limited
partner is liable for the obligations of his assignor to make contributions to
the partnership, except the assignee is not obligated for liabilities unknown to
him at the time he became a limited partner and which he could not ascertain
from our partnership agreement.
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Our operating partnership currently conducts business in New York, Ohio
and Pennsylvania. The limitations on the liability of limited partners for the
obligations of a limited partnership have not been clearly established in many
jurisdictions. If it were determined that we were, by virtue of our limited
partner interest in our operating partnership or otherwise, conducting business
in any state under the applicable limited partnership statute, or that the right
or exercise of the right by the limited partners as a group to remove or replace
our general partner, to approve some amendments to our partnership agreement, or
to take other action under our partnership agreement constituted "participation
in the control" of our business for purposes of the statutes of any relevant
jurisdiction, then the limited partners could be held personally liable for our
obligations under the law of that jurisdiction to the same extent as our general
partner. We operate in a manner our general partner considers reasonable and
appropriate to preserve the limited liability of the limited partners.
Transfer Agent and Registrar
American Stock Transfer and Trust Company is our registrar and transfer
agent for the common units. We pay all fees charged by the transfer agent for
transfers of common units, except that the following fees must be paid by
unitholders:
o surety bond premiums to replace lost or stolen certificates, taxes
and other governmental charges,
o special charges for services requested by a holder of a common unit,
and
o other similar fees or charges.
There is no charge to unitholders for disbursements of cash distributions.
We will indemnify the transfer agent, its agents and each of their
particular shareholders, directors, officers and employees against all claims
and losses that may arise out of acts performed or omitted in its capacity as
our transfer agent, except for any liability due to any negligence, gross
negligence, bad faith or intentional misconduct of the indemnified person or
entity.
Transfer of Common Units
The transfer agent will not record a transfer of common units, and we
will not recognize the transfer, unless the transferee executes and delivers a
transfer application. The form of transfer application appears on the reverse
side of the certificates representing the common units. By executing and
delivering a transfer application, the transferee of common units:
o becomes the record holder of the common units and is an assignee
until admitted as a substituted limited partner;
o automatically requests admission as a substituted limited partner;
o agrees to be bound by the terms and conditions of our partnership
agreement;
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o represents that the transferee has the capacity, power and authority
to enter into our partnership agreement;
o grants powers of attorney to officers of our general partner and our
liquidator, as specified in our partnership agreement; and
o makes the consents and waivers contained in our partnership
agreement.
An assignee will become a substituted limited partner as to the
transferred common units upon the consent of our general partner and the
recordation of the name of the assignee on our books and records. Our general
partner may withhold its consent in its sole discretion.
A transferee's broker, agent or nominee may complete, execute and
deliver the transfer applications. We are entitled to 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 are transferable according to the laws
governing transfer of securities. In addition to the rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner. A purchaser or transferee of common units who
does not execute and deliver a transfer application will have only
o the right to assign the common units to a purchaser or other
transferee and
o the right to transfer the right to seek admission as a substituted
limited partner.
Thus, a purchaser or transferee of common units who does not execute and deliver
a transfer application will not receive
o cash distributions or federal income tax allocations unless the
common units are held in a nominee or "street name" account and the
nominee or broker has executed and delivered a transfer application
and
o may not receive federal income tax information or reports furnished
to record holders of common units.
The transferor of common units must provide the transferee with all
information necessary to transfer the common units. The transferor will not be
required to insure the execution of the transfer application by the transferee
and will have no liability or responsibility if the transferee neglects or
chooses not to execute and forward the transfer application to the transfer
agent. See "-Status as Limited Partner or Assignee."
Until a common unit has been transferred on our books, we and the
transfer agent may treat the record holder of the unit as the absolute owner for
all purposes, except as otherwise required by law or stock exchange regulations,
even if either of us has notice of an attempted transfer.
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Issuance of Additional Securities
Our partnership agreement generally authorizes us to issue an unlimited
number of additional limited partner interests, debt and other securities for
the consideration and on the terms and conditions established by our general
partner in its sole discretion without the approval of any limited partners.
During the subordination period, we cannot issue securities having rights to
distribution or in liquidation ranking prior or senior to our common units
without the approval of our unitholders.
We have funded, and will likely continue to fund, acquisitions through
the issuance of additional common units or other equity securities. Holders of
any additional common units we issue will be entitled to share equally with the
then-existing holders of common units in our distributions of available cash. In
addition, the issuance of additional partnership interests may dilute the value
of the interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership
agreement, we may also issue additional partnership securities that, in the sole
discretion of our general partner, may have special voting rights to which the
common units are not entitled.
Upon issuance of additional partnership securities, our general partner
must make additional capital contributions to the extent necessary to maintain
its combined 2% general partner interest in us and in our operating partnership.
Moreover, our general partner will have the right, which it may from time to
time assign in whole or in part to any of its affiliates, to purchase common
units, subordinated units or other equity securities whenever, and on the same
terms that, we issue those securities to persons other than our general partner
and its affiliates, to the extent necessary to maintain its percentage interest
that existed immediately before each issuance. The holders of common units will
not have preemptive rights to acquire additional common units or other
partnership interests.
Amendment of Our Partnership Agreement
Amendments to our partnership agreement may be proposed only by or with
the consent of our general partner, which it may withhold in its sole
discretion. In order to adopt a proposed amendment, other than the amendments
discussed in "--No Unitholder Approval" below, our general partner must seek
written approval of the holders of the number of units required to approve the
amendment or call a meeting of the limited partners to consider and vote upon
the proposed amendment.
Prohibited Amendments. No amendment may be made that would:
o change the percentage of outstanding units required to take
partnership action, unless approved by the affirmative vote of
unitholders constituting at least the voting requirement sought to be
reduced;
o 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;
o enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner or any
of its affiliates without its consent, which may be given or withheld
in its sole discretion;
o change our term;
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o provide that we are not dissolved upon the expiration of our term or
upon an election to dissolve us by our general partner that is
approved by holders of a majority of the units of each class; or
o give any person the right to dissolve us other than our general
partner's right to dissolve us with the approval of holders of a
majority of the units of each class.
The provision of our partnership agreement preventing the amendments having the
effects described above can be amended upon the approval of the holders of at
least 90% of the outstanding units voting together as a single class.
No Unitholder Approval. Our general partner may amend our partnership
agreement, without the approval of the unitholders, to:
o change our name, the location of our principal place of business, our
registered agent or registered office;
o reflect the admission, substitution, withdrawal or removal of
partners in accordance with our partnership agreement;
o qualify us or continue our qualification as a limited partnership
under the laws of any state or to ensure that neither we nor our
operating partnership will be taxed as a corporation or otherwise
taxed as an entity for federal income tax purposes;
o prevent us or our general partner, or its directors, officers, agents
or trustees, from being subject to the provisions of the Investment
Advisers Act of 1940 or "plan asset" regulations adopted under the
Employee Retirement Income Security Act of 1974;
o authorize additional limited or general partner interests;
o reflect changes required by a merger agreement that has been approved
under the terms of our partnership agreement;
o permit us to form or invest in any entity, other than the operating
partnership, permitted by our partnership agreement;
o change our fiscal year or taxable year; and
o make other changes substantially similar to any of the matters
described above.
In addition, our general partner may amend our partnership agreement,
without the approval of the unitholders, if those amendments:
o do not adversely affect the limited partners in any material respect;
o are necessary to satisfy any requirements or guidelines contained in
any opinion, directive, order, ruling or regulation of any federal or
state agency or judicial authority or contained in any federal or
state statute;
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o are necessary to facilitate the trading of limited partner interests
or to comply with any rule or guideline of any securities exchange or
interdealer quotation system on which the limited partner interests
are or will be listed for trading;
o are necessary for any action taken by our general partner relating to
splits or combinations of units; or
o are required to effect the intent expressed in this prospectus or the
intent of the provisions of our partnership agreement or are
otherwise contemplated by our partnership agreement.
Opinion of Counsel and Unitholder Approval. Except in the case of the
amendments described above under "--No Unitholder Approval," amendments to our
partnership agreement will not become effective without the approval of holders
of at least 90% of the units unless we obtain an opinion of counsel to the
effect that the amendment will not affect the limited liability under applicable
law of any limited partner or cause us or our operating partnership to be
taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not previously taxed as such). Subject to
obtaining the opinion of counsel, 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.
Merger, Sale or Other Disposition of Our Assets
Our general partner may not, without the prior approval of holders of a
majority of the outstanding units of each class, cause us to sell, exchange or
otherwise dispose of all of substantially all of our assets, including by way of
merger, consolidation or other combination, or approve on our behalf the sale,
exchange or other disposition of all or substantially all of the assets of our
operating partnership. However, our general partner may mortgage or otherwise
grant a security interest in all or substantially all of our assets or sell all
or substantially all of our assets under a foreclosure without that approval.
Furthermore, provided that conditions specified in our partnership agreement are
satisfied, our general partner may merge us or any of our subsidiaries into, or
convey some or all of our and their assets to, a newly formed entity if the sole
purpose of that merger or conveyance changes our legal form into another limited
liability entity.
The unitholders are not entitled to dissenters' rights of appraisal in
the event of a merger, consolidation, sale of substantially all of our assets or
any other transaction or event.
Termination and Dissolution
We will continue until December 31, 2098, unless terminated sooner upon:
o the election of our general partner to dissolve us, if approved by
the holders of a majority of the outstanding units of each class;
o the sale, exchange or other disposition of all or substantially all
of our assets and those of our operating partnership;
o the entry of a decree of judicial dissolution of us; or
o the withdrawal or removal of our general partner or any other event
that results in its ceasing to be our general partner other than the
transfer of its general partner interest in accordance with our
partnership agreement or withdrawal or removal following approval and
admission of a successor.
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Upon a dissolution under the last item above, the holders of a majority of the
units of each class may also elect, within specific time limitations, to
reconstitute us by forming a new limited partnership on terms identical to those
in our partnership agreement and having as general partner an entity approved by
the holders of a majority of the units of each class subject to our receipt of
an opinion of counsel to the effect that:
o the action would not result in the loss of limited liability of any
limited partner and
o we, the reconstituted limited partnership, and the operating
partnership would not be taxed as a corporation or otherwise be taxed
as an entity for federal income tax purposes upon the exercise of
that right to continue.
Liquidation and Distribution of Proceeds
Unless we are reconstituted and continue as a new limited partnership,
upon our liquidation the liquidator will liquidate our assets and apply the
proceeds of the liquidation as described in "--Cash Distribution
Policy--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 the partners.
Withdrawal or Removal of Our General Partner
Except as described below, our general partner will not withdraw
voluntarily either as our general partner or as general partner of our operating
partnership during the subordination period 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. At the end of
the subordination period, our general partner may withdraw as our general
partner without first obtaining approval from the unitholders by giving 90 days'
written notice. In addition, our general partner may withdraw at any time
without unitholder approval upon 90 days' notice if at least 50% of the
outstanding common units are held or controlled by one person and its affiliates
other than our general partner and its affiliates. Our general partner may also
sell or otherwise transfer all of its general partner interests in us without
the approval of the unitholders as described below under "-Transfer of General
Partner Interest and Incentive Distribution Rights." Upon withdrawal, we must
reimburse our general partner for all expenses incurred by it on our behalf or
allocable to us in connection with operating our business.
If our general partner withdraws, other than as a result of a transfer
of all or a part of its general partner interests in us, the holders of a
majority of the common units may elect a successor to the 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 and liquidated, unless within 180 days after that withdrawal the
holders of a majority of the units of each class agree in writing to continue
our business and to appoint a successor general partner. See "--Termination and
Dissolution."
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Our general partner may not be removed except by the vote of the
holders of at least 66 2/3% of the outstanding common units, excluding common
units held by our general partner and its affiliates, and we receive an opinion
of counsel regarding limited liability and tax matters. Any removal is also
subject to the approval of a successor general partner by the vote of the
holders of a majority of the common units, excluding common units held by our
general partner and its affiliates. If our general partner is removed under
circumstances where cause does not exist and does not consent to that removal:
o the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one
basis;
o the agreement of Atlas America to connect wells to our gathering
systems will terminate;
o the master natural gas gathering agreement with Atlas America will
not apply to any future wells drilled by Atlas America although it
will continue as to wells connected to the gathering system at the
time of removal;
o the obligations of Atlas America to provide financing and other
assistance for the extension of our gathering systems and to provide
assistance in the identification and acquisition of gathering systems
from third parties will terminate;
o any existing arrearages in payment of the minimum quarterly
distributions will be extinguished; and
o our general partner will have the right to convert its general
partner interests and incentive distribution rights into common units
or to receive cash in exchange for those interests from the successor
general partner.
Our partnership agreement defines "cause" as existing where a court has
rendered a final, non-appealable judgment that our general partner has committed
fraud, gross negligence or willful or wanton misconduct in its capacity as
general partner.
Withdrawal or removal of our general partner as our general partner
also constitutes its withdrawal or removal as the general partner of our
operating partnership.
In the event of removal of our general partner under circumstances
where cause exists or a withdrawal of our general partner that violates our
partnership agreement, a successor general partner will have the option to
purchase the general partner interests and incentive distribution rights of the
departing general partner for a cash payment equal to the fair market value of
those interests. Under all other circumstances where our general partner
withdraws or is removed, the departing general partner will have the option to
require the successor general partner to purchase those interests for their fair
market value. In each case, fair market value will be determined by agreement
between the departing general partner and the successor general partner. If they
cannot reach an agreement, an 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 on an expert, then an expert chosen by agreement of the experts selected
by each of them will determine the fair market value. If the purchase option is
not exercised by either the departing general partner or the successor general
partner, the general partner interests and incentive distribution rights will
automatically convert into common units equal to the fair market value of those
interests. The successor general partner must indemnify the departing general
partner (or its transferee) from all of our debt and liability arising on or
after the date on which the departing general partner becomes a common
unitholder as a result of the conversion. Except for this limited indemnity
right and the right of the departing general partner to receive distributions on
its common units, no other payments will be made to our general partner after
withdrawal.
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Transfer of General Partner Interest and Incentive Distribution Rights
Except for a transfer by our general partner of all, but not less than
all, of its general partner interests in us and our operating partnership to:
o an affiliate of our general partner or
o another person as part of the merger or consolidation of the general
partner with or into another person or the transfer by the general
partner of all or substantially all of its assets to another person,
our general partner may not transfer any part of its general partner interest in
us and our operating partnership to another person during the subordination
period without the approval of the holders of at least a majority of the
outstanding common units, excluding those held by our general partner and its
affiliates. After the subordination period ends, our general partner may
transfer all or any part of its general partner interest without obtaining the
consent of the common unitholders. As a condition to the transfer of a general
partner interest, either before or after the subordination period ends, the
transferee must assume the rights and duties of the general partner to whose
interest it has succeeded, furnish an opinion of counsel regarding limited
liability and tax matters, agree to acquire all of the general partner's
interest in our operating partnership and agree to be bound by the provisions of
the partnership agreement of our operating partnership. Our general partner may
at any time, however, transfer its subordinated units without unitholder
approval. In addition, the members of our general partner may sell or transfer
all or part of their interest in our general partner to an affiliate without the
approval of the unitholders.
Our general partner or a later holder may transfer its incentive
distribution rights to an affiliate or another person as part of its merger or
consolidation with or into, or sale of all or substantially all of its assets
to, that person without the prior approval of the unitholders. However, the
transferee must agree to be bound by the provisions of our partnership
agreement. Before the end of the subordination period, other transfers of the
incentive distribution rights will require the affirmative vote of holders of a
majority of the outstanding common units, excluding those held by our general
partner and its affiliates. After the subordination period ends, the incentive
distribution rights will be freely transferable.
Atlas America and its affiliates have agreed that they will not divest
their interest in our general partner without also divesting to the same
acquiror their ownership interest in subsidiaries which act as the general
partner of oil and gas investment partnerships sponsored by them.
Change of Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to remove Atlas
Pipeline Partners GP, LLC as our general partner or otherwise change management.
If any person or group other than our general partner and its affiliates
acquires beneficial ownership of 20% or more of any class of units, that person
or group will lose voting rights on all of its units and the units will not be
considered outstanding for the purposes of noticing meetings, determining the
presence of a quorum, calculating required votes and other similar matters. In
addition, the removal of our general partner under circumstances where cause
does not exist and our general partner does not consent to that removal has the
adverse consequences described under "--Withdrawal or Removal of Our General
Partner."
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Limited Call Right
If at any time not more than 20% of the outstanding limited partner
interests of any class are held by persons other than our general partner and
its affiliates, 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 remaining limited partner interests of the class held by
unaffiliated persons as of a record date selected by our general partner on at
least 10 but not more than 60 days' notice. The purchase price is the greater
of:
o the highest cash price paid by our general partner or any of its
affiliates for any limited partner interests of the class purchased
within the 90 days preceding the date on which our general partner
first mails notice of its election to purchase those limited partner
interests and
o the current market price as of 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.
Meetings; Voting
Except as described above under "-Change of Management Provisions,"
unitholders or assignees who are record holders of units on a record date will
be entitled to notice of, and to vote at, meetings of our limited partners and
to act upon matters for which approvals may be solicited. Common units that are
owned by an assignee who is a record holder, but who has not yet been admitted
as a substituted limited partner, will be voted by our general partner at the
written direction of the record holder. Absent direction of this kind, the
common units will not be voted, except that, in the case of common units held by
our general partner on behalf of non-citizen assignees, our general partner
shall distribute the votes on those common units in the same ratios as the votes
of limited partners on other units are cast.
Any action 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 same number of units
as would be necessary to take the action. 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.
Except as described above under "--Change of Management Provisions,"
each record holder will have a vote in accordance with his percentage interest,
although additional limited partner interests having different voting rights
could be issued. See "--Issuance of Additional Securities." 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. Except as otherwise
provided in our partnership agreement, subordinated units will vote together
with common units as a single class.
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We or the transfer agent will deliver any notice, report or proxy
material required or permitted to be given or made to record holders of common
units under our partnership agreement to the record holder.
Status as Limited Partner or Assignee
An assignee of a common unit, after executing and delivering a transfer
application, but pending its admission as a substituted limited partner, is
entitled to an interest equivalent to that of a limited partner sharing in
allocations and distributions, including liquidating distributions. Our general
partner will vote and exercise other powers attributable to common units owned
by an assignee who has not become a substituted limited partner at the written
direction of the assignee. See "--Meetings; Voting." We will not treat
transferees who do not execute and deliver a transfer application as assignees
or as record holders of common units, and they will not receive cash
distributions, federal income tax allocations or reports furnished to record
holders. See "-Transfer of Common Units."
Non-Citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or
regulations that, in the reasonable determination of our general partner, create
a substantial risk of cancellation or forfeiture of any property in which we
have an interest because of the nationality, citizenship or related status of
any limited partner or assignee, we may redeem the units held by the limited
partner or assignee at their current market price. In order to avoid any
cancellation or forfeiture, our general partner may require each limited partner
or assignee to furnish information about his nationality, citizenship or related
status. If a limited partner or assignee fails to furnish this information
within 30 days after a request for it, or our general partner determines after
receipt of the information that the limited partner or assignee is not an
eligible citizen, then the limited partner or assignee may be treated as a
non-citizen assignee. In addition to other limitations on the rights of an
assignee who is not a substituted limited partner, a non-citizen assignee does
not have the right to direct the voting of his units and may not receive
distributions in kind upon our liquidation.
Indemnification
Under the partnership agreement, we will indemnify the following
persons, by reason of their status as such, to the fullest extent permitted by
law, from and against all losses, claims or damages arising out of or incurred
in connection with our business:
o our general partner;
o any departing general partner;
o any person who is or was an affiliate of our general partner or any
departing general partner;
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o any person who is or was a member, partner, officer, director,
employee, agent or trustee of our general partner, any departing
general partner or the operating partnership or any affiliate of a
general partner, any departing general partner or the operating
partnership; or
o any person who is or was serving at the request of a general partner
or any departing general partner or any affiliate of a general
partner or any departing general partner as an officer, director,
employee, member, partner, agent, fiduciary or trustee of another
person.
Our indemnification obligation arises only if the indemnified person
acted in good faith and in a manner the person reasonably believed to be in, and
not opposed to, our best interests. With respect to criminal proceedings, the
indemnified person must not have had reasonable cause to believe that the
conduct was unlawful.
Any indemnification under these provisions will be only out of our
assets. Our general partner will not be personally liable for the
indemnification obligations and will not have any obligation to contribute or
loan funds to us in connection with it. The partnership agreement permits us to
purchase insurance against liabilities asserted against and expenses incurred by
persons for our activities, regardless of whether we would have the power to
indemnify the person against liabilities under the partnership agreement.
Books and Reports
Our general partner keeps appropriate books on our business at our
principal offices. The books are maintained for both tax and financial reporting
purposes on an accrual basis. For tax and financial reporting purposes, our
fiscal year is the calendar year.
We furnish or make available to record holders of common units, within
120 days after the close of each fiscal year, an annual report containing
audited financial statements and a report on those financial statements by our
independent public accountants. Except for our fourth quarter, we also furnish
or make available summary financial information within 90 days after the close
of each quarter.
We furnish each record holder information reasonably required for tax
reporting purposes within 90 days after the close of each calendar year. We
expect to furnish information in summary form so that some complex calculations
normally required of partners can be avoided. Our ability to furnish this
summary information to unitholders depends on the cooperation of unitholders in
supplying us with specific information. We will furnish every unitholder with
information to assist him in determining his federal and state tax liability and
filing his federal and state income tax returns, regardless of whether he
supplies us with information.
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can, for a
purpose reasonably related to his interest as a limited partner, upon reasonable
demand and at his own expense, have furnished to him:
o a current list of the name and last known address of each partner;
o a copy of our tax returns;
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o information as to the amount of cash, and a description and statement
of the agreed value of any other property or services, contributed or
to be contributed by each partner and the date on which each became a
partner;
o copies of our partnership agreement, the certificate of limited
partnership and related amendments and powers of attorney under which
they have been executed;
o information regarding the status of our business and financial
condition; and
o other information regarding our affairs that is just and reasonable.
Our general partner intends to keep confidential from the limited
partners trade secrets or other information the disclosure of which our general
partner believes in good faith is not in our best interests or which we are
required by law or by agreements with third parties to keep confidential.
Registration Rights
Under the partnership agreement, we have agreed to register for resale
under the Securities Act and applicable state securities laws any common units,
subordinated units or other partnership securities proposed to be sold by our
general partner or any of its affiliates if an exemption from the registration
requirements is not otherwise available. We are obligated to pay all expenses
incidental to the registration, excluding underwriting discounts and
commissions.
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EXPERTS
The financial statements included or incorporated by reference in this
prospectus have been so included or incorporated in reliance upon the reports of
Grant Thornton LLP, independent certified public accountants, upon the authority
of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the securities offered hereby and tax matters will be
passed upon for us by Ledgewood Law Firm, P.C., Philadelphia, Pennsylvania.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 with
respect to this offering. This prospectus only constitutes part of the
registration statement and does not contain all of the information set forth in
the registration statement, its exhibits, and its schedules.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms. Please call the
SEC at 1-800-SEC-0330 for additional information on the public reference rooms.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it. This means that we can disclose important information to you by
referring to these documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 will
automatically update and supersede this information.
We are incorporating by reference the following documents that we have
previously filed with the SEC (other than information in such documents that is
deemed not to be filed):
o our Annual Report on Form 10-K for the fiscal year ended December
31, 2003, and
o our Proxy Statement on Schedule 14A for the special meeting of
unitholders held on February 11, 2004.
You may obtain a copy of these filings without charge by writing or
calling us at:
Investor Relations
Atlas Pipeline Partners, L.P.
311 Rouser Road
P.O. Box 611
Moon Township, Pennsylvania 15108
(412) 262-2830
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You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer to sell these securities
or soliciting an offer to buy these securities in any state where the offer or
sale is not permitted. You should not assume that the information in this
prospectus or the documents we have incorporated by reference is accurate as of
any date other than the date on the front of those documents.
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PLAN OF DISTRIBUTION
We may distribute the securities from time to time in one or more
transactions at a fixed price or prices. We may change these prices from time to
time. We may also distribute our securities at market prices prevailing at the
time of sale, at prices related to prevailing market prices or at negotiated
prices. We will describe the distribution method for each offering in a
prospectus supplement.
We may sell our securities in any of the following ways:
o through underwriters or dealers,
o through agents who may be deemed to be underwriters as defined in the
Securities Act, or
o directly to one or more purchasers.
The prospectus supplement for a particular offering will set forth the
terms of the offering, purchase price, the proceeds we will receive from the
offering, any delayed delivery arrangements, and any underwriting arrangements,
including underwriting discounts and other items constituting underwriters'
compensation and any discounts or concessions allowed or reallowed or paid to
dealers. We may have agreements with the underwriters, dealers and agents who
participate in the distribution to indemnify them against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments which they may be required to make.
Securities offered may be a new issue of securities with no established
trading market. Any underwriters to whom or agents through whom these securities
are sold by us for public offering and sale may make a market in these
securities, but such underwriters or agents will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of or the trading market for any such securities.
If we use underwriters in the sale, the securities we offer will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Our securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of securities will be named in the
prospectus supplement relating to that offering, and if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of that prospectus supplement.
66
If we use dealers in an offering, we will sell the securities to the
dealers as principals. The dealers may then resell the securities to the public
at varying prices to be determined by those dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in a
prospectus supplement. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
We may also offer our securities directly, or though agents we
designate, from time to time at fixed prices, which we may change, or at varying
prices determined at the time of sale. We will name any agent we use and
describe the terms of the agency, including any commissions payable by us to the
agent, in a prospectus supplement. Unless otherwise indicated in the prospectus
supplement, any agent we use will act on a reasonable best efforts basis for the
period of its appointment.
67
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................................................................3
------------------
RISK FACTORS............................................................................................14
------------
USE OF PROCEEDS.........................................................................................18
---------------
RATIO OF EARNINGS TO FIXED CHARGES......................................................................18
-----------------------------------
PRO FORMA FINANCIAL DATA................................................................................18
------------------------
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES....................................................22
----------------------------------------------------
GENERAL DESCRIPTION OF SECURITIES THAT WE MAY SELL......................................................27
--------------------------------------------------
DESCRIPTION OF COMMON UNITS.............................................................................27
---------------------------
DESCRIPTION OF SUBORDINATED UNITS.......................................................................27
---------------------------------
DESCRIPTION OF DEBT SECURITIES..........................................................................27
------------------------------
DESCRIPTION OF WARRANTS.................................................................................40
-----------------------
OUR PARTNERSHIP AGREEMENT...............................................................................41
-------------------------
EXPERTS.................................................................................................64
-------
LEGAL MATTERS...........................................................................................64
-------------
WHERE YOU CAN FIND MORE INFORMATION.....................................................................64
-----------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.........................................................64
-----------------------------------------------
PLAN OF DISTRIBUTION....................................................................................66
--------------------
ALASKA PIPELINE COMPANY CONSOLIDATED FINANCIAL STATEMENTS..............................................F-1
---------------------------------------------------------
68
Report of Independent Certified Public Accountants
Shareholder
Alaska Pipeline Company
We have audited the accompanying consolidated balance sheets of Alaska
Pipeline Company and subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Alaska
Pipeline Company and subsidiary as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, effective January 1,
2002, Alaska Pipeline Company changed its method of accounting related to
goodwill in accordance with the adoption of Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets.
/s/ GRANT THORNTON LLP
------------------------
Cleveland, Ohio
March 26, 2004
F-1
ALASKA PIPELINE COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
2003 2002
------------ ------------
Current Assets
Cash ........................................... $ -- $ 99,407
Notes receivable - affiliates .................. 11,554,502 6,346,451
Accounts receivable - trade .................... 714,392 203,019
Prepaid expenses ............................... 123,545 131,691
------------ ------------
Total current assets.......................... 12,392,439 6,780,568
Property, Plant and Equipment
Plant in service, at cost ...................... 58,887,932 58,152,685
Less - accumulated depreciation ................ 12,211,960 9,463,050
------------ ------------
46,675,972 48,689,635
Deferred Charges and Other Assets
Goodwill, net of accumulated amortization of
$2,661,605..................................... 46,472,348 46,472,348
Unamortized debt expense, net .................. 267,141 306,940
------------ ------------
46,739,489 46,779,288
------------ ------------
Total Assets ................................... $105,807,900 $102,249,491
============ ============
Current Liabilities
Accounts payable and accrued liabilities ....... $ 8,245,102 $ 7,674,537
Deferred Credits and Other Liabilities
Deferred income taxes .......................... 6,946,939 5,440,065
Regulatory Liability ............................ 1,818,788 1,378,195
Long-Term Debt - Affiliate ...................... 35,900,000 35,900,000
Shareholder's Equity
Common stock, 2,850,000 shares authorized;
1,900,500 shares issued and outstanding,
$1 par value.................................. 1,900,500 1,900,500
Capital surplus ................................ 49,841,297 49,841,297
Retained earnings .............................. 1,155,274 114,897
------------ ------------
Total shareholder's equity ..................... 52,897,071 51,856,694
------------ ------------
Total Liabilities and Shareholder's Equity ...... $105,807,900 $102,249,491
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-2
ALASKA PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
----------- ----------- -----------
Operating revenues
Gas sales and transportation - affiliate....................................... $67,732,859 $67,852,910 $69,083,247
Pipeline management services................................................... 3,109,996 562,109 --
----------- ----------- -----------
70,842,855 68,415,019 69,083,247
Operating expenses
Cost of gas sold............................................................... 55,548,942 56,148,644 56,620,021
Operations and maintenance..................................................... 4,006,898 1,273,348 1,232,789
General and administrative..................................................... 3,575,399 3,808,055 3,105,009
Depreciation and amortization.................................................. 3,265,221 3,349,051 4,591,050
----------- ----------- -----------
66,396,460 64,579,098 65,548,869
----------- ----------- -----------
Operating income............................................................. 4,446,395 3,835,921 3,534,378
Other income (expense)
Interest expense - affiliate................................................... (2,897,130) (3,013,200) (3,586,510)
Amortization of debt expense................................................... (39,799) (45,091) (54,984)
Other.......................................................................... 263,733 4,098 25,233
----------- ----------- -----------
(2,673,196) (3,054,193) (3,616,261)
----------- ----------- -----------
Income (loss) before income taxes............................................ 1,773,199 781,728 (81,883)
Income tax provision............................................................ 732,822 313,879 30,431
----------- ----------- -----------
NET INCOME (LOSS)............................................................... $ 1,040,377 $ 467,849 $ (112,314)
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-3
ALASKA PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
----------- ----------- -----------
Common stock.................................................................... $ 1,900,500 $ 1,900,500 $ 1,900,500
Capital surplus................................................................. 49,841,297 49,841,297 49,841,297
Retained earnings (deficit)
Beginning balance.............................................................. 114,897 (352,952) (240,638)
Net income (loss).............................................................. 1,040,377 467,849 (112,314)
----------- ----------- -----------
Ending balance................................................................. 1,155,274 114,897 (352,952)
----------- ----------- -----------
Total Shareholder's Equity...................................................... $52,897,071 $51,856,694 $51,388,845
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
ALASKA PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
----------- ----------- ------------
Cash flow from operating activities
Net income (loss).............................................................. $ 1,040,377 $ 467,849 $ (112,314)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................................................ 3,305,020 3,394,142 4,646,034
Deferred income tax expense.................................................. 1,506,874 2,023,203 1,636,048
Gain on sale of property..................................................... (260,292) -- --
Changes in operating assets and liabilities:
Accounts receivable......................................................... (511,373) (203,019) --
Prepaid expenses............................................................ 8,146 23,439 (34,967)
Accounts payable and accrued liabilities.................................... 570,565 (1,624,617) 4,252,384
----------- ----------- ------------
Net cash provided by operating activities.................................. 5,659,317 4,080,997 10,387,185
Cash flows from investing activities
Property additions............................................................. (863,559) (553,805) (989,108)
Proceeds from sale of property................................................. 312,886 -- --
----------- ----------- ------------
Net cash used in investing activities...................................... (550,673) (553,805) (989,108)
Cash flows from financing activities
(Increase) decrease in notes receivable - affiliates........................... (5,208,051) (3,427,785) 6,601,923
Repayment of long-term debt - affiliate........................................ -- -- (16,000,000)
----------- ----------- ------------
Net cash used in financing activities...................................... (5,208,051) (3,427,785) (9,398,077)
----------- ----------- ------------
NET (DECREASE) INCREASE.................................................... (99,407) 99,407 --
Cash - Beginning of period...................................................... 99,407 -- --
----------- ----------- ------------
Cash - End of period............................................................ $ -- $ 99,407 $ --
=========== =========== ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
ALASKA PIPELINE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE 1 -- NATURE OF BUSINESS
Alaska Pipeline Company ("APC"), a wholly owned subsidiary of SEMCO Energy,
Inc. ("SEMCO"), is an intrastate natural gas transmission company which owns
and operates the high-pressure gas pipelines that transport gas from Alaska's
Cook Inlet gas fields to ENSTAR Natural Gas Company's ("ENSTAR") distribution
system and various commercial customers of ENSTAR. ENSTAR, a division of
SEMCO, is a natural gas distribution company. NORSTAR Pipeline Company, Inc.
("NORSTAR") is a 100% owned subsidiary of APC, and its primary business is
pipeline management services. APC and NORSTAR have no employees and ENSTAR is
APC's only customer. SEMCO is a publicly traded company (trading under the
symbol SEN on the NYSE) operating in the energy, construction, and information
technology service industries.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of APC, and its
wholly owned subsidiary, NORSTAR, collectively ("the Company"). NORSTAR was
incorporated in 2001 and began operating in April 2002. All material
intercompany transactions have been eliminated.
Basis of Presentation
The financial statements of the Company were prepared in conformity with
accounting principles generally accepted in the United States of America. In
connection with the preparation of the financial statements, management was
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Financial Instruments
For cash, notes receivable, accounts receivable, and accounts payable and
accrued liabilities, the carrying amounts approximate fair values because of
the short maturity of those instruments. The carrying value of long-term debt
from an affiliate approximates fair market value since interest rates
approximate current market rates.
Reclassifications
Certain reclassifications have been made to the 2002 financial statements to
conform to the 2003 presentation.
Property, Plant, Equipment and Depreciation
The Company's property, plant and equipment, consisting primarily of
pipeline assets, are recorded at cost. The Company provides for depreciation
on a straight-line basis over 33 years, the estimated useful life of the
assets. Expenditures for routine maintenance and repairs are charged to
expense as incurred.
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-
Lived Assets ("SFAS 144"). SFAS 144 requires the cost of long-lived assets be
tested for recoverability whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. In that circumstance, an impairment loss shall be measured as the
amount by which the carrying amount of the asset exceeds it fair value. The
adoption of SFAS 144 did not have a material effect on the Company's financial
position or results of operations.
F-6
ALASKA PIPELINE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 2003, 2002 and 2001
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Goodwill
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible assets of businesses acquired. On January
1, 2002, the Company adopted SFAS No. 141, Business Combinations ("SFAS 141")
and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141
addresses financial accounting and reporting for all business combinations and
requires that all business combinations entered into subsequent to June 30,
2001 be recorded under the purchase method. This Statement also addresses
financial accounting and reporting for goodwill and other intangible assets
acquired in a business combination at the date of acquisition. SFAS 142
addresses financial accounting and reporting for intangible assets acquired
individually or with a group of other assets at the date of acquisition. This
Statement also addresses financial accounting and reporting for goodwill and
other intangible assets subsequent to their acquisition.
As of January 1, 2002, the date of adoption of SFAS 142, the Company had
unamortized goodwill in the amount of $46.5 million. Prior to the adoption,
goodwill was being amortized on a straight-line basis over a period of 40
years. Amortization expense related to goodwill was $1,228,344 in 2001.
The Company will continue to evaluate its goodwill at least annually as
required by SFAS 142 and will reflect the impairment of goodwill, if any, in
operating income in the income statement in the period in which the impairment
is indicated.
The following table presents what would have been reported as net income for
the periods presented in the financial statements exclusive of amortization
expense (net of any related tax effects) related to goodwill:
Years Ended December 31,
----------------------------------
2003 2002 2001
---------- -------- ---------
Net income (loss)............................................................... $1,040,377 $467,849 $(112,314)
Add back: Goodwill amortization, net of income taxes............................ -- -- 798,424
---------- -------- ---------
Adjusted net income............................................................ $1,040,377 $467,849 $ 686,110
========== ======== =========
Revenue Recognition
ENSTAR is APC's only gas transportation customer and, thus, all gas sales
and transportation revenue relates to ENSTAR. Gas sales and transportation
revenue is recognized at the time the natural gas purchased for sale to ENSTAR
is transported through the Company's system to ENSTAR's system. The Company
earns revenue from ENSTAR under an intercompany gas sales agreement that
compensates the Company for the cost of purchased gas and transporting the
purchased gas. Under the terms of the agreement, the Company earns revenue
only on the volume of gas sold to ENSTAR. Volumes that are transported by the
Company to ENSTAR's system that do not involve a sale of gas by the Company to
ENSTAR do not provide revenue to the Company. The gas sold to ENSTAR is sold
by ENSTAR to its gas sales service customers. Because the Company and ENSTAR
are viewed as one entity by the Regulatory Commission of Alaska ("RCA") for
purposes of rate making, regulatory review of the revenue from ENSTAR to
compensate the Company for transportation service has not been necessary.
Cost of Gas
The cost of gas is based upon contracts entered into between the Company and
several gas producing entities. Furthermore, these contracts have been
approved by the RCA. The base price of gas purchased under these contracts can
be adjusted annually based on factors such as the price of certain traded oil
futures, certain natural gas futures and other inflationary measures.
F-7
ALASKA PIPELINE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 2003, 2002 and 2001
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Income Taxes
The Company is included in SEMCO's consolidated federal income tax return
and income taxes are allocated to the Company based upon its separate taxable
income.
Supplemental Disclosure of Cash Flow Information
All taxes are paid by SEMCO, and accordingly, the Company made no income tax
payments for the years ended December 31, 2003, 2002, and 2001. Additionally,
since all debt is owed to affiliates, the interest expense represents an
affiliate transaction and was recorded as a reduction to notes receivable --
affiliates, thus no cash was specifically paid for interest for the years
ended December 31, 2003, 2002, or 2001.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). The Standard
required entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded by an entity, it also increases the carrying amount of the
related long-lived asset. The liability is accreted each period to its present
value and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. The
Company has determined that it does not have any asset retirement obligations
required to be recorded in accordance with SFAS 143. However, the Company is
subject to the provisions of SFAS 71, Accounting for the Effects of Certain
Types of Regulation. The provisions of SFAS 71 allow the Company to defer
expenses and income as regulatory assets and liabilities in the Consolidated
Balance Sheets when it is probable that those expenses and income will be
allowed in the rate setting process in a period different from the period in
which they would have been reflected in the Consolidated Statements of Income by
an unregulated company. These deferred regulatory assets and liabilities are
then included in the Consolidated Statements of Income in the periods in which
the same amounts are reflected in rates. In prior years, negative salvage value
was recorded in the accumulated depreciation of the Company in accordance with
industry practice. Negative salvage value has been reclassified to regulatory
liabilities in accordance with SFAS 143, Accounting for Asset Retirement
Obligations, which was adopted by the Company on January 1, 2003.
Notes Receivable -- Affiliate
As of December 31, 2003 and 2002, the Company had non-interest bearing notes
receivable from SEMCO of $11,554,502 and $6,346,451, respectively.
NOTE 3 -- RELATED PARTY TRANSACTIONS
Operations and Maintenance Expenses
Since the Company has no employees, all functions relating to the Company
are conducted by ENSTAR and SEMCO employees. ENSTAR charges the Company for
the payroll and related costs of the employees who work directly on the
operations and maintenance of the Company's pipelines and related equipment.
Any purchased items or services relating to the Company, although processed by
ENSTAR, are also directly charged to the Company at cost. Additionally, ENSTAR
and SEMCO allocate a portion of their administrative and general expenses to
the Company, which amounted to $2,700,503 in 2003, $2,301,948 in 2002, and
$2,122,433 in 2001.
Interest Expense
Since all long-term debt is owed to SEMCO, all interest expense incurred is
with a related party.
NOTE 4 -- REGULATORY MATTERS
The Company is subject to regulation by the RCA. The Company and ENSTAR are
viewed together as one entity by the RCA for purposes of rate making and other
regulatory matters. The RCA has jurisdiction over, among other things, rates,
accounting procedures, and standards of service.
The Company and ENSTAR have undergone a rate review with the RCA, which
began in 2000. The Company and ENSTAR received a rate order in August 2002,
which set the combined revenue requirement for the Company and ENSTAR and
included a 12.55% authorized return on equity. After receiving the order,
F-8
ALASKA PIPELINE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 2003, 2002 and 2001
NOTE 4 -- REGULATORY MATTERS -- (Continued)
the Company and ENSTAR filed the rate design portion of the case. The Company
and ENSTAR stipulated with all parties to a rate design and an order on the
rate design was issued on May 21, 2003 providing for decreases to residential,
power plant and industrial customers and an increase to commercial customers.
The design also increases the monthly customer service charges over a 3-year
period.
NOTE 5 -- INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting For Income Taxes ("SFAS 109"). SFAS 109 requires an annual
measurement of deferred tax assets and deferred tax liabilities based upon the
estimated future tax effects of temporary differences and carryforwards.
The table below summarizes the components of the Company's provision for
income taxes:
Years Ended December 31,
---------------------------------------
2003 2002 2001
---------- ----------- -----------
Federal income taxes:
Currently refundable........................................................... $ (677,544) $(1,520,436) $(1,454,496)
Deferred to future periods..................................................... 1,243,504 1,764,531 1,492,138
State income taxes:
Currently refundable........................................................... (96,508) (188,888) (151,121)
Deferred to future periods..................................................... 263,370 258,672 143,910
---------- ----------- -----------
Total income tax provision...................................................... $ 732,822 $ 313,879 $ 30,431
========== =========== ===========
Deferred income taxes arise from temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial
statements. The table below shows the principal components of the Company's
deferred tax liability.
December 31,
-----------------------
2003 2002
---------- ----------
Deferred tax liability components:
Property ........................................... $4,109,653 $3,629,226
Goodwill ........................................... 1,859,344 1,096,267
Other .............................................. 977,942 714,572
---------- ----------
Total deferred tax liability ........................ $6,946,939 $5,440,065
========== ==========
NOTE 6 -- DEBT
Long-Term Debt -- Affiliate
The long-term debt -- affiliate is payable to SEMCO. Interest on the note is
recorded monthly as an intercompany transaction. The weighted average interest
rate charged to the Company by SEMCO was 8.07% in 2003, 8.17% in 2002 and
8.39% in 2001.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases right of way access from various companies and
governmental agencies. The resulting leases are classified as operating leases
in accordance with SFAS 13, "Accounting for Leases." The
F-9
ALASKA PIPELINE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 2003, 2002 and 2001
NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (Continued)
terms of these agreements range from one to thirty-three years. Management
anticipates renewing these leases as they become due.
The Company's annual future minimum lease payments under leases that have
initial or remaining non-cancellable terms in excess of one year for the years
ended December 31, 2004 through 2008 total approximately $123,000. Total lease
expense approximated $115,000, $107,000 and $103,000 in 2003, 2002 and 2001,
respectively.
Other Contingencies
In the normal course of business, the Company is party to certain lawsuits
and administrative proceedings before various courts and government agencies.
These lawsuits and proceedings may involve personal injury, property damage,
contractual issues and other matters. Management cannot predict the ultimate
outcome of any pending or threatened litigation or of actual or possible
claims; however, management believes resulting liabilities, if any, will not
have a material adverse impact upon the Company's financial position or
results of operations.
NOTE 8 -- PROPOSED SALE OF COMPANY
In September 2003, SEMCO entered into a definitive sales agreement to sell
APC to Atlas Pipeline Partners, L.P. for approximately $95 million, subject to
an adjustment based on the amount of working capital that APC has at closing.
The sale is subject to approval under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, approval by the RCA, and consents under various
contracts. In regard to the RCA approval process, a stipulation on a final
order was reached with all interveners in the case and filed with the RCA on
March 26, 2004. A hearing on the stipulation is scheduled for April 7 and 8,
2004. A full hearing is scheduled for the week of April 26, 2004, if required.
As part of the sale, APC will enter into a ten-year Special Contract with
ENSTAR for gas transportation pursuant to which ENSTAR will pay a reservation
fee for use of all of APC's transportation capacity of $943,000 per month plus
a volumetric rate of $0.075 per Mcf of gas transported. The Special Contract
is subject to RCA approval. Additionally, SEMCO will execute a gas
transmission agreement with APC under which SEMCO will be obligated to make up
any difference if the RCA reduces the transportation rates payable by ENSTAR
pursuant to the Special Contract.
Furthermore, APC will enter into an Operations and Maintenance and
Administrative Services Agreement with ENSTAR under which ENSTAR will continue
to operate and maintain the pipeline for at least five years for a fee of
$334,000 per month for the first three years. Thereafter, ENSTAR's fees will
be adjusted for inflation.
All gas purchase contracts discussed in Note 2 will be assigned to ENSTAR
prior to the sale and the intercompany gas sales agreement between APC and
ENSTAR discussed in Note 2 will be terminated. NORSTAR is not part of the
sale.
F-10
$250,000,000
ATLAS PIPELINE PARTNERS, L.P.
Common Units
Subordinated Units
Debt Securities
Warrants
____________, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Set forth below are the expenses (other than underwriting discounts and
commissions) we expect to pay in connection with the issuance and distribution
of the securities registered hereby. With the exception of the SEC registration
fee, the amounts set forth below are estimated:
Securities and Exchange Commission registration fee...................................................... $ 31,675
AMEX listing fee......................................................................................... 22,500
Printing fees and expenses............................................................................... 100,000
Legal fees and expenses.................................................................................. 100,000
Accounting fees and expenses............................................................................. 100,000
Transfer agent and registrar ............................................................................ 20,000
Miscellaneous............................................................................................ 25,825
TOTAL ................................................................................................... $400,000
Item 15. Indemnification of Directors and Officers
The section of the prospectus entitled "Our Partnership
Agreement--Indemnification" is incorporated herein by this reference. Subject to
any terms, conditions or restrictions set forth in the Partnership Agreement,
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers
a Delaware limited partnership to indemnify and hold harmless any partner or
other person from and against all claims and demands whatsoever.
As permitted by Section 102(b)(7) of the Delaware General Corporation
Law, the bylaws of each of Atlas America and Resource America provide that its
officers and directors (including those who act at its request as officers of
and directors of subsidiaries) shall not be personally liable to the
corporations or its stockholders for monetary damages for breach of fiduciary
duty, except for liability (i) for any breach of their duty of loyalty, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, relating to prohibited dividends or distributions or the
repurchase or redemption of stock, or (iv) for any transaction from which the
director or officer derives an improper personal benefit. In addition, they
provide for indemnification of its officers and directors to the fullest extent
permitted under Delaware law, including indemnification for their service as
officers and directors of subsidiaries.
Substantially the same provisions regarding indemnification are
contained in the limited liability company agreement of Atlas Pipeline Partners
GP, LLC, our general partner.
The limited liability company agreements of each of Atlas Pipeline New
York, LLC, Atlas Pipeline Ohio, LLC and Atlas Pipeline Pennsylvania, LLC provide
that each will indemnify its members from and against any loss, damage or
expenditure incurred by a member, including, but not limited to, court costs and
attorneys' fees, by reason of any act or omission performed or omitted by the
member in good faith and in a manner reasonably believed by the member to be
within the scope of the authority granted to the member under the limited
liability agreement and not involving gross negligence, recklessness, willful
misconduct, breach of the member's fiduciary duties and/or by reason of the
member being a member.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Atlas
America, Resource America or Atlas Pipeline Partners GP, LLC pursuant to the
foregoing provisions, or otherwise, Atlas America, Resource America, Atlas
Pipeline and Atlas Pipeline Partners GP, LLC, Atlas Pipeline Operating
Partnership, L.P., Atlas Pipeline New York, LLC, Atlas Pipeline Ohio, LLC and
Atlas Pipeline Pennsylvania, LLC, have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Resource America, the corporate parent of Atlas America and indirect
corporate parent of Atlas Pipeline Partners GP, LLC, maintains directors' and
officers' liability insurance against any actual or alleged error, misstatement,
misleading statement, act, omission, neglect or breach of duty by any director
or officer of itself or any direct or indirect subsidiary, excluding certain
matters including fraudulent, dishonest or criminal acts or self-dealing.
Item 16. Exhibits and Financial Statements Schedules
(a) Exhibits:
1.1(1) Form of Underwriting Agreement with respect to equity
securities.
1.2(1) Form of Underwriting Agreement with respect to debt
securities.
2.1(2) Purchase and Sale Agreement dated September 16, 2003 between
Atlas Pipeline Partners, L.P. and SEMCO Energy, Inc.
3.1 Second Amended and Restated Agreement of Limited Partnership of
Atlas Pipeline Partners, L.P.
4.1(3) Form of common unit certificate
4.2(1) Form of subordinated unit certificate.
4.3(1) Form of Indenture for senior debt securities of Atlas Pipeline
Partners, L.P. (form of senior debt securities included
therein).
4.4(1) Form of Indenture for subordinated debt securities of Atlas
Pipeline Partners, L.P. (form of subordinated debt securities
included therein).
4.5(1) Form of Warrant Agreement (form of warrant included therein).
5.1(1) Opinion of Ledgewood Law Firm, P.C. as to the legality of the
securities being registered
8.1(1) Opinion of Ledgewood Law Firm, P.C. relating to tax matters
12.1(4) Statement regarding computation of ratios
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ledgewood Law Firm, P.C. (contained in Exhibits 5.1
and 8.1)
24.1(4) Power of Attorney (included in signature pages)
25.1(1) Statement of Eligibility on Form T-1 of Trustee for debt
securities.
-----------------------
(1) To be filed by amendment or as an exhibit to a document to be
incorporated by reference herein in connection with an offering
of the securities registered hereby.
(2) Previously filed as an exhibit to our Current Report on Form
8-K dated September 16, 2003.
(3) Previously filed as an exhibit to our Registration Statement on
Form S-1 (Registration No. 333-85193).
(4) Previously filed as an exhibit to this Registration Statement
on March 11, 2004.
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(b) Financial Statement Schedules
All financial statement schedules are omitted because the information is not
required, is not material or is otherwise included in the financial statements
or related notes thereto.
Item 17. Undertakings
The undersigned registrants hereby undertake:
(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 of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(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 1(i) and (1)(ii) of this section do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by such registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of such
registrant's annual report pursuant to Section 13(a) or 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.
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Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission 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 a 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 registrants will, unless in the opinion of their 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 registrants hereby undertake 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
registrants 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 purposes 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants certify that they have reasonable grounds to believe that they meet
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in Moon Township, Pennsylvania, on April 1, 2004.
ATLAS PIPELINE PARTNERS, L.P.
ATLAS PIPELINE OPERATING
PARTNERSHIP, L.P.
By: Atlas Pipeline Partners GP, LLC, the General
Partner of each
By: /s/ Michael L. Staines
------------------------------------------------
Michael L. Staines
President and Chief Operating Officer
ATLAS PIPELINE NEW YORK, LLC
ATLAS PIPELINE OHIO, LLC
ATLAS PIPELINE PENNSYLVANIA, LLC
By: Atlas Pipeline Operating Partnership, L.P.
By: Atlas Pipeline Partners GP, LLC, its
General Partner
By: /s/ Michael L. Staines
-----------------------------------------------
Michael L. Staines
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrants and in the capacities indicated for Atlas Pipeline Partners
GP, LLC on April 1, 2004.
Michael L. Staines, for himself, as
President, Chief Operating Officer and Managing
Board Member, and as attorney in fact for:
Edward E. Cohen Chairman of the Managing Board
(Chief Executive Officer)
Jonathan Z. Cohen Vice Chairman of the Managing Board
Steven J. Kessler Chief Financial Officer
Nancy J. McGurk Chief Accounting Officer
Murray S. Levin Managing Board Member
William R. Bagnell Managing Board Member
Donald W. Delson Managing Board Member
Tony C. Banks Managing Board Member