S-1/A 1 a2198442zs-1a.htm FORM S-1/A

As filed with the Securities and Exchange Commission on April 30, 2010

Registration No. 333-165007

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 6
to

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Niska Gas Storage Partners LLC
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  4922
(Primary Standard Industrial
Classification Code Number)
  27-1855740
(I.R.S. Employer
Identification Number)

1001 Fannin Street, Suite 2500
Houston, TX 77002
281-404-1890
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



Jason A. Dubchak
1001 Fannin Street, Suite 2500
Houston, TX 77002
281-404-1890
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Mike Rosenwasser
James J. Fox

Vinson & Elkins L.L.P.
666 Fifth Avenue, 26th Floor
New York, NY 10103
(212) 237-0000

 

Joshua Davidson
Douglass M. Rayburn

Baker Botts L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, TX 77002
(713) 229-1234



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.



         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.    o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         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.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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.    o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering
price(1)(2)

  Amount of
registration fee

 

Common units representing limited liability company interests

  $442,750,000   $31,569

 

(1)
Includes common units issuable upon exercise of the underwriters' option to purchase additional common units.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933.

(3)
The total registration fee includes $28,699 that was previously paid for the registration of $402,500,000 of proposed maximum aggregate offering price in the filing of the Registration Statement on February 22, 2010, $1,435 for the registration of an additional $20,125,000 of proposed maximum aggregate offering price in the filing of the Registration Statement on April 26, 2010 and $1,435 for the registration of an additional $20,125,000 of proposed maximum aggregate offering price registered hereby.

         The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated April 30, 2010

PRELIMINARY PROSPECTUS

LOGO

Niska Gas Storage Partners LLC

17,500,000 Common Units

Representing Limited Liability Company Interests

          We are offering to sell 17,500,000 common units representing limited liability company interests in Niska Gas Storage Partners LLC. This is the initial public offering of our common units. We currently estimate that the initial public offering price will be between $20.00 and $22.00 per common unit. Prior to this offering, there has been no public market for our common units. Our common units have been approved for listing on the New York Stock Exchange under the symbol "NKA."

          Investing in our common units involves risks. See "Risk Factors" beginning on page 17.

          These risks include the following:

    We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses to enable us to make cash distributions to holders of our units at the minimum quarterly distribution rate under our cash distribution policy.

    Niska Sponsor Holdings Coöperatief U.A., which we refer to as Holdco, currently controls, and after this offering will continue to control, our manager, which has sole responsibility for conducting our business and managing our operations. Our manager and its affiliates, including Holdco, have conflicts of interest with us and limited fiduciary duties, and they may favor their own interests to the detriment of our common unitholders.

    Affiliates of our manager are not limited in their ability to compete with us and are not obligated to offer us the opportunity to pursue additional assets or businesses, which could limit our commercial activities or our ability to acquire additional assets or businesses.

    Our level of exposure to the market value of natural gas storage services could adversely affect our revenues and cash available to make distributions.

    Holders of our common units have limited voting rights and are not entitled to elect our manager or our directors.

    You will experience immediate and substantial dilution of $17.84 in our pro forma tangible net book value per common unit.

    You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

 
  Per Common Unit   Total  

Initial public offering price

  $     $    

Underwriting discount(a)

  $     $    

Proceeds to Niska Gas Storage Partners LLC (before expenses)

  $     $    

(a)
Excludes a structuring fee equal to 0.375% of the gross proceeds from this offering (excluding any proceeds from the exercise of the option to purchase additional units) payable to Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated.

          We have granted the underwriters a 30-day option to purchase up to an additional 2,625,000 common units from us on the same terms and conditions as set forth above if the underwriters sell more than 17,500,000 common units in this offering.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

          The underwriters expect to deliver the common units on or about                        , 2010.



Joint Book-Running Managers

Goldman, Sachs & Co.   Morgan Stanley

Barclays Capital   Citi   Credit Suisse

RBC Capital Markets   UBS Investment Bank



Raymond James   Wells Fargo Securities



Lazard Capital Markets   Stifel Nicolaus



                        , 2010


Table of Contents

GRAPHIC


TABLE OF CONTENTS

PROSPECTUS SUMMARY

  1
 

Niska Gas Storage Partners LLC

  1
 

Overview

  1
 

Our Operations

  2
 

Our Assets

  2
 

Business Strategies

  3
 

Competitive Strengths

  3
 

Our Relationship With Holdco

  3
 

Formation Transactions

  4
 

Recent Refinancing Transactions

  5
 

Recent Capital Contribution and Contemplated Distribution

  5
 

Management

  5
 

Ownership of Niska Gas Storage Partners LLC

  6
 

Principal Executive Offices and Internet Address

  8
 

Summary of Conflicts of Interest and Fiduciary Duties

  8
 

The Offering

  9
 

Summary Historical and Pro Forma Financial and Operating Data

  13
 

Non-GAAP Financial Measure

  15

RISK FACTORS

  17
 

Risks Inherent in Our Business

  17
 

Risks Inherent in an Investment in Us

  28
 

Tax Risks to Common Unitholders

  36

USE OF PROCEEDS

  42

CAPITALIZATION

  43

DILUTION

  45

OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

  47
 

General

  47
 

Minimum Quarterly Distribution

  48
 

Unaudited Pro Forma Cash Available for Distribution

  50
 

Estimated Cash Available for Distribution

  53
 

Assumptions and Considerations

  56
 

Payments of Distributions on Common Units, Subordinated Units and the Managing Member Interest

  58

PROVISIONS OF OUR OPERATING AGREEMENT RELATING TO CASH DISTRIBUTIONS

  59
 

Distributions of Available Cash

  59
 

Operating Surplus and Capital Surplus

  59
 

Subordination Period

  63
 

Distributions of Cash From Operating Surplus During the Subordination Period

  64
 

Distributions of Cash From Operating Surplus After the Subordination Period

  64
 

Managing Member Interest

  64
 

Incentive Distribution Rights

  64
 

Percentage Allocations of Cash Distributions From Operating Surplus

  65
 

Distributions From Capital Surplus

  65
 

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

  66
 

Distributions of Cash Upon Liquidation

  67

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

  69
 

Non-GAAP Financial Measure

  72

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  74
 

How We Evaluate Our Operations

  74
 

Factors that Impact Our Business

  76
 

Comparability of Our Financial Statements

  77
 

Results of Operations

  78

i


 

Liquidity and Capital Resources

  87
 

Quantitative and Qualitative Disclosures About Market Risks

  97
 

Risk Management Policy and Practices

  99
 

Segment Information

  100
 

Critical Accounting Estimates

  100
 

Recent Accounting Pronouncements

  104

NATURAL GAS STORAGE INDUSTRY

  106
 

Overview of the Natural Gas Value Chain

  106
 

Natural Gas Storage Reservoir Types

  109
 

Natural Gas Storage Value Drivers for Market Based Storage Services

  110
 

Fundamental Industry Trends

  112

BUSINESS

  118
 

Overview

  118
 

Our Operations

  118
 

Business Strategies

  121
 

Competitive Strengths

  122
 

Competition

  124
 

Our Assets

  124
 

Employees

  130
 

Regulation

  130
 

Legal Proceedings

  133
 

Taxation

  133

MANAGEMENT

  137
 

Management of Niska Gas Storage Partners LLC

  137
 

Directors and Executive Officers

  139
 

Reimbursement of Expenses of Our Manager

  141
 

Compensation Discussion and Analysis

  142
 

Executive Compensation

  145
 

Summary Compensation for Years Ended March 31, 2009 and 2010

  145
 

Outstanding Equity Awards as of Fiscal Year-End March 31, 2010

  146
 

Option Exercises and Stock Vested

  146
 

Potential Payments Upon Change of Control or Termination

  147
 

Long-Term Incentive Plan

  147
 

Director Compensation

  149

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  150

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  151
 

Distributions and Payments to Our Manager and Its Affiliates

  151
 

Agreements Governing the Transactions

  152
 

Services Agreement

  152
 

Registration Rights Agreement

  152
 

Recent Capital Contribution and Contemplated Distribution

  152

CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

  153
 

Conflicts of Interest

  153
 

Fiduciary Duties

  158

DESCRIPTION OF THE COMMON UNITS

  161
 

The Units

  161
 

Transfer Agent and Registrar

  161
 

Transfer of Common Units

  161

THE OPERATING AGREEMENT

  163
 

Organization and Duration

  163
 

Purpose

  163
 

Capital Contributions

  163
 

Votes Required For Certain Matters

  164
 

Applicable Law; Forum, Venue and Jurisdiction

  165
 

Limited Liability

  165
 

Issuance of Additional Membership Interests

  166

ii


 

Amendment of Our Operating Agreement

  166
 

Merger, Sale or Other Disposition of Assets

  169
 

Dissolution

  169
 

Liquidation and Distribution of Proceeds

  170
 

Withdrawal or Removal of Our Manager

  170
 

Transfer of Managing Member Interest

  171
 

Transfer of Ownership Interests in Our Manager

  171
 

Transfer of Subordinated Units and Incentive Distribution Rights

  171
 

Change of Management Provisions

  172
 

Limited Call Right

  172
 

Meetings; Voting

  173
 

Voting Rights of Incentive Distribution Rights

  173
 

Status as Member

  174
 

Non-Citizen Assignees; Redemption

  174
 

Non-Taxpaying Assignees; Redemption

  174
 

Indemnification

  175
 

Reimbursement of Expenses

  175
 

Books and Reports

  175
 

Right to Inspect Our Books and Records

  176
 

Registration Rights

  176

UNITS ELIGIBLE FOR FUTURE SALE

  177

MATERIAL U.S. TAX CONSEQUENCES TO UNITHOLDERS

  178
 

Taxation of Niska Gas Storage Partners LLC

  179
 

U.S. Federal Income Taxation of Unitholders

  179
 

Tax Treatment of Operations

  185
 

Disposition of Common Units

  186
 

Uniformity of Units

  189
 

Non-U.S. Investors

  189
 

Tax-Exempt Organizations

  190
 

Administrative Matters

  191
 

State and Local Taxation of Unitholders

  193

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO UNITHOLDERS

  194
 

Taxation of Niska Gas Storage Partners LLC

  195
 

Taxation of Unitholders Resident in the United States

  195
 

Taxation of Unitholders Resident in Canada

  196

INVESTMENT IN NISKA GAS STORAGE PARTNERS LLC BY EMPLOYEE BENEFIT PLANS

  199

UNDERWRITING

  201

VALIDITY OF THE COMMON UNITS

  206

EXPERTS

  206

WHERE YOU CAN FIND MORE INFORMATION

  207

FORWARD-LOOKING STATEMENTS

  208

INDEX TO FINANCIAL STATEMENTS

  F-1

APPENDIX A—FORM OF FIRST AMENDED AND RESTATED OPERATING AGREEMENT OF NISKA GAS STORAGE PARTNERS LLC

  A-1

APPENDIX B—GLOSSARY OF SELECTED TERMS

  B-1

        You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. We and the underwriters are offering to sell, and seeking offers to buy, our common units only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common units.

iii


Table of Contents


PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that you should consider before investing in the common units. This summary provides an overview of the key aspects of this offering and you should read the entire prospectus carefully, including "Risk Factors" beginning on page 17 and the historical and pro forma financial statements and the notes to those financial statements included elsewhere in this prospectus. Unless indicated otherwise, the information presented in this prospectus assumes (1) an initial public offering price of $21.00 per common unit and (2) that the underwriters do not exercise their option to purchase additional common units.

        References in this prospectus to "Niska Predecessor," "we," "our," "us" or similar terms when used in a historical context refer to Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P., which are being contributed to Niska Gas Storage Partners LLC in connection with this offering. When used in the present tense or prospectively, those terms refer to Niska Gas Storage Partners LLC and its subsidiaries. References to our "manager" refer to Niska Gas Storage Management LLC. References in this prospectus to the "Carlyle/Riverstone Funds" refer to Carlyle/Riverstone Global Energy and Power Fund II, L.P. and Carlyle/Riverstone Global Energy Power Fund III, L.P. and affiliated entities, collectively. We include a glossary of some of the terms used in this prospectus as Appendix B. Unless otherwise indicated, all references to "dollars" and "$" in this prospectus are to, and amounts are presented in, U.S. dollars. Unless otherwise indicated, references to storage capacity refer to effective working gas storage capacity.


Niska Gas Storage Partners LLC

Overview

        We are a Delaware limited liability company formed to own and operate natural gas storage assets. We own or contract for approximately 185.5 billion cubic feet, or Bcf, of total gas storage capacity. Our assets are located in key North American natural gas producing and consuming regions and are connected at strategic points on the gas transmission network, providing access to multiple end-use markets. Our locations provide us and our customers with substantial liquidity, meaning access to multiple counterparties for transactions to buy and sell gas. Since our inception in 2006, we have organically added 41.3 Bcf of gas storage capacity through expansions, an increase of approximately 29%, at a total cost of approximately $131.0 million (an average of $3.2 million per Bcf). We are the largest independent owner and operator of natural gas storage assets in North America, based on our analysis of working gas capacity owned by other storage owners, adjusted according to each such owner's percentage ownership of its respective storage facilities.

        Because the supply of natural gas remains relatively stable over the course of a year compared to the demand for natural gas, which fluctuates seasonally, natural gas storage facilities are needed to reallocate excess gas supply from periods of low demand to periods of high demand. We capitalize on the imbalance between supply of and demand for natural gas by providing our customers and ourselves with the ability to store gas for resale or use in a higher value period. Our natural gas storage facilities allow us to offer our customers "multi-cycle" gas contracts, which permit them to inject and withdraw their natural gas multiple times in one year, providing more flexibility to capture market opportunities. Since our inception, our storage contracts have provided cyclability rates ranging from 1.0 to 6.0 times per year, with an average of 2.2 times. We believe that our combination of large, high-quality, strategically located storage facilities, access to economically attractive organic growth opportunities, ability to charge market-based rates and an experienced and complete storage business team makes our business difficult to replicate.

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Table of Contents


Our Operations

    Third-Party Gas Storage Contracts

        We store natural gas for a broad range of customers, including financial institutions, marketers, pipelines, power generators, utilities and producers of natural gas. From our inception on May 12, 2006 to March 31, 2009, we utilized an average of approximately 92% of our operated capacity for storage services provided to third-party customers, and third-party storage contracts contributed an average of 68% of our total revenue.

        We provide multi-year, multi-cycle storage services to our customers under long-term firm reserved storage contracts, or LTF contracts. The volume-weighted average life of our LTF contracts at December 31, 2009 was 3.3 years. From inception to March 31, 2009, we utilized an average of approximately 78% of our operated capacity for our LTF strategy, and LTF contracts contributed an average of 50% of our total revenue.

        In addition, we provide services for customers under short-term firm fixed-nomination contracts, or STF contracts. STF contracts typically have terms of less than one year. From inception to March 31, 2009, we utilized an average of approximately 14% of our operated capacity for our STF strategy, and STF contracts contributed an average of 18% of our total revenue.

        Because many contracts extend beyond the end of a fiscal year and because we generally enter into new or replacement third-party storage contracts several months in advance of the beginning of each fiscal year, we can accurately predict a baseline of revenue and cash flow at the beginning of each fiscal year that we will generate for that year under our third-party storage contracts. Throughout the year, as market conditions allow, we augment this baseline revenue and cash flow by entering into additional STF contracts.

    Proprietary Optimization

        We purchase, store and sell natural gas for our own account in order to utilize, or optimize, our storage capacity and injection and withdrawal capacity that is (1) not contracted to customers, (2) contracted to customers, but underutilized by them, or (3) available on a short-term basis. We refer to this as our proprietary optimization strategy. We have a stringent risk policy that limits, among other things, our exposure to commodity price fluctuations by requiring us to promptly enter into a forward sale contract or other hedging transaction whenever we enter into a proprietary purchase contract. Therefore, inventory purchases are matched with forward sales or are otherwise economically hedged so that a margin is effectively locked-in promptly after we enter into the purchase. As a result, there are no speculative positions beyond the minimal operational tolerances specified in our risk policy. From inception to March 31, 2009, we utilized an average of approximately 8% of our operated capacity for our proprietary optimization strategy, and proprietary optimization revenue, after deducting cost of goods sold, contributed an average of 32% of our total revenue.

        A baseline level of revenue is locked-in with proprietary optimization transactions entered into in advance of, or early in, each fiscal year. We add incremental margins throughout the year by entering into additional transactions when market conditions are favorable.


Our Assets

        Our owned and operated gas storage facilities consist of AECO Hub™ (comprised of two facilities in Alberta, Canada), our Wild Goose storage facility in northern California and our Salt Plains storage facility in Oklahoma. Our gas storage assets are modern, well-maintained, automated facilities with low maintenance costs, long useful lives and comparatively high injection and withdrawal, or "cycling," capabilities. Our facilities require low amounts of cushion gas, meaning that a relatively small amount of gas is required to remain inside our facilities in order to maintain a minimum facility pressure

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Table of Contents


supporting the working gas. The size and flexibility of our facilities, together with the application of advanced skills in reservoir engineering, drilling, geology and geophysics, enable us to support individual high-cycle contracts in excess of the average physical cycling capabilities of our facilities. In addition to the facilities we own and operate, we also contract for 8.5 Bcf of gas storage capacity on a long-term basis from Natural Gas Pipeline Company of America LLC, or NGPL, on its pipeline system in the mid-continent at cost-of-service based rates that we believe are currently below market rates. The following table highlights certain important design information about our assets.

 
  AECO Hub™    
   
   
   
 
 
  Wild
Goose
  Salt
Plains
   
   
 
Name
  Suffield   Countess   NGPL    
 
Location
  Alberta   Alberta   California   Oklahoma   Midcon/
Texok
  Total  

Gas Storage Capacity (Bcf)

    80.0     55.0     29.0     13.0     8.5     185.5  

Peak Withdrawal (MMcf per day)

    1,800     1,250     700     150     114     4,014  

In Service Date

    1988     2003     1999     1995     N/A     1988 – 2003  


Business Strategies

        Our primary objective is to generate stable cash flows sufficient to make the minimum quarterly cash distribution per unit to our unitholders and to increase our cash distributions per unit over time by executing the following strategies:

    Maintaining a flexible portfolio of commercial strategies to optimize profitability;

    Continuing to expand our existing facilities; and

    Growing through acquisitions of complementary assets and pursuing new and existing development projects.


Competitive Strengths

        We believe that we are well-positioned to successfully achieve our primary business objectives and execute our business strategies based upon the following competitive strengths:

    High quality, strategically-located assets;

    Flexible commercial strategies provide relatively stable and predictable cash flows;

    Inventory of successful and repeatable expansion projects;

    Significant barriers to entry; and

    Experienced management and complete storage business team.

        For a more detailed description of our business strategies and competitive strengths, see "Business—Business Strategies" and "—Competitive Strengths." However, our business is subject to significant competition. See "Risk Factors—Risks Inherent in Our Business—We face significant competition that may cause us to lose market share, negatively affecting our business" and "Business—Competition."


Our Relationship With Holdco

        After this offering, Holdco will own our manager, approximately 48.2% of our outstanding common units, all of our subordinated units and all of our incentive distribution rights. Holdco is pursuing a potential gas storage development project in western Canada and currently holds rights to build a salt-dome cavern gas storage facility in Louisiana and a depleted reservoir storage facility in southern Texas. If these projects are developed, Holdco intends to offer us the opportunity to purchase the projects, although it is not obligated to do so.

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Table of Contents

        Over 95% of the equity in Holdco is owned by the Carlyle/Riverstone Funds, with the balance owned by our current and former officers and employees. The Carlyle/Riverstone Funds are affiliated with Riverstone Holdings LLC, or Riverstone. Riverstone, an energy- and power-focused private equity firm founded in 2000, has approximately $17 billion of assets under management across six investment funds. Riverstone conducts buyout and growth capital investments in the midstream, exploration and production, oilfield service, power and renewable sectors of the energy industry. With offices in New York, London and Houston, Riverstone has committed approximately $13.6 billion to 69 investments in North America, Latin America, Europe and Asia. Riverstone's management has substantial experience in identifying, evaluating, negotiating and financing acquisitions and investments.

        By providing us with access to strategic guidance, financial expertise and a potential source of new facilities, we believe our relationship with Holdco and the Carlyle/Riverstone Funds will greatly enhance our ability to grow our asset base and cash flow. As the owner of our manager, approximately 48.2% of our outstanding common units, all of our subordinated units and all of our incentive distribution rights, Holdco is incentivized to promote and support the successful execution of our business plan and may offer us development projects in the future although it is not required to do so.


Formation Transactions

        At or prior to the closing of this offering the following transactions will have occurred:

    Niska GS Holdings U.S., L.P., or US Holdings, will contribute Niska Gas Storage US, LLC, or Niska US, which indirectly owns the Wild Goose and Salt Plains facilities, to us;

    Niska GS Holdings Canada, L.P., or Canada Holdings, will, through a series of steps, contribute Niska Gas Storage Canada ULC, or Niska Canada, which indirectly owns AECO Hub™, to us;

    we will borrow $279.6 million under our revolving credit facilities and will use the proceeds to pay a distribution to US Holdings and Canada Holdings, collectively referred to as Niska Holdings;

    we will issue 4,787,911 common units, 11,831,661 subordinated units, a portion of the incentive distribution rights and a portion of the interests that will become a 2% managing member interest in us to US Holdings;

    we will issue 8,891,834 common units, 21,973,084 subordinated units, a portion of the incentive distribution rights and a portion of the interests that will become a 2% managing member interest in us to Canada Holdings;

    US Holdings and Canada Holdings will, through a series of steps, contribute to Holdco the common units, subordinated units, incentive distribution rights and interests that will become a 2% managing member interest in us;

    Holdco will contribute to our manager the interests that will become a 2% managing member interest in us; and

    we will issue 17,500,000 common units to the public in this offering and will use the proceeds of the offering as described in "Use of Proceeds."

        If the underwriters do not exercise their option to purchase additional common units, we will issue 2,625,000 common units to Holdco at the expiration of the option. To the extent the underwriters exercise their option to purchase additional common units, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Holdco. The proceeds from any exercise of the underwriters' option to purchase additional common units will be used to pay a distribution to Holdco.

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Recent Refinancing Transactions

    Non-Public Offering of Senior Notes by Niska US and Niska Canada

        On March 5, 2010, Niska US and Niska Canada closed a non-public offering of 800,000 units, each unit consisting of $218.75 principal amount of 8.875% senior notes due 2018 of Niska US and $781.25 principal amount of 8.875% senior notes of Niska Canada. The units were sold in an offering exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, to qualified institutional investors in reliance on Rule 144A under the Securities Act and to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. Niska US and Niska Canada received net proceeds of approximately $782 million in the aggregate from the offering, after deducting initial purchasers' commissions. Niska Predecessor used the net proceeds from the offering to pay a distribution to Niska Holdings, pay expenses associated with our new credit facilities and repay Niska Predecessor's syndicated term loans and previous revolving credit facilities. References in this prospectus to "our senior notes" refer to the 8.875% senior notes due 2018 of Niska US and Niska Canada. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our 8.875% Senior Notes Due 2018."

    Our New $400.0 Million Credit Agreement

        Concurrently with the closing of the non-public offering of units, Niska US and AECO Gas Storage Partnership, or the AECO Partnership, entered into a new agreement providing for senior secured asset-based revolving credit facilities, and we terminated our previous credit agreement. The new credit facilities provide for a maximum borrowing capacity of $400.0 million, which is available for general purposes, including working capital, economically hedged inventory purchases and capital expenditures. Borrowings under these credit facilities are limited to a borrowing base which will be redetermined from time to time, and is based primarily on our receivables, our economically hedged inventory of proprietary gas and certain of our fixed assets. We may only borrow up to the lesser of the level of our then current borrowing base and $400.0 million. Our borrowing base is currently $460.0 million. References in this prospectus to "our new credit facilities" or "our $400.0 million credit agreement" refer to the credit agreement and credit facilities, respectively, of the AECO Partnership and Niska US. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our $400.0 Million Credit Agreement."


Recent Capital Contribution and Contemplated Distribution

        On January 25, 2010, the holders of Niska Predecessor's Class A units made a contribution to the capital of Niska Predecessor of $18 million in order to fund capital expenditures limited by the previous credit facility. On April 16, 2010, Niska Holdings paid a cash distribution of approximately $25 million to the holders of its Class A units, and prior to the closing of this offering, we expect that Niska Holdings will pay the holders of its Class A units an additional $20 million cash distribution.


Management

        Our manager has sole responsibility for conducting our business and for managing our operations. Pursuant to our Operating Agreement, our manager has delegated the power to conduct our business and manage our operations to our board of directors, all of the members of which are appointed by our manager. References to our board refer to the board of directors of Niska Gas Storage Partners LLC as long as the delegation is in effect (or to the board of directors of our manager if such delegation is not in effect). Our board will direct the management of our business. Upon the closing of this offering, our board will have six members. Our manager intends to increase the size of our board to eight members following the closing of this offering. Our manager will appoint all members to our board and we expect that, when the size of our board increases to eight directors, at least three of those directors will be independent as defined under the independence standards established by the

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New York Stock Exchange, or the NYSE. For more information about our directors, see "Management—Directors and Executive Officers."


Ownership of Niska Gas Storage Partners LLC

Public Common Units

    25.4 %(a)

Common Units held by Holdco

    23.6 %(a)

Subordinated Units held by Holdco

    49.0 %

Incentive Distribution Rights

          (b)

Managing Member Interest

    2.0 %
       

Total

    100 %
       

(a)
Assumes the underwriters do not exercise their option to purchase additional common units. If the underwriters do not exercise their option to purchase additional common units, we will issue 2,625,000 common units to Holdco at the expiration of the option. If and to the extent the underwriters exercise their option to purchase additional common units, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Holdco. Accordingly, the exercise of the underwriters' option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units.

(b)
Incentive distribution rights represent a potentially variable interest in distributions and thus are not expressed as a fixed percentage. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Incentive Distribution Rights." Distributions in respect of the incentive distribution rights will be classified as distributions in respect of equity interests.

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        The following diagram depicts our simplified organizational and ownership structure after giving effect to this offering.

GRAPHIC

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Principal Executive Offices and Internet Address

        Our principal executive offices are located at 1001 Fannin Street, Suite 2500, Houston, TX 77002, and our telephone number is 281-404-1890. Our website will be located at http://www.niskapartners.com and will be activated following the closing of this offering. We will make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or the SEC, available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.


Summary of Conflicts of Interest and Fiduciary Duties

        Our manager has a legal duty to manage us in a manner beneficial to our members, and this duty will apply to our board as delegate of our manager. This legal duty originates in statutes and judicial decisions and is commonly referred to as a "fiduciary duty." However, because our manager is wholly-owned by Holdco, our officers and directors have fiduciary duties to manage our business in a manner beneficial to Holdco. As a result of this relationship, conflicts of interest may arise in the future between us or holders of our common units, on the one hand, and our manager and its affiliates, on the other hand. For a more detailed description of the conflicts of interest and fiduciary duties of our manager and board, see "Risk Factors—Risks Inherent in an Investment in Us" and "Conflicts of Interest and Fiduciary Duties—Conflicts of Interest."

        Our Operating Agreement limits the liability and fiduciary duties of our manager and board to holders of our common units. Our Operating Agreement also restricts the remedies available to holders of our common units for actions that might otherwise constitute breaches of our manager's or board's fiduciary duties owed to holders of our common units. Our Operating Agreement also provides that affiliates of our manager, including Holdco and its other subsidiaries and affiliates, are not restricted from competing with us. By purchasing a common unit, you are consenting to various limitations on fiduciary duties contained in our Operating Agreement and conflicts of interest that might otherwise be considered a breach of fiduciary or other duties under applicable law. See "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties" for a description of the fiduciary duties imposed on our manager and board by Delaware law, the material modifications of these duties contained in our Operating Agreement and certain legal rights and remedies available to holders of our common units.

        For a description of our other relationships with our affiliates, see "Certain Relationships and Related Party Transactions."

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The Offering

Common units offered to the public

  17,500,000 common units.

Common units subject to the underwriters' option to purchase additional common units

 

If the underwriters exercise their option to purchase additional common units in full, we will issue 2,625,000 additional common units to the public.

Units outstanding after this offering

 

33,804,745 common units and 33,804,745 subordinated units. If the underwriters do not exercise their option to purchase additional common units, we will issue 2,625,000 common units to Holdco at the expiration of the option. If and to the extent the underwriters exercise their option to purchase additional common units, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Holdco. Accordingly, the exercise of the underwriters' option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units.

Use of proceeds

 

We estimate that the net proceeds from this offering will be approximately $339.6 million after deducting approximately $27.9 million of underwriting discounts and structuring fees (based on an assumed initial public offering price of $21.00 per common unit) and expenses. We intend to use approximately $279.6 million of the net proceeds of this offering to fully repay all borrowings under our revolving credit facilities and the remainder for general company purposes, including to fund a portion of the cost of our expansion projects. The borrowings under our revolving credit facilities will be used to fund a distribution to Holdco in partial consideration for the assets contributed to us in connection with the closing of this offering.

 

The net proceeds from any exercise of the underwriters' option to purchase additional common units will be used to pay a distribution to Holdco. See "Use of Proceeds."

Cash distributions

 

We expect to make a minimum quarterly distribution of $0.35 per common unit ($1.40 per common unit on an annualized basis) to the extent we have sufficient cash after the establishment of cash reserves by our board of directors in its discretion and the payment of fees and expenses. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption "Our Cash Distribution Policy and Restrictions on Distributions."

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We will pay investors in this offering a prorated distribution for the first quarter during which we are a publicly-traded company. Such distribution will cover the period from the closing date of this offering to and including June 30, 2010. We expect to pay this cash distribution before August 14, 2010.

 

Our Operating Agreement generally provides that we distribute cash each quarter in the following manner:

 

•       first, 98% to the holders of common units and 2% to our manager, until each common unit has received the minimum quarterly distribution of $0.35 plus any arrearages from prior quarters;

 

•       second, 98% to the holders of subordinated units and 2% to our manager, until each subordinated unit has received the minimum quarterly distribution of $0.35; and

 

•       third, 98% to all unitholders, pro rata, and 2% to our manager, until each unit has received a distribution of $0.4025.

 

If cash distributions to our unitholders exceed $0.4025 per unit in any quarter, the holders of our incentive distribution rights will receive increasing percentages, up to 48%, of the cash we distribute in excess of that amount. We refer to these distributions as "incentive distributions."

 

See "Provisions of Our Operating Agreement Relating to Cash Distributions."

 

We believe that, based on the assumptions and considerations included in "Our Cash Distribution Policy and Restrictions on Distributions—Assumptions and Considerations," we will have sufficient cash available for distribution to pay the full minimum quarterly distribution on all of our common and subordinated units for the fiscal year ending March 31, 2011. We estimate that our pro forma cash available for distribution for the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009 would have been sufficient to pay the full minimum quarterly distribution on all of our common and subordinated units. See "Our Cash Distribution Policy and Restrictions on Distributions."

Subordinated units

 

Holdco will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are entitled to receive the minimum quarterly distribution of $0.35 per unit only after the common units have received the minimum quarterly distribution plus any arrearages from prior quarters. If we do not pay distributions on our subordinated units, our subordinated units will not accrue arrearages for those unpaid distributions.

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Subordination period

 

If we meet three requirements set forth in our Operating Agreement, the subordination period will end and all subordinated units will convert into common units on a one-for-one basis. The three requirements are:

 

•       we must make quarterly distributions from operating surplus of at least the minimum quarterly distribution on all outstanding common and subordinated units in respect of each of the prior twelve consecutive quarters;

 

•       our aggregate operating surplus generated in respect of such twelve consecutive quarters (including operating surplus generated by increases in working capital borrowings and treating any drawdowns from cash reserves established in prior periods as cash received during such quarters but excluding the $50 million basket contained in the definition of operating surplus) must equal or exceed the aggregate amount of distributions made in respect of such quarters; and

 

•       the conflicts committee of our board, or our board based on the recommendation of the conflicts committee, must determine that it is more likely than not that we will be able to maintain or increase our quarterly distribution per unit from operating surplus for the four succeeding quarterly distributions.

 

Our Operating Agreement provides that the requirements could first be satisfied in connection with a distribution of cash in respect of the quarter ending March 31, 2013 and, if not satisfied in respect of that quarter, could be satisfied on any date thereafter.

 

The subordination period also will end upon the removal of our manager other than for cause if no subordinated units or common units held by the holders of subordinated units or their affiliates are voted in favor of that removal.

 

When the subordination period ends, all subordinated units will convert into common units on a one-for-one basis, and the common units will no longer be entitled to arrearages. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Subordination Period."

Issuance of additional units

 

We can issue an unlimited number of units, including units senior to the common units, without the consent of our unitholders. See "Units Eligible for Future Sale" and "The Operating Agreement—Issuance of Additional Membership Interests."

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Limited voting rights

 

Our manager or our board will manage and operate us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our manager or our directors on an annual or other continuing basis. Our manager may not be removed except by a vote of the holders of at least 662/3% of our outstanding units, including any units owned by our manager and its affiliates (including Holdco), voting together as a single class. Upon completion of this offering, Holdco will own an aggregate of approximately 74.1% of our common and subordinated units. This will give Holdco the ability to prevent removal of our manager. See "The Operating Agreement—Withdrawal or Removal of Our Manager."

Limited call right

 

If at any time our manager and its affiliates own more than 80% of the then outstanding common units, our manager will have the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our manager or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. See "The Operating Agreement—Limited Call Right."

Estimated ratio of taxable income to
distributions

 

We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2012, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be 20% or less of the cash distributed to you with respect to that period. For example, if you receive an annual distribution of $1.40 per common unit, we estimate that your average allocable taxable income per year will be no more than $0.28 per common unit. See "Material U.S. Tax Consequences to Unitholders—U.S. Federal Income Taxation of Unitholders—Ratio of Taxable Income to Distributions."

Material tax consequences

 

For a discussion of certain material tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States or Canada, see "Material U.S. Tax Consequences to Unitholders" and "Material Canadian Federal Income Tax Consequences to Unitholders."

Agreement to be bound by Operating Agreement

 

By purchasing a common unit, you will be admitted as a unitholder and will have agreed to be bound by all of the terms of our Operating Agreement.

Exchange listing

 

Our common units have been approved for listing on the NYSE under the symbol "NKA."

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Summary Historical and Pro Forma Financial and Operating Data

        We were formed on January 27, 2010 and do not have our own historical financial statements for periods prior to our formation. Therefore, we present the financial statements of Niska Predecessor, consisting of the combined financial statements of Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P. Niska Predecessor acquired our predecessor business from EnCana Corporation in a two step transaction. In the first step of the transaction, which closed on May 12, 2006, Niska Predecessor acquired all of our assets except Wild Goose. In the second step of the transaction, which closed on November 16, 2006, Niska Predecessor acquired Wild Goose. In connection with the closing of this offering, Niska Holdings will contribute substantially all of its assets to us. The following table presents summary historical combined financial and operating data of Niska Predecessor and summary pro forma financial and operating data of Niska Gas Storage Partners LLC as of the dates and for the periods indicated.

        Financial information for periods prior to May 12, 2006 and for Wild Goose for periods prior to November 16, 2006 is not presented. See "Selected Historical and Pro Forma Financial Operating Data."

        The historical combined financial data presented for the years ended March 31, 2008 and 2009, the nine months ended December 31, 2009 and the period from May 12, 2006 to March 31, 2007 is derived from, and should be read together with and is qualified in its entirety by reference to, the historical audited combined financial statements and the accompanying notes included elsewhere in this prospectus. The historical combined financial data presented for the nine months ended December 31, 2008 is derived from, and should be read together with and is qualified in its entirety by reference to, the historical unaudited combined financial statements and the accompanying notes included elsewhere in this prospectus. Moreover, the table should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        Our summary pro forma statement of operations data for the nine months ended December 31, 2009 and summary pro forma balance sheet data as of December 31, 2009 are derived from the unaudited pro forma combined financial statements of Niska Gas Storage Partners LLC included elsewhere in this prospectus. The pro forma adjustments have been prepared as if the non-public offering of our senior notes, this offering and the transactions to be effected at the closing of this offering had taken place on December 31, 2009, in the case of the pro forma balance sheet, and on April 1, 2009, in the case of the pro forma statement of operations. A more complete explanation of the pro forma data can be found in our unaudited pro forma combined financial statements.

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        The following table includes the non-GAAP financial measure of Adjusted EBITDA. For a definition of Adjusted EBITDA and a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see "—Non-GAAP Financial Measure" below.

 
   
   
   
   
   
  Niska Gas
Storage
Partners
LLC
 
 
  Niska Predecessor   Pro Forma  
 
  Period from
May 12,
2006 to
March 31,

   
   
  Nine Months Ended
December 31,
   
 
 
  Year Ended March 31,   Nine Months
Ended
December 31,
2009
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
  (unaudited)
 
 
   
  (dollars in millions)
 

Combined Statement of Earnings and Comprehensive Income Data:

                                     

Revenues:

                                     
 

Long-term contract revenue

  $ 104.5   $ 121.4   $ 110.7   $ 85.9   $ 81.9   $ 81.9  
 

Short-term contract revenue

    32.1     35.5     52.0     32.8     39.9     39.9  
 

Optimization revenue, net(b)

    57.2     76.0     89.4     92.9 (c)   27.9 (c)   27.9 (c)
                           

  $ 193.8   $ 232.9   $ 252.2   $ 211.6   $ 149.7   $ 149.7  

Expenses (Income):

                                     
 

Operating expenses

  $ 28.8   $ 44.6   $ 45.4   $ 34.5   $ 28.4   $ 28.4  
 

General and administrative expenses

    19.9     30.1     24.2     20.4     21.5     20.9  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9     32.9  
 

Interest expense

    60.2     73.9     53.5     43.5     20.1     62.2  
 

Impairment of assets

        2.5     24.1 (d)            
 

Loss/(gain) on sale of assets

        2.3         0.7          
 

Other income

    (0.4 )   (0.7 )   (20.8) (e)   (0.4 )   (0.1 )   (0.1 )
 

Foreign exchange (gains)/losses

    (2.6 )   (7.2 )   (25.8 )   (16.0 )   (8.2 )   (8.2 )
                           
 

Earnings before income taxes

  $ 41.4   $ 45.0   $ 96.9   $ 85.4   $ 55.0   $ 13.6  

Income tax expense/(benefit):

                                     
 

Current

        0.3     0.3     0.3     0.2     0.2  
 

Deferred

    (12.1 )   (3.7 )   (12.2 )   (15.7 )   51.6     40.7  
                           

    (12.1 )   (3.4 )   (11.9 )   (15.4 )   51.8     40.9  
                           

Net earnings/(loss) and comprehensive income for the period ended

 
$

53.5
 
$

48.3
 
$

108.8
 
$

100.8
 
$

3.2
 
$

(27.3

)
                           

Balance Sheet Data (at period end):

                                     

Total assets

  $ 1,931.1   $ 1,905.2   $ 2,002.9   $ 2,107.5   $ 2,071.0   $ 2,083.8  

Property, plant and equipment, net of depreciation

    976.5     955.7     940.2     951.0     974.3     951.1  

Long-term debt(f)

    773.6     693.8     597.0     688.6     593.0     800.0  

Total partners'/members' capital

    820.5     867.1     977.4     930.2     969.2     862.3  

Other Financial Data (unaudited):

                                     

Adjusted EBITDA

  $ 148.0   $ 156.7   $ 162.1   $ 113.1   $ 145.0   $ 145.7  

Maintenance capital expenditures(g)

    0.3     1.7     1.4     1.0     0.8     0.8  

Expansion capital expenditures(g)

    27.4     35.8     17.6     16.5     46.0     45.7  

Operating Data (unaudited):

                                     

Effective working gas capacity (Bcf)(h)

    144.2     155.3     163.7     163.7     185.5     185.5  

Capacity added during period (Bcf)

        11.1     8.4     8.4     21.8     21.8  

Percent of total capacity contracted to third parties

    91.3 %   84.9 %   85.1 %   85.1 %   75.9 %   75.9 %

(a)
Period data includes Wild Goose from November 16, 2006 to March 31, 2007.

(b)
Optimization revenues are presented net of cost of goods sold.

(c)
Net optimization revenues include unrealized risk management gains/losses and write-downs of inventory. We had an unrealized risk management loss of $45.3 million for the nine months ended December 31, 2009 and an unrealized risk management gain of $93.8 million for the nine months ended December 31, 2008. We had a write-down of inventory of $50.1 million for the nine months ended December 31, 2008, compared to zero for the nine months ended December 31, 2009. Excluding these non-cash items, which do not affect Adjusted EBITDA, our realized optimization revenues were

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$73.2 million for the nine months ended December 31, 2009 compared with $49.3 million for the nine months ending December 31, 2008.

(d)
Impairment charges relate primarily to the goodwill in a subsidiary that was written down from its carrying amount of $22.0 million to zero. The impairment charges were recorded following a year of overall negative economic conditions.

(e)
Other income for the fiscal year ended March 31, 2009 includes a recovery of $17.8 million in addition to $2.7 million in interest as a result of the settlement of a dispute relating to the acquisition of our predecessor business from EnCana Corporation.

(f)
Excludes revolver drawings, which are recorded in current liabilities.

(g)
Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing operating capacity of our assets. Expansion capital expenditures are capital expenditures made to increase the long-term operating capacity of our assets or our asset base whether through construction or acquisition.

(h)
Represents operated and NGPL capacity.

Non-GAAP Financial Measure

    Adjusted EBITDA

        We use the non-GAAP financial measure Adjusted EBITDA in this prospectus. A reconciliation of Adjusted EBITDA to its most directly comparable financial measure as calculated and presented in accordance with GAAP is shown below.

        We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, unrealized risk management gains and losses, foreign exchange gains and losses, unrealized inventory impairment writedown, gains and losses on asset dispositions, asset impairments and other income. We believe the adjustments for other income, which is comprised primarily of income from an arbitration award granted to us in the fiscal year ended March 31, 2009, are similar in nature to the traditional adjustments to net income used to calculate EBITDA and adjustment for these items results in an appropriate representation of this financial measure. Adjusted EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements such as commercial banks and ratings agencies, to assess:

    the financial performance of our assets, operations and return on capital without regard to financing methods, capital structure or historical cost basis;

    the ability of our assets to generate cash sufficient to pay interest on our indebtedness and make distributions to our equity holders;

    repeatable operating performance that is not distorted by non-recurring items or market volatility; and

    the viability of acquisitions and capital expenditure projects.

        The GAAP measure most directly comparable to Adjusted EBITDA is net income. The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to net income. Adjusted EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies, our

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definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

        We recognize that the usefulness of Adjusted EBITDA as an evaluative tool may have certain limitations, including:

    Adjusted EBITDA does not include interest expense. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and impacts our ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have material limitations;

    Adjusted EBITDA does not include depreciation and amortization expense. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and expense may have material limitations;

    Adjusted EBITDA does not include provision for income taxes. Because the payment of income taxes is a necessary element of our costs, any measure that excludes income tax expense may have material limitations;

    Adjusted EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;

    Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and

    Adjusted EBITDA does not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss.

 
   
   
   
   
   
  Niska Gas
Storage
Partners
LLC
 
 
  Niska Predecessor   Pro Forma  
 
  Period from
May 12,
2006 to
March 31,

   
   
  Nine Months Ended
December 31,
   
 
 
  Year Ended March 31,   Nine Months
Ended
December 31,
2009
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
  (unaudited)
 
 
  (dollars in millions)
 

Reconciliation/(loss) of Adjusted EBITDA to net income:

                                     

Net earnings/(loss)

  $ 53.5   $ 48.3   $ 108.8   $ 100.8   $ 3.2   $ (27.3 )

Add/(deduct):

                                     
 

Interest expense

    60.2     73.9     53.5     43.5     20.1     62.2  
 

Income tax expense/(benefit)

    (12.1 )   (3.4 )   (11.9 )   (15.4 )   51.8     40.9  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9     32.9  
 

Unrealized risk management losses/(gains)

    2.8     (1.5 )   (82.8 )   (93.8 )   45.3     45.3  
 

Foreign exchange losses/(gains)

    (2.6 )   (7.2 )   (25.8 )   (16.0 )   (8.2 )   (8.2 )
 

Loss/(gain) on sale of assets

        2.3         0.7          
 

Impairment of assets

        2.5     24.1              
 

Other income

    (0.4 )   (0.7 )   (20.8 )   (0.4 )   (0.1 )   (0.1 )
 

Unrealized inventory impairment writedown

            62.3     50.1          
                           

Adjusted EBITDA

  $ 148.0   $ 156.7   $ 162.1   $ 113.1   $ 145.0   $ 145.7  
                           

(a)
Data includes Wild Goose from November 16, 2006 to March 31, 2007.

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RISK FACTORS

        Investing in our common units involves substantial risks. Common units are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common units.

        If any of the following risks were actually to occur, our business, financial condition, results of operations and ability to pay distributions to our members could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently consider to be immaterial may also materially adversely affect our business, financial condition, results of operations and ability to pay distributions to our members. In either case, we might not be able to make distributions on our common units, the trading price of our common units could decline and you could lose all or part of your investment in our common units.

Risks Inherent in Our Business

We may not have sufficient cash following the establishment of cash reserves and payment of fees and expenses to enable us to make cash distributions to holders of our common units at the minimum quarterly distribution rate under our cash distribution policy.

        We may not have sufficient cash each quarter to pay the full amount of our minimum quarterly distribution of $0.35 per unit, or $1.40 per unit per year, which will require cash of approximately $24.1 million per quarter, or $96.6 million per year, based on the number of common and subordinated units to be outstanding after the completion of this offering. Under our cash distribution policy, the amount of cash we can distribute on our units principally depends upon the amount of cash generated from our operations, which will fluctuate based on, among other things:

    the rates that we are able to charge new or renewing storage customers that are influenced by, among other things, weather and the seasonality and volatility of natural gas demand and supply:

    our ability to continue to buy, sell and store natural gas for profit at our facilities as well as the cost of natural gas that we purchase for our own account and the duration for which we store it;

    the risk that changes in the regulatory status of one or more of our facilities could remove the right to negotiate market-based rates, instead imposing cost of service rates, could adversely impact the rates we charge;

    technical and operating performance at our facilities;

    the level of our operating and maintenance and general and administrative costs; and

    nonpayment or other nonperformance by our customers.

        In addition, the actual amount of cash we will have available for distribution will depend on other factors, including:

    the level of capital expenditures we make;

    the cost of acquisitions that we make, if any;

    our debt service requirements;

    fluctuations in interest rates and currency exchange rates;

    fluctuations in our working capital needs;

    our ability to borrow funds and access capital markets;

    restrictions on distributions contained in debt agreements;

    the amount of cash reserves established by our board;

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    fluctuations or changes in tax rates, including Canadian income and withholding taxes; and

    prevailing economic conditions.

        For a description of additional restrictions and factors that may affect our ability to pay cash distributions, see "Our Cash Distribution Policy and Restrictions on Distributions."

The assumptions underlying our estimate of cash available for distribution included in "Our Cash Distribution Policy and Restrictions on Distributions" are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated.

        Our estimate of cash available for distribution set forth in "Our Cash Distribution Policy and Restrictions on Distributions" has been prepared by management, and we have not received an opinion or report on it from any independent accountants. If we do not achieve our anticipated results, we may not be able to pay the full minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of our common units may decline materially. The assumptions underlying our estimate of cash available for distribution are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated. For instance, we have estimated that the total capacity of our Wild Goose facility will increase by 6.0 Bcf during the fiscal year ending March 31, 2011. This expansion project, however, is subject to approval by regulatory authorities, which we believe will be granted during the summer of 2010. If we do not receive the required regulatory approval, we estimate that our net revenue and our Adjusted EBITDA for the fiscal year ending March 31, 2011 would decrease by approximately $8.0 million and $6.5 million, respectively.

The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.

        The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.

Our level of exposure to the market value of natural gas storage services could adversely affect our revenues and cash available to make distributions.

        As portions of our third-party gas storage contract portfolio come up for replacement or renewal, and capacity becomes available, adverse market conditions may prevent us from replacing or renewing the contracts on terms favorable to us. The market value of our storage capacity, realized through the value customers are willing to pay for LTF contracts or via the opportunities to be captured by our STF contracts or optimization activities, could be adversely affected by a number of factors beyond our control, including:

    prolonged reduced natural gas price volatility;

    a reduction in the difference between winter and summer prices on the natural gas futures market, sometimes referred to as the seasonal spread, due to real or perceived changes in supply and demand fundamentals;

    a decrease in demand for natural gas storage in the markets we serve;

    increased competition for storage in the markets we serve; and

    interest rates which, when higher, increase the cost of carrying owned or customer inventory.

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        From our inception in May 2006 to March 31, 2009, we utilized an average of approximately 78% of our operated capacity for our LTF strategy, representing an average of approximately 50% of annual revenue. The volume-weighted average life of our LTF contracts at December 31, 2009 was 3.3 years. From inception to March 31, 2009, we utilized an average of approximately 14% of our operated capacity for our STF strategy, representing an average of approximately 18% of annual revenue. Over the same period, we utilized an average of approximately 8% of our operated capacity for our proprietary optimization strategy, representing an average of approximately 32% of annual revenue. As of December 31, 2009, approximately 23% of our LTF contracts and all of our STF contracts were due to expire on or before March 31, 2011. A prolonged downturn in the natural gas storage market due to the occurrence of any of the above factors could result in our inability to renegotiate or replace a number of our LTF contracts upon their expiration, leaving more capacity exposed to the value that could be generated through STF contracts or optimization. STF and optimization values would be impacted by the same factors, and market conditions could deteriorate further before the opportunity to extract value with those strategies could be realized.

        Further, our lines of business and assets are concentrated solely in the natural gas storage industry. Thus, adverse developments, including any of the industry-specific factors listed above, would have a more severe impact on our business, financial condition, results of operations and ability to pay distributions than if we maintained a more diverse business.

We face significant competition that may cause us to lose market share, negatively affecting our business.

        Our ability to renew or replace existing contracts with our customers at rates sufficient to maintain current revenue and cash flows could be adversely affected by the activities of our competitors. The natural gas storage business is highly competitive. The principal elements of competition among storage facilities are rates, terms of service, types of service, deliverability, supply and market access, flexibility and reliability of service. Our operations compete primarily with other storage facilities in the same markets in the storage of natural gas. The California Public Utilities Commission, or the CPUC, has adopted policies that favor the development of new storage projects and there are numerous projects, including expansions of existing facilities and greenfield construction projects, at various stages of development in the market where our Wild Goose facility operates. These projects, if developed and placed into service, may compete with our storage operations.

        We also compete with certain pipelines, marketers and LNG facilities that provide services that can substitute for certain of the storage services we offer. In addition, natural gas as a fuel competes with other forms of energy available to end-users, including electricity, coal and liquid fuels. Increased demand for such forms of energy at the expense of natural gas could lead to a reduction in demand for natural gas storage services. Some of our competitors have greater financial resources and may now, or in the future, have greater access to expansion or development opportunities than we do.

        If our competitors substantially increase the resources they devote to the development and marketing of competitive services or substantially decrease the prices at which they offer their services, we may be unable to compete effectively. Some of these competitors may expand or construct new storage facilities that would create additional competition for us. The storage facility expansion and construction activities of our competitors could result in storage capacity in excess of actual demand, which could reduce the demand for our services, and potentially reduce the rates that we receive for our services.

        We also face competition from alternatives to natural gas storage—ways to increase supply of or reduce demand for natural gas at peak times such that storage is less necessary. For example, excess production or supply capability with sufficient delivery capacity on standby until required for peak demand periods or ability for significant demand to quickly switch to alternative fuels at peak times would represent alternatives to gas storage.

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        Competition could intensify the negative impact of factors that significantly decrease demand for natural gas at peak times in the markets served by our storage facilities, such as competing or alternative forms of energy, a recession or other adverse economic conditions, weather, higher fuel costs and taxes or governmental or regulatory actions that directly or indirectly increase the cost or limit the use of natural gas. Increased competition could reduce the volumes of natural gas stored in our facilities or could force us to lower our storage rates.

If third-party pipelines interconnected to our facilities become unavailable or more costly to transport natural gas, our business could be adversely affected.

        We depend upon third-party pipelines that provide delivery options to and from our storage facilities for our benefit and the benefit of our customers. Because we do not own these pipelines, their continuing operation is not within our control. These pipelines may become unavailable for a number of reasons, including testing, maintenance, line repair, reduced operating pressure, lack of operating capacity or curtailments of receipt or deliveries due to insufficient capacity. In addition, these third-party pipelines may become unavailable to us and our customers because of the failure of the interconnects that transport gas between our facilities and the third-party pipelines. Because of the limited number of interconnects at our facilities (Wild Goose is connected to third-party pipelines by two interconnects, AECO Hub™ by two interconnects (one at each facility) and Salt Plains by two interconnects), the failure of any interconnect could materially impact our ability or the ability of our customers to deliver gas into the third-party pipelines. If the costs to us or our storage service customers to access and transport on these third-party pipelines significantly increase, our profitability could be reduced. If third-party pipelines become partially or completely unavailable, our ability to operate could be restricted, thereby reducing our profitability. A prolonged or permanent interruption at any key pipeline interconnect could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our members.

Our operations are subject to operational hazards and unforeseen interruptions, which could have a material adverse effect on our business.

        Our operations are subject to the many hazards inherent in the storage of natural gas, including, but not limited to:

    negative unpredicted performance by our storage reservoirs that could cause us to fail to meet expected or forecasted operational levels or contractual commitments to our customers;

    unanticipated equipment failures at our facilities;

    damage to storage facilities and related equipment caused by tornadoes, hurricanes, floods, earthquakes, fires, extreme weather conditions and other natural disasters and acts of terrorism;

    damage from construction and farm equipment or other surface uses;

    leaks of or other losses of natural gas as a result of the malfunction of equipment or facilities;

    migration of natural gas through faults in the rock or to some area of the reservoir where the existing wells cannot drain the gas effectively;

    blowouts (uncontrolled escapes of gas from a well), fires and explosions;

    operator error; and

    environmental pollution or release of toxic substances.

        These risks could result in substantial losses due to breaches of our contractual commitments, personal injury or loss of life, damage to and destruction of property and equipment and pollution or other environmental damage and may result in curtailment or suspension of our operations. In addition, operational interruptions or disturbances, mechanical malfunctions, faulty measurements or other acts, omissions, or errors may result in significant costs or lost revenues. Gas that moves outside

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of the effective drainage area through migration could be permanently lost and will need to be replaced to maintain design storage performance.

We are not fully insured against all risks incident to our business, and if an accident or event occurs that is not fully insured it could adversely affect our business.

        We may not be able to obtain the levels or types of insurance we desire, and the insurance coverage we do obtain may contain large deductibles or fail to cover certain hazards or cover all potential losses. The occurrence of any operating risks not covered by insurance could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our members.

We are exposed to the credit risk of our customers, and any material nonpayment or nonperformance by our key customers could adversely affect our financial results and cash available for distribution.

        We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers. Our credit procedures and policies may not be adequate to fully eliminate customer credit risk. If we fail to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration in their creditworthiness, any resulting increase in nonpayment or nonperformance by them and our inability to re-market or otherwise use the capacity could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our members.

Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

        On March 5, 2010 Niska US and Niska Canada closed a non-public offering of $800.0 million principal amount of units, consisting of the 8.875% senior notes due 2018 of Niska US and Niska Canada. In connection with the offering of units, we entered into a new credit agreement providing for senior secured asset-based revolving credit facilities with a maximum borrowing capacity of up to $400.0 million that will be available for general purposes, including working capital, economically hedged inventory purchases and capital expenditures. In addition, we have the ability to incur additional debt, subject to limitations in our $400.0 million credit agreement and the indenture governing our senior notes. As of April 26, 2010 we had no drawings under our revolving credit facilities and had $3.5 million in letters of credit issued. Our level of debt could have important consequences to us, including the following:

    additional financing for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

    we will need a substantial portion of our cash flow to make principal and interest payments on our indebtedness, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to members; and

    we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally than our competitors with less debt.

        Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. In addition, our ability to service our debt under our credit facilities will depend on market interest rates because the interest rates applicable to our borrowings will fluctuate with movements in interest rate markets. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or terminating distributions and reducing or delaying our business activities, acquisitions, investments or capital expenditures. In addition, we may take actions such as selling assets, restructuring or refinancing our debt or seeking additional equity capital although we may not be able

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to effect any of these actions on satisfactory terms, or at all. Our inability to obtain additional financing on terms favorable to us or our inability to service our debt could have a material adverse effect on our business, results of operations, financial condition and ability to pay distributions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

Restrictions in the agreements governing our indebtedness could limit our ability to make distributions to our members.

        We will be dependent upon the cash flow generated by our operations in order to meet our debt service obligations and to allow us to make distributions to our members. The operating and financial restrictions and covenants in our credit agreement, the indenture governing our senior notes and any future financing agreements could restrict our ability to finance future operations or capital needs or to expand or pursue our business activities, which may, in turn, limit our ability to make distributions to our members. For example, our credit agreement and the indenture governing our senior notes restrict or limit our ability to:

    make distributions;

    incur additional indebtedness or guarantee other indebtedness;

    grant liens or make certain negative pledges;

    make certain loans or investments;

    engage in transactions with affiliates;

    make any material change to the nature of our business;

    make a disposition of assets; or

    enter into a merger or plan to consolidate, liquidate, wind up or dissolve.

        Furthermore, our credit agreement contains covenants requiring us to maintain certain financial ratios and tests, including that we maintain a fixed charge coverage ratio of 1.1 to 1.0 at the end of each fiscal quarter when excess availability under both revolving credit facilities is less than 15% of the aggregate amount of availability under both credit facilities. Our ability to comply with those covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If we violate any of the restrictions, covenants, ratios or tests in our credit agreement or the indenture governing our senior notes, the lenders or the noteholders, as the case may be, will be able to accelerate the maturity of all borrowings and demand repayment of amounts outstanding, our lenders' commitment to make further loans to us may terminate, and we may be prohibited from making distributions to our members. We might not have, or be able to obtain, sufficient funds to make these accelerated payments.

        The indenture governing our senior notes prohibits us from making distributions to unitholders if any default or event of default (as defined in the indenture) exists. In addition, after the closing of this offering, both the indenture and our $400 million credit agreement will contain covenants limiting our ability to pay distributions to unitholders. The covenants will apply differently depending on our fixed charge coverage ratio (defined substantively the same in the indenture and the credit agreement). If the fixed charge coverage ratio is not less than 1.75 to 1.0, we will be permitted to make restricted payments, including distributions to our unitholders, if the aggregate restricted payments since the date of closing of this offering, excluding certain types of permitted payments, are less than the sum of a number of items including, most importantly, operating surplus (defined similarly to the definition in our Operating Agreement) calculated as of the end of our preceding fiscal quarter and the aggregate net cash proceeds received by us as a capital contribution or from the issuance of equity interests, including the net proceeds received in this offering. The indenture governing our senior notes contains an additional general basket of $75 million not contained in our credit agreement.

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        See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our $400.0 Million Credit Agreement" and "Our 8.875% Senior Notes Due 2018." Any subsequent replacement of our credit agreement, our senior notes or any new indebtedness could have similar or greater restrictions.

We will be required to make capital expenditures to increase our asset base. If we are unable to obtain needed capital or financing on satisfactory terms, our ability to pay cash distributions may be diminished or our financial leverage could increase.

        In order to increase our asset base, we will need to make expansion capital expenditures. If we do not make sufficient or effective expansion capital expenditures, we will be unable to expand our business operations and may be unable to raise the level of our cash distributions. To fund our expansion capital expenditures, we will be required to use cash from our operations or incur borrowings or sell additional common units or other membership interests. Such uses of cash from operations will reduce cash available for distribution to our members. Our ability to obtain bank financing or to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering and the covenants in our existing debt agreements, as well as by general economic conditions and contingencies and uncertainties that are beyond our control. Even if we are successful in obtaining the necessary funds, the terms of such financings could limit our ability to pay distributions to our members. In addition, incurring additional debt may significantly increase our interest expense and financial leverage and issuing additional membership interests may result in significant unitholder dilution and increase the aggregate amount of cash required to maintain the then-current distribution rate, which could materially decrease our ability to pay distributions at the then-current distribution rate.

Unstable market and economic conditions may materially and adversely impact our business.

        Global financial markets and economic conditions have been, and continue to be, experiencing disruption following adverse changes in global capital markets. The debt and equity capital markets are experiencing significant volatility and banks and other commercial lenders have substantially curtailed their lending activities as a result of, among other things, significant write-offs in the financial services sector, the re-pricing of credit risk and current weak economic conditions. These circumstances continue to make it difficult to obtain funding.

        As a result, the cost of raising money in the debt and equity capital markets and commercial credit markets has increased substantially while the availability of funds from those markets has diminished significantly. Many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity—at all or on terms similar to the debt being refinanced—and reduced and in some cases ceased to provide funding to borrowers. Due to these factors, we cannot be certain that new debt or equity financing will be available on acceptable terms or that we will be able to access the full amount of the available commitments under our revolving credit facilities in the future.

        These circumstances have impacted our business, or may impact our business in a number of ways including but not limited to:

    limiting the amount of capital available to us to fund new growth capital projects and acquisitions, which would limit our ability to grow our business, take advantage of business opportunities, respond to competitive pressures and increase distributions to our unitholders;

    adversely affecting our ability to refinance outstanding indebtedness at maturity on favorable or fair terms or at all; and

    weakening the financial strength of certain of our customers, increasing the credit risk associated with those customers and/or limiting their ability to grow which could affect their ability to pay for our services or prompt them to reduce the volume of natural gas they store in our facilities.

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If we do not successfully complete expansion projects or make and integrate acquisitions that are accretive, our future growth may be limited.

        A principal focus of our strategy is to grow the cash distributions on our units by expanding our business. Our ability to grow depends on our ability to complete expansion and development projects and make acquisitions that result in an increase in cash per unit generated from operations. We have near term projects in progress to expand our capacity by up to an additional 39.0 Bcf, including 15.0 Bcf of capacity expected to become available during the summer of 2010 and an additional 7.0 Bcf of capacity expected to become available during the following fiscal year. We may be unable to successfully complete accretive expansion or development projects or acquisitions for any of the following reasons:

    we are unable to identify attractive expansion or development projects or acquisition candidates or we are outbid by competitors;

    we are unable to obtain necessary regulatory and/or government approvals, including approval of the CPUC relating to our application to, among other things, expand Wild Goose's storage capacity by 21.0 Bcf to 50.0 Bcf;

    we are unable to realize anticipated costs savings or successfully integrate the businesses we build or acquire;

    we are unable to raise financing on acceptable terms;

    we make or rely upon mistaken assumptions about volumes, revenues and costs, including synergies and potential growth;

    we are unable to secure adequate customer commitments to use the newly expanded or acquired facilities;

    we are unable to hire, train or retain qualified personnel to manage and operate our business and assets;

    we are unable to complete expansion projects on schedule and within budgeted costs;

    we assume unknown liabilities when making acquisitions for which we are not indemnified or for which our indemnity is inadequate;

    our management's and employees' attention is diverted because of other business concerns; or

    we experience unforeseen difficulties operating in new product areas or new geographic areas.

        If any expansion or development project or acquisition eventually proves not to be accretive to our cash flow per unit, our business, financial condition, results of operations and ability to pay distributions to our members may be materially adversely affected.

Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.

        Currency exchange rate fluctuations could have an adverse effect on our results of operations. Historically, a portion of our revenue has been generated in Canadian dollars, but we incur operating and administrative expenses in both U.S. dollars and Canadian dollars and financing expenses in U.S. dollars. If the Canadian dollar weakens significantly, we would be required to convert more Canadian dollars to U.S. dollars to satisfy our obligations, which would cause us to have less cash available for distribution.

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        A significant strengthening of the U.S. dollar could result in an increase in our financing expenses and could materially affect our financial results under U.S. GAAP. In addition, because we report our operating results in U.S. dollars, changes in the value of the U.S. dollar also result in fluctuations in our reported revenues and earnings. In addition, under U.S. GAAP, all foreign currency-denominated monetary assets and liabilities such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, long-term debt and capital lease obligations are revalued and reported based on the prevailing exchange rate at the end of the reporting period. This revaluation may cause us to report significant non-monetary foreign currency exchange gains and losses in certain periods.

Our operations are subject to environmental and worker safety laws and regulations that may expose us to significant costs and liabilities.

        Our natural gas storage activities are subject to stringent and complex federal, state, provincial and local environmental and worker safety laws and regulations. We may incur substantial costs in order to conduct our operations in compliance with these laws and regulations. Moreover, new, stricter environmental laws, regulations or enforcement policies could be implemented that significantly increase our compliance costs or the cost of any remediation of environmental contamination that may become necessary, and these costs could be material. In addition, laws and regulations to reduce emissions of greenhouse gases could affect the production or consumption of natural gas and, adversely affect the demand for our storage services and the rates we are able to charge for those services. See "Business—Regulation" for more information.

A change in the jurisdictional characterization of our assets by regulatory agencies or a change in policy by those agencies may result in increased regulation of our assets, which may cause our revenues to decline and operating expenses to increase.

        AECO Hub™ in Alberta is not currently subject to rate regulation. The Alberta Energy Resources Conservation Board, or the ERCB, has jurisdiction to regulate the technical aspects of construction, development, and operation of storage facilities. If approved to do so by the Alberta Government, the Alberta Utilities Commission, or the AUC, may also set prices for gas stored in Alberta. It is not currently Alberta Government policy to disturb market-based prices of independent gas storage facilities. If, however, the AUC was authorized to regulate the rates we charge, it could materially adversely affect our business. In addition, a connected pipeline tolling structure is available to our customers at AECO Hub™, allowing them to inject and withdraw natural gas without incremental transportation costs. There has been a recent decision to include the previously provincially-regulated Alberta System under the jurisdiction of the Federal National Energy Board, or NEB, and it is possible that the NEB could assume federal jurisdiction over, and set rates for, connected storage facilities, including AECO Hub™, or invoke transportation toll design changes that negatively impact AECO Hub™.

        Our Wild Goose operations are regulated by the CPUC. The CPUC has authorized us to charge our Wild Goose customers market-based rates because, as an independent storage provider, we, rather than ratepayers, bear the risk of any underutilized or discounted storage capacity. If the CPUC changes this determination, for instance as a result of a complaint, we could be limited to charging rates based on our cost of providing service plus a reasonable rate of return, which could have an adverse impact on our revenues associated with providing storage services. In addition, we have filed applications with the CPUC to, among other things, expand Wild Goose's storage capacity by 21.0 Bcf to 50.0 Bcf. We expect to receive the CPUC's approval during the summer of 2010, but we may not receive the approval at that time or at all.

        Our Salt Plains operations are subject to primary regulation by the Oklahoma Corporation Commission, or the OCC, and are permitted to conduct a limited amount of storage service in interstate commerce under Federal Energy Regulatory Commission, or FERC, regulations and policies

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that allow pipeline and storage companies to engage in interstate commerce (commonly known as NGPA section 311 services under the Natural Gas Policy Act of 1978), which services are not subject to FERC's broader jurisdiction under the Natural Gas Act. These section 311 services are provided by Salt Plains pursuant to a Statement of Operating Conditions which is on file with FERC. FERC has permitted Salt Plains to charge market-based rates for its section 311 services. Market-based rate authority allows Salt Plains to negotiate rates with individual customers based on market demand. This right to charge market-based rates may be challenged by a party filing a complaint with FERC. Our market-based rate authorization may also be re-examined if we add substantial new storage capacity through expansion or acquisition and as a result obtain market power. Any successful complaint or protest against our rates, or re-examination of those rates by FERC, could limit us to charging rates based on our cost of providing service plus a reasonable rate of return, and could have an adverse impact on our revenues associated with providing storage services. Should FERC or the OCC change their relevant policies, or should we no longer qualify for primary regulation by the OCC, our results of operations could be materially adversely affected.

        Our current natural gas storage operations in the United States are generally exempt from the jurisdiction of FERC, under the Natural Gas Act of 1938, or the Natural Gas Act or, in the case of Salt Plains, are providing services under NGPA section 311. If our operations become subject to FERC regulation under the Natural Gas Act, such regulation may extend to such matters as:

    rates, operating terms and conditions of service;

    the types of services we may offer to our customers;

    the expansion of our facilities;

    creditworthiness and credit support requirements;

    relationships among affiliated companies involved in certain aspects of the natural gas business; and

    various other matters.

        In the event that our operations become subject to FERC regulation, and should we fail to comply with all applicable FERC-administered statutes, rules, regulations and orders, we could be subject to substantial penalties and fines. Under the Energy Policy Act of 2005, or EPAct 2005, FERC has civil penalty authority under the Natural Gas Act to impose penalties for certain violations of up to $1,000,000 per day for each violation. FERC also has the authority to order disgorgement of profits from transactions deemed to violate the Natural Gas Act and the EPAct 2005.

We hold title to our storage reservoirs under various types of leases and easements, and our rights thereunder generally continue only for so long as we pay rent or, in some cases, minimum royalties.

        Our rights under storage easements and leases continue for so long as we conduct storage operations and pay our grantors for our use, or otherwise pay rent owing to the applicable lessor. If we were unable to operate our storage facilities for a prolonged period of time (generally one year) or did not pay the rent or minimum royalty, as applicable, to maintain such storage easements and leases in good standing, we might lose title to our gas storage rights underlying our storage facilities. In addition, title to some of our real property assets may have title defects which have not historically materially affected the ownership or operation of our assets. In either case, to recover our lost rights or to remove the title defects, we would be required to utilize significant time and resources. In addition, we might be required to exercise our power of condemnation to the extent available. Condemnation proceedings are adversarial proceedings, the outcomes of which are inherently difficult to predict, and the compensation we might be required to pay to the parties whose rights we condemn could be

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significant and could materially adversely affect our business, financial condition, results of operations and ability to pay distributions to our members.

Our financial results are seasonal and generally lower in the second and third quarters of the calendar year, which may require us to borrow money in order to make distributions to our members during these quarters.

        Our cash expenditures related to our optimization activities are highest during summer months, and our cash receipts from our optimization activities are highest during winter months. As a result, our results of operations for the summer are generally lower than for the winter. With lower cash flow during the second and third calendar quarters, we may be required to borrow money in order to pay distributions to our members. Any restrictions on our ability to borrow money could restrict our ability to pay the minimum quarterly distributions to our members.

Our risk management policies cannot eliminate all commodity price risk. In addition, any non-compliance with our risk management policies could result in significant financial losses.

        While our hedging policies are designed to minimize commodity price risk, some degree of exposure to unforeseen fluctuations in market conditions remains. We have in place risk management systems that are intended to quantify and manage risks, including risks related to our hedging activities such as commodity price risk and basis risk. We monitor processes and procedures to prevent unauthorized trading and to maintain substantial balance between purchases and future sales and delivery obligations. However, these steps may not detect and prevent all violations of our risk management policies and procedures, particularly if deception or other intentional misconduct is involved. There is no assurance that our risk management procedures will prevent losses that would negatively affect our business, financial condition, results of operations and ability to pay distributions to our members. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management Policy and Practices."

The adoption of certain derivatives legislation by Congress, and the imposition of certain new regulations, could have an adverse impact on our ability to hedge risks associated with our business.

        Congress currently is considering legislation that, among other things, may impose new levels of regulation on the over-the-counter derivatives marketplace, which could affect the use of derivatives in hedging transactions. Those proposals are in various stages in the House of Representatives and the Senate and are not sufficiently unified to permit an assessment of which, if any, of the proposals will be enacted by Congress, or whether they would have an impact on our hedging activities. Separately, in mid-January, 2010, the U.S. Commodity Futures Trading Commission, or CFTC, proposed regulations that would impose federal speculative position limits for speculation in some specific futures and option contracts in natural gas, crude oil, heating oil, and gasoline. These proposed regulations would preserve exemptions for many bona fide hedging of commercial risks. Although it is not possible at this time to predict whether or when Congress will act on derivatives legislation or the CFTC will adopt final regulations on the topic, any laws or regulations that subject us to additional capital or margin requirements relating to, or that impose material additional restrictions on, our trading and commodity positions, could have an adverse effect on our ability to hedge risks associated with our business or may increase the total cost of our hedging activity.

We may enter into commercial obligations that exceed the physical capabilities of our facilities.

        We enter into LTF and STF contracts and proprietary optimization transactions based on our understanding of the injection, withdrawal and working gas storage capabilities of our facilities as well as the expected usage patterns of our customers. If our understanding of the capabilities of our facilities or our expectations of the usage by customers is inaccurate we may be obligated to customers to inject, withdraw or store natural gas in manners which our facilities are not physically able to satisfy.

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If we are unable to satisfy our obligations to our customers we may be liable for damages, the customers could have the right to terminate their contracts with us, and our reputation and customer relationships may be damaged.

Our operations could be affected by terrorist activities and catastrophic events that could result from terrorism.

        In the event that our storage facilities are subject to terrorist activities, such activities could significantly impair our operations and result in a decrease in revenues and additional costs to repair and insure our assets. The effects of, or threat of, terrorist activities could result in a significant decline in the North American economy and the decreased availability and increased cost of insurance coverage. Any of these factors could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our members.

We depend on a limited number of customers for a significant portion of our revenues. The loss of any of these customers could result in a decline in our revenues and cash available to make distributions.

        We rely on a limited number of customers for a significant portion of our revenues. For the nine months ended December 31, 2009, one of our customers accounted for approximately 44% of our gross revenue, and for the fiscal year ended March 31, 2008, two of our customers accounted for approximately 43% of our gross revenue. The loss of all or a portion of the revenues attributable to our key customers as a result of competition, creditworthiness, inability to negotiate extensions or replacements of contracts or otherwise, could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our members.

Risks Inherent in an Investment in Us

Holdco currently controls, and after this offering will continue to control, our manager, which has sole responsibility for conducting our business and managing our operations. Our manager has delegated this responsibility to our board, all of the members of which are appointed by our manager. Our manager and its affiliates, including Holdco, have conflicts of interest with us and limited fiduciary duties, and they may favor their own interests to the detriment of our common unitholders.

        Following this offering, Holdco will own and control our manager. Our manager will appoint all of the members of our board, which will manage and operate us. Some of our directors and executive officers are directors or officers of our manager or its affiliates, including Holdco. Although our board has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, our directors and officers have a fiduciary duty to manage our business in a manner beneficial to Holdco. Therefore, conflicts of interest may arise between Holdco and its affiliates, including our manager, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our board may favor our manager's own interests and the interests of its affiliates over the interests of our common unitholders. These conflicts include the following situations:

    neither our Operating Agreement nor any other agreement requires Holdco to pursue a business strategy that favors us or our unitholders;

    pursuant to our Operating Agreement, our manager has limited its liability and defined its and our board's fiduciary duties in ways that are protective of it and the board as compared to liabilities and duties that would be imposed upon a managing member under Delaware law in the absence of such definition. Our Operating Agreement also restricts the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty under Delaware common law. By purchasing common units, unitholders are consenting to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable law;

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    our board determines the amount and timing of asset purchases and sales, borrowings, issuance of additional membership interests and reserves, each of which can affect the amount of cash that is distributed to unitholders;

    our board determines the amount and timing of any capital expenditures and, based on the applicable facts and circumstances, whether a capital expenditure is classified as a maintenance capital expenditure. This determination can affect the amount of cash that is distributed to our unitholders, including distributions on our subordinated units, and to the holders of the incentive distribution rights, as well as the ability of the subordinated units to convert to common units;

    our board determines which costs incurred by our manager and its affiliates are reimbursable by us;

    our Operating Agreement does not restrict our manager from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;

    our manager may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units;

    Holdco and its affiliates are not limited in their ability to compete with us;

    our manager is allowed to take into account the interests of parties other than us, including Holdco and its affiliates, in resolving conflicts of interest with us;

    except in limited circumstances, our manager has the power and authority to conduct our business without unitholder approval;

    our Operating Agreement permits us to borrow funds to permit the payment of cash distributions or fund operating expenditures. These borrowings will be treated as cash receipts for the purpose of calculating operating surplus, and thus may permit us to achieve the financial conditions necessary for the subordinated units to convert to common units;

    our manager may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units or to make incentive distributions;

    our Operating Agreement permits us to distribute up to $50.0 million from capital sources, including on the incentive distribution rights, without treating such distribution as a distribution from capital;

    our manager controls the enforcement of the obligations that it and its affiliates owe to us; and

    our manager decides whether to retain separate counsel, accountants or others to perform services for us.

        See "Conflicts of Interest and Fiduciary Duties."

Affiliates of our manager, including Holdco and the Carlyle/Riverstone Funds and their portfolio company subsidiaries, are not limited in their ability to compete with us and are not obligated to offer us the opportunity to pursue additional assets or businesses.

        Our Operating Agreement among us, Holdco and others will not prohibit affiliates of our manager, including Holdco and the Carlyle/Riverstone Funds, from owning assets or engaging in businesses that compete directly or indirectly with us. Holdco is pursuing a potential gas storage development project in western Canada and currently holds the rights to build a salt dome cavern gas storage facility in Louisiana and a depleted reservoir in southern Texas. Holdco may but is not required to offer us the opportunity to purchase these projects. Holdco may instead opt to develop these

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projects in competition with us. In addition, the Carlyle/Riverstone Funds and their portfolio companies may acquire, construct or dispose of additional natural gas storage or other assets in the future, without any obligation to offer us the opportunity to purchase or construct any of those assets. The Carlyle/Riverstone Funds and their affiliates are large, established participants in the energy industry and may have greater resources than we have, which may make it more difficult for us to compete with these entities with respect to commercial activities as well as for acquisition opportunities. As a result, competition from these entities could adversely impact our business, financial condition, results of operations and ability to pay distributions to our members. See "Conflicts of Interest and Fiduciary Duties."

Holders of our common units have limited voting rights and are not entitled to elect our manager or our directors, which could reduce the price at which the common units will trade.

        Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions regarding our business. Unitholders will have no right to elect our manager or our board on an annual or other continuing basis. Our board, including our independent directors, will be chosen entirely by our manager. Unlike publicly-traded corporations, we will not conduct annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations. Furthermore, if the unitholders were dissatisfied with the performance of our manager, they will have little ability to remove our manager. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

Upon completion of this offering, we will be a "controlled company" within the meaning of NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from some of the NYSE listing requirements with respect to independent directors.

        Because Holdco will control more than 50% of the voting power for the election of our directors upon completion of this offering, we will be a controlled company within the meaning of NYSE rules which exempt controlled companies from the following corporate governance requirements:

    the requirement that a majority of the board consist of independent directors;

    the requirement that we have a nominating or corporate governance committee, composed entirely of independent directors, that is responsible for identifying individuals qualified to become board members, consistent with criteria approved by the board, selection of board nominees for the next annual meeting of shareholders, development of corporate governance guidelines and oversight of the evaluation of the board and management;

    the requirement that we have a compensation committee of the board, composed entirely of independent directors, that is responsible for reviewing and approving corporate goals and objectives relevant to chief executive officer compensation, evaluation of the chief executive officer's performance in light of the goals and objectives, determination and approval of the chief executive officer's compensation, making recommendations to the board with respect to compensation of other executive officers and incentive compensation and equity-based plans that are subject to board approval and producing a report on executive compensation to be included in an annual proxy statement or Form 10-K filed with the SEC;

    the requirement that we conduct an annual performance evaluation of the nominating, corporate governance and compensation committees; and

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    the requirement that we have written charters for the nominating, corporate governance and compensation committees addressing the committees' responsibilities and annual performance evaluations.

        For so long as we remain a controlled company, we are not required to have a majority of independent directors or nominating, corporate governance or compensation committees. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.

You will experience immediate and substantial dilution of $17.84 in our pro forma tangible net book value per common unit.

        The estimated initial public offering price of $21.00 per unit exceeds our pro forma net tangible book value of $3.16 per unit. Based on the estimated initial public offering price of $21.00 per unit, you will incur immediate and substantial dilution of $17.84 per common unit. See "Dilution."

Our Operating Agreement limits our manager's and directors' fiduciary duties to holders of our common units and restricts the remedies available to holders of our common units for actions taken by our manager or board that might otherwise constitute breaches of fiduciary duty.

        Our Operating Agreement contains provisions that reduce the fiduciary standards to which our manager or directors would otherwise be held by state fiduciary duty laws. The limitation and definition of these duties is permitted by the Delaware law governing limited liability companies. For example, our Operating Agreement:

    permits our manager to make a number of decisions in its individual capacity, as opposed to in its capacity as our manager, or in its sole discretion. This entitles our manager to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any unitholder. Examples include the exercise of its limited call right, the exercise of its rights to transfer or vote the units it owns, the exercise of its registration rights and its determination whether or not to consent to any merger or consolidation of the company or amendment to our Operating Agreement;

    provides that our manager or directors will not have any liability to us or our unitholders for decisions made in their capacity as manager or board members so long as they acted in good faith, meaning they believed the decision was in our best interests;

    generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of our board and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or must be "fair and reasonable" to us, as determined by our board and that, in determining whether a transaction or resolution is "fair and reasonable," our board may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us;

    provides that our manager and our officers and directors will not be liable for monetary damages to us or our other members for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the manager or those other persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and

    provides that in resolving conflicts of interest, it will be presumed that in making its decision the manager or our board acted in good faith, and in any proceeding brought by or on behalf of any unitholder or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

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Even if unitholders are dissatisfied, they cannot initially remove our manager without Holdco's consent.

        If you are dissatisfied with the performance of our manager, you will have little ability to remove our manager. The vote of the holders of at least 662/3% of all outstanding common and subordinated units voting together as a single class is required to remove our manager. Following the closing of this offering, Holdco will own 74.1% of our outstanding common and subordinated units. Accordingly, our public unitholders are currently unable to remove our manager without Holdco's consent because Holdco will own sufficient units to be able to prevent the manager's removal.

        If our manager is removed without cause during the subordination period and no units held by the holders of the subordinated units or their affiliates are voted in favor of that removal, all subordinated units held by our manager and its affiliates will automatically be converted into common units. If no units held by any holder of subordinated units or its affiliates are voted in favor of that removal, all subordinated units will convert automatically into common units and any existing arrearages on the common units will be extinguished. A removal of our manager under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met the tests specified in our Operating Agreement. Cause is narrowly defined in our Operating Agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our manager liable for actual fraud or willful misconduct in its capacity as our manager. Cause does not include most cases of poor management of the business.

Our manager, or its interest in us, may be transferred to a third party without unitholder consent.

        Our manager may transfer its managing member interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, our Operating Agreement does not restrict the ability of the owners of our manager from transferring ownership of our manager to a third party. The new owners of our manager would then be in a position to revoke the delegation to our board of the authority to conduct our business and operations or to replace our directors and officers with their own choices. This effectively permits a "change of control" of the company without your vote or consent.

Increases in interest rates could adversely impact our unit price and our ability to issue additional equity to make acquisitions or for other purposes.

        An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield-based equity investments such as our common units. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to decline. Therefore, changes in interest rates may affect our ability to issue additional equity to make acquisitions or for other purposes.

It is our policy to distribute a significant portion of our available cash to our members, which could limit our ability to grow and make acquisitions.

        Pursuant to our cash distribution policy, we expect that we will distribute a significant portion of our available cash to our members and will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy may impair our ability to grow.

        In addition, because we intend to distribute a significant portion of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would

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result in increased interest expense, which, in turn, may impact the available cash that we have to distribute to our members. See "Our Cash Distribution Policy and Restrictions on Distributions."

We may issue additional membership interests without your approval, which would dilute your existing ownership interests.

        Our Operating Agreement does not limit the number of additional membership interests that we may issue at any time without the approval of our unitholders. Our issuance of additional common units or other membership interests of equal or senior rank may have the following effects:

    each unitholder's proportionate ownership interest in us will decrease;

    the amount of cash available for distribution on each unit may decrease;

    because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

    the ratio of taxable income to distributions may increase;

    the relative voting strength of each previously outstanding unit may be diminished; and

    the market price of the common units may decline.

Our manager has a call right that may require you to sell your common units at an undesirable time or price.

        If at any time our manager and its affiliates own more than 80% of the common units, our manager will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price, as calculated pursuant to the terms of our Operating Agreement. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. Our manager is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call right. There is no restriction in our Operating Agreement that prevents our manager from issuing additional common units and exercising its call right. If our manager exercised its call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. At the completion of this offering and assuming no exercise of the underwriters' option to purchase additional common units, our manager and its affiliates will own approximately 48.2% of our outstanding common units. At the end of the subordination period, assuming no additional issuances of common units (other than for the conversion of the subordinated units into common units), our manager and its affiliates will own approximately 74.1% of our outstanding common units. For additional information about this call right, see "The Operating Agreement—Limited Call Right."

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Our Operating Agreement restricts the voting rights of unitholders owning 20% or more of our common units.

        Our Operating Agreement restricts unitholders' voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our manager and its affiliates, their transferees and persons who acquired such units with the prior approval of our board, cannot vote on any matter. Our Operating Agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders' ability to influence the manner or direction of management.

Unitholders may have liability to repay distributions that were wrongfully distributed to them.

        Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 18-607 of the Delaware Limited Liability Company Act, or the Delaware Act, we may not make a distribution to unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of an impermissible distribution, members who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited liability company for the distribution amount. A purchaser of common units will be liable for the obligations of the transferor to make contributions to us that are known to such purchaser at the time it became a member and for unknown obligations if the liabilities could be determined from our Operating Agreement.

There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.

        Prior to the offering, there has been no public market for the common units. After the offering, there will be only 17,500,000 publicly-traded common units, assuming no exercise of the underwriters' option to purchase additional common units. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, a lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

        The initial public offering price for the common units has been determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:

    our quarterly distributions;

    our quarterly or annual earnings or those of other companies in our industry;

    loss of a large customer;

    announcements by us or our competitors of significant contracts or acquisitions;

    changes in accounting standards, policies, guidance, interpretations or principles;

    general economic conditions;

    the failure of securities analysts to cover our common units after this offering or changes in financial estimates by analysts;

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    future sales of our common units; and

    the other factors described in these "Risk Factors."

The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by Holdco or other large holders.

        After this offering, we will have 33,804,745 common units and 33,804,745 subordinated units outstanding, which includes the 17,500,000 common units we are selling in this offering that may be resold in the public market immediately. All of the subordinated units will convert into common units at the end of the subordination period, which could occur as early as the distribution in respect of the quarter ending March 31, 2013. All of the 16,304,745 common units that are issued to Holdco will be subject to resale restrictions under a 180-day lock-up agreement with the underwriters. Each of the lock-up agreements with the underwriters may be waived in the discretion of Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated. Sales by Holdco or other large holders of a substantial number of our common units in the public markets following this offering, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. In addition, we have agreed to provide registration rights to Holdco. Under our Operating Agreement, our manager and its affiliates have additional registration rights relating to the offer and sale of any units that they hold, subject to certain limitations. See "Units Eligible for Future Sale."

We will incur increased costs as a result of being a publicly-traded company.

        We have no history operating as a publicly-traded company. As a publicly-traded company we will incur significant legal, accounting and other expenses that we did not incur prior to this offering. In addition, the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and the NYSE, require publicly-traded entities to adopt various corporate governance practices that will further increase our costs. Before we are able to make distributions to our members, we must first pay or reserve cash for our expenses, including the costs of being a public company. As a result, the amount of cash we have available for distribution to our members will be affected by the costs associated with being a public company.

        Prior to this offering, we have not filed reports with the SEC. Following this offering, we will become subject to the public reporting requirements of the Exchange Act. We expect these rules and regulations to increase certain of our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly-traded company, we are required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our SEC reporting requirements.

        We also expect to incur significant expense in order to obtain director and officer liability insurance. Because of the limitations in coverage for directors, it may be more difficult for us to attract and retain qualified persons to serve on our board or as executive officers.

        We estimate that we will incur approximately $3.4 million of incremental costs per year associated with being a publicly-traded company; however, it is possible that our actual incremental costs of being a publicly-traded company will be higher than we currently estimate.

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We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

        We are in the process of evaluating our internal controls systems to allow management to report on, and our independent registered public accounting firm to audit, our internal controls over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and will be required to comply with Section 404 in our annual report for our fiscal year ending March 31, 2011 (subject to any change in applicable SEC rules). Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board, or PCAOB, rules and regulations that remain unremediated. Although we produce our financial statements in accordance with GAAP, our internal accounting controls may not meet all standards applicable to companies with publicly-traded securities. As a publicly-traded company, we will be required to report, among other things, control deficiencies that constitute a "material weakness" or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities such as the SEC or the PCAOB. If we do not implement improvements to our disclosure controls and procedures or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal controls over financial reporting pursuant to an audit of our internal controls over financial reporting. This may subject us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common units. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and the price of our common units may be adversely affected.

Tax Risks to Common Unitholders

        In addition to reading the following risk factors, you should read "Business—Taxation," "Material U.S. Tax Consequences to Unitholders" and "Material Canadian Federal Income Tax Consequences to Unitholders" for a more complete discussion of the expected material tax consequences of owning and disposing of common units.

We anticipate being treated as a partnership for U.S. federal income tax purposes and having no liability for U.S. federal income tax. If the U.S. Internal Revenue Service, or the IRS, were to treat us as a corporation for U.S. federal income tax purposes, then our cash available for distribution to you would be substantially reduced.

        We anticipate that Niska Gas Storage Partners LLC will be treated as a partnership for U.S. federal income tax purposes. However, it is possible in certain circumstances for a limited liability company such as us to be treated as a corporation for U.S. federal income tax purposes. Although we do not believe that we will be so treated based upon our current operations, a change in our business (or a change in current law) could cause us to be treated as a corporation for U.S. federal income tax

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purposes or otherwise subject us to taxation as an entity. We have not requested, and do not plan to request, a ruling from the IRS on this or any other tax matter affecting us.

        If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate. Distributions to you would generally be taxed again as corporate dividends, and no income, gains, losses or deductions would flow through to you. Because corporate income taxes would be imposed upon us, our cash available for distribution to you would be substantially reduced, likely causing a substantial reduction in the value of our common units. For additional discussion regarding the importance of our treatment as a partnership, see "Business—Taxation—U.S. Taxation" and "Material U.S. Tax Consequences to Unitholders—Taxation of Niska Gas Storage Partners LLC—Partnership Status."

        Our Operating Agreement provides that the adverse impact of any such additional entity-level taxation will be borne by all members. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels."

Notwithstanding our treatment for U.S. federal income tax purposes, we will be subject to certain non-U.S. taxes. If a taxing authority were to successfully assert that we have more tax liability than we anticipate or legislation were enacted that increased the taxes to which we are subject, the cash available for distribution to you could be further reduced.

        Most of our business operations and subsidiaries will be subject to income, withholding and other taxes in the non-U.S. jurisdictions in which they are organized or from which they receive income, reducing the amount of cash available for distribution. In computing our tax obligation in these non-U.S. jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing tax authorities, such as whether withholding taxes will be reduced by the application of certain tax treaties. Upon review of these positions the applicable authorities may not agree with our positions. A successful challenge by a tax authority could result in additional tax being imposed on us, reducing the cash available for distribution to you. In addition, changes in our operations or ownership could result in higher than anticipated tax being imposed in jurisdictions in which we are organized or from which we receive income and further reduce the cash available for distribution. For more details, see "Business—Taxation" and "Material Canadian Federal Income Tax Consequences to Unitholders—Taxation of Niska Gas Storage Partners LLC." Although these taxes may be properly characterized as foreign income taxes, you may not be able to credit them against your liability for U.S. federal income taxes on your share of our earnings. For more details see "Material U.S. Tax Consequences to Unitholders—U.S. Federal Income Taxation of Unitholders—Foreign Tax Credits."

        Our Operating Agreement provides that the adverse impact of any such additional entity-level taxation will be borne directly or indirectly by all members. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels."

If we were subjected to a material amount of additional entity-level taxation by individual states and localities, it would reduce our cash available for distribution to you.

        Changes in current state law may subject us to additional entity-level taxation by individual states and localities, reducing our cash available for distribution to you. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships and limited liability companies to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Our Operating Agreement provides that the adverse impact of any such additional entity-level taxation will be borne by all members. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels."

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We may become a resident of Canada and have to pay tax in Canada on our worldwide income, which could reduce our earnings, and unitholders could then become taxable in Canada in respect of their ownership of our units. Moreover, as a non-resident of Canada we may have to pay tax in Canada on our Canadian source income, which could reduce our earnings.

        Under the Income Tax Act (Canada), or the Canadian Tax Act, a company that is resident in Canada is subject to tax in Canada on its worldwide income, and unitholders of a company resident in Canada may be subject to Canadian capital gains tax on a disposition of its units and to Canadian withholding tax on dividends paid in respect of such units.

        Our place of residence, under Canadian law, would generally be determined based on the place where our central management and control is, in fact, exercised. It is not our current intention that our central management and control be exercised in Canada. Based on our operations, we do not believe that we are, nor do we expect to be, resident in Canada for purposes of the Canadian Tax Act, and we intend that our affairs will be conducted and operated in a manner such that we do not become a resident of Canada under the Canadian Tax Act. However, if we were or become resident in Canada, we would be or become subject under the Canadian Tax Act to Canadian income tax on our worldwide income. Further, unitholders who are non-residents of Canada may be or become subject under the Canadian Tax Act to tax in Canada on any gains realized on the disposition of our units and would be or become subject to Canadian withholding tax on dividends paid or deemed to be paid by us, subject to any relief that may be available under a tax treaty or convention.

Our tax treatment as a publicly-traded partnership, as a company with multinational operations as well as the tax treatment of an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

        The present tax treatment of publicly-traded partnerships, companies with multinational operations, or an investment in such entities as Niska Gas Storage Partners LLC is complex and may be modified by administrative, legislative or judicial interpretation at any time. Any modification to the tax laws, treaties and interpretations thereof may or may not be applied retroactively. Any such changes could negatively impact the value of an investment in our common units.

If a tax authority contests the positions we take, the market for our common units may be adversely impacted and the cost of any such contest will reduce our cash available for distribution to you.

        We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes. We have sought, but have not yet received, an Advance Tax Ruling from the Dutch tax authority regarding the taxation of our Dutch subsidiary. The tax authorities may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from other positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take, and a court may not agree with these positions. Any contest with a tax authority may materially and adversely impact the market for our common units and the price at which they trade. In addition, our costs of any contest with a tax authority will be borne by our members because the costs will reduce our cash available for distribution.

You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

        Because our unitholders will be treated as partners for U.S. federal income tax purposes to whom we will allocate taxable income which could be different in amount than the cash we distribute, you will be required to pay any U.S. federal income taxes, Medicare taxes and, in some cases, state and local income taxes on your share of our taxable income even if you receive no cash distributions from us.

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You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that results from that income.

Tax gain or loss on the disposition of our common units could be more or less than expected.

        If you sell your common units, you will recognize a gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and your tax basis in those common units. Because for U.S. federal income tax purposes distributions in excess of your allocable share of our net taxable income decrease your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in effect, become taxable income to you for U.S. federal income tax purposes if you sell such units at a price greater than your tax basis in those units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder's share of our liabilities, you may incur a tax liability on the sale of your units in excess of the amount of cash you receive. See "Material U.S. Tax Consequences to Unitholders—Disposition of Common Units—Recognition of Gain or Loss."

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

        Investment in common units by a tax-exempt entity, such as employee benefit plans and individual retirement accounts (known as IRAs), or a non-U.S. person raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. In addition, we expect to withhold taxes from distributions to non-U.S. persons at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal tax returns and pay tax on their shares of our taxable income attributable to our U.S. operations. If you are a tax exempt entity (or intend to hold our units through an IRA) or a non-U.S. person, you should consult your tax advisor before investing in our common units. See "Material U.S. Tax Consequences to Unitholders—Non-U.S. Investors" and "Material U.S. Tax Consequences to Unitholders—Tax-Exempt Organizations."

We will treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

        Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of taxable income recognized by you as a result of your ownership of our units. It also could affect the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. See "Material U.S. Tax Consequences to Unitholders—U.S. Federal Income Taxation of Unitholders—Section 754 Election."

We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

        We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of the date a particular unit is transferred. The use of this proration method may not be permitted under

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existing Treasury Regulations. Recently, however, the Department of the Treasury issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly-traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Although existing publicly-traded partnerships are entitled to rely on these proposed Treasury Regulations, they are not binding on the IRS and are subject to change until final Treasury Regulations are issued. Moreover, our method of proration differs from the proposed Treasury Regulations with respect to allocations of certain items of income and loss. Our counsel has not rendered an opinion regarding the validity of our proration method. See "Material U.S. Tax Consequences to Unitholders—Disposition of Common Units—Allocations Between Transferors and Transferees."

The amount of taxable income or loss allocable to each unitholder depends, in part, upon values that we periodically determine for our outstanding equity interests and our assets in order to comply with federal income tax law. The IRS may challenge our determinations of these values, which could adversely affect the value of our units.

        U.S. federal income tax law requires us to periodically determine the value of our assets and to calculate the amount of taxable income or loss allocable to each partner based in part upon these values. We determine these asset values and allocations in part by reference to values that we determine for our outstanding equity interests. The IRS may challenge our valuations and related allocations. A successful IRS challenge to these valuations or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from a unitholder's sale of units and could have a negative impact on the value of units or result in audit adjustments to our unitholders' tax returns without the benefit of additional deductions.

A unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as having disposed of those units. If so, such unitholder would no longer be treated as the owner of those units for tax purposes during the period of the loan and may recognize gain or loss from the disposition.

        Because a unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as having disposed of the loaned units, such unitholder may no longer be treated for tax purposes as an owner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder in respect of those units could be fully taxable as ordinary income. Our counsel has not rendered an opinion regarding the treatment of a unitholder whose common units are loaned to a short seller. Unitholders desiring to assure their status as owners of units for tax purposes and avoid the risk of gain recognition from a loan to a short seller should modify any applicable brokerage account agreements to prohibit their brokers from loaning their units. See "Material U.S. Tax Consequences to Unitholders—U.S. Federal Income Taxation of Unitholders—Treatment of Short Sales."

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our tax partnership for U.S. federal income tax purposes.

        We will be considered to have terminated our tax partnership for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns for one fiscal year and may result in a significant deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a

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calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but it would result in our being treated as a new partnership for tax purposes. If we were treated as a new partnership, we would be required to make new tax elections and could be subject to penalties if we were unable to determine that a termination occurred. See "Material U.S. Tax Consequences to Unitholders—Disposition of Common Units—Constructive Termination."

As a result of investing in our common units, you may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire property.

        In addition to U.S. federal income taxes, you will likely be subject to state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if you do not live in any of those jurisdictions. You will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We will initially own assets and conduct business in California, Oklahoma and Texas. Each of California and Oklahoma currently imposes a personal income tax on individuals. Many states also impose an income tax on corporations and other entities. As we make acquisitions or expand our business, we may own assets or conduct business in additional states that impose a personal income tax. It is your responsibility to file all U.S. federal, foreign, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units.

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USE OF PROCEEDS

        We expect the net proceeds from this offering will be approximately $339.6 million after deducting approximately $23.9 million of underwriting discounts and structuring fees and $4.0 million in expenses. We intend to use approximately $279.6 million of the net proceeds of this offering to fully repay all borrowings under our revolving credit facilities, and the remainder for general company purposes, including to fund a portion of the cost of our expansion projects.

        We currently have no borrowings outstanding under our revolving credit facilities. We expect that the amount outstanding under our revolving credit facilities immediately prior to the closing of this offering will be $279.6 million. All such borrowings under our revolving credit facilities will be used to fund a distribution to Holdco as partial consideration for Niska Holdings' contribution of Niska US and Niska Canada to us and for working capital. Our revolving credit facilities have a maturity date of March 5, 2014. Affiliates of the underwriters participating in this offering are lenders under our revolving credit facilities and accordingly, will receive a portion of the proceeds of this offering. Please read "Underwriting—Relationships."

        Our estimates assume an initial public offering price of $21.00 per common unit and no exercise of the underwriters' option to purchase additional common units. An increase or decrease of $1.00 per common unit in the initial public offering price would cause the net proceeds from the offering, after deducting estimated underwriting discounts, structuring fees and expenses to increase or decrease by $16.4 million. If the proceeds increase due to a higher initial public offering price, we will increase the amount of the borrowings in order to increase the distribution to Holdco and repay such increased borrowings with the additional proceeds. If the proceeds decrease due to a lower initial public offering price, we will decrease the amount of the borrowing and correspondingly decrease the distribution to Holdco.

        The proceeds from any exercise of the underwriters' option to purchase additional common units will be used to pay a distribution to Holdco.

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CAPITALIZATION

        The following table shows our cash and cash equivalents and capitalization as of December 31, 2009:

    on a combined historical basis;

    as adjusted to give effect to the non-public offering of our senior notes and the application of the net proceeds therefrom, the concurrent termination of our previous credit facilities and interest rate swaps relating to our previous term loans and the distribution by Niska Predecessor of certain development projects to one of its affiliates; and

    as further adjusted to give effect to our formation and related transactions as described under "Prospectus Summary—Formation Transactions," including the issuance of common units in this offering and the application of the net proceeds from this offering as described under "Use of Proceeds."

        This table is derived from and should be read in conjunction with and is qualified in its entirety by reference to, our historical and pro forma combined financial statements and "Prospectus Summary—Formation Transactions" and the accompanying notes included elsewhere in this prospectus. You should read this table in conjunction with "Prospectus Summary—Formation Transactions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of December 31, 2009  
 
  Historical   As Adjusted   As Further
Adjusted
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 37,964   $ 26,389   $ 59,389  
               

Previous revolving credit facilities(1)

   
190,000
   
   
 
 

Overdraft

    473          

New revolving credit facilities(2)

        115,000     115,000  

Long-term debt:

                   
 

Term loan(1)

    592,526          
 

8.875% senior notes due 2018

        800,000     800,000  
               
   

Total debt

  $ 782,999   $ 915,000   $ 915,000  
               

Equity:

                   
 

Limited Partner Interests of Niska Predecessor

  $ 969,232   $ 829,291   $  
 

Niska Gas Storage Partners LLC:

                   
   

Common units—Public

  $   $   $ 339,613  
   

Common units—Holdco

            165,351  
   

Subordinated units—Holdco

            343,314  
   

Managing member interest—Manager

            14,013  
               
 

Total members' capital

            862,291  
               
   

Total capitalization

  $ 1,752,231   $ 1,744,291   $ 1,777,291  
               

(1)
Outstanding borrowings under our previous credit facilities were reduced to $75 million with cash from operations subsequent to December 31, 2009 and the remaining balance of borrowings under our previous credit facilities and term loan were fully repaid with the proceeds of the non-public offering of our senior notes.

(2)
The $115 million shown as outstanding under our new credit facilities represents the amount that would have been drawn to repay the drawings under the previous revolving credit facilities that

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    would have been outstanding had the transactions occurred on December 31, 2009. As of April 26, 2010, we had no borrowings outstanding under our revolving credit facilities and $3.5 million in letters of credit issued. We anticipate borrowing $279.6 million under our revolving credit facilities to fund a distribution to Holdco prior to the closing of this offering. We intend to use a portion of the net proceeds of this offering to fully repay all such borrowings under our revolving credit facilities, such that no borrowings will be outstanding post-offering. Because such pre-closing borrowing and subsequent repayment offset one another, no adjustment is reflected in the table above.

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DILUTION

        Dilution is the amount by which the offering price paid by the purchasers of common units sold in this offering will exceed the pro forma net tangible book value per unit after the offering. Assuming an initial public offering price of $21.00 per common unit, on a pro forma basis as of December 31, 2009 our net tangible book value was negative $121.5 million, or negative $2.36 per unit. Purchasers of common units in this offering will experience substantial and immediate dilution in pro forma net tangible book value per unit for financial accounting purposes, as illustrated in the following table:

Assumed initial public offering price per common unit

        $ 21.00  
 

Pro forma net tangible book value per unit before the offering(1)

  $ (2.36 )      
 

Increase in pro forma net tangible book value per unit attributable to purchasers in the offering

    5.52        
             

Less: Pro forma net tangible book value per unit after the offering(2)

          3.16  
             

Immediate dilution in pro forma net tangible book value per unit attributable to purchasers in the offering(3)

        $ 17.84  
             

(1)
Determined by dividing the number of units (16,304,745 common units, 33,804,745 subordinated units and the 2% managing member interest, which has a dilutive effect equivalent to 1,379,786 units) to be issued to Holdco and its affiliates for their contribution of assets and liabilities to us into the pro forma net tangible book value of the contributed assets and liabilities. The number of units notionally represented by the 2% managing member interest is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98%) by the 2% managing member interest.

(2)
Determined by dividing the total number of units to be outstanding after the offering (33,804,745 common units, 33,804,745 subordinated units and the 2% managing member interest, which has a dilutive effect equivalent to 1,379,786 units) into our pro forma net tangible book value, after giving effect to the application of the expected net proceeds of the offering. The number of units notionally represented by the 2% managing member interest is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98%) by the 2% managing member interest.

(3)
If the initial public offering price were to increase or decrease by $1.00 per unit, dilution in pro forma net tangible book value per unit would increase by $0.24 per unit or decrease by $0.24 per unit, respectively.

        The following table sets forth the number of units that we will issue and the total consideration contributed to us by the purchasers of common units in this offering and by us to Holdco and its affiliates (including our manager):

 
  Units Acquired   Total Consideration  
 
  Number   %   Amount   %  

Holdco and its affiliates(1)(2)

    51,489,276     75 % $ 522,678,400     61 %

New investors

    17,500,000     25 % $ 339,612,500     39 %
                   

Total

    68,989,276     100 % $ 862,290,900     100 %
                   

(1)
Upon completion of the transactions contemplated by this prospectus, Holdco and its affiliates (including our manager) will own 16,304,745 common units, 33,804,745 subordinated units and the 2% managing member interest, which has a dilutive effect equivalent to 1,379,786 units. The number of units represented by the 2% managing member interest is determined by multiplying

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    the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98%) by the 2% managing member interest.

(2)
The assets and liabilities contributed by Holdco and its affiliates were recorded at historical cost in accordance with GAAP. The following table shows the investment of Holdco and its affiliates in us as of December 31, 2009, as adjusted for all prior distributions to Holdco and its affiliates, a capital contribution by Holdco and its affiliates and other related formation transactions.

Net investment as of December 31, 2009

  $ 969,232,000  

Less distributions:

       
 

Cash distribution paid with proceeds from non-public offering of senior notes

    (107,065,100 )
 

Cash distribution paid April 16, 2010

    (25,000,000 )
 

Cash distribution expected to be paid prior to closing

    (20,000,000 )
 

Cash distribution expected to be paid from borrowings under our revolving credit facilities

    (279,612,500 )
       
   

Total distributions

  $ (431,677,600 )

Plus capital contribution:

       
 

Capital contribution on January 25, 2010

  $ 18,000,000  

Other pro forma adjustments

       
 

Elimination of Starks and Coastal Bend

    (25,526,212 )
 

Elimination of deferred charges associated with prior credit facilities

    (7,250,000 )
 

Other

    (99,788 )
       
   

Total of other pro forma adjustments

  $ (32,876,000 )

Total consideration to us

 
$

522,678,400
 

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OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

        You should read the following discussion of our cash distribution policy in conjunction with the specific assumptions included in this section. For more detailed information regarding the factors and assumptions upon which our cash distribution policy is based, see "—Assumptions and Considerations" below. In addition, you should read "Forward-Looking Statements" and "Risk Factors" for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

        For additional information regarding our historical and pro forma operating results, you should refer to our historical and pro forma financial statements included elsewhere in this prospectus.

General

    Our Cash Distribution Policy

        Our Operating Agreement contains a policy pursuant to which we will pay regular quarterly cash distributions in an aggregate amount equal to substantially all of our available cash. Under the policy, each quarter our board will make a determination of the amount of cash available for distribution to members. Our board will determine cash available for distribution to be an amount equal to all cash on hand at the end of the quarter, less reserves for the prudent conduct of our business (including reserves for capital expenditures, operating expenditures and debt service) or for distributions to members in respect of future quarters. Our board's determination of available cash will take into account the need to maintain certain cash reserves to preserve our distribution levels across seasonal and cyclical fluctuations in our business. We expect to retain a portion of the proceeds from this offering to fund a portion of the cost of our expansion projects and may in the future establish cash reserves to fund the purchase of inventory for our proprietary optimization activities. Our board may determine to reserve or reinvest excess cash in order to permit gradual or consistent increases in quarterly distributions and may borrow to fund distributions in quarters when we generate less available cash than necessary to sustain or grow our cash distributions per unit.

        Our cash distribution policy reflects a basic judgment that our unitholders will be better served by our distributing our available cash, after expenses and reserves, rather than retaining it. Because we believe we will generally finance any capital investments from external financing sources, including commercial bank borrowings and the issuance of debt and equity interests, we believe that our investors are best served by our distributing all of our available cash. Because we are not subject to entity-level U.S. federal income tax, we will have more cash to distribute to you than would be the case if we were subject to such tax.

    Limitations on Cash Distributions; Ability to Change Our Cash Distribution Policy

        There is no guarantee that unitholders will receive quarterly cash distributions from us. Our distribution policy may be changed at any time and is subject to certain restrictions, including:

    Our cash distribution policy may be affected by restrictions on distributions under our $400.0 million credit agreement and by the indenture relating to our senior notes as well as by restrictions in future debt agreements that we enter into. Specifically, our credit agreement and indenture contain financial tests and covenants, commensurate with companies of our credit quality, that we must satisfy. Should we be unable to satisfy these restrictions under our $400.0 million credit agreement or indenture or if we are otherwise in default under our $400.0 million credit agreement or indenture, we would be prohibited from making cash distributions to you notwithstanding our stated cash distribution policy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our 8.875% Senior Notes Due 2018" and "—Our $400.0 Million Credit Agreement."

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    Our board's determination of cash available for distribution will take into account reserves for the prudent conduct of our business (including reserves for cash distributions to our members), and the establishment of (or any increase in) those reserves could result in a reduction in cash distributions to our unitholders from the levels we currently anticipate.

    Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our board.

    Because we have no history operating with a policy of distributing substantial amounts of cash and have grown rapidly through expansion of our facilities, we have a limited historical basis upon which to rely in our determination as to whether we will have sufficient available cash to pay the minimum quarterly distribution.

    Under Section 18-607 of the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets.

    We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating or general and administrative expenses, principal and interest payments on our outstanding debt, tax expenses, working capital requirements and anticipated cash needs. Our cash available for distribution to unitholders is directly impacted by our cash expenses necessary to run our business, including capital needs to maintain our storage facilities, to finance our proprietary optimization program and to fund the margin requirements of our hedging instruments.

    Our Cash Distribution Policy May Limit Our Ability to Grow

        Because we intend to distribute substantially all of our available cash, our growth may not be as fast as the growth of businesses that reinvest their available cash to expand ongoing operations. Moreover, our future growth may be slower than our historical growth. We expect that we will, in large part, rely upon external financing sources, including bank borrowings and issuances of debt and equity interests, to fund our expansion capital expenditures. To the extent we are unable to finance growth externally, our cash distribution policy could significantly impair our ability to grow.

Minimum Quarterly Distribution

        Upon completion of this offering, our board will adopt a policy pursuant to which we will declare a minimum quarterly distribution of $0.35 per unit per complete quarter, or $1.40 per unit per year, to be paid no later than 45 days after the end of each fiscal quarter. This equates to an aggregate cash distribution of approximately $24.1 million per quarter or $96.6 million per year, in each case based on the number of common units and subordinated units and the 2% managing member interest to be outstanding immediately after completion of this offering.

        If the underwriters do not exercise their option to purchase additional common units, we will issue 2,625,000 common units to Holdco at the expiration of the option. If and to the extent the underwriters exercise their option to purchase additional common units, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Holdco. Accordingly, the exercise of the underwriters' option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units. See "Underwriting."

        As of the date of this offering, our manager will be entitled to 2% of all distributions that we make prior to our liquidation. Our manager's initial 2% interest in distributions may be reduced if we issue additional units in the future (other than the issuance of common units upon exercise by the

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underwriters of their option to purchase additional common units, the issuance of common units to Holdco upon expiration of the underwriters' option to purchase additional common units or the issuance of common units upon conversion of outstanding subordinated units) and our manager does not contribute a proportionate amount of capital to us to maintain its initial 2% managing member interest.

        The table below sets forth the number of outstanding common units and subordinated units upon the closing of this offering and the number of unit equivalents the managing member interest represents and the aggregate distribution amounts payable on such interests for four quarters based on our minimum quarterly distribution of $0.35 per unit per quarter (or $1.40 per unit on an annualized basis).

 
   
  Distributions  
 
  Number of Units   One Quarter   Four Quarters  

Publicly held common units

    17,500,000   $ 6,125,000   $ 24,500,000  

Common units held by Holdco(1)

    16,304,745     5,706,661     22,826,643  

Subordinated units held by Holdco

    33,804,745     11,831,661     47,326,643  

Managing member 2% interest(2)

    1,379,786     482,925     1,931,700  
               

Total

    68,989,276   $ 24,146,247   $ 96,584,986  
               

(1)
Assumes the underwriters do not exercise their option to purchase 2,625,000 additional common units and that the 2,625,000 common units will be issued to Holdco upon the expiration of the underwriters' 30-day option period. Irrespective of whether the underwriters exercise their option to purchase additional common units, the total number of common units we have outstanding upon the completion of this offering and the expiration of the option period will not be impacted.

(2)
The number of unit equivalents the managing member interest represents is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98%) by the manager's 2% managing member interest.

        If the minimum quarterly distribution on our common units is not paid with respect to any quarter, the common unitholders will not be entitled to receive such payments in the future except that, during the subordination period, to the extent we distribute cash in any future quarter in excess of the amount necessary to make cash distributions to holders of our common units at the minimum quarterly distribution, we will use this excess cash to pay these arrearages related to prior quarters before any cash distribution is made to holders of subordinated units. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Subordination Period."

        The actual amount of our cash distributions for any quarter is subject to fluctuations based on, among other things, the amount of cash we generate from our business and the amount of reserves our manager establishes.

        We expect to pay our quarterly distributions on or about the 15th day of each February, May, August and November to holders of record on or about the first day of each such month. We will adjust the quarterly distribution for the period from the closing of this offering through June 30, 2010 based on the actual length of the period.

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        In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our minimum quarterly distribution of $0.35 per unit each quarter for the four quarters of the fiscal year ending March 31, 2011. In those sections we present the following two tables:

    "Unaudited Pro Forma Cash Available for Distribution," in which we present our estimate of the amount of cash we would have had available for distribution for the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009 based on our unaudited pro forma financial statements that are included in this prospectus.

    "Estimated Cash Available for Distribution," in which we demonstrate our anticipated ability to generate the cash available for distribution necessary for us to pay the minimum quarterly distribution on all units for the fiscal year ending March 31, 2011.

Unaudited Pro Forma Cash Available for Distribution

        The following table illustrates, on a pro forma basis for the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009, cash available to pay distributions, assuming that the following transactions had occurred as of April 1, 2008:

    the non-public offering of notes by Niska US and Niska Canada and the application of the proceeds therefrom;

    the refinancing of our previous credit facilities; and

    the Formation Transactions, including the issuance of common units in this offering and the application of the net proceeds therefrom.

        If we had completed the transactions contemplated in this prospectus on April 1, 2008 our unaudited pro forma cash available for distribution for the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009 would have been approximately $97.8 million and $128.1 million, respectively. This amount would have been sufficient to make the minimum quarterly distribution of $0.35 per unit per quarter (or $1.40 per unit on an annualized basis) on all of our common and subordinated units for the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009.

        Unaudited pro forma cash available for distribution includes incremental general and administrative expenses that we expect we will incur as a publicly-traded company, including costs associated with SEC reporting requirements, including annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and director compensation. We estimate that these incremental general and administrative expenses initially will be approximately $3.4 million per year.

        The pro forma financial statements, from which pro forma cash available for distribution is derived, do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of April 1, 2008. Furthermore, cash available for distribution is a cash accounting concept, while our unaudited pro forma combined financial statements have been prepared on an accrual basis. We derived the amounts of pro forma cash available for distribution stated above in the manner described in the table below. As a result, the amount of pro forma cash available for distribution should only be viewed as a general indication of the amount of cash available for distribution that we might have generated had we been formed and completed the transactions contemplated in this prospectus in earlier periods.

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        The footnotes to the table below provide additional information about the pro forma adjustments and should be read along with the table.

Niska Gas Storage Partners LLC
Unaudited Pro Forma Cash Available for Distribution

 
  Fiscal
Year Ended
March 31, 2009
  Twelve Months Ended
December 31, 2009
 
 
  (in millions, except per unit
data and ratios)

 

Pro Forma Net Income

  $ 94.8   $ (24.3 )

Add/(deduct):

             
 

Interest and debt expense(2)

    80.0     82.1  
 

Income tax expense/(benefit)

    (22.3 )   41.7  
 

Unrealized risk management losses/(gains)

    (82.8 )   56.2  
 

Inventory impairment

    62.3     12.2  
 

Gain on sale of assets

    (0.0 )   (0.7 )
 

Other income

    (20.8 )   (20.5 )
 

Impairment of assets

    22.0     22.0  
 

Foreign exchange losses/(gains)

    (25.8 )   (18.1 )
 

Depreciation and amortization

    54.8     44.2  
           

Pro Forma Adjusted EBITDA(1)

  $ 162.1   $ 194.7  
           

Less:

             
 

Cash interest expense, net(2)

    80.4     82.9  
 

Cash taxes

    0.3     0.3  
 

Expansion capital expenditures

    17.6     46.8  
 

Maintenance capital expenditures(3)

    1.4     1.3  
 

Other income

    (20.8 )   (20.5 )
 

Estimated incremental general and administrative expense of being a public company(4)

    3.4     3.4  

Add:

             
 

Cash contributions to fund expansion capital expenditures

        15.0  
 

Borrowings to finance expansion capital expenditures(5)

    18.0     32.6  
           

Unaudited Pro Forma Cash Available for Distribution

  $ 97.8   $ 128.1  
           

Pro Forma Cash Distributions

             
 

Minimum distribution per unit (based on a minimum quarterly distribution of $0.35 per unit)

  $ 1.40   $ 1.40  
 

Annual distributions to:

             
 

Public common unitholders

    24.5     24.5  
 

Holdco:

             
   

Common units

    22.8     22.8  
   

Subordinated units

    47.3     47.3  
   

Managing member interest

    1.9     1.9  
           
     

Total minimum period distributions

  $ 96.6   $ 96.6  
           

Excess

  $ 1.2   $ 31.5  
           

Fixed charge coverage ratio(6)

    2.0 x   2.3 x

(1)
We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, unrealized risk management gains and losses, foreign exchange gains and losses, unrealized inventory impairment writedown, gains and losses on asset dispositions, asset

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    impairments and other income. See "Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measure."

(2)
Interest and debt expense represents the interest expense and fees related to our borrowings, assuming that Niska US and Niska Canada had completed their non-public offering of senior notes (with an interest rate of 8.875%) on April 1, 2008 and that our new revolving credit facilities had been put in place at April 1, 2008. We have calculated interest expense using actual revolver drawings incurred during the applicable periods (an annualized average of $67.3 million in the fiscal year ended March 31, 2009 and $118.4 million in the twelve months ended December 31, 2009) plus assumed borrowings to fund expansion capital expenditures and using a rate of 5.0% (assumes LIBOR plus 350 basis points, where LIBOR is approximately 1.50%), which is the rate currently available under our new credit facilities. In addition, we have included an additional commitment fee in the amount of 0.75% of the undrawn amount (assuming a maximum borrowing capacity of $400.0 million) during the applicable periods. Interest and debt expense and cash interest expense, net, included in the table also reflects the amortization of deferred financing fees related to our new revolving credit facilities.

(3)
For the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009, our capital expenditures were $19.0 million and $48.1 million, respectively. The capital expenditures are assumed to have occurred evenly throughout each period. For these periods, recurring maintenance capital expenditures amounted to $1.4 million and $1.3 million, respectively, and expansion capital expenditures amounted to $17.6 million and $46.8 million, respectively.

(4)
Reflects an adjustment to our Adjusted EBITDA for estimated cash expenses associated with being publicly-traded, such as expenses associated with SEC reporting requirements, including annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and director compensation. We estimate that these incremental general and administrative expenses to recur and that they initially will be approximately $3.4 million per year.

(5)
In October 2009, our equity holders contributed $15.0 million to us specifically to fund expansion capital expenditures. Accordingly, our pro forma presentation for the twelve months ended December 31, 2009 reflects the application of the entire $15.0 million of capital contributions from our equity holders to fund expansion capital expenditures. Because we expect that in the future, expansion capital expenditures will primarily be funded through borrowings or the sale of debt or equity securities, we have included borrowings under our revolving credit facilities to offset our estimated expansion capital expenditures as well as incremental interest expense on these borrowings at an assumed interest rate of 5.0% (assumes LIBOR plus 350 basis points, where LIBOR is approximately 1.50%) for purposes of calculating our pro forma cash available for distribution. Accordingly, our pro forma presentation for the fiscal year ended March 31, 2009 reflects the application of assumed borrowings to fund expansion capital expenditures as well as incremental interest expense of $0.4 million on these borrowings, and our pro forma presentation for the twelve months ended December 31, 2009 reflects the application of assumed borrowings to fund expansion capital expenditures as well as incremental interest expense of $0.8 million on these borrowings.

(6)
Our $400.0 million credit agreement prohibits us from making distributions to unitholders if any default or event of default (as defined in the credit agreement) exists. Our new revolving credit facilities contain a covenant requiring us, when excess availability under both revolving credit facilities is less than 15% of the aggregate amount of availability under both revolving credit facilities, to maintain, as of the last day of each fiscal quarter, a fixed charge coverage ratio (the ratio of our Consolidated Adjusted EBITDA to our fixed charges, each as defined in our credit

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    facilities and measured for the preceding four quarters) of not less than of 1.1 to 1.0. On a pro forma basis, excess availability under both revolving credit facilities would have been more than 15% of the aggregate amount of availability under both revolving credit facilities for the fiscal year ended March 31, 2009 and the twelve months ended December 31, 2009 and our fixed charge coverage ratio would have been greater than 1.1 to 1.0 during such periods.


The indenture governing our senior notes prohibits us from making distributions to unitholders if any default or event of default (as defined in the indenture) exists. In addition, after the closing of this offering, both the indenture and our $400 million credit agreement will contain covenants limiting our ability to pay distributions to unitholders. The covenants will apply differently depending on our fixed charge coverage ratio (defined substantively the same in the indenture and the credit agreement). If the fixed charge coverage ratio is not less than 1.75 to 1.0, we will be permitted to make restricted payments, including distributions to our unitholders, if the aggregate restricted payments since the date of closing of this offering, excluding certain types of permitted payments, are less than the sum of a number of items including, most importantly, operating surplus (defined similarly to the definition in our Operating Agreement) calculated as of the end of our preceding fiscal quarter and the aggregate net cash proceeds received by us as a capital contribution or from the issuance of equity interests, including the net proceeds received in this offering. The indenture governing our senior notes contains an additional general basket of $75 million not contained in our credit agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our 8.875% Senior Notes Due 2018" and "—Our $400 Million Credit Agreement."


We estimate that our credit agreement and indenture would have permitted us to distribute approximately $208 million and $283 million, respectively, as of March 31, 2009 and approximately $279 million and $354 million, respectively, as of December 31, 2009. These estimates are based on our assumption that operating surplus generated during the fiscal year ended March 31, 2009 and the nine months ended December 31, 2009 would have been approximately equal to the Unaudited Pro Forma Cash Available for Distribution in respect of such periods, and include the $50 million basket contained in the definition of operating surplus and the $60 million of net proceeds from this offering that we expect to retain for general company purposes, including to fund a portion of the cost of our expansion projects. The estimates of amounts permitted to be distributed under the indenture are $75 million higher than the estimates of those permitted to be distributed under our credit agreement due to the additional $75 million general permitted payment basket contained in the indenture. Similar to the calculation of operating surplus contained in our Operating Agreement, the credit agreement and indenture provide that operating surplus will be calculated from the closing date of this offering, such that we will not be permitted to include any operating surplus that would have been generated prior to the closing of this offering. See "Provisions of our Operating Agreement Relating to Cash Distributions—Operating Surplus and Capital Surplus." Immediately after the closing of this offering, our operating surplus will initially be equal to the $50 million basket contained in the definition of operating surplus and our credit agreement and indenture will permit us to distribute $110 million and $185 million, respectively.

Estimated Cash Available for Distribution

        We estimate we will generate Adjusted EBITDA of $204.1 million for the fiscal year ending March 31, 2011 and will be able to pay the minimum quarterly distribution on all of our common and subordinated units and our managing member interest for each quarter in that period. In "—Assumptions and Considerations" below we discuss the material assumptions underlying this belief, which reflect our judgment of conditions we expect to exist and the course of action we expect to take.

        We also anticipate that if our Adjusted EBITDA for the fiscal year ending March 31, 2011 is at or above our estimate, we would be permitted to make the minimum quarterly distributions on all the

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common units and subordinated units and our manager interest under the applicable covenants contained in our $400.0 million credit agreement and the indenture governing our senior notes.

        When considering our ability to generate Adjusted EBITDA of $204.1 million and how we calculate estimated cash available for distribution, you should keep in mind the risk factors and other cautionary statements under the headings "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements," which discuss factors that could cause our results of operations and cash available for distribution to vary significantly from our estimates.

        We do not, as a matter of course, make public projections as to future operations, earnings or other results. However, we have prepared the prospective financial information and related assumptions and conditions set forth below to present the estimated cash available for distribution for the fiscal year ending March 31, 2011. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments and presents, to the best of our knowledge and belief, the expected course of action and our expected future financial performance. However, this information is not fact and should not be relied upon as being indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

        Neither our auditor, KPMG LLP, nor any other independent public accounting firm has examined, compiled or performed any procedures with respect to the accompanying prospective financial information and accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto. The KPMG LLP report included in this prospectus relates to the historical information of Niska Predecessor. It does not extend to the prospective financial information and should not be read to do so. As such, neither KPMG LLP nor any other public accounting firm has expressed an opinion or any other form of assurance in respect of information or its achievability and KPMG LLP assumes no responsibility for and disclaims any association with, the prospective financial institution.

        We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update this financial forecast or the assumptions used to prepare the forecast to reflect events or circumstances after the completion of this offering. In light of this, the statement that we believe that we will have sufficient cash available for distribution to allow us to make the full minimum quarterly distribution on all of our outstanding common units and subordinated units and our managing member interest for each quarter through March 31, 2011 should not be regarded as a representation by us, the underwriters or any other person that we will make such distribution. Therefore, you are cautioned not to place undue reliance on this information.

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Niska Gas Storage Partners LLC
Estimated Cash Available for Distribution

 
  Fiscal Year
Ending
March 31, 2011
 
 
  (in millions, except
per unit data)

 

Net revenues

  $ 240.9  

Operating expenses:

       
 

Operation and maintenance

    52.5  
 

General and administrative

    34.2  
 

Depreciation and amortization

    44.9  
 

Taxes other than income taxes

    11.7  
   

Total operating expenses

    143.3  

Operating income

    97.6  
 

Other income

     
 

Interest and debt expense, net

    76.7  

Net income

    20.9  

Adjustments to reconcile net income to Adjusted EBITDA:

       

Add/deduct:

       
 

Unrealized risk management losses/(gains)

    49.9  
 

Depreciation and amortization expense

    44.9  
 

Interest and debt expense, net

    76.7  
 

Cash taxes

    11.7  

Adjusted EBITDA(1)

    204.1  

Less:

       
 

Cash interest expense, net

    76.7  
 

Cash taxes

    11.7  
 

Expansion capital expenditures

    73.9  
 

Maintenance capital expenditures

    1.7  
 

Cash reserve

    19.1  
       

Add:

       
 

Borrowings to finance expansion capital expenditures and incremental interest expense

    75.6  

Minimum estimated cash available for distribution

  $ 96.6  
       

Minimum distribution per unit (based on a minimum quarterly distribution of $0.35 per unit)

  $ 1.40  

Annual distributions to:

       
 

Public common unitholders

  $ 24.5  

Holdco:

       
 

Common units

    22.8  
 

Subordinated units

    47.3  
 

Managing member interest

    1.9  
       
   

Total distributions to Holdco

    72.1  
       

Total distributions to our unitholders and manager (based on a minimum quarterly distribution of $1.40 per unit per year)

  $ 96.6  
       

Fixed charge coverage ratio

    2.7 x

(1)
We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, unrealized risk management gains and losses, foreign exchange gains and losses, unrealized inventory impairment writedown, gains and losses on asset dispositions, asset impairments and other income. See "Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measure."

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Assumptions and Considerations

    General

    We estimate that the working gas capacity at AECO Hub™, Wild Goose, and Salt Plains will be 144.0 Bcf, 35.0 Bcf and 13.0 Bcf, respectively, a total increase of 15.0 Bcf (approximately 9.0 Bcf at AECO Hub™ and approximately 6.0 Bcf at Wild Goose) from the prior year. We estimate that the capacity expansions at AECO Hub and Wild Goose will commence commercial service prior to us reaching our maximum current storage capacity such that we are not adjusting for a partial year of commercial service for the expansions. See "—Capital Expenditures."

    Our expectations are based on a combination of transactions already entered into and transactions we expect to enter into. As of March 29, 2010 we have entered into transactions amounting to revenues of $145.2 million, representing over 60% of our total forecasted revenues for the fiscal year ending March 31, 2011 ($195.1 million, or 67%, on a realized basis before unrealized marked to market gains and losses and inventory writedowns).

    We assume that Canadian dollars are converted into dollars at an average rate of $0.9786, which was the average forward rate as of March 29, 2010, for the forecast period.

    Revenue

    Volume Assumptions.  We estimate we will contract 84% of our operated capacity to third parties for the fiscal year ending March 31, 2011, compared with 79% for the twelve months ended December 31, 2009. We expect 104.3 Bcf will be contracted as LTF contracts and 56.7 Bcf as STF contracts compared to 103.9 Bcf and 36.8 Bcf, respectively, for the fiscal year ended March 31, 2010. We estimate using the remaining 16% of our operated capacity (31.0 Bcf) as well as all of our NGPL capacity (8.5 Bcf) for our optimization business.

    Services Fees and Optimization Margins.  We estimate that our LTF contracts will generate average fees of $1.12 per Mcf for the fiscal year ending March 31, 2011, as compared to an average of $0.99 for the three fiscal years ended March 31, 2009. We estimate that we will receive average fees of $1.43 per Mcf for STF contracts and an average margin of $1.10 per Mcf ($2.36 per Mcf on a realized basis before unrealized marked to market gains and losses and inventory writedowns) for proprietary optimization activities for the fiscal year ending March 31, 2011, compared to $1.88 per Mcf for STF contracts and $3.68 per Mcf for proprietary optimization activities for the three fiscal years ended March 31, 2009 ($3.37 on a realized basis before unrealized marked to market gains and losses and inventory writedowns).

    Resulting Revenue Components.  We expect revenue associated with LTF contracts will be $116.7 million for the fiscal year ending March 31, 2011 as compared to $106.6 million for the twelve months ended December 31, 2009. The increase is due to a combination of higher contracted volumes and higher fees on new and replacement contracts. We estimate that we will recognize $81.0 million in revenue derived from STF contracts compared to $59.2 million for the twelve months ended December 31, 2009. Total revenue from third-party storage services are expected to equal $197.6 million in the fiscal year ending March 31, 2011 compared to $165.8 million in the twelve months ended December 31, 2009. We estimate that we will recognize $43.3 million ($93.2 million on a realized basis before unrealized marked to market gains and losses and inventory writedowns) in revenue from optimization for the fiscal year ending March 31, 2011, compared to $24.4 million ($92.8 million on a realized basis before unrealized marked to market gains and losses and inventory writedowns) for the twelve months ended December 31, 2009.

    Operation and Maintenance Expenses

    We estimate that total operating and maintenance expenses for the fiscal year ending March 31, 2011 will be $52.5 million, as compared to $39.3 million for the twelve months ended December 31, 2009. The increase in operating expenses is the result of an expected increase in

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      fuel costs associated with compression equipment required to inject and withdraw gas in to, and out of, our facilities. Total fuel requirements are expected to be 1.7 Bcf for the fiscal year ending March 31, 2011, compared to 1.3 Bcf for the twelve months ended December 31, 2009. The increase in fuel requirements is due to expanded gas storage capacity and increased facility injections and withdrawals that are expected for the fiscal year ending March 31, 2011 reflecting a normalized physical injection and withdrawal cycle, as compared to an abnormal carryover of inventory, which occurred in the prior year. In addition, average fuel costs are expected to be $3.88 per Mcf for the fiscal year ending March 31, 2011 (based on forward curves as of March 29, 2010), compared to $3.93 per Mcf for the twelve months ended December 31, 2009 due to a decline in the price of natural gas.

    General and Administrative Expenses

    We estimate that general and administrative expenses will be $34.2 million for the fiscal year ending March 31, 2011, compared to $24.6 million for the twelve months ended December 31, 2009. Our general and administrative expenses include one-time costs associated with the refinancing of our previous debt facilities as well as additional general and administrative costs of approximately $3.4 million that result from our being publicly-traded.

    Depreciation and Amortization Expenses

    We estimate depreciation and amortization expenses for the fiscal year ending March 31, 2011 of $44.9 million, compared to $44.2 million for the twelve months ended December 31, 2009. The increase in depreciation and amortization is the result of additional depreciation on expansion capital expenditures incurred in 2009 that were or will be put into effective use in 2010.

    We assume that financing costs of $24.8 million associated with our senior notes will be amortized on a straight line basis over 8 years.

    Capital Expenditures

    We estimate total capital expenditures of $75.6 million for the fiscal year ending March 31, 2011, compared to $48.1 million for the twelve months ended December 31, 2009.

    We estimate that maintenance capital expenditures for the fiscal year ending March 31, 2011 will total $1.7 million. These expenditures relate to replacing partially or fully depreciated assets and to overhaul existing assets.

    We estimate that expansion capital expenditures for the fiscal year ending March 31, 2011 will be $73.9 million. These expenditures are comprised of two major projects:

    First, we expect to spend $60.0 million associated with continued expansion of our Wild Goose facility that we expect to complete by March 2011. This project is designed to develop a new reservoir above our existing storage zones which will add 6.0 Bcf of new gas storage capacity during the fiscal year ending March 31, 2011 and an additional 7.0 Bcf in the following fiscal year. We have applied for the regulatory approval required for this project and expect that this approval will be granted during the summer of 2010. If we do not receive the required regulatory approval, we estimate that our net revenue and our Adjusted EBITDA for the fiscal year ending March 31, 2011 would decrease by approximately $8.3 million and $7.0 million, respectively. We would also be required to decrease our cash reserve by no more than $7.0 million and would still be able to pay the full minimum quarterly distribution on all of our common and subordinated units.

    Second, we expect to spend $13.9 million in connection with delta pressuring and de-watering projects at AECO Hub™. Regulatory approvals required for this project have already been granted. By modifying some of our surface equipment to allow us to increase the operating pressures and drilling new wells to remove water from our reservoirs, we expect to add 9.0 Bcf of capacity that will be available during the summer of 2010.

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    Financing

    We will incur interest expense of $71.0 million for the fiscal year ending March 31, 2011 associated with our senior notes, which bear interest at a rate of 8.875%.

    For purposes of the forecast, we assume that we will finance all of our expansion capital expenditures during the forecast period with assumed borrowings under our revolving credit facilities.

    We have assumed net annual average revolver borrowings to fund expansion capital expenditures of $37.1 million with a net interest expense of $2.0 million.

    We expect to utilize an annual average of $125.3 million to fund the purchase of inventory for our proprietary optimization activities. We expect to begin the year with an inventory of 15.6 Bcf and to purchase 24.0 Bcf of gas evenly over the seven month summer injection season and then sell 27.7 Bcf ratably over the five month winter withdrawal season. Using prudent cash management (using cash from operations generated during the forecast period until distributions are made, and cash reserves accumulated during the forecast period) the net annual average revolver borrowings to fund inventory purchases are expected to be $24.6 million with a net interest expense of $1.2 million, plus undrawn commitment fees of $2.5 million for total cost of $3.7 million.

    We will remain in compliance with the financial and other covenants in our credit agreement and the indenture governing our senior notes.

    Regulatory, Industry and Economic Factors

    We assume there will not be any new federal, state, provincial or local regulations of the natural gas storage industry, or any new interpretations of existing regulations, that will be materially adverse to our business during the fiscal year ending March 31, 2011.

    We assume there will not be any major adverse changes in the natural gas storage industry or in general economic conditions during the three months ended March 31, 2010 or the fiscal year ending March 31, 2011.

    We assume that industry and insurance conditions will not change substantially during the three months ended March 31, 2010 or the fiscal year ending March 31, 2011.

    We assume that we will not be subject to U.S. federal income taxation on our operations or any new or additional entity-level taxation by individual states and localities or non-U.S. jurisdictions during the fiscal year ending March 31, 2011.

Payments of Distributions on Common Units, Subordinated Units and the Managing Member Interest

        Distributions on common units, subordinated units and the 2% managing member interest for the fiscal year ending March 31, 2011 are estimated to be $96.6 million in the aggregate, assuming we distribute the $0.35 minimum quarterly distribution in respect of each quarter during such periods. Quarterly distributions will be paid within 45 days after the close of each quarter.

        While we believe that these assumptions are reasonable based upon management's current expectations concerning future events, they are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties, including those described in "Risk Factors," that could cause actual results to differ materially from those we anticipate. If our assumptions are not realized, the actual cash available for distribution that we generate could be substantially less than that currently expected and could, therefore, be insufficient to permit us to make the full minimum quarterly distribution on all units, in which event the market price of the common units may decline materially.

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PROVISIONS OF OUR OPERATING AGREEMENT RELATING TO CASH DISTRIBUTIONS

        Set forth below is a summary of the significant provisions of our Operating Agreement that relate to cash distributions. This summary assumes that we do not issue additional classes of equity interests. Statements of percentages of cash and allocations of gain and loss paid or allocated to our manager and Holdco assume that our manager maintains its 2% managing member interest and Holdco does not transfer its incentive distribution rights.

Distributions of Available Cash

    General

        Within 45 days after the end of each quarter, beginning with the quarter ending June 30, 2010, we intend to make cash distributions to members of record on the applicable record date.

    Intent to Distribute the Minimum Quarterly Distribution

        We will distribute to the holders of common units and subordinated units on a quarterly basis at least the minimum quarterly distribution of $0.35 per unit, or $1.40 per unit per year, to the extent we have sufficient available cash. Our Operating Agreement permits us to borrow to make distributions, but we are not required to do so. Accordingly, there is no guarantee that we will pay the minimum quarterly distribution on the units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is ultimately determined by our board. We may be prohibited from making any distributions to unitholders by agreements governing our expected and any future indebtedness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for a discussion of the restrictions included in our $400.0 million credit agreement and the indenture governing our senior notes that may restrict our ability to make distributions.

    Managing Member Interest and Incentive Distribution Rights

        As of the date of this offering, our manager will be entitled to 2% of all distributions that we make prior to our liquidation. Our manager has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current managing member interest. The manager's initial 2% interest in distributions will be reduced if we issue additional units in the future (other than the issuance of common units upon exercise by the underwriters of their option to purchase additional common units, the issuance of common units to Holdco upon expiration of the option to purchase additional common units, or the issuance of common units upon conversion of outstanding subordinated units) and our manager does not contribute a proportionate amount of capital to us to maintain its 2% managing member interest.

        Holdco also currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 48%, of the cash we distribute from operating surplus (as defined below) in excess of $0.4025 per unit per quarter. The maximum distribution of 48% does not include any distributions that Holdco may receive through the manager or on common or subordinated units that it owns. See "—Incentive Distribution Rights" for additional information.

Operating Surplus and Capital Surplus

    General

        All cash distributed will be characterized as either "operating surplus" or "capital surplus." We distribute cash from operating surplus differently than we would distribute cash from capital surplus. Operating surplus distributions will be made to our unitholders and manager and, if we make quarterly distributions above the first target distribution level described above, the holder of our incentive

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distribution rights. We do not anticipate that we will make any distributions from capital surplus, but any capital surplus distribution would be made pro rata to our manager and all unitholders, but the holder of the incentive distribution rights would generally not participate in any capital surplus distributions with respect to those rights.

    Operating Surplus

        Operating surplus for any period generally consists of:

    $50 million (as described below); plus

    all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions (as described below) and the termination prior to the stated maturity of derivative contracts hedging our commodity, interest rate, basis or currency risk with an original term of more than one year (provided that cash receipts from such termination shall be included in operating surplus in equal quarterly installments over the remaining scheduled life of such derivative contracts); plus

    working capital borrowings made after the end of the period but before the date of determination of operating surplus for the period; plus

    cash distributions paid on equity interests issued by us after this offering (including incremental distributions on incentive distribution rights) to finance all or a portion of expansion capital expenditures in respect of the period from such financing until the earlier to occur of the date the capital asset commences commercial service or the date it is abandoned or disposed of; plus

    cash distributions paid on equity interests issued by us after this offering (including incremental distributions on incentive distribution rights) to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance the expansion capital expenditures referred to above; less

    our operating expenditures (as described below) after the closing of this offering; less

    the amount of cash reserves established by our board to provide funds for future operating expenditures.

        Working capital borrowings are borrowings, used solely for working capital purposes, including the purchase of inventory and other current assets or to fund current liabilities, and specifically excluding any borrowings for the purchase of property, plant and equipment, capital improvements, or to pay distributions to members, made in the ordinary course of business pursuant to a credit facility, commercial paper facility or similar financing arrangement; provided that when incurred it is the intent of the borrower to repay such borrowings within twelve months from sources other than additional working capital borrowings.

        The proceeds of working capital borrowings increase operating surplus and repayments of working capital borrowings are generally operating expenditures, as described below, and thus reduce operating surplus when made. However, if a working capital borrowing is not repaid during the twelve-month period following the borrowing, it will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such a working capital borrowing is in fact repaid, it will be excluded from operating expenditures because operating surplus will have been previously reduced by the deemed repayment.

        As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by our operations. For example, it includes a basket of $50 million that will enable us, if we choose, to distribute as operating surplus cash we receive in the future from non-operating sources such as asset sales, issuances of membership

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interests and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity interests in operating surplus would be to increase operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.

        Operating expenditures generally means all of our cash expenditures, including taxes, reimbursement or payments of expenses incurred by our manager or its affiliates on our behalf, interest payments, payments made in the ordinary course of business under derivative contracts hedging our commodity, interest rate, basis or currency risk (provided that (1) with respect to amounts paid in connection with the initial purchase of such a derivative contract with an original term of more than one year, such amounts will be amortized over the life of the applicable derivative contract and (2) payments made in connection with the termination of any such derivative contracts with an original term of more than one year prior to the expiration of its stipulated settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such derivative contract), repayments of working capital borrowings and maintenance capital expenditures, provided that operating expenditures will not include:

    repayments of working capital borrowings, if such working capital borrowings were outstanding for twelve months, not repaid, but deemed repaid, thus decreasing operating surplus at such time;

    payments (including prepayments) of principal of and premium on indebtedness, other than working capital borrowings;

    expansion capital expenditures;

    investment capital expenditures;

    payment of transaction expenses relating to interim capital transactions (as described below);

    distributions to our members (including distributions in respect of incentive distribution rights); or

    repurchases of any equity interest, other than repurchases to satisfy obligations under employee benefit plans.

        Maintenance capital expenditures reduce operating surplus, but expansion capital expenditures and investment capital expenditures do not. Maintenance capital expenditures represent capital expenditures made to replace assets, to maintain the long-term operating capacity of our assets or other capital expenditures that are incurred in maintaining long-term operating capacity of our assets or our operating income. Costs for repairs and minor renewals to maintain facilities in operating condition and that do not extend the useful life of existing assets will be treated as maintenance expenses as we incur them. Examples of maintenance capital expenditures are expenditures required to maintain equipment reliability, plant integrity and safety and to address environmental laws and regulations. Capital expenditures made solely for investment purposes will not be considered maintenance capital expenditures.

        Expansion capital expenditures are capital expenditures made to increase the long-term operating capacity of our assets or our operating income whether through construction or acquisition. Examples of expansion capital expenditures include the acquisition of equipment, and the development or acquisition of additional gas storage capacity, to the extent such capital expenditures are expected to expand our operating capacity or our operating income. Expansion capital expenditures will also include interest (and related fees) on debt incurred to finance all or any portion of the construction of such a capital improvement in respect of the period that commences when we enter into a binding obligation to commence construction of a capital improvement and ending on the date such capital

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improvement commences commercial service or the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes will not be considered expansion capital expenditures.

        Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capital expenditures. Investment capital expenditures will consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes or development of facilities that are in excess of the maintenance of our existing operating capacity or operating income, but which are not expected to expand for the long-term our operating capacity or operating income.

        As described above, none of our investment capital expenditures or expansion capital expenditures will be included in operating expenditures, and thus will not reduce operating surplus. Because expansion capital expenditures include interest payments (and related fees) on debt incurred to finance all of the portion of the construction, replacement or improvement of a capital asset in respect of the period that begins when we enter into a binding obligation to commence construction of a capital improvement and ending on the earlier to occur of the date any such capital asset commences commercial service or the date that it is abandoned or disposed of, such interest payments are also not subtracted from operating surplus. Cash losses on disposition of an investment capital expenditure will reduce operating surplus when realized and cash gains from an investment capital expenditure will be treated as a cash receipt for purposes of calculating operating surplus only to the extent the cash receipt is a return on principal.

        Where capital expenditures are made in part for expansion and in part for other purposes, our board shall determine the allocation between the amounts paid for each. Our officers and directors will determine how to allocate a capital expenditure for the acquisition or expansion of our assets between maintenance capital expenditures and expansion capital expenditures.

    Capital Surplus

        Capital surplus is defined in our Operating Agreement as any distribution of cash in excess of our cumulative operating surplus. Accordingly, capital surplus would generally be generated only by the following (which we refer to as "interim capital transactions"):

    borrowings other than working capital borrowings;

    sales of our equity interests and debt securities; and

    sales or other dispositions of assets for cash, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of normal retirement or replacement of assets.

    Characterization of Cash Distributions

        We treat all cash distributed as coming from operating surplus until the sum of all cash distributed from the closing of this offering (other than distribution of the proceeds from any exercise of the underwriters' option to purchase additional common units) equals the operating surplus as of the most recent date of determination. The characterization of cash distributions as operating surplus versus capital surplus does not result in a different impact to unitholders for U.S. federal tax purposes. See "Material U.S. Tax Consequences to Unitholders—U.S. Federal Income Taxation of Unitholders—Treatment of Distributions" for a discussion of the tax treatment of cash distributions.

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Subordination Period

    General

        During the subordination period (which we describe below), the common units will have the right to receive distributions of cash from operating surplus each quarter in an amount equal to $0.35 per common unit, which amount is defined in our Operating Agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of cash from operating surplus may be made on the subordinated units. Furthermore, no arrearages will accrue or be paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during the subordination period there will be sufficient cash from operating surplus to pay the minimum quarterly distribution on the common units.

    Definition of Subordination Period

        Except as described below, the subordination period will begin on the closing date of this offering and expire the second business day after the distribution to members in respect of any quarter, beginning with the quarter ending March 31, 2013, if each of the following has occurred:

    quarterly distributions from operating surplus on each outstanding common and subordinated unit equaled or exceeded the minimum quarterly distribution in respect of each of the prior twelve consecutive quarters;

    operating surplus generated in respect of such twelve consecutive quarters (including operating surplus generated by increases in working capital borrowings and treating any drawdowns from cash reserves established in prior periods as cash received during such quarters but excluding the $50 million basket contained in the definition of operating surplus) equaled or exceeded the aggregate amount of distributions made in respect of such quarters; and

    we believe that we reasonably should be expected to maintain or increase our quarterly distribution per unit from operating surplus in respect of each of the four succeeding quarters.

        For purposes of the foregoing determination set forth in the third bullet point above, operating surplus shall not include working capital borrowings made in a period but not used to fund operating expenditures or distributions during such period. The determination that we reasonably should be expected to maintain or increase our quarterly distribution per unit from operating surplus in respect of each of the four succeeding quarters shall be based upon projections and estimates related to such four succeeding quarters that shall not include any net increase in working capital borrowings (comparing the balance as of the date prior to such quarters to the expected balance as of the end of such quarters) other than those reasonably related to growth or other change in our business or an increase in our distributions expected to occur during such quarters. Our Operating Agreement provides that either the conflicts committee of our board, or the board based on the recommendation of the conflicts committee, shall make the determination of whether and when the subordination period has expired.

        The Operating Agreement provides that the requirements could first be satisfied in connection with a distribution of cash in respect of the quarter ending March 31, 2013 and, if not satisfied in respect of that quarter, could be satisfied on any date thereafter.

        In addition, the subordination period will end upon the removal of our manager other than for cause if no subordinated units or common units held by the holders of subordinated units or their affiliates are voted in favor of that removal.

    Effect of End of the Subordination Period

        Upon expiration of the subordination period, any outstanding arrearages in payment of the minimum quarterly distribution on the common units will be extinguished and each outstanding

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subordinated unit will immediately convert into one common unit and will thereafter participate pro rata with the other common units in distributions.

Distributions of Cash From Operating Surplus During the Subordination Period

        Distributions from operating surplus in respect of any quarter during the subordination period will be made in the following manner:

    first, 98% to the common unitholders, pro rata, and 2% to the manager, until we distribute for each common unit an amount equal to the minimum quarterly distribution for that quarter and any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters;

    second, 98% to the subordinated unitholders, pro rata, and 2% to the manager, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

    thereafter, in the manner described in "—Incentive Distribution Rights" below.

Distributions of Cash From Operating Surplus After the Subordination Period

        Distributions from operating surplus in respect of any quarter after the subordination period will be made in the following manner:

    first, 98% to all unitholders, pro rata, and 2% to the manager, until we distribute for each unit an amount equal to the minimum quarterly distribution for that quarter; and

    thereafter, in the manner described in "—Incentive Distribution Rights" below.

Managing Member Interest

        As of the date of this offering, our manager will be entitled to 2% of all distributions that we make prior to our liquidation. Our manager's initial 2% interest in distributions may be reduced if we issue additional units in the future (other than the issuance of common units upon exercise by the underwriters of their option to purchase additional common units, the issuance of common units to Holdco upon expiration of the underwriters' option to purchase additional common units or the issuance of common units upon conversion of outstanding subordinated units) and our manager does not contribute a proportionate amount of capital to us to maintain its initial 2% managing member interest. Our Operating Agreement does not require that the manager fund its capital contribution with cash and our manager may fund its capital contribution by the contribution to us of common units or other property.

Incentive Distribution Rights

        Incentive distribution rights represent the right to receive an increasing percentage (13%, 23% and 48%) of quarterly distributions of cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Holdco will initially hold the incentive distribution rights but may transfer these rights, subject to restrictions in our Operating Agreement.

        If for any quarter:

    we have distributed cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and

    we have distributed cash from operating surplus to the common unitholders in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

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then additional distributions from operating surplus for that quarter will be made in the following manner:

    first, 98% to all unitholders, pro rata, and 2% to the manager, until each unitholder receives a total of $0.4025 per unit for that quarter (the "first target distribution");

    second, 85% to all unitholders, pro rata, 2% to the manager and 13% to the holders of incentive distribution rights, pro rata, until each unitholder receives a total of $0.4375 per unit for that quarter (the "second target distribution");

    third, 75% to all unitholders, pro rata, 2% to the manager and 23% to the holders of incentive distribution rights, pro rata, until each unitholder receives a total of $0.5250 per unit for that quarter (the "third target distribution"); and

    thereafter, 50% to all unitholders, pro rata, 2% to the manager and 48% to the holders of incentive distribution rights, pro rata.

        In each case, the amount of the target distribution set forth above is exclusive of any distributions to common unitholders to eliminate any cumulative arrearages in payment of the minimum quarterly distribution.

Percentage Allocations of Cash Distributions From Operating Surplus

        The following table illustrates the percentage allocations of cash distributions from operating surplus between the unitholders, our manager and the holders of the incentive distribution rights, or based on the specified target distribution levels. The amounts set forth under "Marginal Percentage Interest in Cash Distributions" are the percentage interests of our manager, the incentive distribution right holders and the unitholders in any cash distributions from operating surplus we distribute up to and including the corresponding amount in the column "Total Quarterly Distribution per Unit Target Amount." The percentage interests shown for the unitholders and the manager for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.

 
   
  Marginal Percentage
Interest in Cash Distributions
 
 
  Total Quarterly
Distribution per Unit
Target Amount
  Unitholders   Manager   Incentive
Distribution
Right Holders
 

Minimum Quarterly Distribution

  $0.35     98 %   2 %    

First Target Distribution

  above $0.35 up to $0.4025     98 %   2 %    

Second Target Distribution

  above $0.4025 up to $0.4375     85 %   2 %   13 %

Third Target Distribution

  above $0.4375 up to $0.5250     75 %   2 %   23 %

Thereafter

  above $0.5250     50 %   2 %   48 %

Distributions From Capital Surplus

    How Distributions From Capital Surplus Will Be Made

        Distributions from capital surplus, if any, will be made in the following manner:

    first, 98% to all unitholders, pro rata, and 2% to the manager, until the minimum quarterly distribution is reduced to zero, as described below;

    second, 98% to the common unitholders, pro rata, and 2% to the manager, until we distribute for each common unit an amount of cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution; and

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    thereafter, we will make all distributions of cash from capital surplus as if they were from operating surplus.

    Effect of a Distribution From Capital Surplus

        Our Operating Agreement treats a distribution of capital surplus as the repayment of the consideration for the issuance of the unit, which is a return of capital. Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the distribution had in relation to the fair market value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum quarterly distribution and target distribution levels, after any of these distributions are made, it may be easier for Holdco to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.

        If we reduce the minimum quarterly distribution and the target distribution levels to zero, all future distributions from operating surplus will be made such that 50% is paid to all unitholders, pro rata, and 2% is paid to our manager and 48% is paid to the holders of the incentive distribution rights, pro rata.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

        In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into a lesser number of units or subdivide our units into a greater number of units, we will proportionately adjust:

    the minimum quarterly distribution;

    the target distribution levels;

    the initial unit price, as described below under "—Distributions of Cash Upon Liquidation;" and

    the per unit amount of any outstanding arrearages in payment of the minimum quarterly distribution on the common units.

        For example, if a two-for-one split of the units should occur, the minimum quarterly distribution, the target distribution levels and the initial unit price would each be reduced to 50% of its initial level. If we combine our common units into a lesser number of units or subdivide our common units into a greater number of units, we will combine or subdivide our subordinated units using the same ratio applied to the common units. We will not make any adjustment to the minimum quarterly distribution, the target distribution levels or the initial unit price by reason of the issuance of additional units for cash or property.

        In addition, if as a result of a change in law or interpretation thereof, we or any of our subsidiaries is treated as an association taxable as a corporation or is otherwise subject to additional taxation as an entity for U.S. federal, state, local or non-U.S. income or withholding tax purposes, our manager may, in its sole discretion, reduce the minimum quarterly distribution and the target distribution levels for each quarter by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter (after deducting our manager's estimate of our additional aggregate liability for the quarter for such income and withholdings taxes payable by reason of such change in law or interpretation) and the denominator of which is the sum of (1) available cash for that quarter, plus (2) our manager's estimate of our additional aggregate liability for the quarter for such income and withholding taxes payable by reason of such change in law or interpretation thereof. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in distributions with respect to subsequent quarters.

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Distributions of Cash Upon Liquidation

    General

        If we dissolve in accordance with the Operating Agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to our unitholders, our manager, and the holders of our incentive distribution rights in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

        The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of units to a repayment of the initial value contributed by a unitholder to us for their units, which we refer to as the "initial unit price" for each unit. The initial unit price for the common units will be the price paid for the common units issued in this offering. The allocations of gain and loss upon liquidation are also intended, to the extent possible, to entitle the holders of common units to a preference over the holders of subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of these amounts, even though there may be cash available for distribution to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights.

    Manner of Adjustments for Gain

        If our liquidation occurs before the end of the subordination period, we will allocate any gain to the members in the following manner:

    first, 98% to the common unitholders, pro rata, and 2% to the manager, until the capital account for each common unit is equal to the sum of: (1) the initial unit price; (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and (3) any unpaid arrearages in payment of the minimum quarterly distribution;

    second, 98% to the subordinated unitholders, pro rata, and 2% to the manager, until the capital account for each subordinated unit is equal to the sum of: (1) the initial unit price; and (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

    third, 98% to all unitholders, pro rata, and 2% to the manager, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98% to the unitholders, pro rata, and 2% to the manager, for each quarter of our existence;

    fourth, 85% to all unitholders, pro rata, 2% to the manager and 13% to the holders of the incentive distribution rights, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of cash from operating surplus in excess of the first target distribution per unit that we distributed 85% to the unitholders, pro rata, 2% to the manager and 13% to the holders of the incentive distribution rights for each quarter of our existence;

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    fifth, 75% to all unitholders, pro rata, and 2% to the manager and 23% to the holders of the incentive distribution rights, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of cash from operating surplus in excess of the second target distribution per unit that we distributed 75% to the unitholders, pro rata, 2% to the manager and 23% to the holders of the incentive distribution rights for each quarter of our existence; and

    thereafter, 50% to all unitholders, pro rata, 2% to the manager and 48% to the holders of the incentive distribution rights.

        The percentages set forth above for our manager and the holders of the incentive distribution rights include its 2% managing member interest.

        If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that clause (3) of the first bullet point above and all of the second bullet point above will no longer be applicable.

    Manner of Adjustments for Losses

        If our liquidation occurs before the end of the subordination period, we will generally allocate any loss to our manager, the holders of the incentive distribution rights and the unitholders in the following manner:

    first, 98% to holders of subordinated units in proportion to the positive balances in their capital accounts and 2% to the manager, until the capital accounts of the subordinated unitholders have been reduced to zero;

    second, 98% to the holders of common units in proportion to the positive balances in their capital accounts and 2% to the manager, until the capital accounts of the common unitholders have been reduced to zero;

    third, 98% to all unitholders, pro rata, and 2% to the manager, provided that the allocation of the loss does not reduce the capital account of a unitholder below zero; and

    thereafter, to all unitholders and the manager in proportion to the positive balances in their adjusted capital accounts.

        If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.

    Adjustments to Capital Accounts Upon Issuance of Additional Units

        We will make adjustments to capital accounts upon the issuance of additional units. In doing so, we generally will allocate any unrealized and, for tax purposes, unrecognized gain resulting from the adjustments to the unitholders, the holders of the incentive distribution rights and our manager in the same manner as we allocate gain upon liquidation. By contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the unitholders and our manager based on their respective percentage ownership of us. In this manner, prior to the end of the subordination period, we generally will allocate any such loss equally with respect to our common and subordinated units. In the event we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units will be allocated in a manner designed to reverse the prior negative adjustments, and special allocations will be made upon liquidation in a manner that results, to the extent possible, in our unitholders' capital account balances equaling the amounts they would have been if no earlier adjustments for loss had been made.

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SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

        We were formed on January 27, 2010 and do not have our own historical financial statements for periods prior to our formation. Therefore, we present the financial statements of Niska Predecessor, consisting of the combined financial statements of Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P. Niska Predecessor acquired our predecessor business from EnCana Corporation in a two step transaction. In the first step of the transaction, which closed on May 12, 2006, Niska Predecessor acquired all of our assets except Wild Goose. In the second phase of the transaction, which closed on November 16, 2006, Niska Predecessor acquired Wild Goose. The historical financial statements of Niska Predecessor contained elsewhere in this prospectus represent the combined historical and operating data of Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P. In connection with the closing of this offering, Niska Holdings will contribute Niska Predecessor to us. This prospectus does not include financial statements relating to the assets prior to their acquisition by Niska Predecessor because of the reasons explained below. As a result, the financial statements of Niska Predecessor for the period ended March 31, 2007 are not directly comparable to financial statements for subsequent periods. The following table presents selected historical combined financial and operating data of Niska Predecessor and selected pro forma financial and operating data of Niska Gas Storage Partners LLC as of the dates and for the periods indicated.

        Financial information for periods prior to May 12, 2006 and for Wild Goose for periods prior to November 16, 2006 is not presented. Niska Predecessor was provided with historical financial data for the years ended December 31, 2003, 2004 and 2005 prepared by EnCana Corporation in accordance with Canadian GAAP. Niska Predecessor was not provided with any financial information, audited or otherwise, for the periods from January 1, 2006 through May 11, 2006, in the case of all assets other than Wild Goose, or through November 16, 2006, in the case of Wild Goose. We are not affiliated in any way with EnCana Corporation and we are unable to prepare financial statements for the assets of Niska Predecessor for periods prior to the dates that Niska Predecessor acquired such assets from EnCana Corporation. We also do not have access to the information necessary to convert the financial information prepared by EnCana Corporation from Canadian GAAP to U.S. GAAP. This financial information rests peculiarly within the knowledge of EnCana Corporation and cannot be obtained by Niska Predecessor without unreasonable effort or expense. Niska Predecessor did not rely on the financial and operating data prepared by EnCana Corporation when it acquired the assets from EnCana Corporation, and Niska Predecessor materially changed the operation of the assets after it acquired them and did not assume all of the liabilities and obligations associated with EnCana Corporations's operation of the assets. Accordingly, the financial and operating data prepared by EnCana Corporation is not readily comparable to Niska Predecessor's financial statements. We, and our auditors, are unable to verify the financial information prepared by EnCana Corporation. In particular, any intercompany profits arising from transactions between the Canadian and U.S. operations (and other EnCana Corporation subsidiaries) cannot be identified and as such, profits that would have been generated from such transactions are not eliminated from revenues and expenses. Additionally, the financial statements prepared by EnCana Corporation for its Canadian operations do not include a line item or narrative regarding taxes and we are unable to determine the appropriateness of the exclusion of taxes from the financial statements.

        The historical combined financial data presented for the years ended March 31, 2008 and 2009, the nine months ended December 31, 2009 and the period from May 12, 2006 to March 31, 2007 is derived from, and should be read together with and is qualified in its entirety by reference to, the historical audited financial statements and the accompanying notes included elsewhere in this prospectus. The historical combined financial data presented for the nine months ended December 31, 2008 is derived from, and should be read together with and is qualified in its entirety by reference to, the historical unaudited financial statements and the accompanying notes included elsewhere in this prospectus.

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Moreover, the table should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        Our selected pro forma statement of operations data for the nine months ended December 31, 2009 and selected pro forma balance sheet data as of December 31, 2009 are derived from the unaudited pro forma combined financial statements of Niska Gas Storage Partners LLC included elsewhere in this prospectus. The pro forma adjustments have been prepared as if the non-public offering of our senior notes, this offering and the transactions to be effected in connection with the closing of this offering had taken place on December 31, 2009, in the case of the pro forma balance sheet, and on April 1, 2009, in the case of the pro forma statement of operations. A more complete explanation of the pro forma data can be found in our unaudited pro forma combined financial statements.

        The following table includes the non-GAAP financial measure of Adjusted EBITDA.

 
   
   
   
   
   
  Niska Gas
Storage
Partners
LLC
 
 
  Niska Predecessor   Pro Forma  
 
  Period from
May 12,
2006 to
March 31,

   
   
  Nine Months Ended
December 31,
   
 
 
  Year Ended March 31,   Nine Months
Ended
December 31,
2009
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
  (unaudited)
 
 
   
  (dollars in millions)
 

Combined Statement of Earnings and Comprehensive Income Data:

                                     

Revenues:

                                     
 

Long-term contract revenue

  $ 104.5   $ 121.4   $ 110.7   $ 85.9   $ 81.9   $ 81.9  
 

Short-term contract revenue

    32.1     35.5     52.0     32.8     39.9     39.9  
 

Optimization revenue, net(b)

    57.2     76.0     89.4     92.9 (c)   27.9 (c)   27.9 (c)
                           

  $ 193.8   $ 232.9   $ 252.2   $ 211.6   $ 149.7   $ 149.7  

Expenses (Income):

                                     
 

Operating expenses

  $ 28.8   $ 44.6   $ 45.4   $ 34.5   $ 28.4   $ 28.4  
 

General and administrative expenses

    19.9     30.1     24.2     20.4     21.5     20.9  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9     32.9  
 

Interest expense

    60.2     73.9     53.5     43.5     20.1     62.2  
 

Impairment of assets

        2.5     24.1 (d)            
 

Loss/(gain) on sale of assets

        2.3         0.7          
 

Other income

    (0.4 )   (0.7 )   (20.8) (e)   (0.4 )   (0.1 )   (0.1 )
 

Foreign exchange losses/(gains)

    (2.6 )   (7.2 )   (25.8 )   (16.0 )   (8.2 )   (8.2 )
                           
 

Earnings before income taxes

  $ 41.4   $ 45.0   $ 96.9   $ 85.4   $ 55.0   $ 13.6  

Income tax expense/(benefit):

                                     
 

Current

        0.3     0.3     0.3     0.2     0.2  
 

Deferred

    (12.1 )   (3.7 )   (12.2 )   (15.7 )   51.6     40.7  
                           

    (12.1 )   (3.4 )   (11.9 )   (15.4 )   51.8     40.9  
                           

Net earnings/(loss) and comprehensive income for the period ended

 
$

53.5
 
$

48.3
 
$

108.8
 
$

100.8
 
$

3.2
 
$

(27.3

)
                           

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  Niska Gas
Storage
Partners
LLC
 
 
  Niska Predecessor   Pro Forma  
 
  Period from
May 12,
2006 to
March 31,

   
   
  Nine Months Ended
December 31,
   
 
 
  Year Ended March 31,   Nine Months
Ended
December 31,
2009
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
  (unaudited)
 
 
   
  (dollars in millions)
 

Balance Sheet Data (at period end):

                                     

Total assets

  $ 1,931.1   $ 1,905.2   $ 2,002.9   $ 2,107.5   $ 2,071.0   $ 2,083.8  

Property, plant and equipment, net of depreciation

    976.5     955.7     940.2     951.0     974.3     951.1  

Long-term debt(f)

    773.6     693.8     597.0     688.6     593.0     800.0  

Total partners'/members' capital

    820.5     867.1     977.4     930.2     969.2     862.3  

Other Financial Data (unaudited):

                                     

Adjusted EBITDA

  $ 148.0   $ 156.7   $ 162.1   $ 113.1   $ 145.0   $ 145.7  

Maintenance capital expenditures(g)

    0.3     1.7     1.4     1.0     0.8     0.8  

Expansion capital expenditures(g)

    27.4     35.8     17.6     16.5     46.0     45.7  

Operating Data (unaudited):

                                     

Effective working gas capacity (Bcf)(h)

    144.2     155.3     163.7     163.7     185.5     185.5  

Capacity added during period (Bcf)

        11.1     8.4     8.4     21.8     21.8  

Percent of total capacity contracted to third parties

    91.3 %   84.9 %   85.1 %   85.1 %   75.9 %   75.9 %

(a)
Period data includes Wild Goose from November 16, 2006 to March 31, 2007.

(b)
Optimization revenues are presented net of cost of goods sold.

(c)
Net optimization revenues include unrealized risk management gains/losses and write-downs of inventory. We had an unrealized risk management loss of $45.3 million for the nine months ended December 31, 2009 and an unrealized risk management gain of $93.8 million for the nine months ended December 31, 2008. We had a write-down of inventory of $50.1 million for the nine months ended December 31, 2008, compared to zero for the nine months ended December 31, 2009. Excluding these non-cash items, which do not affect Adjusted EBITDA, our realized optimization revenues were $73.2 million for the nine months ended December 31, 2009 compared with $49.3 million for the nine months ending December 31, 2008.

(d)
Impairment charges relate primarily to the goodwill in a subsidiary that was written down from its carrying amount of $22.0 million to zero. The impairment charges were recorded following a year of overall negative economic conditions.

(e)
Other income for the fiscal year ended March 31, 2009 includes a recovery of $17.8 million in addition to $2.7 million in interest as a result of the settlement of a dispute relating to the acquisition of our predecessor business from EnCana Corporation.

(f)
Excludes revolver drawings, which are recorded in current liabilities.

(g)
Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing operating capacity of our assets. Expansion capital expenditures are capital expenditures made to increase the long-term operating capacity of our assets or our asset base whether through construction or acquisition.

(h)
Represents operated and NGPL capacity.

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Non-GAAP Financial Measure

    Adjusted EBITDA

        We use the non-GAAP financial measure Adjusted EBITDA in this prospectus. A reconciliation of Adjusted EBITDA to its most directly comparable financial measure as calculated and presented in accordance with GAAP is shown below.

        We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, unrealized risk management gains and losses, foreign exchange gains and losses, unrealized inventory impairment writedown, gains and losses on asset dispositions, asset impairments and other income. We believe the adjustments for other income, which is comprised primarily of income from an arbitration award granted to us in the fiscal year ended March 31, 2009, are similar in nature to the traditional adjustments to net income used to calculate EBITDA and adjustment for these items results in an appropriate representation of this financial measure. Adjusted EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements such as commercial banks and ratings agencies, to assess:

    the financial performance of our assets, operations and return on capital without regard to financing methods, capital structure or historical cost basis;

    the ability of our assets to generate cash sufficient to pay interest on our indebtedness and make distributions to our equity holders;

    repeatable operating performance that is not distorted by non-recurring items or market volatility; and

    the viability of acquisitions and capital expenditure projects.

        The GAAP measure most directly comparable to Adjusted EBITDA is net income. The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to net income. Adjusted EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

        We recognize that the usefulness of Adjusted EBITDA as an evaluative tool may have certain limitations, including:

    Adjusted EBITDA does not include interest expense. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and impacts our ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have material limitations;

    Adjusted EBITDA does not include depreciation and amortization expense. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and amortization expense may have material limitations;

    Adjusted EBITDA does not include provision for income taxes. Because the payment of income taxes is a necessary element of our costs, any measure that excludes income tax expense may have material limitations;

    Adjusted EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;

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    Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and

    Adjusted EBITDA does not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss.

 
   
   
   
   
   
  Niska Gas
Storage
Partners
LLC
 
 
  Niska Predecessor Historical   Pro Forma  
 
  Period from
May 12,
2006 to
March 31,

   
   
  Nine Months Ended
December 31,
   
 
 
  Year Ended March 31,   Nine Months
Ended
December 31,
2009
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
  (unaudited)
 
 
  (dollars in millions)
 

Reconciliation of Adjusted EBITDA to net income:

                                     

Net earnings/(loss)

  $ 53.5   $ 48.3   $ 108.8   $ 100.8   $ 3.2   $ (27.3 )

Add/(deduct):

                                     
 

Interest expense

    60.2     73.9     53.5     43.5     20.1     62.2  
 

Income tax expense/(benefit)

    (12.1 )   (3.4 )   (11.9 )   (15.4 )   51.8     40.9  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9     32.9  
 

Unrealized risk management losses/(gains)

    2.8     (1.5 )   (82.8 )   (93.8 )   45.3     45.3  
 

Foreign exchange losses/(gains)

    (2.6 )   (7.2 )   (25.8 )   (16.0 )   (8.2 )   (8.2 )
 

Loss/(gain) on sale of assets

        2.3         0.7          
 

Impairment of assets

        2.5     24.1              
 

Other income

    (0.4 )   (0.7 )   (20.8 )   (0.4 )   (0.1 )   (0.1 )
 

Unrealized inventory impairment writedown

            62.3     50.1          
                           

Adjusted EBITDA

  $ 148.0   $ 156.7   $ 162.1   $ 113.1   $ 145.0   $ 145.7  
                           

(a)
Data includes Wild Goose from November 16, 2006 to March 31, 2007.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The historical financial statements included elsewhere in this prospectus reflect the combined assets, liabilities and operations of Niska Predecessor. Prior to the closing of this offering, Niska Predecessor will be contributed to us. The following discussion analyzes the historical financial condition and results of operations of Niska Predecessor before the impact of pro forma adjustments related to the contribution of our assets by Niska Predecessor, the non-public offering of our senior notes and use of proceeds therefrom, our entry into a new credit agreement prior to the closing of this offering, and this offering. You should read the following discussion of the historical combined financial condition and results of operations in conjunction with the historical financial statements and accompanying notes of Niska Predecessor and the pro forma financial statements for Niska Gas Storage Partners LLC included elsewhere in this prospectus. In addition, this discussion includes forward-looking statements that are subject to risks and uncertainties that may result in actual results differing from statements we make. See "Forward-Looking Statements." Factors that could cause actual results to differ include those risks and uncertainties that are discussed in "Risk Factors."


How We Evaluate Our Operations

        We generate substantially all of our revenue through long and short-term contracts for the storage of natural gas for third-party customers and the proprietary optimization of storage capacity that is uncontracted, underutilized or available only on a short-term basis. We evaluate our business on the basis of the following key measures:

    volume and fees derived from LTF contracts;

    volume and fees derived from STF contracts;

    volume and margin derived from our proprietary optimization activities;

    operating, general and administrative expenses;

    Adjusted EBITDA;

    capitalization and leverage; and

    borrowing base revolver availability and liquidity.

    Volume and Fees Derived from LTF Contracts

        We provide multi-year, multi-cycle storage services to our customers under LTF contracts. From our inception on May 12, 2006 to March 31, 2009, we utilized an average of approximately 78% of our operated capacity for our LTF strategy. The volume weighted average life of our LTF contracts at December 31, 2009 was 3.3 years. Under our LTF contracts, our customers are obligated to pay us monthly reservation fees which are fixed charges owed to us regardless of the actual use by the customer. When a customer utilizes the capacity that is reserved under these contracts, we also collect a variable fee designed to allow us to recover our variable operating costs. Reservation fees comprise over 90% of the revenue generated under LTF contracts and provide a baseline of revenue in excess of our general and administrative and operating costs. From inception to March 31, 2009, our LTF contracts generated average reservation fees of $0.99 per Mcf. We evaluate both the volume and price of our LTF contracting, which can indicate the effectiveness of our marketing efforts as well as the relative attractiveness of LTF contracts in comparison to our other revenue strategies. During periods when prices are higher, we will utilize more of our capacity under LTF contracts.

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    Volume and Fees Derived from STF Contracts

        In addition, we provide short term services for customers under STF contracts. From inception to March 31, 2009, we utilized an average of approximately 14% of our operated capacity for our STF strategy. STF contracts typically have terms of less than one year. Under an STF contract, a customer pays a fixed fee to inject a specified quantity of natural gas on a specified date or dates and to store that gas in our storage facilities until withdrawal on a specified future date or dates. Because STF contracts set forth specified future injection or withdrawal dates, we enter into offsetting transactions to capture incremental value as spot and future natural gas prices fluctuate prior to that activity date. We monitor the volume used for and evaluate the fees generated under our STF contracts. The fees we are able to generate from our STF contracts reflect market conditions (including interest rates) and the effectiveness of our marketing efforts. From inception to March 31, 2009, our STF contracts generated average fees of $1.88 per Mcf. The capacity utilized for STF contracts depends on, among other things, the total capacity of our storage facilities that is not being utilized for LTF contracts, and on the contract rates available for STF contracts.

    Volume and Margin Derived from Our Proprietary Optimization Activities

        From inception to March 31, 2009, we utilized an average of approximately 8% of our operated capacity and all of our NGPL capacity for our proprietary optimization strategy. When market conditions warrant, we enter into economically hedged transactions with available capacity to achieve margins higher than can be obtained from third-party contracts. Because we simultaneously hedge our transactions, we are able to determine in advance the minimum margins that will be realized and add incremental margins by rehedging as market conditions change.

        At times, if spreads move favorably, such as if winter gas prices fall below forward prices for the following summer, we can further increase margins that have already been locked in by choosing to hold inventory into a subsequent period and rehedging the transaction. This has the result of increasing our cash flow margins and overall profitability, although for accounting purposes the income is deferred into a later period, causing the appearance of cyclicality in our reported revenues.

        When evaluating the performance of our optimization business, we focus on our realized optimization margins, excluding the impact of unrealized hedging gains and losses and inventory write-downs. For accounting purposes, our net realized optimization revenues include the impact of unrealized hedging gains and losses and inventory write-downs, which cause our reported revenues to fluctuate from period to period. However, because all inventory is economically hedged, any inventory write-downs are offset by hedging gains and any unrealized hedging losses are offset by gains when the inventory is sold. From inception to March 31, 2009, our proprietary optimization business generated average margins of $3.68 per Mcf ($3.37 on a realized basis before unrealized marked to market gains and losses and inventory writedowns).

    Operating Expenses

        Our most significant operating expenses are fuel and electricity costs. These operating expenses vary significantly based upon the amount of gas we inject or withdraw throughout the year and the price of the energy commodity at the time of purchase. Variable operating expenses are partially offset by the variable fees we collect from our LTF contracts. The smaller, fixed component of our operating expenses include salaries and labor, parts and supplies, surface and mineral lease rentals and other general operating costs. These fixed operating expenses are more stable from year to year but can fluctuate due to unforeseen repairs, equipment malfunctions and overhauls of compressors or engines.

    General and Administrative Expenses

        Our general and administrative expenses primarily consist of salaries, bonus compensation, legal and accounting fees and our office lease. Following this offering we expect our general and

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administrative expenses will increase substantially as a result of an increase in legal and accounting costs and related public company regulatory and compliance expenses.

    Adjusted EBITDA

        We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, unrealized risk management gains and losses, foreign exchange gains and losses, unrealized inventory impairment writedown, gains and losses on asset dispositions, asset impairments and other income. Our Adjusted EBITDA is not a presentation made in accordance with GAAP. We utilize Adjusted EBITDA in order to be able to compare our results against our peers, regardless of differences in financing, and by excluding non-recurring items to be able to compare to our own results for other periods. For a reconciliation of Adjusted EBITDA to its most directly comparable financial measure calculated and presented in accordance with GAAP, see "Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measure."

    Capitalization and Leverage

        We regularly monitor our leverage statistics to ensure a conservative capital structure. As of December 31, 2009, we had a debt to Adjusted EBITDA ratio of 3.2x, debt to capitalization of 38%, and an Adjusted EBITDA to interest coverage ratio of 6.1x. We expect to maintain or improve these ratios over time in order to maintain access to available capital markets, a competitive cost of capital and financial flexibility to grow our business and increase our cash distributions.

    Borrowing Base Revolver Availability and Liquidity

        Funding the purchase of proprietary optimization inventory can consume a significant portion of our available working capital. In times of higher natural gas prices, holding large inventories of proprietary gas may cause us to consume a substantial portion of our availability under our credit facilities. We therefore closely monitor the utilization and remaining available capacity under our credit facilities and actively pursue additional STF contracts when we determine it is appropriate to maintain liquidity.


Factors that Impact Our Business

        Factors that impact the performance of specific components of our business from period to period include the following:

    Market Price for LTF Contracts

        The price available in the marketplace when negotiating new or replacement LTF contracts reflects demand and affects the amount of storage capacity utilized for LTF contracts that year, and thus the amount of capacity utilized for STF contracts or proprietary optimization for that year. We may increase the capacity that we use for LTF contracts at times of higher market prices and demand. Lower market prices for LTF contracts may result from lower seasonal spreads or a more competitive environment for storage services.

    Gas Storage Capacity Growth

        Capacity added in the prior year or added during a year will be expected to generate incremental revenue.

    Carried Inventory

        When winter gas prices fall below forward prices for the following summer, we may defer the withdrawal of proprietary optimization inventory until the next fiscal year in order to add incremental

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margin and economic value. This results in the deferral of realized earnings and cash flow from one fiscal year to the next. In some cases we can mitigate the impact of deferred earnings and cash flow by entering into STF contracts that straddle the two fiscal years.

    Variable Costs

        The variable operating costs of our facilities (mostly comprised of costs associated with fuel or electricity for compressor operations) are affected by the amount and price of energy used to inject and withdraw gas from our facilities and by the number and timing of gas injections and withdrawals. For example, if we experience large injections of gas in the early summer (instead of a steady rate of injections throughout the summer) we would have greater than expected costs in our first quarter and lower than expected costs in our second quarter. A mild winter could lead to less withdrawals in total, and therefore lower overall variable costs. These cost variances would be partially offset by similar variances in contract revenues.

    Carrying Costs

        Our cost of capital and the amount of our working capital availability will impact the amount of capacity utilized for proprietary optimization as compared to STF contracts. A higher cost of capital relative to that of our customers or less availability will generally lead to less volume used for proprietary optimization transactions. In general, higher carrying costs for us or our customers result in lower margins for us.

    Customer Usage Patterns

        Incremental revenue opportunities in the form of STF or proprietary optimization transactions may arise for us if capacity usage by our LTF customers is underutilized or offset by other LTF customers.

    Weather

        Weather extremes and variability directly affect our margins. Very mild years tend to reduce revenue generated under our STF and proprietary optimization strategies, while years with very hot summers, very cold winters or a number of significant storms tend to increase the revenue generated under those strategies.


Comparability of Our Financial Statements

        Our results of operations, statements of cash flows and financial condition, set forth in our audited financial statements and contained elsewhere in this prospectus, for the period from May 12, 2006 through March 31, 2007 do not contain data for Wild Goose prior to November 16, 2006, the date that we acquired Wild Goose. As a result they are not directly comparable with our results of operations, statements of cash flows and financial condition for subsequent periods. Accordingly, we recommend that you do not place undue reliance on data contained in this prospectus for the period from May 12, 2006 through March 31, 2007.

        Since our inception on May 12, 2006, we have added approximately 41.3 Bcf of capacity to our facilities. As a result, our revenues and expenses have not only been impacted by changing utilization patterns and pricing environments, but also by increasing overall capacity. This further limits your ability to compare year-over-year changes in our results from operations.

        We anticipate incurring incremental general and administrative expenses attributable to operating as a publicly-traded entity. These costs include expenses associated with SEC compliance, including annual and quarterly reporting, tax return and Schedule K-1 preparation, compliance with Sarbanes-Oxley, listing on the NYSE, engaging attorneys and independent auditors, obtaining incremental director and officer liability insurance and engaging a registrar and transfer agent. We expect these expenses to total approximately $3.4 million per year. These expenses are not reflected in our historical financial statements.

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Results of Operations

        The following provides a summary of our results for the period from May 12, 2006 through March 31, 2007, for the fiscal years ended March 31, 2008 and 2009, and for the nine months ended December 31, 2008 and 2009:

 
  Niska Predecessor  
 
  Period from
May 12,
2006 to
March 31,

  Year Ended March 31,   Nine Months Ended
December 31,
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
 
 
  (dollars in millions)
 

Combined Statement of Earnings and Comprehensive Income Data:

                               

Revenues

                               
 

Long-term contract revenue

  $ 104.5   $ 121.4   $ 110.7   $ 85.9   $ 81.9  
 

Short-term contract revenue

    32.1     35.5     52.0     32.8     39.9  
 

Optimization revenue, net(b)

    57.2     76.0     89.4     92.9 (c)   27.9 (c)
                       

  $ 193.8   $ 232.9   $ 252.2   $ 211.6   $ 149.7  

Expenses (Income):

                               
 

Operating expenses

  $ 28.8   $ 44.6   $ 45.4   $ 34.5   $ 28.4  
 

General and administrative expenses

    19.9     30.1     24.2     20.4     21.5  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9  
 

Interest expense

    60.2     73.9     53.5     43.5     20.1  
 

Impairment of assets

        2.5     24.1 (d)        
 

Loss/(gain) on sale of assets

        2.3         0.7      
 

Other income

    (0.4 )   (0.7 )   (20.8) (e)   (0.4 )   (0.1 )
 

Foreign exchange losses/(gains)

    (2.6 )   (7.2 )   (25.8 )   (16.0 )   (8.2 )
                       
 

Earnings before income taxes

  $ 41.4   $ 45.0   $ 96.9   $ 85.4   $ 55.0  

Income tax expense/(benefit):

                               
 

Current

        0.3     0.3     0.3     0.2  
 

Deferred

    (12.1 )   (3.7 )   (12.2 )   (15.7 )   51.6  
                       

    (12.1 )   (3.4 )   (11.9 )   (15.4 )   51.8  
                       

Net earnings and comprehensive income for the period ended

 
$

53.5
 
$

48.3
 
$

108.8
 
$

100.8
 
$

3.2
 
                       

Reconciliation of Adjusted EBITDA to net income:

                               

Net earnings

  $ 53.5   $ 48.3   $ 108.8   $ 100.8   $ 3.2  

Add/(deduct):

                               
 

Interest expense

    60.2     73.9     53.5     43.5     20.1  
 

Income tax expense/(benefit)

    (12.1 )   (3.4 )   (11.9 )   (15.4 )   51.8  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9  
 

Unrealized risk management losses/(gains)

    2.8     (1.5 )   (82.8 )   (93.8 )   45.3  
 

Foreign exchange losses/(gains)

    (2.6 )   (7.2 )   (25.8 )   (16.0 )   (8.2 )
 

Loss/(gain) on sale of assets

        2.3         0.7      
 

Impairment of assets

        2.5     24.1          
 

Other income

    (0.4 )   (0.7 )   (20.8 )   (0.4 )   (0.1 )
 

Unrealized inventory impairment writedown

            62.3     50.1      
                       

Adjusted EBITDA

  $ 148.0   $ 156.7   $ 162.1   $ 113.1   $ 145.0  
                       

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  Niska Predecessor  
 
  Period from
May 12,
2006 to
March 31,

  Year Ended March 31,   Nine Months Ended
December 31,
 
 
  2007(a)   2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
 
 
  (dollars in millions)
 

Balance Sheet Data (at period end):

                               

Total assets

  $ 1,931.1   $ 1,905.2   $ 2,002.9   $ 2,107.5   $ 2,071.0  

Property, plant and equipment, net of accumulated depreciation

    976.5     955.7     940.2     951.0     974.3  

Long-term debt(f)

    773.6     693.8     597.0     688.6     593.0  

Total partners'/members' capital

    820.5     867.1     977.4     930.2     969.2  

Operating Data (unaudited):

                               

Effective working gas capacity (Bcf)(h)

    144.2     155.3     163.7     163.7     185.5  

Capacity added during period (Bcf)

        11.1     8.4     8.4     21.8  

Percent of total capacity contracted to third parties

    91.3 %   84.9 %   85.1 %   85.1 %   75.9 %

(a)
Period data includes Wild Goose from November 16, 2006 to March 31, 2007.

(b)
Optimization revenues are presented net of cost of goods sold.

(c)
Net optimization revenues include unrealized risk management gains/losses and write-downs of inventory. We had an unrealized risk management loss of $45.3 million for the nine months ended December 31, 2009 and an unrealized risk management gain of $93.8 million for the nine months ended December 31, 2008. We had a write-down of inventory of $50.1 million for the nine months ended December 31, 2008, compared to zero for the nine months ended December 31, 2009. Excluding these non-cash items, which do not affect Adjusted EBITDA, our realized optimization revenues were $73.2 million for the nine months ended December 31, 2009 compared with $49.3 million for the nine months ended December 31, 2008.

(d)
Impairment charges relate to the goodwill in a subsidiary that was written down from its carrying amount of $22.0 million to zero. The impairment charges were recorded following a year of overall negative economic conditions.

(e)
Other income for the fiscal year ended March 31, 2009 includes a recovery of $17.8 million in addition to $2.7 million in interest as a result of the settlement of a dispute relating to the acquisition of our predecessor business from EnCana Corporation.

(f)
Excludes revolver drawings, which are recorded in current liabilities.

(g)
Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing operation capacity of our assets. Expansion capital expenditures are capital expenditures made to increase the long-term operating capacity of our assets or our asset base whether through construction or acquisition.

(h)
Represents operated and NGPL capacity.

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        The following table sets forth volume utilized by, and revenue and fees/margins derived from, LTF contracts, STF contracts and proprietary optimization transactions for the period from May 12, 2006 through March 31, 2007, for the fiscal years ended March 31, 2008 and 2009 and for the nine months ended December 31, 2008 and 2009:

 
  Niska Predecessor  
 
  Period from
May 12,
2006 –
March 31,
2007(1)
   
   
  Nine Months Ended
December 31,
 
 
  Year Ended March 31,  
 
  2008   2009   2008   2009  

Storage Capacity (Bcf) utilized by:

                               
 

LTF Contracts

    119.9     112.8     106.3     106.3     103.9  
 

STF Contracts

    11.7     19.1     32.9     32.9     36.8  
 

Proprietary optimization transactions

    12.6     23.4     24.5     24.5     44.8  
                       
 

Total

    144.2     155.3     163.7     163.7     185.5  

Revenue (in millions)

                               
 

LTF Contracts

  $ 104.5   $ 121.4   $ 110.7   $ 85.9   $ 81.9  
 

STF Contracts

    32.1     35.5     52.0     32.8     39.9  
 

Realized proprietary optimization transactions

    60.0     74.6     68.9     49.3     73.2  
 

Unrealized risk management gains (losses)

    (2.8 )   1.5     82.8     93.8     (45.3 )
 

Write-down of inventory

            (62.3 )   (50.1 )    
                       
 

Total

  $ 193.8   $ 232.9   $ 252.2   $ 211.6   $ 149.7  

Fees/Margins ($/mcf)

                               
 

LTF Contracts

  $ 0.87   $ 1.08   $ 1.04   $ 0.81   $ 0.79  
 

STF Contracts

    2.74     1.86     1.58     1.00     1.09  
 

Realized proprietary optimization transactions

    4.77     3.18     2.82     2.02     1.63  

    Nine Months Ended December 31, 2009 Compared to Nine Months Ended December 31, 2008

        Revenues.    Revenues decreased 29.3% to $149.7 million for the nine months ended December 31, 2009 compared to $211.6 million for the nine months ended December 31, 2008. This change was primarily attributable to the following:

    LTF Revenues.  LTF revenues for the nine months ended December 31, 2009 decreased 4.7% to $81.9 million from $85.9 million for the nine months ended December 31, 2008. This decrease was primarily attributable to a 41.4% decrease in fuel and commodity revenue to $6.5 million for the twelve months ended December 31, 2009 from $11.1 million for the twelve months ended December 31, 2008 due to lower natural gas prices and less cycling.

    STF Revenues.  STF revenues for the nine months ended December 31, 2009 increased 21.9% to $39.9 million from $32.8 million for the nine months ended December 31, 2008. This increase was primarily attributable to an 11.9% increase in capacity utilized for STF contracts, from 32.9 Bcf for the nine months ended December 31, 2008 to 36.8 Bcf for the nine months ended December 31, 2009. The balance relates to a 9% improvement in margins in the nine months ended December 31, 2009.

    Optimization Revenues.  Optimization revenues for the nine months ended December 31, 2009 decreased to $27.9 million from $92.9 million for the nine months ended December 31, 2008 primarily due to timing differences relating to the realization of income. When evaluating the performance of our optimization business, we focus on our realized optimization margins, excluding the impact of unrealized hedging gains and losses and inventory write-downs. For accounting purposes, our net optimization revenues include the impact of unrealized hedging

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      gains and losses and inventory write-downs, which cause our reported revenues to fluctuate from period to period. However, because all inventory is economically hedged, any inventory write-downs are offset by hedging gains and any unrealized hedging losses are offset by realized gains from the sale of physical inventory. The components of optimization revenues are as follows:

      Realized Optimization Revenues.  Revenue increased by 48.4% to $73.2 million for the nine months ended December 31, 2009 from $49.3 million for the nine months ended December 31, 2008, while storage capacity utilized for proprietary optimization activities increased from 24.5 Bcf for the nine months ended December 31, 2008 to 44.8 Bcf for the nine months ended December 31, 2009. A lower-priced commodity environment led to increased proprietary inventory purchases in the nine months ended December 31, 2009, while a portion of the revenue associated with these purchases will be recognized in the last quarter of the fiscal year.

      Unrealized Risk Management Gains/(Losses).  Unrealized risk management losses for the nine months ended December 31, 2009 were $45.3 million compared to a gain of $93.8 million for the nine months ended December 31, 2008. This was primarily attributable to prices rising after financial hedges were transacted for the nine months ended December 31, 2009 compared to a falling price environment during the same period in the prior year. As all inventory is economically hedged financially, any risk management losses (or gains) are offset by future gains (or losses) associated with the sale of proprietary inventory.

      Unrealized Inventory Writedown.  Inventory purchased early during the summer of 2008 in the high priced commodity environment was subject to a writedown for the nine months ended December 31, 2008 when commodity prices retreated significantly. These losses were offset by gains from financial hedges that were transacted at higher prices at the time inventory was purchased as described above. For the nine months ended December 31 2008 this loss amounted to $50.1 million, compared to zero for the nine months ended December 31, 2009.

        Earnings before Income Taxes.    Earnings before income taxes for the nine months ended December 31, 2009 decreased 35.5% to $55.0 million from $85.4 million for the nine months ended December 31, 2008. This decrease was primarily attributable to the items discussed above, offset by the following:

    Operating Expenses.  Operating expenses for the nine months ended December 31, 2009 decreased 17.7% to $28.4 million from $34.5 million for the nine months ended December 31, 2008. This decrease was primarily attributable to lower fuel and electricity costs resulting from lower prices in the nine months ended December 31, 2009.

    General and Administrative Expenses.  General and administrative expenses for the nine months ended December 31, 2009 increased by 5.5% to $21.5 million from $20.4 million for the nine months ended December 31, 2008. This increase was primarily attributable to increased legal and accounting services related to activities related to refinancing the company's debt facilities. This was partially offset by reduced rent expenses from subletting a portion of the company's office space in the nine months ended December 31, 2009 and to reduced legal fees as a result of the settlement of arbitration proceedings in 2008.

    Depreciation and Amortization.  Depreciation and amortization for the nine months ended December 31, 2009 decreased 24.3% to $32.9 million from $43.4 million for the nine months ended December 31, 2008. This decrease was primarily attributable to a provision booked in the nine months ended December 31, 2008 amounting to $11.9 million to record the impact of cushion gas ineffectiveness at AECO Hub™. The provision against cushion gas is an estimate based on tests of its effectiveness. Through continued monitoring of cushion effectiveness over a

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      series of withdrawal and injection cycles, management is able to better estimate the extent of effectiveness deterioration. Based on this assessment, a charge amounting to $11.9 million was included in depreciation to reflect management's ability to better assess cushion gas effectiveness after monitoring operations over our ownership period.

    Interest Expense.  Interest expense for the nine months ended December 31, 2009 decreased 53.7% to $20.1 million from $43.5 million for the nine months ended December 31, 2008. This decrease was primarily attributable to a significant decrease in the principal balance of our term debt during the nine months ended December 31, 2009 compared to the prior period. We decreased the principal balance of our previous term debt in order to maintain compliance with a leverage covenant, which adjusted effective March 2009, contained in the agreements governing our previous term debt and revolving credit facilities. In addition, the interest rates on our term debt and revolvers were floating and the average interest rates applied to our term debt and revolver balances were lower by approximately 55.7% and 54.7%, respectively, in the nine months ended December 31, 2009 than in the nine months ended December 31, 2008.

        Foreign Exchange Losses/(Gains).    Foreign exchange gains for the nine months ended December 31, 2009 decreased to $8.2 million from $16.0 million for the period ended December 31, 2008. The election by two of our Canadian subsidiaries to adopt the U.S. dollar as their functional currency for their Canadian tax returns during the nine months ended December 31, 2009 eliminated all material foreign currency translation gains and losses attributable to deferred income taxes.

        Net Income.    Net income for the nine months ended December 31, 2009 decreased to $3.2 million from $100.8 million for the nine months ended December 31, 2008. This change was primarily attributable to the items discussed above, plus the following:

    Income Tax Expense/(Benefit).  Income tax expense for the nine months ended December 31, 2009 increased to $51.8 million from a benefit of $15.4 million for the nine months ended December 31, 2008. This is the result of two of our Canadian subsidiaries electing to adopt the U.S. dollar as their functional currency for our Canadian tax returns, the result of which increased future tax expense by $23.4 million. In addition, Niska recorded a valuation allowance of $16.7 million relating to the uncertainty of realization of certain capital losses.

    Year Ended March 31, 2009 Compared to Year Ended March 31, 2008

        The fiscal year ended March 31, 2009 was characterized by an environment of high natural gas prices at the beginning of the year which reduced the normal seasonal spread as well as LTF contract rates. An emerging oversupply of natural gas in mid-2008 due to the growth in domestic supply caused near term natural gas prices to decline while long term prices were generally not affected to the same degree. This pricing dynamic created an incentive for our customers to carry inventory in storage over the winter and sell it in the following fiscal year, rather than to withdraw inventory during the winter months which is what would otherwise be expected.

        Revenue.    Revenues for the fiscal year ended March 31, 2009 increased 8.3% to $252.2 million from $232.9 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to the following:

    LTF Revenues.  LTF revenues for the fiscal year ended March 31, 2009 decreased 8.8% to $110.7 million from $121.4 million for the fiscal year ended March 31, 2008. This was primarily attributable to a 6% decrease in the quantity of capacity contracted under LTF contracts to 106.3 Bcf for the fiscal year ended March 31, 2009 from 112.8 Bcf for the fiscal year ended March 31, 2008. In addition, because high natural gas prices at the beginning of the year reduced the normal spread and the LTF contract rates, new or replacement contract rates were 22.5% lower in the fiscal year ended March 31, 2009 as compared to the fiscal year ended

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      March 31, 2008. Due to the lower rates for LTF contracts, we elected not to re-contract some of the contracts that expired in the fiscal year ended March 31, 2009. In addition, the minimum contracting covenant contained in our previous debt facilities expired during the year and we elected to alter the capacity utilization towards STF contracts that offered higher value in the then current period. By the end of the fiscal year ending March 31, 2009, gas prices stabilized at lower levels, which caused the seasonal spread and storage contract rates to return to normal, higher levels. We believe the storage spreads and low contract rates experienced at the beginning of the fiscal year ended March 31, 2009 were an anomaly and that, going forward, storage values will remain at normal or higher levels. See "Industry Overview—Fundamental Industry Trends."

    STF Revenues.  STF revenues for the fiscal year ended March 31, 2009 increased 46.5% to $52.0 million from $35.5 million for the fiscal year ended March 31, 2008 due to an increase in capacity used in STF contracts from 19.1 Bcf for the fiscal year ended March 31, 2008 to 32.9 Bcf for the fiscal year ended March 31, 2009. Unit margins contributed by STF capacity were $1.58 per MMbtu for the fiscal year ended March 31, 2009 compared to $1.86 per MMbtu for the fiscal year ended March 31, 2008.

    Optimization Revenues.  Net optimization revenue for the fiscal year ended March 31, 2009 increased 17.6% to $89.4 million from $76.0 million for the fiscal year ended March 31, 2008. Although we utilized slightly more storage capacity for proprietary optimization in the fiscal year ended March 31, 2009 due to expansions at our facilities, optimization activities were somewhat constrained by our working capital revolver. The components of optimization revenues are as follows:

Realized Optimization Revenues.  Realized optimization revenues for the fiscal year ended March 31, 2009 decreased 7.6% to $68.9 million from $74.6 million for the fiscal year ended March 31, 2008. Unit margins contributed by our proprietary optimization strategy were $2.82 per MMbtu for the fiscal year ended March 31, 2009 compared to $3.18 per MMbtu for the fiscal year ended March 31, 2008. This is primarily attributable to a decision to carry inventory into the following fiscal year to generate incremental margins. This was somewhat offset by a small increase in storage capacity utilized for our optimization activities. For the fiscal year ended March 31, 2009, 24.5 Bcf of storage capacity was utilized for proprietary optimization, compared to 23.4 Bcf for the fiscal year ended March 31, 2008.

Unrealized Risk Management Gains/(Losses).  Income from unrealized risk management gains for the fiscal year ended March 31, 2009 increased to $82.8 million from $1.5 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to $78.2 million in mark-to-market gains on our financial hedges related to our natural gas inventory that was carried over the fiscal year end in a falling price environment, unlike the prior year in which comparatively little inventory was carried forward. In addition, mark-to-market gains on foreign currency exchanges totaled $4.6 million in the fiscal year ended March 31, 2009 as compared to mark-to-market gains of $0.6 million for the fiscal year ended March 31, 2008.

Unrealized Inventory Writedown.  Inventory purchased early in the fiscal year ended March 31, 2009 in the high priced commodity environment was subject to a writedown for that year after commodity prices retreated significantly. These losses were offset by the financial hedge positions that were transacted when the inventory was purchased as described above. For the fiscal year ended March 31, 2009 this unrealized inventory writedown amounted to $62.3 million, compared to zero for the fiscal year ended March 31, 2008.

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        Earnings before Income Taxes.    Earnings before income taxes for the fiscal year ended March 31, 2009 increased 115.6% to $96.9 million from $45.0 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to the items discussed above, plus the following:

    Operating Expenses.  Operating expenses for the fiscal year ended March 31, 2009 remained largely unchanged from the fiscal year ended March 31, 2008. Higher per unit fuel costs in the fiscal year ended March 31, 2009 were offset by lower fuel consumption created by lower inventory withdrawals in the winter of 2009. Because natural gas prices were higher in the following summer we and our customers had an incentive to carry inventory over the end of the fiscal year ended March 31, 2009 and benefit by selling it in the following year at higher prices.

    General and Administrative Expenses.  General and administrative expenses for the fiscal year ended March 31, 2009 decreased 19.7% to $24.2 million from $30.1 million for the fiscal year ended March 31, 2008. This decrease was primarily attributable to $3.2 million in legal and consulting fees incurred as the result of the EnCana Corporation arbitration in the fiscal year ended March 31, 2008, $1.5 million of which were recovered from an arbitration award and treated as a deduction against general and administrative expenses for the fiscal year ended March 31, 2009.

    Depreciation and Amortization.  Depreciation and amortization for the fiscal year ended March 31, 2009 increased 28.8% to $54.8 million from $42.5 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to a provision amounting to $11.9 million to record the impact of declining cushion gas effectiveness at AECO Hub™. The provision against cushion gas is an estimate based on tests of its effectiveness. Through continued monitoring of cushion effectiveness over a series of withdrawal and injection cycles, management is able to better estimate the extent of effectiveness deterioration. For the fiscal year ended March 31, 2009, based on this assessment, a charge amounting to $11.9 million was included in depreciation to reflect management's ability to better assess cushion gas effectiveness after monitoring operations over our ownership period.

    Interest Expense.  Interest expense for the fiscal year ended March 31, 2009 decreased 27.6% to $53.5 million from $73.9 million for the fiscal year ended March 31, 2008. This decrease was primarily attributable to a lower average outstanding balance on our previous term debt and revolvers of approximately $16.8 million and $26.5 million, respectively, in the fiscal year ended March 31, 2009 than in the fiscal year ended March 31, 2008. In addition, the interest rates on our previous term debt and revolvers were floating and the average interest rates applied to our previous term debt and revolver balances were lower by approximately 36% and 39%, respectively, in the fiscal year ended March 31, 2009 than in the fiscal year ended March 31, 2008.

    Loss on Sale of Assets.  Losses on sales of assets for the fiscal year ended March 31, 2009 decreased to zero from $2.3 million for the fiscal year ended March 31, 2008. No fixed assets were disposed of in the fiscal year ended March 31, 2009 as compared to sales of pipe originally purchased for a development project in the fiscal year ended March 31, 2008 on which we realized a loss.

    Other Income.  Other income for the fiscal year ended March 31, 2009 increased to $20.8 million from $0.7 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to an award amounting to $19.8 million granted to us as a result of the resolution of the EnCana Corporation arbitration in the fiscal year ended March 31, 2009. The arbitration resulted from a dispute over a working capital adjustment related to the acquisition of Wild Goose, or the EnCana Corporation arbitration. While EnCana Corporation maintained that certain natural gas held in storage at the acquisition date was inventory and subject to a working capital adjustment, we maintained that such gas was required for operational support of the

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      facilities, and as such, included in the acquisition price. In order to close the acquisition we agreed to pay for the natural gas via a working capital adjustment and then submitted our request for arbitration, which commenced shortly after the close of the acquisition. After examining the evidence from both parties, the arbitrator ruled in our favor in July 2008. In addition to recovering the initial working capital adjustment, which is treated as other income, the arbitrator awarded us some, but not all, of the costs we incurred in connection with the arbitration process.

    Foreign Exchange Losses/(Gains).  Foreign exchange gains for the fiscal year ended March 31, 2009 increased to $25.8 million from $7.2 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to the translation of a Canadian dollar-denominated deferred tax liability into fewer U.S. dollars on March 31, 2009 as compared with March 31, 2008, caused by a decline in the value of the Canadian dollar to $0.7928 from $0.9742, resulting in an unrealized foreign exchange gain amounting to $37.2 million for the fiscal year ended March 31, 2009. The foreign exchange gains for the fiscal year ended March 31, 2009 were offset by realized foreign exchange losses amounting to $11.4 million due to settlements of Canadian dollar-denominated receivables in cash in a weakening Canadian dollar environment.

        Net Income.    Net income for the fiscal year ended March 31, 2009 increased to $108.8 million from $48.3 million for the fiscal year ended March 31, 2008. This change was primarily attributable to the items discussed above, plus the following:

    Income Tax Expense/(Benefit).  Income tax benefit for the fiscal year ended March 31, 2009 increased to $11.9 million from $3.4 million for the fiscal year ended March 31, 2008. This increase was primarily attributable to increases in the accounting and tax timing differences related to capital assets and intangible assets and limitations on the deductibility of interest on debt, in conjunction with decreases in tax rates (from 32.1% to 29.6%).

    Year Ended March 31, 2008 Compared to the Period from May 12, 2006 to March 31, 2007

        Niska Predecessor acquired most of our assets, other than Wild Goose, on May 12, 2006 and acquired Wild Goose on November 16, 2006. Accordingly, the fiscal year ended March 31, 2007 was a partial year compared to the full year ended March 31, 2008. The period ended March 31, 2007 was characterized by very high storage values in the early part of the year that gave us an incentive to increase the amounts of volumes contracted. Spreads narrowed in September 2006 leading to lower storage values entering the subsequent year.

        Revenues.    Revenues for the fiscal year ended March 31, 2008 increased 20.2% to $232.9 million from $193.8 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to the following:

    LTF Revenues.  LTF revenues for the fiscal year ended March 31, 2008 increased 16.2% to $121.4 million from $104.5 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to a full year of operations for the fiscal year ended March 31, 2008 compared to a partial year for the period from May 12, 2006 to March 31, 2007 (November 16, 2006 to March 31, 2007 in the case of Wild Goose). This was offset by a reduction in LTF contracted storage capacity of 5.9% to 112.8 Bcf for the fiscal year ended March 31, 2008 from 119.9 Bcf for the period from May 12, 2006 to March 31, 2007 and a 5.9% decrease in incremental contract rates from the period ended March 31, 2007 to the fiscal year ended March 31, 2008.

    STF Revenues.  STF revenues for the fiscal year ended March 31, 2008 increased 10.6% to $35.5 million from $32.1 million for the period from May 12, 2006 to March 31, 2007. For the fiscal year ended March 31, 2008, 19.1 Bcf of capacity was used for STF contracts, compared to

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      11.7 Bcf for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to an increase of 11.0 Bcf in aggregate capacity of our storage facilities and a shift of 7.0 Bcf of capacity contracted to customers using STF contracts and proprietary optimization that was previously utilized by LTF contracts. Our STF capacity contributed margins of $1.86 per MMbtu for the fiscal year ended March 31, 2008 compared to $2.74 per MMbtu for the period ended March 31, 2007.

    Optimization Revenues.  Net optimization revenue for the fiscal year ended March 31, 2008 increased 32.9% to $76.0 million from $57.2 million for the period from May 12, 2006 to March 31, 2007. The components of optimization revenues are as follows:

    Realized Optimization Revenues.  Realized optimization revenues for the fiscal year ended March 31, 2008 increased 24.3% to $74.6 million from $60.0 million for the period from May 12, 2006 to March 31, 2007. For the fiscal year ended March 31, 2008, 23.4 Bcf of capacity was utilized by proprietary optimization, compared to 12.6 Bcf for the period ended March 31, 2007. Unit margins contributed by this strategy were $3.18 per MMbtu for the fiscal year ended March 31, 2008 compared to $4.77 per MMbtu for the period ended March 31, 2007. Proprietary optimization revenue includes $16.7 million and $11.1 million from the sale of inventory that was held in our facilities on a temporary basis to support higher cycling LTF contracts for the period from May 12, 2006 to March 31, 2007 and the fiscal year ended March 31, 2008, respectively.

    Unrealized Risk Management Gains/(Losses).  Unrealized risk management gains for the fiscal year ended March 31, 2008 increased to $1.5 million from a loss of $2.8 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to the realization of financial hedges coinciding with the sales of physical inventory during the fiscal year ended March 31, 2008.

        Earnings Before Income Taxes.    Earnings before income taxes for the fiscal year ended March 31, 2008 increased 8.7% to $45.0 million from $41.4 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to the items discussed above, offset by the following:

    Operating Expenses.  Operating expenses for the fiscal year ended March 31, 2008 increased 55.2% to $44.6 million from $28.8 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to a full year of operations for the fiscal year ended March 31, 2008 compared to a partial year for the period from May 12, 2006 to March 31, 2007.

    General and Administrative Expenses.  General and administrative expenses for the fiscal year ended March 31, 2008 increased 51.5% to $30.1 million from $19.9 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to a full year of operations for the fiscal year ended March 31, 2008 compared to a partial year for the period from May 12, 2006 to March 31, 2007 and increased legal fees in the fiscal year ended March 31, 2008, $3.2 million of which was due to the EnCana Corporation arbitration.

    Depreciation and Amortization.  Depreciation and amortization for the fiscal year ended March 31, 2008 decreased 8.8% to $42.5 million from $46.6 million for the period from May 12, 2006 to March 31, 2007. This decrease was primarily attributable to a smaller amortization of customer intangible assets acquired at inception that are not amortized in a straight line method.

    Interest Expense.  Interest expense for the fiscal year ended March 31, 2008 increased 22.7% to $73.9 million from $60.2 million for the period from May 12, 2006 to March 31, 2007. This increase was primarily attributable to a full year of operations for the fiscal year ended March 31, 2008 compared to a partial year for the period from May 12, 2006 to March 31, 2007. In addition, we drew additional borrowings and had a greater amount of debt outstanding under our previous credit facilities in the fiscal year ended March 31, 2008, due to increased

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      optimization activity and as a substantial amount of term debt added in November 2006 due to the consummation of the Wild Goose acquisition.

    Loss on Sale of Assets.  Losses on sales of assets for the fiscal year ended March 31, 2008 was $2.3 million compared to zero for the period from May 12, 2006 to March 31, 2007. We purchased approximately 30 miles of pipe to build a pipeline at one of our development projects and some of it was sold after the project was delayed. As we sold this pipe for less than we paid for it, we realized a loss on the sale during the fiscal year ended March 31, 2008.

    Asset Impairment.  Asset impairment for the fiscal year ended March 31, 2008 was $2.5 million compared to zero for the period from May 12, 2006 to March 31, 2007. The value of the pipe that we bought for our development project was worth less at March 31, 2008 than it was when we bought it. The pipe that was not sold was subject to an impairment of $2.5 million. See "—Loss on Sale of Assets."

    Foreign Exchange Losses/(Gains).  Foreign exchange gains for the fiscal year ended March 31, 2008 increased to $7.2 million from $2.6 million for the period ended March 31, 2007. The change relates to translation gains and losses, the major component of which are driven by the change in exchange rates between accrual and settlement of physical gas purchases and sales.

        Net Income.    Net income for the fiscal year ended March 31, 2008 decreased 9.6% to $48.3 million from $53.5 million for the period from May 12, 2006 to March 31, 2007. This decrease was primarily attributable to the following factors offsetting the earnings before income tax discussed above:

    Income Tax Benefit.  Income tax benefit for the fiscal year ended March 31, 2008 decreased 72.2% to $3.4 million from $12.1 million for the period ended March 31, 2007. This decrease was primarily attributable to increases in the accounting and tax timing differences related to capital assets and intangible assets and the limitations on the deductibility of interest in debt, in conjunction with decreases in tax rates from 32.1% for the period ended March 31, 2007 to 31.5% for the fiscal year ended March 31, 2008.


Liquidity and Capital Resources

        The amount of available cash we need to pay the minimum quarterly distribution for four quarters on our common units, subordinated units and the 2% managing member interest to be outstanding immediately after this offering is $96.6 million. Our pro forma cash available for distribution for the fiscal year ended March 31, 2009 and during the twelve months ended December 31, 2009 would have been sufficient to allow us to pay the full minimum quarterly distribution on all of our common and subordinated units during such periods. See "Our Cash Distribution Policy and Restrictions on Distributions."

        Our primary short-term liquidity needs will be to pay our quarterly distributions, to pay interest and principal payments under our $400.0 million credit agreement and our senior notes and to fund our operating expenses and maintenance capital and near-term liquidity needs, which we expect to fund through a combination of cash on hand and cash from operations. Our medium-term and long-term liquidity needs primarily relate to potential organic expansion opportunities and asset acquisitions. We expect to finance the cost of any expansion projects and acquisitions from the proceeds of this offering, borrowings under our existing and possible future credit facilities or a mix of borrowings and additional equity offerings as well as cash on hand and cash from operations. We anticipate that our primary sources of funds for our long-term liquidity needs will be from cash from operations and/or debt or equity financings. We believe that these sources of funds will be sufficient to meet our liquidity needs for the foreseeable future.

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        Because we intend to distribute substantially all of our available cash, our growth may not be as fast as the growth of businesses that reinvest their available cash to expand ongoing operations. Moreover, our future growth may be slower than our historical growth. We expect that we will, in large part, rely upon external financing sources, including bank borrowings and issuances of debt and equity interests, to fund our expansion capital expenditures. To the extent we are unable to finance growth externally, our cash distribution policy could significantly impair our ability to grow. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may affect the available cash that we have to distribute on each unit. Our Operating Agreement does not limit our ability to issue additional units, including units ranking senior to the common units being offered under this prospectus. The incurrence of additional debt by us or our operating subsidiaries would result in increased interest expense, which in turn may also affect the available cash that we have to distribute to our unitholders.

    Historical Cash Flows

        Cash flows are significantly influenced by our level of natural gas inventory, margin deposits and related forward sale contracts or hedging positions at the end of each accounting period and may fluctuate significantly from period to period. In addition, our period-to-period cash flows are heavily influenced by the seasonality of our proprietary optimization activities. For example, we generally purchase significant quantities of natural gas during the summer months and sell natural gas during the winter months. The storage of natural gas for our own account can have a material impact on our cash flows from operating activities for the period we pay for and store the natural gas and the subsequent period in which we receive proceeds from the sale of natural gas. When we purchase and store natural gas for our own account, we use cash to pay for the gas and record the gas as inventory and thereby reduce our cash flows from operating activities. We typically borrow on our revolving credit facilities to fund these purchases, and these borrowings increase our cash flows from financing activities. Conversely, when we collect the proceeds from the sale of natural gas that we purchased and stored for our own account, the impact on our cash flows from operating activities is positive and the impact on our cash flows from financing activities is negative. Therefore, our cash flows from operating activities fluctuate significantly from period-to-period as we purchase gas, store it, and then sell it in a later period. In addition, we have margin requirements on our economically hedged positions. As the cash deposits we make to satisfy our margin requirements increase and decrease with our volume of derivative positions and changes in commodity prices, our cash flows from operating activities may fluctuate significantly from period to period.

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        The following table summarizes our sources and uses of cash for the period from May 12, 2006 through March 31, 2007, the fiscal years ended March 31, 2008 and 2009, and the nine months ended December 31, 2008 and 2009.

 
  Niska Predecessor  
 
  For the
period from
May 12, 2006
through
March 31,
2007
   
   
   
   
 
 
  Year Ended March 31,   Nine Months Ended
December 31,
 
 
  2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
 
 
  (dollars in millions)
 

Operating Activities

                               

Net earnings

  $ 53.5   $ 48.3   $ 108.8   $ 100.8   $ 3.2  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

                               
 

Unrealized foreign exchange (gain) loss

    (0.4 )   0.2     (37.2 )   (29.5 )   (0.2 )
 

Deferred income taxes (benefit)

    (12.1 )   (3.7 )   (12.2 )   (15.7 )   51.6  
 

Unrealized risk management losses (gains)

    5.5     6.9     (77.3 )   (87.7 )   42.4  
 

Depreciation and amortization

    46.6     42.5     54.8     43.4     32.9  
 

Deferred charges amortization

    2.7     2.9     2.9     2.2     4.1  
 

Loss (gain) on disposal of assets

        2.3     (0.0 )   0.7      
 

Impairment of goodwill

            22.0          
 

Impairment of assets

        2.5     2.1          
 

Write-down of inventory

            62.3     50.1      

Changes in non-cash working capital

    (82.7 )   84.0     (104.6 )   (138.2 )   (195.2 )

Net cash (used in) provided by operating activities

    13.2     185.9     21.5     (73.8 )   (61.3 )

Net cash used in investing activities

    (1,557.7 )   (29.9 )   (15.6 )   (14.2 )   (46.8 )

Net cash provided/(used) by financing activities

    1,580.1     (141.6 )   (30.4 )   122.2     120.2  

Other information:

                               

Proprietary inventory at cost

  $ 109.8   $ 31.5   $ 133.1   $ 155.2   $ 210.9  

        Operating Activities.    The variability in net cash provided by operating activities is primarily due to (1) varying market conditions that exist during any given fiscal period, which impacts the margins and fees under each of our LTF, STF and optimization activities; and (2) market conditions at the end of any given fiscal period which impacts our decision to sell significant volumes of inventory, or hold them over a fiscal period end and sell them in the next fiscal period if there is the economic incentive to do so, such as to increase the margins from previous optimization transactions.

        For a discussion of changes in cash flow resulting from adjustments to reconcile net earnings to net cash provided by (used in) operating activities, please refer to the discussion "—Results of Operations."

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        Changes in non-cash working capital are broken down further as follows:

 
  Niska Predecessor  
 
  For the
period from
May 12, 2006
through
March 31,
2007
   
   
   
   
 
 
  Year Ended March 31,   Nine Months Ended
December 31,
 
 
  2008   2009   2008   2009  
 
   
   
   
  (unaudited)
   
 
 
  (dollars in millions)
 

Changes in non-cash working capital

                               
 

Margin deposits

  $ (20.2 ) $ (2.2 ) $ 70.3   $ 72.7   $ (55.7 )
 

Net receivables/payables

    5.6     (4.9 )   (17.0 )   (18.2 )   (62.8 )
 

Inventory

    (109.8 )   78.3     (163.3 )   (202.4 )   (77.8 )
 

Long-term inventory

    44.8     10.3              
 

Prepaid expenses

    (3.1 )   2.1     (13.8 )   0.1     11.3  
 

Income taxes

        0.3     (0.3 )   (0.3 )   (0.1 )
 

Deferred revenue

            17.9     8.3     (8.8 )
 

Funds held on deposit

            1.6     1.6     (1.5 )
                       

Net changes in non-cash working capital

  $ (82.7 ) $ 84.0   $ (104.6 ) $ (138.2 ) $ (195.2 )
                       

        For the period from May 12, 2006 to March 31, 2007, the price of natural gas for the following summer was higher than the hedged price of our inventory. We thus chose to carry some of our inventory into the following fiscal year by re-hedging the sale of our inventory into the following fiscal year. This had the effect of increasing our overall margins and profitability, but deferred a portion of net income and operating cash flow from the period from May 12, 2006 to March 31, 2007 to the fiscal year ended March 31, 2008 and accordingly reduced cash provided by operating activities for the period from May 12, 2006 to March 31, 2007. During this period, changes in non-cash working capital consisted primarily of $109.8 million of inventory that was purchased but not sold during the period. This was partially offset by the sale of a portion of our proprietary long-term inventory, which was released for sale after our engineering staff determined that it was no longer required to maintain pressure support in our reservoirs. The sale of this long-term inventory was a $44.8 million source of cash during the period.

        For the fiscal year ended March 31, 2008, the price of natural gas for the following summer was less than the hedged value of our inventory and therefore there was no economic incentive to hold inventory into the following fiscal year. We sold substantially all of our available proprietary inventory prior to the end of the fiscal year. Therefore, there were no anomalies due to unusual timing in net cash provided by operating activities—sales of inventory provided a $78.3 million source of cash during the period. In addition, another $10.3 million worth of long-term inventory was sold after our engineering staff determined that it was no longer required to maintain pressure support in our reservoirs.

        For the fiscal year ended March 31, 2009, the price of natural gas for the following summer was higher than the hedged price of our inventory, which was similar to the situation experienced during the period from May 12, 2006 to March 31, 2007. Similar to the period from May 12, 2006 to March 31, 2007, in the fiscal year ended March 31, 2009 we purchased $163.3 million of inventory and carried a significant portion of that inventory into the following fiscal year. This had the effect of increasing our overall margins and profitability, but deferred income and operating cash flow from the fiscal year ended March 31, 2009 to the fiscal year ended March 31, 2010. This inventory purchase represents a significant use of cash for the period ended March 31, 2009. Offsetting this use of cash is a $70.3 million release of cash provided by margin deposits that was used to provide collateral support for our financial hedges.

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        For the nine months ended December 31, 2008 and 2009, changes in non-cash working capital reflect the normal purchases and sales activity of inventory. Because nine month periods ending December 31 represent periods when we would normally be accumulating inventory, we typically experience large uses of cash to purchase inventory during such periods. During the nine months ended December 31, 2008, there were more purchases than during the nine months ended December 31, 2009 ($202.4 million in 2008 compared to $77.8 million in 2009). This occurred because we began the nine months ended December 31, 2008 with relatively less inventory than normal and therefore made relatively more purchases throughout the period as compared to the nine months ended December 31, 2009. The differences in sources and uses of cash associated with margin deposits reflect two different market environments during the periods. During the nine months ended December 31, 2008, a falling market price environment resulted in our hedges becoming in-the-money and provided a source of cash of $72.7 million as compared to the nine months ended December 31, 2009 in which a rising market caused us to post margin on hedges that became out-of-the-money and resulted in a use of cash of $55.7 million for margin deposits.

        Working Capital.    Working capital is defined as the amount by which current assets exceed current liabilities. Our working capital ratio is defined as current assets divided by current liabilities. Our working capital requirements are primarily affected by our level of capital spending for maintenance and expansion activity, but are also impacted by changes in accounts receivable and accounts payable. These changes are influenced by factors such as credit extended to, and the timing of collections from, our customers. Our working capital is also affected by the relationship between unrealized financial risk management hedges which are marked-to-market on a monthly basis, the margin deposits required by our brokers for such gains and losses, proprietary inventory which is stored in our facilities and cash used to fund inventory purchases.

        As of March 31, 2009, we had net working capital of $90.2 million (working capital ratio of 1.3 to 1.0), compared to net working capital of $75.6 million (working capital ratio of 1.5 to 1.0) and $82.8 million (working capital ratio of 1.6 to 1.0) at March 31, 2008 and 2007, respectively. These changes are primarily due to increased capital spending in 2008 which temporarily reduced working capital while expanding our existing facilities.

        Investing Activities.    With the exception of the period ended March 31, 2007, most of the investing activities in each annual and nine-month period were attributed to expansion capital expenditures at our storage facilities. These expenditures, as outlined in "—Capital Expenditures," have enabled us to increase our effective working gas capacity by 41.3 Bcf. However, maintenance capital expenditures have consistently ranged between $1.0 million and $2.0 million each year (except for the period ended March 31, 2007, which was a partial year).

        Financing Activities.    Net cash provided/(used) by financing activities consists of debt incurred for the acquisition of assets, periodic optional and mandatory retirements of such debt, advances and repayments made on our previous credit facilities to fund proprietary inventory purchases, contributions of capital from our equity holders to fund expansion capital expenditures and debt retirements, and distributions made to our equity holders to cover income tax obligations. During the fiscal year ending March 31, 2009, we repaid $96.9 million of our term debt through a combination of cash provided from operations and a $50.0 million equity infusion from our equity holders. During the same period, we drew $65.0 million under our previous credit facilities to fund some of our proprietary inventory purchases. We also made a $48.5 million distribution to our equity holders to cover income tax obligations. During the fiscal year ending March 31, 2008, we retired $79.9 million of term debt via optional and mandatory prepayments and repaid $60.0 million of borrowings under our previous credit facilities following the sale of our proprietary inventory. During the period ending March 31, 2007, we received $1.5 billion through a combination of debt and equity proceeds to fund the acquisition of the assets and drew $60.0 million on our previous credit facilities to fund proprietary inventory purchases.

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We also used $51.3 million of cash provided by operations to retire some of the term debt borrowed by us at inception.

        For the nine months ended December 31, 2008, we repaid $7.2 million of our then-existing term debt from cash provided by operations. During the same period, we drew $85.0 million from our previous credit facilities to fund proprietary inventory purchases. We also made a $37.6 million distribution to our equity holders to cover income tax obligations of our unitholders. See Note 14 to our combined financial statements.

        For the nine months ended December 31, 2009, we repaid $3.0 million of our then-existing term debt from cash provided by operations. During the same period, we drew $125.0 million from our previous credit facilities to fund proprietary inventory purchases. We also made a $26.3 million distribution to our equity holders to cover income tax obligations of our unitholders. See Note 14 to our combined financial statements.

    Capital Expenditures

        Our capital expenditures for the period from May 12, 2006 through March 31, 2007, the years ended March 31, 2008 and 2009, and the nine months ended December 31, 2008 and 2009 were as follows:

 
  Niska Predecessor  
 
  For the
period from
May 12, 2006
through
March 31,
2007
   
   
   
   
 
 
  Year Ended March 31,   Nine Months Ended
December 31,
 
 
  2008   2009   2008   2009  
 
  (dollars in millions)
 

Acquisition expenditures(a)

  $ 1,529.9   $   $   $   $  

Maintenance capital expenditures

    0.3     1.7     1.4     1.0     0.8  

Expansion capital expenditures

    27.4     35.8     17.6     16.5     46.0  

Total

  $ 1,557.6   $ 37.5   $ 19.0   $ 17.5   $ 46.8  

(a)
On May 12, 2006 and November 16, 2006, Niska Predecessor completed the acquisition of substantially all of our predecessor business from EnCana Corporation for approximately $1.5 billion (after closing adjustments and transaction costs and expenses). Niska Predecessor did not assume any indebtedness of EnCana Corporation in connection with the acquisition. The purchase was accounted for as a business combination.

        Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives. Expansion capital expenditures are made to acquire additional assets to grow our business, to expand and upgrade our facilities and to acquire similar operations or facilities.

        Under our current plan, we expect to continue to spend between approximately $1.0 million and $2.0 million per year for maintenance capital expenditures to maintain the integrity of our storage facilities and ensure the reliable injection, storage and withdrawal of natural gas for our customers. In addition, we anticipate spending a total of $71.0 million in the fiscal year ended March 31, 2010 to expand the capacity and services of our facilities. We are evaluating additional projects to further expand our storage capacity at existing facilities and to develop new storage projects in the fiscal year ending March 31, 2011 and beyond. We expect that these projects will allow us to grow our total working gas capacity by approximately 15.0 Bcf by March 31, 2011, 27.0 Bcf by March 31, 2012, 37.0 Bcf by March 31, 2013 and 39.0 by March 31, 2014 and that the total cost of these identified expansions will be approximately $175.0 million. We expect to fund our maintenance capital

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expenditures through internally generated funds and our expansion capital expenditures through internally generated funds as well as borrowings under our credit facilities, issuances of membership interests or debt offerings or a combination of the foregoing.

    Our Previous Credit Facilities

        On May 12, 2006 certain subsidiaries of Niska Predecessor entered into credit facilities, or our previous credit facilities, with a syndicate of financial institutions, consisting of a U.S. revolver loan (which includes a U.S. swing line facility) of $175.0 million, a Canadian revolver loan (which includes a Canadian swing line facility) of $175.0 million, an asset sale term loan of $100.0 million, a U.S. term loan of $175.0 million, and a Canadian term loan of $550.0 million. The term loans were used to fund the acquisitions of our assets. On March 5, 2010, in connection with the closing of the offering of our senior notes, we entered into a new credit agreement and terminated our previous credit facilities.

    Our 8.875% Senior Notes Due 2018

        On March 5, 2010, Niska US and Niska Canada, closed a non-public offering of 800,000 units, each unit consisting of $218.75 principal amount of 8.875% senior notes due 2018 of Niska US and $781.25 principal amount of 8.875% senior notes of Niska Canada. The units were sold in an offering exempt from registration under the Securities Act to qualified institutional investors in reliance on Rule 144A under the Securities Act and to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. In this prospectus, we refer to the 8.875% senior notes due 2018 of Niska US and Niska Canada as "the notes" or "our senior notes." In this section, Niska US and Niska Canada are each referred to individually as an "issuer" and collectively as "the issuers."

        Under the indenture governing our senior notes, Niska Predecessor and each of its direct and indirect subsidiaries (other than the issuers of the notes) agreed to fully and unconditionally guarantee the notes on a senior unsecured basis until the consummation of this offering.

        The notes are senior unsecured obligations of each issuer, which are: (1) effectively junior to that issuer's secured obligations; (2) equal in right of payment with all existing and future senior unsecured indebtedness of each issuer; and (3) senior in right of payment to any future subordinated indebtedness of each issuer. Concurrently with the closing of this offering, the notes will be fully and unconditionally guaranteed by us and our direct and indirect subsidiaries on a senior unsecured basis, and will be: (1) effectively junior to each guarantor's secured obligations; (2) equal in right of payment with all existing and future senior unsecured indebtedness of each guarantor, and (3) senior in right of payment to any future subordinated indebtedness of each guarantor.

        Interest on our senior notes will be payable on March 15 and September 15 of each year they are outstanding, beginning on September 15, 2010. The notes will mature on March 15, 2018.

        After the closing of this offering, the indenture governing our senior notes will limit our ability to pay distributions in respect of, repurchase or pay dividends on our membership interests (or other capital stock) or make other restricted payments. The limitation will change depending on our fixed charge coverage ratio, which is defined as the ratio of our consolidated cash flow to our fixed charges, each as defined in the indenture governing our senior notes, and measured for the preceding four quarters.

        If the fixed charge coverage ratio is not less than 1.75 to 1.0, we will be permitted to make restricted payments if the aggregate restricted payments since the date of closing of this offering, excluding certain types of permitted payments, are less than the sum of a number of items including, most importantly:

    operating surplus (defined similarly to the definition in our Operating Agreement) calculated as of the end of our preceding fiscal quarter; and

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    the aggregate net cash proceeds received by us as a capital contribution or from the issuance of equity interests.

        If the fixed charge coverage ratio is less than 1.75 to 1.0, we will be permitted to make restricted payments if the aggregate restricted payments since the date of closing of this offering, excluding certain types of permitted payments, are less than the sum of a number of items including, most importantly:

    $75.0 million; and

    the aggregate net cash proceeds received by us as a capital contribution or from the issuance of equity interests.

        The indenture will not prohibit certain types or amounts of restricted payments, including a general basket of $75.0 million of restricted payments.

        The indenture governing our senior notes contains certain other covenants that, among other things, limit our and certain of our subsidiaries' ability to:

    incur additional indebtedness;

    pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

    make certain investments;

    sell, transfer, or otherwise convey certain assets;

    create liens;

    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

    enter into certain transactions with our affiliates.

        The occurrence of events involving us or certain of our subsidiaries may constitute an event of default under the indenture. Such events include: failure to pay interest, principal, or the premium on the notes when due; failure to comply with the merger, asset sale or change of control covenants; certain defaults on other indebtedness; and certain insolvency proceedings. In the case of an event of default, the holders of the notes are entitled to remedies, including the acceleration of payment of the notes by request of the holders of at least 25% in aggregate principal amount of the notes, and any action by the trustee to collect payment of principal, interest or premium in arrears.

        Prior to March 15, 2013, the issuers may redeem up to 35% of the aggregate principal amount of the notes at a premium, plus accrued and unpaid interest with net cash proceeds of certain equity offerings. Prior to March 15, 2014, the issuers may redeem some or all of the notes at a make-whole premium, as set forth in the offering memorandum. After March 15, 2014, the issuers may redeem some or all of the notes at a premium that will decrease over time until maturity.

        Concurrently with the issuance of our senior notes, the issuers, guarantors and initial purchasers of our senior notes entered into a registration rights agreement, pursuant to which the issuers and guarantors have agreed to use their reasonable best efforts to file a registration statement with respect to a registered exchange offer and to consummate the exchange offer on or before March 5, 2011. Under the exchange offer, holders (other than the issuers' and the guarantors' affiliates, as well as any purchasers who intend to participate in the exchange with a view to distribution) may exchange units representing the notes for new units which, we believe, would be generally freely transferable by holders thereof after the exchange offer without further registration under the Securities Act, and otherwise will be identical in all material respects. The issuers and guarantors will keep the exchange offer open for 20 business days (or longer if required by law) from the date the notice of the exchange

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offer is mailed to the holders of the units. In certain circumstances, the issuers and guarantors will be required to file a shelf registration statement covering resales of the units, use their reasonable best efforts to cause the shelf registration statement to be declared effective and keep such registration statement effective for the earlier of (1) two years after the issue date of the units and (2) until all units have been resold. If the issuers and guarantors fail to comply with their obligations to register the notes, they will be required to pay additional penalty interests up to a maximum additional rate of 1.0% per year until the sooner of the remedy of such failure, or the second anniversary of the issue date of the units.

    Our $400 Million Credit Agreement

        Concurrently with the issuance of our senior notes, Niska US and the AECO Partnership entered into new senior secured asset-based revolving credit facilities, consisting of a U.S. revolving credit facility and a Canadian revolving credit facility. References in this prospectus to "our new credit facilities" or "our $400.0 million credit agreement" refer to the credit agreement and credit facilities, respectively, of the AECO Partnership and Niska US. These new revolving credit facilities provide for revolving loans and letters of credit in an aggregate principal amount of up to $200.0 million for each of the U.S. revolving credit facility and the Canadian revolving credit facility. Subject to certain conditions, each of the revolving credit facilities may be expanded up to $100.0 million in additional commitments, and the commitments in each facility may be reallocated on terms and according to procedures to be determined. Loans under the U.S. revolving facility will be denominated in U.S. dollars and loans under the Canadian revolving facility may be denominated, at our option, in either U.S. or Canadian dollars. Royal Bank of Canada is acting as administrative agent and collateral agent for the revolving credit facilities. Each revolving credit facility has a four-year maturity.

        Borrowings under our revolving credit facilities are limited to a borrowing base calculated as the sum of specified percentages of eligible cash equivalents, eligible accounts receivable, the net liquidating value of hedge positions in broker accounts, eligible inventory, issued but unused letters of credit, and certain fixed assets minus the amount of any reserves and other priority claims. Borrowings will bear interest at a floating rate, which (1) in the case of U.S. dollar loans can be either LIBOR plus an applicable margin or, at our option, a base rate plus an applicable margin, and (2) in the case of Canadian dollar loans can be either the bankers' acceptance rate plus an applicable margin or, at our option, a prime rate plus an applicable margin. The credit agreement provides that we may borrow only up to the lesser of the level of our then current borrowing base and our committed maximum borrowing capacity, which is currently $400 million. Our borrowing base is currently $460.0 million.

        Our obligations under our $400.0 million credit agreement will be guaranteed by us and all of our direct and indirect wholly owned subsidiaries (subject to certain exceptions) and secured by a lien on substantially all of our and our direct and indirect subsidiaries' current and fixed assets (subject to certain exceptions). Certain fixed assets will only be required to be part of the collateral to the extent such fixed assets are included in the borrowing base under the respective revolving credit facility. The aggregate borrowing base under both revolving credit facilities will only be able to be increased by $150.0 million (the "PP&E Amount") to the extent a first-priority lien on the fixed assets is granted to the lenders. The PP&E Amount will be reduced on a dollar-for-dollar basis upon the release of fixed assets having a value in excess of $50.0 million from such liens.

        The following fees are applicable under each revolving credit facility: (1) an unused line fee of 0.75% per annum, based on the unused portion of the respective revolving credit facility; (2) a letter of credit participation fee on the aggregate stated amount of each letter of credit equal to the applicable margin for LIBOR loans or bankers' acceptance loans, as applicable; and (3) certain other customary fees and expenses of the lenders and agents. We will be required to make prepayments under our revolving credit facilities at any time when, and to the extent that, the aggregate amount of the outstanding loans and letters of credit under such revolving credit facility exceeds the lesser of the

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aggregate amount of commitments in respect of such revolving credit facility and the applicable borrowing base.

        Our $400.0 million credit agreement contains customary covenants, including, but not limited to, restrictions on our and our subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets subject to security interests under the credit agreement, make acquisitions, loans, advances or investments, pay distributions, sell or otherwise transfer assets, optionally prepay or modify terms of any subordinated indebtedness or enter into transactions with affiliates. Our new revolving credit facilities require the maintenance of a fixed charge coverage ratio of 1.1 to 1.0 at the end of each fiscal quarter when excess availability under both revolving credit facilities is less than 15% of the aggregate amount of availability under both revolving credit facilities. Such fixed charge coverage ratio will be tested at the end of each quarter until such time as average excess availability exceeds 15% for thirty consecutive days.

        Our $400.0 million credit agreement contains limitations on our ability to pay distributions in respect of, repurchase or pay dividends on our membership interests (or other capital stock) or make other restricted payments. These limitations are substantially similar to those contained in the indenture governing our senior notes described above, except that the credit agreement does not contain a general basket of $75.0 million of restricted payments.

        Our $400.0 million credit agreement provides that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, including our senior notes, voluntary and involuntary bankruptcy proceedings, material money judgments, material events relating to pension plans, certain change of control events and other customary events of default.

        As of April 26, 2010, we had no borrowings outstanding under our revolving credit facilities and had $3.5 million in letters of credit issued. We and our subsidiaries were in compliance with all covenant requirements under our credit facilities at March 26, 2010.

        As the result of our recent refinancing activities, we expect that our interest expense will increase due to the increase in our total debt outstanding resulting from the offering of our senior notes and future draws on our revolving credit facilities, and an increase in the interest rate applicable under these new credit facilities as compared to our previous credit facilities. On a pro forma basis, we estimate that interest expense would have been $82.1 million for the twelve months ended December 31, 2009 had the new credit facilities closed on January 1, 2009, compared to actual interest expense of $30.1 million for the same period.

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    Contractual Obligations

        The following table summarizes by period the payments due for our estimated contractual obligations as of March 31, 2009:

 
  Payment due by period  
 
  Total   Less than
1 year
  1 – 3 years   3 – 5 years   More than
5 years
 
 
  (in millions)
 

Long-term debt obligations

  $592.4   $5.9   $100.9   $485.6   $  

Interest on long-term debt obligations

  65.6   3.1   37.5   25.0      

Operating lease obligations

  29.5   0.7   14.5   9.5     4.8  

Leased storage contracts

  12.6   4.2   8.4        

Mineral and surface leases

  213.6     11.3   7.8     194.5  

Purchase Obligations

  3,778.4   2,199.3   1,577.2   1.9      
 

Total

  $4,692.1   $2,213.2   $1,749.8   $529.8   $ 199.3  

    Off-Balance Sheet Arrangements

        As of December 31, 2009, we did not have any off-balance sheet arrangements. In accordance with GAAP, there is no carrying value recorded for a credit facility until we borrow from the facility. In the future we may use off-balance sheet arrangements such as undrawn credit facility commitments, including letters of credit, to finance portions of our capital and operating needs. See "—Contractual Obligations" for more information.

        On January 1, 2010, Wild Goose entered into an operating lease for compression and other equipment related to the development of an expansion project. The primary term of the operating lease is five years, although there is an early purchase option which Wild Goose can exercise after three years. At the end of either term, Wild Goose can purchase the leased equipment from the operating lease counterparty at fair market value. The table above indicates all payments required under the primary term of the operating lease.


Quantitative and Qualitative Disclosures About Market Risks

        The term "market risks" refers to the risk of loss arising from changes in commodity prices, currency exchange rates, interest rates, counterparty credit and liquidity. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

    Commodity Price Risk

        To mitigate exposure to changes in commodity prices, we enter into purchases and sales of natural gas inventory and concurrently match the volumes in these transactions with offsetting forward contracts or other hedging transaction.

        Derivative contracts used to manage market risk generally consist of the following:

    Forwards and futures are contractual agreements to purchase or sell a specific financial instrument or natural gas at a specified price and date in the future. We enter into forwards and futures to mitigate the impact of price volatility. In addition to cash settlement, exchange traded futures may also be settled by physical delivery of natural gas.

    Swap contracts are agreements between two parties to exchange streams of payments over time according to specified terms. Swap contracts require receipt of payment for the notional quantity

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      of the commodity based on the difference between a fixed price and the market price on the settlement date. We enter into commodity swaps to mitigate the impact of changes in natural gas prices.

    Option contracts are contractual agreements to convey the right, but not the obligation, for the purchaser of the option to buy or sell a specific physical or notional amount of a commodity at a fixed price, either at a fixed date or at any time within a specified period. We may enter into option agreements to mitigate the impact of changes in natural gas prices.

        In order to manage our exposure to commodity price fluctuations, our policy is to promptly enter into a forward sale contract or other hedging transaction for every proprietary purchase contract we enter into. Therefore, inventory purchases are matched with forward sales or are otherwise economically hedged so that there are no speculative positions beyond the minimal operational tolerances specified in our risk policy.

        As at December 31, 2009, 50.2 Bcf of natural gas inventory was economically hedged, representing 99.2% of total current inventory. However, because inventory is recorded at the lower of cost or market, not fair value, if the price of natural gas increased by $1.00 per Mcf the value of that inventory would increase by $50.2 million, but the fair value or mark-to-market value of our hedges would decrease by only $49.8 million, due to 0.8% (0.4 Bcf) of that inventory that was not economically hedged. Conversely, if the price of natural gas declined by $1.00 per Mcf, the value of that inventory would decrease by $50.2 million while the fair value of our hedges would increase by only $49.8 million, due to the non-economically hedged position. Long-term inventory, and fuel gas used for operating our facilities are not offset. Total volumes of long-term inventory and fuel gas at December 31, 2009 are 8.1 Bcf and 0.3 Bcf, respectively.

        Although the intent of our risk-management strategy is to protect our margins and manage our liquidity risk on related margin deposit requirements, we do not qualify any of our derivatives for hedge accounting. Changes in the fair values of these derivatives receive mark-to-market treatment in current earnings and result in greater potential for earnings volatility. This accounting treatment is discussed further under Note 2 of the Notes to our Combined Financial Statements and "—Critical Accounting Estimates."

    Currency Exchange Risk

        Our cash flow relating to our Canadian operations is reported in the U.S. dollar equivalent of such amounts measured in Canadian dollars. Monetary assets and liabilities of our Canadian subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenues, expenses and cash flow are translated using the average exchange rate during the reporting period.

        Because a portion of our Canadian business is conducted in Canadian dollars, we use certain financial instruments to minimize the risks of changes in the exchange rate. These instruments include forward swaps or spot swaps buying or selling U.S. dollars. Options may also be used in the future. All of the financial instruments utilized are placed with large brokers and financial institutions.

        At December 31, 2009, we had forward currency exchange contracts for a notional value of $126.5 million. The value of the forward currency contracts at March 31, 2009 and December 31, 2008 and 2007 was an asset of $4.6 million, $12.3 million and $0.6 million, respectively, and is recorded in derivative assets and derivative liabilities on the combined balance sheets. These open contracts at March 31, 2009, mature on various dates through 2010 and are for the exchange of U.S. dollars into 78.4 million Canadian dollars at an average rate of 1.17 Canadian dollars to 1.00 dollar.

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    Interest Rate Risk

        We will be exposed to interest rate risk due to variable interest rates under our $400.0 million credit agreement. All such borrowings under our credit facilities will bear interest at variable rates. As of March 26, 2010, we had no borrowings outstanding under our revolving credit facilities. The credit facilities would currently provide an interest rate on borrowings of 5.0% (assumes LIBOR plus 350 basis points, where LIBOR is approximately 1.50%). In the future, we may borrow under fixed rate and variable rate debt instruments that also give rise to interest rate risk. Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and reducing our funds available for capital investment, operations or distributions to our unitholders.

    Counterparty Credit Risk

        Counterparty credit risk is the risk of financial loss if a customer fails to perform its contractual obligations. We engage in transactions for the purchase and sale of products and services with major companies in the energy industry and with industrial, commercial, residential and municipal energy consumers. Credit risk associated with trade accounts receivable is mitigated by the high percentage of investment grade customers, collateral support of receivables and our ability to take ownership of customer-owned natural gas stored in its facilities in the event of non-payment.

        Margin deposits, or letters of credit in lieu of deposits, are required on derivative instruments utilized to manage our counterparty credit risk. As commodity prices increase or decrease, the fair value of our derivative instruments changes thereby increasing or decreasing our margin deposit requirements. Rising commodity prices or an expectation of rising prices could increase the cash needed to manage our commodity price exposure and thereby increase our liquidity requirements, limit amounts available to us through borrowing and reduce the volume of natural gas we may purchase. Exchange traded futures and options have minimal credit exposure as the exchanges guarantee every contract will be margined on a daily basis. In the event of any default, our account on the exchange would be absorbed by other clearing members. Because every member posts an initial margin, the exchange can protect the exchange members if or when a clearing member defaults.

    Liquidity Risk

        Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. Our approach to managing liquidity risk is to contract a substantial part of our facilities to generate constant cash flow and to ensure that they always have sufficient cash and credit facilities to meet their obligations when due, under both normal and stressed conditions, without incurring unacceptable losses or damage to reputation.

    Fair Value Measurement

        The fair values of the derivative instruments are based on quoted market prices obtained from NYMEX or ICE and from various sources such as independent reporting services, industry publications and brokers. These quotes are compared to the contract price of the instrument, which approximates the gain or loss that would have been realized if the contracts had been closed out at a specified time. We utilize observable market data when available, or models that utilize observable market data when determining fair value.


Risk Management Policy and Practices

        We have in place risk management practices that are intended to quantify and manage risks facing our business. These risks include, but are not limited to, market, credit, foreign exchange, operational, and liquidity risks. Our hedging practices mitigate our exposure to commodity price and foreign exchange risks. Strict open position limits are enforced, and physical inventory is offset with forward

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hedges. Our counterparty strategy ensures we have a strong mix of quality customers. We have models in place to monitor and manage operational and liquidity risks.

        The Risk Management Committee, or RMC, is comprised of members of our management team. The RMC provides oversight of our commercial activities. The committee reviews the adequacy of controls to ensure compliance with the risk policy. Our RMC meets weekly to review and respond to risks facing our business. The RMC analyzes positions and exposures and provides daily and weekly reporting to facilitate understanding of these exposures. The RMC assesses and manages the potential for loss in our positions through these reports. If limits are exceeded, the RMC is informed and appropriate action is taken to review and remedy. The RMC is independent of the Commercial and Marketing groups and reports through our chief financial officer.

        Optimization activities can only be executed by employees authorized to transact under the risk policy. All commercial personnel are annually required to read and certify that they will adhere to the principles purported within the policy. Each person authorized to make transactions is subject to internal volume limits. Counterparties are subject to credit limits as approved by our credit department.

        Our commercial and risk functions operate independently to ensure proper segregation of duties. Critical deal information for every transaction is entered into our deal capture systems and confirmed with counterparties.

        Despite the policies, procedures and controls described above, there can be no assurance that our risk management systems will prevent losses that would negatively affect our business, results of operations, cash flows and financial condition. See "Risk Factors—Risks Inherent in Our Business—Our risk management policies cannot eliminate all commodity price risk." In addition, any non-compliance with our risk management policies could result in significant financial losses.


Segment Information

        Our process for the identification of reportable segments involves examining the nature of services offered, the types of customer contracts entered into and the nature of the economic and regulatory environment. Since our inception, we have operated along functional lines in our commercial, engineering and operations teams for operations in Alberta, northern California and the U.S. midcontinent. All functional lines and facilities offer the same services: firm storage contracts, short-term firm services and optimization. All services are delivered using reservoir storage. We measure profitability consistently along all functional lines based on revenues and earnings before interest, taxes, depreciation and amortization, before unrealized risk management gains and losses. We have aggregated our functional lines and facilities into one reportable segment as at and for the periods ending December 31, 2009 and 2008 as well as March 31, 2009, 2008 and 2007.

        Information pertaining to our LTF, STF and proprietary optimization revenues is presented in the combined statements of earnings, comprehensive income and retained earnings. All facilities have the same types of customers: major companies in the energy industry, industrial, commercial, and local distribution companies and municipal energy consumers.


Critical Accounting Estimates

        The historical financial statements included elsewhere in this prospectus have been prepared in accordance with GAAP. GAAP represents a comprehensive set of accounting and disclosure rules and requirements, the application of which requires management judgments and estimates including, in certain circumstances, choices between acceptable GAAP alternatives. The following is a discussion of our most critical accounting estimates, judgments and uncertainties that are inherent in the application of GAAP, including the valuation of risk management assets and liabilities, inventory, and goodwill. These estimates affect, among other items, valuing identified intangible assets, evaluating impairments

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of long-lived assets, depreciation of cushion gas, establishing estimated useful lives for long-lived assets, estimating revenues and expense accruals, assessing income tax expense and the requirement for a valuation allowance against the deferred income tax asset, valuing asset retirement obligations and in determining liabilities, if any, for legal contingencies.

    Revenue Recognition

        Our assessment of each of the four revenue recognition criteria as they relate to our revenue producing activities is as follows:

        Persuasive evidence of an arrangement exists.    Our customary practices are to enter into a written contract, executed by both the customer and us.

        Delivery.    Delivery is deemed to have occurred at the time the natural gas is delivered and title is transferred, or in the case of fee-based arrangements, when the services are rendered. To the extent that we retain our inventory, delivery occurs when the inventory is subsequently sold and title is transferred to the third party purchaser.

        The fee is fixed or determinable.    We negotiate the fee for our services at the outset of our fee-based arrangements. In these arrangements, the fees are nonrefundable. The fees are generally due on the 25th of the month following the delivery or services rendered. For other arrangements, the amount of revenue is determinable when the sale of the applicable product has been completed upon delivery and transfer of title.

        Collectability is reasonably assured.    Collectability is evaluated on a customer-by-customer basis. New and existing customers are subject to a credit review process, which evaluates the customers' financial position (e.g. cash position and credit rating) and their ability to pay. If collectability is not considered reasonably assured at the outset of an arrangement in accordance with our credit review process, revenue is recognized when the fee is collected.

        Revenue from our LTF contracts consists of monthly storage fees and fuel and commodity charges for injections and withdrawals. LTF contract revenue is accrued on a monthly basis in accordance with the terms of the customer contracts. Customer charges for injections and withdrawals are recorded in the month of injection or withdrawal.

        STF contract revenue consists of fees for injections and withdrawals, which include fuel and commodity charges. One half of the fees are earned at the time of injection by the customer and one half of the fees are charged at the time of withdrawal by the customer.

        Energy trading contracts resulting in the delivery of a commodity where we are the principal in the transaction are recorded as proprietary optimization revenues or purchases at the time of physical delivery. Realized and unrealized gains and losses on financial energy trading contracts are included in proprietary optimization revenue. See Note 12 to our combined financial statements included elsewhere in this prospectus.

    Fair Value of Risk Management Assets and Liabilities

        The Partnerships use natural gas derivatives and other financial instruments to manage their exposure to changes in natural gas prices, foreign exchange, and interest rates. These financial assets and liabilities, which are recorded at fair value on a recurring basis, are included into one of three categories based on a fair value hierarchy.

        The fair value of our derivative and risk management contracts are recorded as a component of risk management assets and liabilities, which are classified as current or non-current assets or liabilities based upon the anticipated settlement date of the contracts. The determination of the fair value of

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these derivative and physical contracts reflect the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In the determination of fair value, we consider various factors, including closing foreign exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Although the fair value of our risk management assets and liabilities may fluctuate, such fluctuations will always be offset by equivalent changes in the value of our physical inventory and purchases. Our policy is for our inventory and purchases always to be economically hedged, within small tolerances permitted under our risk management policies, so we are not exposed economically to the risk of fluctuating commodity prices. We do not speculate on changes in the price of the commodity, rather we only lock-in margins when they are available in the market. See "Business—Our Operations—Proprietary Optimization." For further analysis regarding our sensitivities to fluctuations in the price of natural gas, see "Management's Discussion and Analysis of Financial Condition and Results of Operation—Quantitative and Qualitative Disclosures about Market Risks—Commodity Price Risks."

    Inventory

        Our inventory is natural gas injected into storage which is held for resale. Long-term inventory represents non-cycling working gas. We inject non-cycling working gas on a temporary basis to increase pressure within the reservoirs to allow us to market higher cycling contracts or previously un-saleable gas from an underutilized reservoir that can be sold into the market when we add mechanical compression to the reservoir. This mechanical compression will allow access to natural gas that was previously required to maintain pressure within the reservoir. Inventory is valued at the lower of average cost and market.

    Cushion Gas Effectiveness

        Certain volumes of gas defined as cushion gas are required for maintaining a minimum field pressure. Cushion gas is considered a component of the facility and as such is not amortized because it is expected to ultimately be recovered and sold. Cushion gas is monitored to ensure that it provides effective pressure support. In the event that gas moves to another area of the reservoir where it does not provide effective pressure support, charges against cushion gas are included in depreciation in an amount equal to the estimated volumes that have migrated.

    Impairment of Long-Lived Assets

        We evaluate whether events or circumstances have occurred that indicate that long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows. In the event that the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded.

    Goodwill and Other Intangible Assets

        We account for business acquisitions using the purchase method of accounting and accordingly the assets and liabilities of the acquired entities are recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired is attributed to goodwill.

        Goodwill is not amortized and is re-evaluated on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.

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        Goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill.

        Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions. These assumptions are dependent on several subjective factors including the timing of future cash flows and future growth rates. The fair value of our reporting units is determined based on a weighting of multiples of potential earnings approaches which is classified under Level 3 fair value measurement under FASB ASC 820. The multiples of earnings approach estimates fair value by applying multiples of potential earnings, working gas capacity, and cyclability of similar entities. Results using the multiples of potential earnings and the multiples of gas capacity and cyclability are given equal weighting when determining the valuation using this approach. The future operating projections are based on consideration of past performance and the projections and assumptions used in our current operating plans and adjusted for market participant assumptions as appropriate. We then assign a weighting to the multiple or earnings to derive the fair value of the reporting unit.

        Intangible assets representing customer contracts are amortized over their useful lives. These assets are reviewed for impairment as impairment indicators arise. When such events or circumstances are present, the recoverability of long-lived assets is assessed by determining whether the carrying value will be recovered through the expected undiscounted future cash flows. In the event that the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded.

    Income taxes

        We are not taxable entities. Income taxes on their income are the responsibility of the individual partners and have accordingly not been recorded in the consolidated financial statements. Niska Canada has corporate subsidiaries, which are taxable corporations subject to Canadian federal and provincial income taxes, which are included in the consolidated financial statements.

        Income taxes on the Canadian corporate subsidiaries are provided based on the asset and liability method, which results in deferred income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. This method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The asset and liability method also requires that deferred income tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.

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Recent Accounting Pronouncements

        The following new accounting pronouncements were adopted during 2009 and the effect of such adoption has been presented in the accompanying combined financial statements:

    Generally Accepted Accounting Principles (ASC 105)

        This accounting standard results in the Financial Accounting Standards Board, or the FASB, Accounting Standards Codification, or the Codification, becoming the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC are also considered sources of authoritative GAAP for SEC registrants. The Codification supersedes all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The adoption of the provisions of this accounting standard did not change the application of existing GAAP, and as a result, did not have any impact on our combined results of operations, combined financial position or cash flows.

    Fair Value Measurement (ASC 820)

        We adopted a new fair value measurement standard as of April 1, 2008. ASC 820 defines fair value, establishes a framework for measuring fair value under existing accounting pronouncements that require fair value measurements and expands fair value measurement disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The standard characterizes inputs used in determining fair value according to a hierarchy that prioritizes inputs based upon the degree to which they are observable. The three levels of the fair value hierarchy are as follows:

      Level 1—inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives).

      Level 2—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market corroborated inputs).

      Level 3—inputs that are not observable from objective sources, such as our internally developed assumptions about market participant assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in our internally developed present value of future cash flows model that underlies the fair value measurement).

        In determining fair value, we utilize observable market data when available, or models that utilize observable market data. In addition to market information, we incorporate transaction-specific details that, in management's judgment, market participants would take into account in measuring fair value.

        In forming fair value estimates, we utilize the most observable inputs available for the valuation technique employed. If a fair value measurement reflects inputs at multiple levels within the hierarchy, the fair value measurement is characterized based upon the lowest level of input that is significant to the fair value measurement. Recurring fair value measurements are performed for commodity, interest rate and foreign currency derivatives.

        The carrying amount of cash and cash equivalents, margin deposits, trade receivables, accrued receivables, trade payables and accrued liabilities reported on the balance sheet approximates fair value. The fair value of debt is the estimated amount we would have to pay to repurchase our debt, including any premium or discount attributable to the difference between the stated interest rate and

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market rate of interest at the balance sheet date. Fair values are based on valuations of similar debt at the balance sheet date and supported by observable market transactions when available. See Note 9 to our combined financial statements included elsewhere in this prospectus for disclosures regarding the fair value of debt. See Note 13 to our combined financial statements included elsewhere in this prospectus for disclosures regarding the fair value of derivative instruments.

        We elected to implement the standard with the one-year deferral permitted for nonfinancial assets and nonfinancial liabilities, except those nonfinancial items recognized or disclosed at fair value on a recurring basis (at least annually). The deferral period ended on April 1, 2009. Accordingly, we now apply the fair value framework to nonfinancial assets and nonfinancial liabilities initially measured at fair value, such as assets acquired in a business combination, impaired long-lived assets (asset groups), intangible assets and goodwill and initial recognition of asset retirement obligations.

    Disclosures About Derivative Instruments and Hedging Activities (ASC 815-10)

        We adopted a new standard for our derivative instruments and hedging activities, effective April 1, 2009. ASC 815-10 does not change our accounting for derivatives, but requires enhanced disclosures regarding our methodology and purpose for entering into derivative instruments, accounting for derivative instruments and related hedged items (if any), and the impact of derivative instruments on our combined financial position, results of operations and cash flows. See Notes 12 and 13 to our combined financial statements included elsewhere in this prospectus.

    Business Combinations (ASC 805)

        We adopted a new accounting standard for business combinations, effective April 1, 2009. ASC 805 applies prospectively to us for future business combinations. ASC 805 expands the definition of what qualifies as a business, thereby increasing the scope of transactions that qualify as business combinations. Furthermore, under ASC 805, changes in estimates of income tax liabilities existing at the date of, or arising in connection with, past business combinations are accounted for as adjustments to current period income as opposed to adjustments to goodwill. The adoption of ASC 805 had no impact on our combined financial position, results of operations or cash flows.

    Subsequent Events (ASC 855-10)

        We adopted a new standard on subsequent events, effective April 1, 2009. ASC 855-10 defines subsequent events as either recognized subsequent events (events that provide additional evidence about conditions at the balance sheet date) or nonrecognized subsequent events (events that provide evidence about conditions that arose after the balance sheet date). Recognized subsequent events are recorded in the financial statements for the current period presented, while nonrecognized subsequent events are not. Both types of subsequent events require disclosure in the combined financial statements if nondisclosure of such events causes the financial statements to be misleading. We are also required to disclose the date through which subsequent events have been evaluated. The adoption of ASC 855-10 had no impact on our combined financial statements. We have evaluated subsequent events through February 19, 2010. See Note 23 to our combined financial statements included elsewhere in this prospectus.

        The following new accounting pronouncements were issued but not adopted as of December 31, 2009:

    Fair Value Measurement (ASC 810-10)

        This new standard requires disclosure of fair value information of financial instruments at each interim reporting period. The disclosures include the relevant carrying value as well as the methods and significant assumptions used to estimate the fair value. The guidance was effective for interim and annual periods beginning after December 15, 2009. For period beginning as of April 1, 2010, we will be required to disclose additional fair value measurement information such as transfers into and out of levels 1 and 2 and further details of movements within level 3. The new standard clarifies the level of disaggregation required and inputs and valuation techniques used to measure fair value.

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NATURAL GAS STORAGE INDUSTRY

        In this prospectus, we refer to information regarding the natural gas storage industry in the United States and Canada from the U.S. Energy Information Administration, or the EIA, the National Petroleum Council (an Advisory Committee to the U.S. Secretary of Energy), or the NPC, the U.S. Federal Energy Regulatory Commission, or FERC, and Canadian Enerdata.


Overview of the Natural Gas Value Chain

    Introduction

        Collectively, the United States and Canada consume approximately 27.0 trillion cubic feet, or Tcf, of natural gas per year. This amount represents approximately 28% of the total annual energy consumption in those countries, and is growing. In 2008, residential and commercial consumers accounted for 23% and 15%, respectively, of the total delivered volume of natural gas in the United States and Canada. The use of relatively clean-burning natural gas for power generation has increased significantly in recent years, constituting 29% of the total delivered volume of natural gas in 2008. The industrial sector constituted 32% of the total delivered volume of natural gas in 2008. While the portion of total natural gas consumed by residential and commercial customers and for power generation has increased over recent years, the portion used by industrial customers has declined.

        The natural gas "value chain" refers to the steps involved in bringing natural gas from beneath the earth's surface to the ultimate consumer and consists of gas production at the wellhead, gathering, processing, transmission, storage, marketing and distribution, as shown in the following illustration.

GRAPHIC

    Production

        The first segment of the natural gas value chain is natural gas production, which consists of the exploration for, and the extraction of, natural gas from underground reservoirs. The main North American natural gas production regions are the Gulf Coast, the Permian basin, the Mid-Continent, the San Juan basin, the Rocky Mountain region, the Appalachian region and Western Canada. In addition, overseas production arrives by ship as liquefied natural gas, or LNG.

    Gathering

        Gathering systems, primarily made up of small-diameter, low-pressure pipelines, move raw natural gas from the wellhead to a natural gas processing plant or to an interconnection with a larger mainline pipeline.

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    Processing

        There are four main steps involved in natural gas processing: (1) treating; (2) dehydration; (3) recovery of natural gas liquids, or NGLs and (4) fractionation. These processes separate pipeline quality gas, or dry natural gas (predominantly methane), from NGLs and the heavier hydrocarbon components that are not suitable for long-haul pipeline transportation or commercial use.

    Pipeline Transmission

        Natural gas is transported from gathering facilities and processing plants to downstream consumption areas by transmission pipelines. In North America, there are approximately 305,000 miles of large-diameter, high-pressure interstate and intrastate transmission pipelines operated by more than 200 companies.

    Storage

        Natural gas storage is a critical element of the natural gas value chain, and serves two primary purposes. First, gas storage augments natural gas production and delivery systems, enhancing reliability of supply during periods of heavy gas demand. Second, gas storage is used to inject excess production during periods of low or off-peak demand and to withdraw gas when demand is higher, thus balancing the mismatch between relatively steady production and oscillating demand. Natural gas storage can serve to decrease peak-demand gas costs through injection of lower priced gas in off-peak periods and withdrawal in peak demand periods. In addition to managing seasonal price differentials, gas in storage is used increasingly to arbitrage movements in gas prices across time. The following chart illustrates the imbalance between fluctuating demand and relatively stable supply:

GRAPHIC

Source: Energy Information Administration

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        Producers, transmission pipelines, local distribution companies, or LDCs, marketers and end-users, including gas-fired electric power plants, benefit directly from the load balancing and supply reliability functions of gas storage. Storage facilities are typically utilized by:

    Natural gas distributors and end-users, such as LDCs, which serve residential and commercial customers, large industrial users and gas-fired electric power plants, to manage fluctuations in monthly, daily or hourly gas demand, to avoid penalties assessed by pipelines and other parties for temporary imbalances, and to balance often significant seasonal variations in their gas demand profile;

    Pipelines, to provide short-term advances to shippers in order to manage temporary imbalances or to maintain the operational integrity of the pipeline; and

    Independent natural gas marketing companies, energy merchants, and financial institutions in connection with the execution of their gas marketing and energy trading strategies and commodities portfolios.

        According to the EIA, there are approximately 120 natural gas storage operators in North America, which control approximately 400 underground storage facilities with an aggregate gas storage capacity of 4.2 Tcf. The principal operators of underground natural gas storage facilities are:

    Interstate pipeline companies, which developed underground storage to facilitate load balancing and system supply management on their long haul transmission pipelines and use much of it to serve their shippers;

    Intrastate pipeline companies, which use underground storage to serve their end-user customers, as well as to facilitate load balancing and system supply management;

    LDCs or utilities, which use underground storage to serve the primarily seasonal demand variations of their own end-use customer portfolio; and

    Independent storage operators, which operate underground storage as a business primarily to serve third-party customers.

        Prior to deregulation in 1994, interstate pipeline companies generally owned the gas flowing through their systems, including gas held in storage, and had exclusive control over the capacity and utilization of their storage facilities. As natural gas markets were deregulated and interstate pipelines were required to provide open-access to their systems, the number of direct participants in natural gas markets increased significantly. With each participant seeking to manage its own requirements, rather than a pipeline operating an aggregated supply system, major changes in the inventory management practices and storage utilization in the natural gas industry have occurred.

    Distribution

        Once natural gas reaches the market through transmission lines, it is (1) directly delivered from transmission lines to large industrial, commercial and power generation customers or (2) delivered to residential and commercial consumers at reduced pressures through LDCs. More than 1,500 LDCs deliver natural gas to end users through hundreds of thousands of miles of small-diameter service lines.

    Marketing

        Natural gas marketers are separate entities that compete to provide natural gas services to producers, resellers or to end users and may be affiliates of producers, pipelines or LDCs, or may be separate business entities unaffiliated with other participants in the natural gas industry. Marketers find buyers for natural gas, ensure secure supplies of natural gas in the market, and arrange transportation and storage for natural gas to efficiently reach the end-user.

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Natural Gas Storage Reservoir Types

        Natural gas may be stored in a number of different ways. It is most commonly held underground and under pressure in one of three major types of "reservoirs:" (1) depleted reservoirs in oil and gas fields; (2) aquifers; and (3) salt cavern formations. Depleted reservoirs, aquifers and salt caverns make up approximately 86%, 9% and 5%, respectively, of North America's total underground gas storage capacity. Besides location, the key attributes of any storage facility are the amount of inventory that can be stored for later use (the gas storage capacity) and the rate at which that inventory capacity can be filled or emptied (injection and withdrawal capability, or cycling capacity). The different types of natural gas storage have distinctly different characteristics in each of these areas.

        The following charts provide an overview of the major types of reservoir storage in North America:

Depleted Reservoir/Aquifer Storage   Salt Dome Storage

GRAPHIC

    Depleted Reservoirs

        Depleted reservoirs are naturally occurring underground formations that originally contained and produced oil or natural gas and that have been depleted through earlier production. Geologically, they are permeable underground rock formations that are confined by barriers of impermeable rock and sometimes water.

        Of the three primary types of underground storage facilities, depleted reservoirs are typically the least expensive to develop, operate and maintain. In order to maintain sufficient pressure to support design withdrawal rates in depleted reservoirs, approximately 50% of the formation's volume must be kept filled with cushion gas. The remaining capacity is the gas storage capacity.

        Depending on the quality of the reservoir, depleted reservoirs can be developed with cycling capability between 1.0 and 5.0 cycles per year, but most commonly are capable of cycling their working gas 1.0 or 2.0 times per year. Reservoirs with rock of higher permeability and porosity, when combined with modern techniques such as horizontal well technology, are capable of the higher cyclabilities.

    Aquifers

        Aquifers are underground, porous, permeable rock formations that act as natural water reservoirs. In certain situations, these formations may be reconditioned and used as natural gas storage facilities. The cushion gas requirement for aquifers is higher than for depleted reservoirs or salt caverns and can be as high as 90% of the total gas volume. Typical aquifer storage can only be cycled once per year. Most aquifer storage development has occurred in the upper mid-west of the United States, where there is a significant need for seasonal storage, and few depleted reservoirs or salt deposits.

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    Salt Cavern Formations

        Salt cavern formations are reservoirs that are leached or mined out of underground salt deposits (salt domes or salt beds). The cushion gas requirement for salt caverns is approximately 25% of the total gas volume.

        Salt caverns typically have much smaller working gas (inventory) capacity than depleted gas reservoirs and aquifers. As such, salt caverns cannot hold the volume of gas necessary to meet base load storage requirements. However, because deliverability (in proportion to inventory capacity) from salt caverns is typically much higher than for either aquifers or depleted reservoirs, natural gas may be more readily (and quickly) withdrawn and injected into salt caverns. These types of facilities can be designed for working gas to be cycled as much as twelve times a year.


Natural Gas Storage Value Drivers for Market Based Storage Services

        The value of a natural gas storage facility or storage services contract is principally based on a number of drivers, including:

    Operational characteristics and location of the storage facility;

    Seasonal spreads in natural gas prices;

    Volatility and absolute levels of natural gas prices; and

    Interest rate levels.

    Operational Characteristics and Location of the Storage Facility

        The operational characteristics of a storage facility have a significant impact on the value of storage services at the facility. These characteristics include overall gas storage capacity, cyclability (or the number of times the working gas volume can be fully injected and withdrawn in a year) and geographic location. The length of time a facility can sustain its peak withdrawal rate before it starts to decline and the steepness of the decline in withdrawal rate as further inventory is removed, are the basic elements of a facility's profile and determine its cyclability. The more flexibility (cyclability) that a facility profile offers, the more value it can generate, whether through contract services or optimization. A storage facility's value can also be impacted by its location within the natural gas infrastructure, such as location near market regions or multiple pipeline interconnects.

    Seasonal Spreads

        On average, total natural gas consumption levels in the United States are approximately 28% higher in the winter months than summer months primarily due to the requirements of residential and commercial market sectors where gas is used principally for heating. Accordingly, natural gas prices are significantly lower in the summer than in the winter, and this price differential is referred to as the seasonal spread. Gas storage capacity allows the capacity holder to take advantage of the seasonal spread by injecting and storing gas when prices are low and then withdrawing the gas during periods of high demand when prices are higher. The gross margin available from buying and injecting gas in summer months for withdrawal in winter months can be locked in at the time of injection by entering into a forward sale for the gas, establishing a minimum value for the gas storage user.

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        Below is an example of a hypothetical gas price futures curve to illustrate the seasonal spread:

GRAPHIC

        The changes in supply and demand dynamics discussed below in "—Fundamental Industry Trends" have resulted in higher seasonal gas price differentials, and thus, in higher gas storage contract values in recent years. While the seasonal differential tends to be influenced by a number of short-term factors, the growing trend in storage contract values established over the last several years indicates, in part, the natural gas market's recognition that previous levels of gas storage capacity may no longer be sufficient to provide adequate supply for the expected range of winter demand conditions.

    Price Volatility and Absolute Level of Natural Gas Prices

        In times when natural gas prices are more volatile, the value of storage capacity increases because storage capacity holders with the contractual ability to withdraw or inject gas, as applicable, are able to capture more value from their storage capacity. When near-term natural gas prices are volatile, storage capacity holders often have opportunities to inject and withdraw natural gas from storage in an effort to earn incremental margins above the seasonal spread as market opportunities permit. This is sometimes referred to as the option value of gas storage. In addition, increased volatility in demand can intensify the demand for storage for supply reliability. Gas storage facilities with higher injection and withdrawal capabilities are best able to capture value from gas market volatility.

        Higher natural gas price levels result in greater absolute movement in natural gas prices in response to ordinary market volatility and higher margins available to be captured through natural gas storage. In high market price environments, storage users have a greater incentive to mitigate their exposure to significant price changes. Higher prices typically generate higher storage values where the benefit from greater price movements more than offsets higher variable costs.

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    Interest Rate Levels

        There is a financing cost for the storage capacity holder to carry the cost of the inventory while it is stored in the facility. That financing cost is impacted by the cost of capital or interest rate incurred by the storage user as well as the commodity cost of the natural gas in inventory. The higher the financing cost, the lower the margin that will be left over from the price spread that was intended to be captured.


Fundamental Industry Trends

        We believe recent trends in the industry suggest continued demand for and increased value of natural gas storage.

    Increased Natural Gas Consumption and Production

        According to the EIA, natural gas consumption in the United States and Canada will increase by an average of 0.5% and 1.5%, respectively, per year through 2030. In order to meet this projected demand growth, natural gas producers will need to increase supplies, which is likely to result in increased demand for gas storage capacity, especially in off-peak periods. Natural gas storage facilities are already beginning to see the effects of increased gas production. The EIA reported that during the week ended November 27, 2009, the amount of working gas in storage was 3.8 Tcf, the highest amount on record.

        There is evidence that the current North American natural gas storage system will be unable to meet this growing demand unless there is a significant expansion of storage facilities. The limited growth in storage capacity in recent years and the significant barriers to the construction of new facilities suggests that such an expansion is unlikely to occur and that gas storage prices will increase in the future. See "—Limited Storage Supply Growth."

    Increasingly Seasonal and Weather-Sensitive Natural Gas Demand

        Demand for natural gas in North America is typically higher during the winter than the summer, primarily due to residential and commercial heating applications. In some regions of North America, peak air conditioning loads during hot summer months place greater demand on natural gas to fuel power plants. Natural gas produced in excess of demand during the shoulder (spring and fall) months is typically stored to meet the increased demand for natural gas during the winter months and an emerging summer demand peak. Seasonal winter demand has shown steady growth even as warmer average winter temperatures over the past four years have dampened the full potential impact of increasing demand. Increasing winter demand for natural gas, coupled with increased overall demand, should result in an increased need to store natural gas, especially in the lower-demand months during spring and fall.

        In addition to being influenced by seasonal weather changes, severe storms such as Hurricanes Katrina and Rita in 2005 have demonstrated the influence of catastrophic weather events on the energy industry. These natural disasters caused major disruption in the oil and gas industries by destroying infrastructure in the U.S. gulf region. To mitigate the impact of similar events in the future, FERC and CPUC have followed policies that encourage developers to build more natural gas storage facilities.

    Production of Natural Gas Decreasingly Sensitive To Seasonal Factors

        While gas demand continues to grow and become more seasonal, gas production is essentially flat and is becoming less seasonal, making natural gas storage even more important. Before the gas market

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was deregulated, some producers were required to shut-in some amount of production during summer months, when demand and prices tended to be at their lowest levels. Those wells were brought back onto production in the fall and winter months as demand and gas prices rose. This slight seasonality of gas production provided some minor offset to the need for seasonal storage capacity, but has almost entirely disappeared. The NPC has noted that the current environment in which gas supply is increasingly challenged to keep pace with growing demands for natural gas gives producers an incentive to maintain gas production at near maximum capability at all times.

        Unlike many products, where production can be increased and sustained in a matter of days, increases in natural gas production involve much longer lead time measured in months or even years (possibly requiring exploratory seismic work, the drilling of wells and the connection of wells to pipelines). As a result, the supply of natural gas is relatively inelastic in response to changes in the price of natural gas. In addition, it would be economically inefficient and poor production practice for producers to routinely shut-in wells when natural gas prices are low. By continuing their production efforts when demand for natural gas is low producers create a surplus of natural gas which creates downward price pressure and a requirement for storage.

    Gas-Fired Power Generation Increases Volatility

        Over 83% of electric generating capacity added in the last decade has been natural gas-fired. The rapid growth in gas-fired power generation since the 1990's, fueled in part by environmental legislation that makes natural gas a more attractive alternative to coal and oil, is significantly contributing to increased natural gas demand volatility and consumption by amplifying winter spikes and adding significant demand on the hottest days in summer. First, gas-fired electric power plant demand is adding to the consumption spikes of winter as cold days now see the dual impact of increased gas heating load and increased power loads. Second, the greatest demand for electrical power from gas-fired power generation is during the hottest days of summer for air-conditioning loads. The relatively new phenomenon of a secondary summer demand peak reduces gas available for injection into storage to build inventories during the traditional summer injection period, compressing the storage injection season to the shoulder months of spring and fall.

        In addition to increasing volatility, the growth in the number of gas-fired power plants has resulted in a greater need for storage facilities with high deliverability capabilities. The need to produce energy rapidly in order to meet suddenly increased demand requires that gas-fired power plants have access to natural gas quickly. Only facilities that have relatively high deliverability capabilities can provide this level of flexibility.

    Reduction of Industrial Base-Load Consumption Increases Volatility

        While natural gas demand from the residential, commercial and power generation sectors has been growing, demand from the industrial sector, which has the least seasonality and weather sensitivity, is in decline in the United States. The result is a reduction in base load gas demand, further amplifying the sensitivity of remaining demand. Furthermore, the loss of industrial load reduces the market's ability to respond to demand spikes. Historically, price sensitive industrial users typically switched fuels or temporarily halted operations for a few days when gas prices got too high. This industrial "shock absorber" in natural gas markets is diminishing. These trends further reduce the overall flexibility of demand and are likely to contribute to greater gas price volatility and increased reliance on natural gas storage.

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    Renewable Energy Creates Increased Demand for Gas Storage Capacity

        Several states have introduced renewable portfolio standards, requiring a certain portion of that state's energy supply portfolio be derived from renewable sources. Solar and wind power generation is intermittent, requiring backup when, for example, the wind is calm but demand for power is high. Natural gas fired power generation is the most easily dispatchable and will naturally fill the backup role, but will require more gas storage capacity to hold readily available supply.

    Increasing Seasonal Spread and Continued Volatility

        Since 2000, the seasonal spread at Henry Hub, one of the main reference prices for the North American natural gas market, has increased, on average, from $0.31 per MMbtu in 2000 to $2.15 per MMbtu in 2009. The summer/winter NYMEX forward spread is the difference between the highest price month and the lowest price month in any future April through March period. The chart below highlights the seasonal trend that has been observed in the North American natural gas market.


NYMEX Seasonal Price Spread Trends

GRAPHIC

Source: New York Mercantile Exchange (NYMEX)

        There has been a corresponding sustained upward trend in the value of natural gas storage over the past several years, which reflects many of the recent natural gas market trends. For example, summer/winter NYMEX differentials increased from $0.38 per MMbtu in early 2003, to $1.24 per MMbtu in early 2005, to $3.80 per MMbtu in early 2006. After a dramatic increase in those differentials in 2006, summer/winter differentials have narrowed but have not fallen below approximately $1.30 per MMbtu.

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        Recent trends suggest that volatility in natural gas demand and prices will remain a large factor in the natural gas storage industry. The chart below highlights the historical volatility trend for natural gas prices observed at Henry Hub from 2001 to late 2009. Volatility of natural gas prices at Henry Hub from 2001 to 2009 on a cash basis show extreme spikes in price volatility in the winter season due to natural gas demand volatility and the need for additional supply reliability during these peak demand months.


Historical Henry Hub Cash Price Volatility- 90 Day Trailing Average

GRAPHIC

Source: Platts Gas Daily

        Growing weather-sensitive demand is increasing demand for, and the value of, gas storage services. Cold winter temperatures significantly augment the demand for natural gas storage. Despite the increase in weather sensitive demand in recent years, market prices have not fully increased correspondingly, due to a number of factors such as the 2008-2009 economic downturn which muted the economy, and a pattern of warmer-than-normal winters, which reduced demand for storage withdrawals. The 2003 fiscal year illustrates that moderately colder-than-normal winter temperatures can have a large effect on the amount of natural gas cycled from storage—2.9 Tcf was withdrawn to

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satisfy winter demand that winter and Henry Hub spot prices reached $18.00 per MMbtu. The chart below illustrates the extreme sensitivity of natural gas prices to modestly colder than normal winters.


Winter Weather Effects on Henry Hub Cash Price

GRAPHIC

Source: NOAA National Climate Data Center, Platts Gas Daily

        The NPC estimated in 2003 that as much as 700.0 Bcf of additional storage capacity may be required by 2025 to meet demand trends under assumptions of "normal" weather each year. Demand for storage could be as much as 25% higher than normal in a year in which winter weather is significantly colder than normal. A single cold winter that highlights the current limitations on storage capacity may be sufficient impetus for a further increase in storage values.

    Limited Storage Supply Growth

        There is evidence that new facilities will need to be built to keep up with the projected growth in demand. While some official statistics suggest that North America's aggregate storage capacity is 4.1 to 4.6 Tcf, other data shows that these estimates could be unreliable. The EIA estimated that in 2009 the maximum practical working gas inventory level in the U.S. was 3.9 Tcf, based on demonstrated non-coincident peak inventories at all facilities over the past five years. This estimated maximum capacity is only slightly above the actual level of inventory reached November 20, 2009, at the end of the most recent injection season. The NPC, however, has stated that the largest volume of inventory actually cycled in any year has been 2.9 Tcf, suggesting that storage capacity may be incapable, for a variety of reasons, of cycling more than that volume without extreme seasonal price variability.

        Unlike the growth in demand, the supply of storage capacity in North America has experienced only modest growth recently. This trend is partly due to the fact that most of the high-quality locations have been developed. Remaining prospects are of poorer quality, and thus require a larger capital investment. Additionally, recent efforts to build additional storage facilities have been hampered by factors such as: (1) a lack of available capital due to the global financial crisis; (2) capped, regulated storage rates; and (3) the need for long-term contracts at attractive rates prior to construction. Finally, during periods of high prices for natural gas in the past decade, some smaller, less efficient gas storage facilities have been removed from service in order to recover cushion gas for sale. According to the

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EIA, between 1997 and 2007 the number of active storage fields in the U.S. declined slightly from 418 to 400.

        In the natural gas storage business there are significant barriers to entry, particularly in depleted reservoir storage development where we have successfully developed a leading presence. Barriers include:

    Geology:  Only the best reservoirs will provide the capacity, security and performance characteristics for economic gas storage. Rock quality, structure, depth, containment and reservoir size heavily influence development opportunities;

    Geography:  Access to supply and demand markets impact the value of a storage facility. Distance to existing pipeline infrastructure, incompatible surface uses and difficulty obtaining title to or the right to use property can all combine to increase the cost and difficulty of developing and operating natural gas storage facilities;

    Development costs:  Costs for new gas storage capacity development have continued to increase:

    Most of the current installed gas storage capacity was developed prior to 1980 when gas prices were well below $2.00 per MMbtu. With prices reaching multiples of that level in recent years, and paired with lower quality reservoirs that often require higher than historical ratios of cushion to working gas, the cost of new development has increased substantially due to higher cushion gas costs alone; and

    Increasing costs for oilfield services, equipment, steel, compression and labor have also contributed substantially to higher storage development costs;

    Long lead times:  It typically takes between three and five years from the time a development prospect is identified until the time cash flow commences due in part to the amount of time required to secure rights to reservoir pore space for subsurface storage and to develop and obtain necessary permits from regulatory authorities; and

    Specialized skills:  Finding and retaining qualified and skilled natural gas storage professionals is an enormous challenge due to the specialized nature of the skills required.

        New natural gas storage projects are typically built when they are able to garner storage revenues that support their economic development. Over the past fifteen years, the majority of new capacity development has taken place in supply basins. Initially developed by producers to manage fluctuations associated with having excess production and limited market options, supply basins have now become where downstream markets increasingly look to meet their incremental storage requirements. In Alberta, for instance, excess pipeline capacity and a scarcity of downstream storage opportunities have resulted in the supply basin storage's emergence as a competitive alternative to market area storage.

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BUSINESS

Overview

        We are a Delaware limited liability company formed to own and operate natural gas storage assets. We own or contract for approximately 185.5 Bcf of total gas storage capacity. We own the AECO Hub™, which is comprised of two facilities in Alberta, Canada and has approximately 135.0 Bcf of gas storage capacity. In addition, we own the Wild Goose storage facility in northern California with 29.0 Bcf of storage capacity and the Salt Plains storage facility in Oklahoma with 13.0 Bcf of storage capacity. We also contract for 8.5 Bcf of gas storage capacity on a long-term basis from NGPL at cost-of-service based rates that we believe are currently below market rates. Our assets are located in key North American natural gas producing and consuming regions and are connected at strategic points on the gas transmission network, providing access to multiple end-use markets. Our locations provide us and our customers with substantial liquidity, meaning access to multiple counterparties for transactions to buy and sell gas. Since our inception in 2006, we have organically added 41.3 Bcf of gas storage capacity through expansions, an increase of approximately 29%, at a total cost of approximately $131.0 million (an average of $3.2 million per Bcf). We are the largest independent owner and operator of natural gas storage assets in North America, based on our analysis of working gas capacity owned by other storage owners, adjusted according to each such owner's percentage ownership of its respective storage facilities.

        Because the supply of natural gas remains relatively stable over the course of a year compared to the demand for natural gas, which fluctuates seasonally, natural gas storage facilities are needed to reallocate excess gas supply from periods of low demand to periods of high demand. We capitalize on the imbalance between supply of and demand for natural gas by providing our customers and ourselves with the ability to store gas for resale or use in a higher value period. Our natural gas storage facilities allow us to offer our customers "multi-cycle" gas contracts, which permit them to inject and withdraw their natural gas multiple times in one year, providing more flexibility to capture market opportunities. Since our inception, our storage contracts have provided cyclability rates ranging from 1.0 to 6.0 times per year, with an average of 2.2 times. We believe that our combination of large, high-quality, strategically located storage facilities, access to economically attractive organic growth opportunities, ability to charge market-based rates and an experienced and complete storage business team makes our business difficult to replicate.

        We believe that our relationship with Holdco and the Carlyle/Riverstone Funds will enhance our ability to grow our asset base and cash flow. As the owner of our manager, 48.2% of our common units, all of our subordinated units and all of our incentive distribution rights, Holdco is incentivized to promote and support the successful execution of our business plan and may offer us development projects in the future although it is not required to do so.


Our Operations

    Third-Party Gas Storage Contracts

        We store natural gas for a broad range of customers, including financial institutions, marketers, pipelines, power generators, utilities and producers of natural gas. From inception to March 31, 2009, we utilized an average of approximately 92% of our operated capacity for storage services provided to third-party customers, and our third-party storage contracts contributed an average of 68% of our total revenue.

    Long-Term Firm Storage Contracts

        We provide multi-year, multi-cycle storage services to our customers under LTF contracts. The volume-weighted average life of our LTF contracts at December 31, 2009 was 3.3 years. Under our LTF

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contracts our customers are obligated to pay us monthly reservation fees in exchange for the right to inject, store and withdraw volumes of natural gas on days and for periods selected by them at injection or withdrawal rates up to maximums specified in the contract. The reservation fees are fixed charges owed to us regardless of the actual amount of storage capacity utilized by customers. When customers utilize the capacity that is reserved under these contracts we also collect variable fees based upon the actual volumes of natural gas injected or withdrawn. These variable fees are designed to allow us to recover our variable operating costs and make up a small percentage of the total fees we receive under our LTF contracts.

        Under LTF contracts, the customer has the right, but not the obligation, to store gas in the facility during the term of the contract, up to a specified volume or "inventory capacity." In addition to the total amount of inventory capacity, LTF contracts specify a customer's daily withdrawal and injection rights which increase or decrease as the customer's inventory changes. The maximum injection rate that a customer is typically entitled to is highest when that customer's inventory capacity is empty, reducing as that customer's inventory increases. When a customer's contracted inventory capacity is full, it has no further injection rights. A customer's maximum withdrawal rate is typically highest when its inventory is full, declining incrementally to zero when the customer's inventory is empty. LTF contracts provide the customer with the flexibility to use all, a portion, or none of its capacity and the freedom to inject or withdraw gas up to its daily injection or withdrawal rate, but obligate the customer to remove any injected gas by the end of the contract term.

        Reservation fees comprise over 90% of the revenue received from LTF storage customers, and thus represent a steady and predictable baseline cash flow stream. From inception to March 31, 2009, we utilized an average of approximately 78% of our operated capacity for our LTF strategy, and LTF contracts contributed an average of 50% of our total revenue. Our LTF contracts generated average reservation fees of $0.99 per Mcf.

    Short-Term Firm Storage Contracts

        We also provide services for customers under STF contracts. STF contracts typically have terms of less than one year. Under an STF contract, a customer pays a fixed fee to inject a specified quantity of natural gas on a specified date or dates and to store that gas in our storage facilities until withdrawal on a specified future date or dates. An STF contract differs from an LTF contract in that the customer is obligated to inject and withdraw specified quantities of natural gas on specified dates rather than entitled to utilize injection and withdrawal capacity at its option. Because STF contracts set forth specified future injection and withdrawal dates, we can enter into offsetting transactions to lock-in incremental fees as spot and future natural gas prices fluctuate prior to that activity date. From inception to March 31, 2009, we utilized an average of approximately 14% of our operated capacity for our STF strategy, and STF contracts contributed an average of 18% of our total revenue. From inception to March 31, 2009, our STF contracts generated average fees of $1.88 per Mcf.

        An example of an STF transaction is when a customer contracts with us in April to inject gas at a steady daily rate in July, when gas prices are low, and to withdraw the same quantity at a steady daily rate in January, when gas prices are higher. This allows customers to lock-in value in April based on the difference between the January and July prices for natural gas and pay us a fee based on this difference.

        Under STF contracts the customer is obligated to perform the injection and withdrawal activities as specified in the contract, thus enabling us to enter into offsetting transactions to capture incremental opportunities as spot and future natural gas prices fluctuate prior to the specified withdrawal date. For example, if, after a customer enters into an STF contract to inject gas in July and to withdraw that gas in January, gas futures prices for January fall below February prices, we might enter into an offsetting STF transaction for the same quantities, with the same or another customer, to inject in January and

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withdraw in February for a fee based on the January to February spread. The result in January would be that the second transaction offsets the first transaction resulting in no net flow obligation on our storage facility during January, and therefore, a fuel savings. By entering into offsetting transactions, we are able to capture additional opportunities as they are created throughout the year by the volatile gas futures prices.

        Because many contracts extend beyond the end of a fiscal year and because we generally enter into new or replacement third-party storage contracts several months in advance of the beginning of each fiscal year, we can accurately predict a baseline of revenue and cash flow at the beginning of each fiscal year that we will generate for that year under our third-party storage contracts. Throughout the year, as market conditions allow, we augment this baseline revenue and cash flow by entering into additional STF contracts.

    Proprietary Optimization

        Our portfolio of third-party customers consists of a strategic mix of customer types, each of which tends to have a storage usage pattern that is different from those of other customers at the facility. This means that even though the withdrawal or injection capability of a facility may be fully contracted, it will generally not be fully utilized on any given day. We purchase, store and sell natural gas for our own account in order to utilize, or optimize, storage capacity and injection and withdrawal capacity that is (1) not contracted to customers, (2) contracted to customers, but underutilized by them or (3) available only on a short-term basis. We have a stringent risk policy that limits, among other things, our exposure to commodity price fluctuations by requiring us to promptly enter into a forward sale contract or other hedging transaction whenever we enter into a proprietary purchase contract. Therefore, inventory purchases are matched with forward sales or are otherwise economically hedged so that a margin is effectively locked-in promptly after we enter into the purchase. As a result, there are no speculative positions beyond the minimal operational tolerances specified in our risk policy. From inception to March 31, 2009, we utilized an average of approximately 8% of our operated capacity for our proprietary optimization strategy, and proprietary optimization revenue, after deducting cost of goods sold, contributed an average of 32% of our total revenue. From inception to March 31, 2009, our proprietary optimization business generated average margins of $3.68 per Mcf ($3.37 on a realized basis before mark to market gains and losses and inventory writedowns).

        We purchase gas for our own account, inject it and subsequently withdraw and sell the gas. The flexibility arising from purchasing and selling gas for our own account allows us to generate incremental value through our proprietary optimization strategy by capturing spot and intraday opportunities. Unlike STF and LTF storage transactions, proprietary optimization requires us to fund the carrying cost of the inventory with our own working capital.

        Sophisticated risk management techniques, adapted to the unique aspects of gas storage, enable us to match the capacity at our facilities with the portfolio of long-term and short-term contracts and proprietary optimization transactions at those facilities in order to utilize the maximum amount of capacity available. We utilize NYMEX and ICE, which are regulated exchanges for the purchase and sale of energy products, to hedge our commodity risk with respect to the pricing of natural gas. This helps us reduce potential credit, delivery and supply risks. Generally these are financial swaps and are settled without the requirement for physical delivery. In the case of NYMEX futures, we can enter an EFS (exchange for swaps) to avoid the requirement for delivery.

        A baseline level of revenue is locked-in with proprietary optimization transactions entered into in advance of, or early in each fiscal year. We add incremental margins throughout the year by entering into additional transactions when market conditions are favorable.

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    Customers and Counterparties

        Our gas storage customers include a broad mix of gas market participants, including financial institutions, producers, marketers, power generators, pipelines and municipalities. Approximately 90% of the counterparties under our gas storage contracts and proprietary optimization transactions either have an investment grade credit rating, provide us with another form of financial assurance, such as a letter of credit or other collateral, or are governmental entities.

        Although during certain reporting periods a large portion of our gross revenues can be attributed to one or two counterparties (see "Risk Factors—Risks Inherent in Our Business"), these gross revenues reflect the full commodity value of natural gas sales under our optimization strategy and overstate the counterparties' contribution to our net margin (after cost of goods sold) that is more correlated with our net income and operating cash flow.

        One counterparty, Natural Gas Exchange, or NGX, accounted for approximately 44% of our gross revenue for the nine months ended December 31, 2009. NGX is a trading exchange which requires counterparties to post collateral to the exchange significantly in excess (125%) of the contract price, which mitigates our counterparty risk. During the fiscal year ended March 31, 2008, NGX and subsidiaries of BP Corporation North America Inc. accounted for approximately 43% of gross revenue. In the event that any of our current customers or counterparties were no longer a customer or counterparty in the future, we believe that sufficient market depth exists in our operating areas that such customer or counterparty could be replaced with another upon similar contract terms and that the loss would therefore not have a material impact on our business.


Business Strategies

        Our primary objective is to generate stable cash flows sufficient to make the minimum quarterly cash distribution per unit to our unitholders and to increase our cash distributions per unit over time by executing the following strategies:

    Maintaining a flexible portfolio of commercial strategies to optimize profitability.  We strive to enhance our returns through a flexible storage utilization strategy that mixes LTF contracts, STF contracts and proprietary optimization transactions to capture the value of natural gas storage. LTF contracts allow us to collect fees based on the seasonal spread and the option value that customers are willing to pay for gas storage, which is partially a function of volatility or expected volatility in the price of natural gas. STF contracts and proprietary optimization transactions allow us to profit directly from both the seasonal spread and other opportunities that unfold throughout the year. Initial STF contracts and proprietary optimization transactions are entered into in advance of the beginning of each fiscal year, allowing us to lock-in significant revenues at the beginning of each fiscal year. Additional STF contracts and proprietary optimization transactions are entered into throughout the year to lock-in incremental margins from changes in relative prices of natural gas. We have historically contracted and expect to continue to target contracting 80% to 90% of our gas storage capacity under LTF and STF contracts with third party storage customers and utilize the balance for proprietary optimization transactions. The gradual expiration of LTF contracts and the short term duration of STF contracts and proprietary optimization transactions affords us the flexibility to adjust the mix of strategies as necessary to capitalize on market conditions.

    Continuing to expand our existing facilities.  We intend to enhance our profitability and to increase our cash distributions through organic growth at our existing facilities. Since our inception in 2006, we have increased our gas storage capacity by 41.3 Bcf, or approximately 29%, through capital expenditures of approximately $131.0 million. We have near-term projects in progress to expand our existing facilities by an additional 39.0 Bcf, or 21%, with an 18.0 Bcf expansion at AECO Hub™ and a 21.0 Bcf expansion at Wild Goose. We expect that these projects will

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      increase our total working gas capacity by approximately 15.0 Bcf by March 31, 2011, 27.0 Bcf by March 31, 2012, 37.0 Bcf by March 31, 2013 and 39.0 Bcf by March 31, 2014 at a total cost of approximately $175.0 million. Our most economically attractive growth opportunities are expanding our overall capacity and injection and withdrawal capabilities through the enhancement of existing facilities. We are familiar with the geological and structural characteristics of our reservoirs, such as the rock quality, structure, depth, containment and size. In addition, the facilities and equipment that are necessary to inject, store and withdraw gas are already in operation at our existing sites. We believe that additional reservoirs located above, below or adjacent to some of our developed reservoirs have similar lithology, or physical characteristics of rock formation, as our existing reservoirs and can be added-on to existing reservoirs relatively inexpensively.

    Growing through acquisitions of complementary assets and pursuing new and existing development projects.  We intend to pursue accretive acquisitions and new and existing opportunities to develop assets that will enable us to increase our cash distributions to unitholders. In recent years, major independent and integrated oil and gas, power and utility companies and independent developers have sold storage assets in an effort to focus their operations or monetize their investments. We expect that gas storage businesses and assets will continue to become available and believe we are well positioned to take advantage of acquisition opportunities. We intend to seek acquisition and development opportunities in new regions that will provide geographic diversification and in our existing regions where we believe we will be able to realize synergies and operational efficiencies. Holdco is pursuing a potential gas storage development project in western Canada and currently holds rights to build a salt-dome cavern gas storage facility in Louisiana and a depleted reservoir in southern Texas. If these projects are developed, Holdco intends to offer us the opportunity to purchase the projects, although it is not obligated to do so. When evaluating acquisitions and new development projects, we look for opportunities that allow us to apply the specialized technical and commercial skills of our management team and staff to increase the capacity utilization or improve the physical performance of the facility.


Competitive Strengths

        We believe that we are well positioned to successfully achieve our primary business objectives and execute our business strategies based upon the following competitive strengths:

    High quality, strategically-located assets.  Our facilities are modern, well-maintained and automated and utilize depleted natural gas reservoirs that have optimal storage characteristics. Such characteristics include high permeability and porosity, and development has been with extensive use of modern horizontal well technology. Our facilities are located in some of the most attractive gas storage locations in North America. For instance, AECO Hub™ is located in the Western Canadian Sedimentary Basin, or the WCSB, one of the most important gas producing basins in North America, and is connected to the Alberta System (also known as the Nova Gas Transmissions System), which is an integral part of the TransCanada pipeline system and acts as a hub connecting the WCSB to most major gas markets in the U.S. and Canada. Wild Goose is located in California at the PG&E citygate, providing us and our customers PG&E citygate pricing and liquidity and arbitrage opportunities based upon the state's constrained natural gas supply, mostly from out-of-state, and growing, volatile demand. Salt Plains is located between the prolific Rocky Mountain natural gas supply basin, the growing shale gas plays to the south and east, the U.S. Gulf of Mexico and the important mid-continent market region. The high injection and withdrawal capabilities of our facilities, their location at strategic points along key North American natural gas pipeline networks, and our historical track record provides us and our customers with a high degree of liquidity and opportunities for arbitrage between major

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      natural gas producing and consuming regions. The quality and location of our facilities has helped us to build a base of loyal customers—approximately half of our current customers have been customers of our facilities for at least five years. Additionally each of our facilities operates in a regulatory jurisdiction that affords us substantial flexibility in pursuing commercial strategies.

    Flexible commercial strategies provide relatively stable and predictable cash flows.  Our assets have generated consistent Adjusted EBITDA over the past three fiscal years despite materially different seasonal spreads available at the start of each of those years. Our proven, flexible commercial strategy allows us to adjust our mix of LTF contracts, STF contracts and proprietary optimization transactions, which have demonstrated to be complementary strategies and enable us to maintain or increase our profitability in diverse market environments. A significant portion of our revenue is generated from gas storage contracts continuing from prior years or new contracts that are entered into several months in advance of the beginning of each fiscal year, generating a predictable baseline cash flow.

    Inventory of successful and repeatable expansion projects.  We have organic growth opportunities at our facilities through the application of proven reservoir engineering techniques or the development of adjacent reservoirs. This has been made possible because our ongoing operations have given us a thorough understanding of the characteristics and capabilities of our current reservoirs. By expanding our existing facilities, or developing reservoirs that are adjacent to our existing reservoirs, we believe we can add working capacity relatively inexpensively and at low risk, providing us with access to cost savings and synergies that are not available to many of our competitors. Since our inception in 2006, we have successfully expanded our gas storage capacity organically from 144.2 Bcf to 185.5 Bcf (an increase of 41.3 Bcf, or approximately 29%) through cost-efficient techniques. We are currently applying these proven techniques to further expand our capacity at AECO Hub™ and Wild Goose. In addition, we can increase our storage capacity by expanding into unused reservoirs that are located above, below or adjacent to some of our operating reservoirs. For example, we currently use only two of the twelve natural gas reservoirs at Wild Goose. These twelve reservoirs are stacked vertically, giving us significant potential for organic expansion. We believe developing some of these reservoirs offers the potential for substantial low-risk growth opportunities, provided that we receive the necessary regulatory and governmental approvals, that the market can support additional storage capacity and that additional pipeline infrastructure is developed to handle the increased flow of natural gas. We believe the presence of additional opportunities for low-risk growth at each of our operated facilities is a significant competitive advantage.

    Significant barriers to entry.  Many of our competitors seeking to add substantial capacity in the markets where we operate may face significant geographical, marketing, financial, regulatory and logistical difficulties. In particular, there is a scarcity of unexploited reservoirs located near pipeline infrastructure, natural gas supply sources and end-user markets that have the capacity and lithology necessary to store gas economically. In addition, there are development challenges and high upfront capital costs associated with the development of natural gas storage facilities, including obtaining title to land and permits to operate, constructing facilities for injecting, storing and withdrawing gas and meeting high cushion gas requirements. Potential competitors whose operations are subject to governmental regulations that limit the rates they can charge customers may not enter the gas storage business or expand their facilities because the reduced potential for profit may not justify the costs. Additionally, significant industry skills are required to identify, construct and operate successful gas storage facilities, and these skills are uncommon.

    Experienced management and complete storage business team.  We employ a highly experienced and dedicated natural gas storage management team with an average of over 20 years of experience in the natural gas industry. We are staffed with a comprehensive, in-house team of

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      geologists, reservoir engineers, risk managers, optimizers, marketers, schedulers, accountants, lawyers and regulatory specialists with extensive expertise in natural gas storage operations and development. A comprehensive in-house team provides for continuity of knowledge, cross-functional integration and alignment for successful results. Because we are a user of natural gas storage through our proprietary optimization strategy, our team has a knowledge of the gas storage industry that many of our competitors do not. Our management team and staff have been involved in the development of approximately 285.0 Bcf of gas storage capacity in North America.


Competition

        The natural gas storage business is competitive. The principal elements of competition among storage facilities are rates, terms of service, types of service, access to supply sources, access to demand markets and flexibility and reliability of service. Because our facilities are strategically located in key North American natural gas producing and consuming regions, we face competition from existing competitors who also operate in those markets. Our competitors include gas storage companies, major integrated energy companies, pipeline operators and natural gas marketers of varying sizes, financial resources and experience. Competitors of the AECO Hub™ currently include TransCanada (Edson, CrossAlta), Atco (Carbon) and Enstor (Alberta Hub). Competitors of our Wild Goose facility currently include Buckeye Partners (Lodi), PG&E and a number of proposed projects in northern California. Competitors of our Salt Plains facility currently include Southern Star. Given the key location of our facilities, additional competition in the markets we serve could arise from new developments or expanded operations from existing competitors. We anticipate that growing demand for natural gas storage in the markets we serve will be met with increasing storage capacity, either through the expansion of existing facilities or the construction of new storage facilities.


Our Assets

        Our owned and operated gas storage facilities consist of AECO Hub™ in Alberta, Canada, our Wild Goose storage facility in northern California and our Salt Plains storage facility in Oklahoma. Our gas storage assets are modern, well-maintained, automated facilities with low maintenance costs, long useful lives and comparatively high injection and withdrawal, or "cycling," capabilities. Our facilities require low amounts of cushion gas, meaning that a relatively small amount of gas is required to remain inside our facilities in order to maintain a minimum facility pressure supporting the working gas. The size and flexibility of our facilities, together with the application of advanced skills in reservoir engineering, drilling, geology and geophysics, enable us to support individual high-cycle contracts in excess of the average physical cycling capabilities of our facilities. In addition to the facilities we own

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and operate, we also contract for storage capacity from NGPL on its pipeline system in the mid-continent. The following table highlights certain important design information about our assets.

 
  AECO Hub™    
   
   
   
 
Name
  Suffield   Countess   Wild Goose   Salt Plains   NGPL    
 
Location
  Alberta   Alberta   California   Oklahoma   Midcon/
Texok
  Total  

Gas Storage Capacity (Bcf)

    80.0     55.0     29.0     13.0     8.5     185.5  

Peak Withdrawal (MMcf per day)

    1,800     1,250     700     150     114     4,014  

Peak Injection (MMcf per day)

    1,600     1,150     450     115     57     3,372  

Reservoirs

    5     2     2     1     N/A     10  

Storage Wells

    60     29     12     30     N/A     131  

Compression (horsepower)

    36,000     34,500     20,800     10,000     N/A     101,300  

In Service Date

    1988     2003     1999     1995     N/A     1988 – 2003  

Average Physical Cycling Capability (cycles per year)

    1.5 – 2.0     1.5 – 2.0     2.5     1.2 – 1.5     1.4     1.2 – 2.5  

    AECO Hub™

    Overview

        AECO Hub™, our largest operation, is comprised of two facilities in Alberta, Suffield and Countess, which are 75 miles apart but operate as one hub. Due to its high injection and withdrawal capacity (2.8 Bcf per day and 3.1 Bcf per day, respectively), AECO Hub™ has supported customer contracts with cycling service of up to 5.2 times per year. AECO Hub™ is the largest natural gas storage provider in western Canada and the largest independent storage hub in North America, based on our analysis of working gas capacity owned by other storage owners, adjusted according to each such owner's percentage ownership of its respective storage facilities. Its location on TransCanada Pipeline's Alberta System with direct access to abundant western Canadian natural gas supply and pipeline connections to most major U.S. and Canadian natural gas markets provides us and our customers with significant liquidity.

        AECO Hub™ is located in the Western Canadian Sedimentary Basin, which is the major hydrocarbon basin in Canada and one of the most important gas producing regions in North America. The WCSB accounts for more than 95% of annual Canadian natural gas production and approximately 21% of annual North American natural gas production according to the NEB. Although WCSB production has leveled off in recent years, we expect that Canadian natural gas production will be sustained in future years by new production from large new shale plays in northeast British Columbia, a large remaining conventional natural gas resource base, and eventually Arctic gas from the Mackenzie Delta and Alaska.

        AECO Hub™ is connected to the extensive Alberta System. Most of the gas produced in Alberta flows into the Alberta System, which transports that gas from the well or gas plant to industrial consumers and gas utilities in Alberta and to export pipelines at the Alberta border. Approximately 10.0 Bcf of gas is delivered into the Alberta System each day, and that volume is traded many times over by the gas marketing community. As a result, significant liquidity is available to customers of the AECO Hub™.

        AECO Hub™ has been a central part of the Alberta System since the early 1990s, when the Suffield facility began providing title transfers as a hub service before that service was available on the pipeline. So many transactions were being transacted by storage customers and others at the Suffield facility, that a price index, known as the "AECO Hub™ Price Index," was developed to facilitate price discovery. AECO Hub™ is the most commonly referenced pricing point for Canadian natural gas, and the price of gas in Alberta is often referred to as the "AECO Price."

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    AECO Hub™ Facilities

        AECO Suffield and AECO Countess, the two facilities that make up the AECO Hub™, are geographically separated, but the toll design of the Alberta System means that they are both commercially located at the same point. This enables us to operate the two facilities as one integrated commercial operation without customers incurring incremental transportation costs. Customers nominate injections or withdrawals at Suffield's interconnect with the Alberta System, and AECO Hub™ allocates the nominations between its Suffield and Countess facilities based on its reservoir management strategy.

        Our rights to use the reservoirs at Suffield and Countess are held pursuant to a series of natural gas storage agreements, trust arrangements and similar instruments entered into with the holders of subsurface mineral interests of the land where the reservoirs are situated. Rights to access, occupy and use the lands for facilities including the wellsites and pipelines are derived from access agreements, right-of-ways, easements, leases and other similar land use agreements with the surface owners of such land.

        Suffield Storage Facility.    AECO Suffield is located in southeastern Alberta. It is close to the Alberta System's "eastern gate," the largest natural gas delivery point in Canada, where gas is delivered into TransCanada's mainline pipeline system (transporting gas to eastern Canada and the northeastern U.S.) and the Foothills/Northern Border pipeline system (transporting gas to Chicago and the midwestern U.S.). AECO Suffield consists of 60 storage wells and five storage reservoirs with aggregate effective working capacity of approximately 80.0 Bcf. The storage reservoirs are connected to a central processing and compression facility by a system of five pipelines. Compression is provided by natural gas powered engines that have a total of more than 36,000 horsepower.

        All of the processing and compression facilities and substantially all of the well sites for the storage reservoirs are located on the Canadian Forces Base, Suffield military training range, or CFB Suffield. CFB Suffield is open prairie land, which provides relatively low costs for seismic surveys, drilling and pipelining. While the military restricts access to the well sites on a limited basis from time-to-time (i.e., during military exercises), AECO Suffield has not experienced any operational issues due to the location since its inception in 1988.

        Countess Storage Facility.    AECO Countess is located in south central Alberta, approximately 60 miles east of Calgary. Countess is connected to a large diameter pipe of the Alberta System. This modern gas storage project consists of 29 storage wells and two high performance gas storage reservoirs that are connected to a central processing and compression facility. The two storage reservoirs each have their own gathering pipeline system. Compression is electrically powered and totals approximately 34,000 horsepower. The two reservoirs have total effective working capacity of approximately 55.0 Bcf.

    Customers

        AECO Hub™'s customers consist of a mix of gas market participants, including financial institutions, producers, marketers, power generators, pipelines and municipalities, resulting in a portfolio of customers with diverse usage patterns and varying contract expiration dates. This allows more opportunity for AECO Hub™ to optimize underutilized capacity. Many of our customers actively buy and sell natural gas at key hubs across North America. Our strong relationships at AECO Hub™ often result in new business at Wild Goose and Salt Plains.

        Most LTF transactions at AECO Hub™ are for a gas storage capacity of 1.0 Bcf or greater and average about 4.6 Bcf. LTF contract terms have been chosen so that a manageable amount of contracts expire each year, avoiding exposure to a large contract turnover volume during a temporary market downturn. Existing commitments represent approximately 51% of AECO Hub™'s capacity for the fiscal year ending March 31, 2011. The weighted average contract life of our LTF storage contracts at AECO

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Hub™ is 3.6 years but our current customers have been customers of AECO Hub™ for an average of 6.1 years. The largest contract we have at AECO Hub™ is in the fifth year of an initial term of 10 years, with the potential to be extended in five year increments to a maximum term of 25 years under certain circumstances. Upon the expiration of the initial term and each subsequent five year extension, this contract is automatically extended for five additional years unless either party exercises its right to terminate the contract. Under the contract terms, the party exercising its early termination rights is subject to the payment of an early termination fee.

    Historic and Future Expansion

        Since our inception, we have increased the AECO Hub™'s gas storage capacity by 26.0 Bcf. We are currently engaged in de-watering activities at AECO Suffield and delta pressuring activities at AECO Countess. We expect that these de-watering and delta pressuring activities will increase the gas storage capacity of AECO Hub™ by up to approximately 9.0 Bcf by March 31, 2011 and 18.0 Bcf by March 31, 2014.

    Regulatory

        AECO Hub™ is subject to provincial regulatory jurisdiction. Operations are subject to the regulation of the Alberta ERCB, which must also approve proposed expansions of storage capacity. AECO Hub™ is not subject to active market regulation. With the exception of the utility-owned Carbon storage facility which is in the process of being withdrawn from financial regulation, there is no cost-of-service or other utility-type regulation of storage rates or other commercial terms of storage contracts in Alberta. While the AUC does have overriding jurisdiction to set gas storage prices when authorized to do so by the Alberta Government, it is not currently Alberta Government policy to apply such rate regulation. As such, AECO Hub™ can charge customers negotiated market-based rates as well as store purchased gas for its own account.

    Environmental

        Both AECO Hub™ facilities are subject to federal and provincial environmental laws and regulations, including oversight by Alberta's Department of Environment and the Alberta ERCB. There are currently no material environmental issues.

    Wild Goose

    Overview

        Our Wild Goose storage facility is located 55 miles north of Sacramento, California. Wild Goose is a high deliverability, multi-cycle, or HDMC storage facility, with an average physical cycling capability of 2.5 cycles per year. In the past, Wild Goose has supported customer contracts with cycling service as high as 6.0 times per year. This HDMC capability is made possible by the rock quality of the Wild Goose reservoirs and the extensive use of horizontal well technology.

        Wild Goose is strategically located in a highly-liquid hub market and is one of only two independent operating storage facilities in northern California. Wild Goose provides natural gas receipt and delivery services at Pacific Gas & Electric Company, or PG&E citygate, a liquid trading point where gas supply from multiple upstream basins meets the volatile California end-use gas demands that create a dependence on natural gas storage. This location provides customers with the opportunity to take advantage of PG&E citygate pricing, liquidity and arbitrage opportunities. Wild Goose is connected to two PG&E interconnect points—Line 167 (a local transmission line), which is situated adjacent to the facility, and PG&E's Line 400/401 (the large diameter backbone pipelines) via our own 25 mile, 30 inch connector pipeline. Wild Goose benefits from the energy supply and demand dynamics of California, including underlying natural gas consumption growth, fluctuating gas-fired power

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generation demand, a dual-peaking market for gas prices, uncertainty of pipeline supply and the potential for significant new power generation demand (partly due to the varying availability of hydro-power) to back up renewable energy sources such as wind and solar. These dynamics support high demand for natural gas storage.

    Facility

        Wild Goose operates 12 gas storage wells that are completed in two depleted natural gas reservoirs. The Wild Goose reservoirs are located in high quality rock formations. In addition, the reservoirs have a strong water drive mechanism, which helps maintain reservoir pressure and well deliverability. Rights to use the reservoirs at Wild Goose for natural gas storage are held pursuant to a series of natural gas storage leases with the surface owners of the lands where the reservoirs are situated as well as mineral owner agreements and similar instruments entered into with the holders of subsurface mineral interests in such lands. Rights for the lands used for the pipelines are derived from right-of-ways, easements, leases, and other similar land-use agreements.

    Customers

        Wild Goose's customers include a mix of gas market participants, including financial institutions, producers, marketers, power generators, pipelines and municipalities, resulting in a portfolio of customers with diverse usage patterns and different contract expiration dates. This allows us to optimize underutilized capacity.

        Wild Goose has contracts with over a dozen third-party customers for terms of one year or longer. Existing commitments represent approximately 73% of Wild Goose's capacity for the fiscal year ending March 31, 2011. The weighted average contract life of our LTF storage contracts at Wild Goose is 2.4 years, but our current customers have been customers of Wild Goose for an average of 4.4 years.

    Historic and Future Expansion

        Since our inception, we have increased the gas storage capacity of Wild Goose by 11.0 Bcf. We have filed applications with the CPUC to amend Wild Goose's certificate to further expand the facility to 50.0 Bcf of gas storage capacity and to increase its maximum injection rate from 450 to 650 MMcf per day and its maximum withdrawal rate from 700 to 1,200 MMcf per day in order to maintain a cyclability of 2.5 times annually. We expect to obtain approval for this expansion during the summer of 2010. Upon receipt of such approval, we expect to quickly increase Wild Goose's gas storage capacity to 35.0 Bcf. In addition, upon receipt of such approval we could then commence the construction necessary to increase the capacity further to 50.0 Bcf as soon as is practicable. We expect that the remaining 15.0 Bcf of capacity will be available by March 31, 2013.

    Regulatory

        Wild Goose is regulated as a state utility by the CPUC and is certified to serve the California intra-state market. Wild Goose has regulatory authority to negotiate market based rates for third-party storage contracts and buys and sells gas for its own account to optimize operations. In addition, as an independent storage provider Wild Goose is exempt from the provisions of California's affiliate conduct rules and has the right to coordinate its operation with our other facilities. It is however, restricted from contracting for natural gas storage services with its affiliates.

    Environmental

        There are currently no material environmental liabilities at Wild Goose. Wild Goose operates in environmentally sensitive agricultural and wetlands recreation environments. All facilities are modern and are operated based on strict environmental and maintenance standards.

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        In constructing and expanding the Wild Goose facility, we have experienced no significant delays or unexpected costs, by initially bringing forward development plans that mitigate any environmental impacts to the satisfaction of all responsible agencies and stakeholders. As further evidence of our commitment to safe, efficient and environmentally clean operations, even in such a sensitive locale, Wild Goose has received the State of California—Department of Conservation, Award for Outstanding Oilfield Lease and Facility Maintenance, for five consecutive years.

    Salt Plains

    Overview

        Our Salt Plains storage facility is located 110 miles north of Oklahoma City, Oklahoma, in a region of growing demand for natural gas as a fuel for heating and power generation. Salt Plains provides intrastate services in Oklahoma through its connection to pipelines operated by ONEOK Gas Transportation Pipelines, L.L.C., or ONEOK, and interstate services through its interconnect with pipelines operated by Southern Star Central Gas Pipeline, Inc., or Southern Star. The heightened supply and demand imbalances in this market create increased margin opportunities for us and our customers.

        Salt Plains is in a strategic mid-continent location with interconnects to pipelines owned by Southern Star and ONEOK, which serve both regional and mid-continent gas markets. This provides customers the benefits of liquidity, supply, and arbitrage opportunities. In addition, gas produced in the Rocky Mountains that is delivered to the mid-continent region gets redistributed to various pipelines such as Southern Star that have access to Salt Plains. Growing shale gas development in neighboring regions, such as the Barnett, Fayetteville, Haynesville and Caney/Woodford shales, is also adding significant supply to the mid-continent region, which has the potential to increase demand for gas storage services.

    Facility

        Salt Plains operates 30 wells that are completed in a depleted natural gas storage reservoir characterized by high-quality rock. The wells are connected to a central plant facility by seven miles of pipeline. Rights to use the reservoir at Salt Plains for natural gas storage are held pursuant to a series of gas storage agreements with the mineral rights owners of the lands where the reservoir is situated. Rights for the lands used for the pipelines are derived under these gas storage agreements as well as from right-of-way grants from other land owners.

    Customers

        Existing commitments represent approximately 33% of Salt Plains' capacity for the 2011 fiscal year. The weighted average contract life of our LTF storage contracts at Salt Plains is 1.8 years, but our current customers have been customers of Salt Plains for an average of 5.6 years. The largest contract we have at Salt Plains is in the second year of a three year term.

    Historic and Future Expansion

        Since our inception, we have increased the facility's gas storage capacity by 4.3 Bcf. We believe there is the potential for opportunities to expand the gas storage capacity of the facility and are currently assessing the feasibility of such expansion in the future.

    Regulatory

        Our Salt Plains intrastate operations are subject to regulation by the OCC. Salt Plains is also authorized to provide interstate storage service under the Natural Gas Policy Act of 1978 and FERC

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regulations and policies that allow intrastate pipeline and storage companies to engage in interstate commerce (commonly known as NGPA section 311 services). Salt Plains provides these NGPA section 311 services, which are not subject to FERC's broader jurisdiction under the Natural Gas Act, pursuant to a Statement of Operating Conditions which is on file with FERC. The OCC's regulatory policies are generally less stringent than those of FERC. Currently, Salt Plains is authorized to charge market based rates in both intra and inter-state service and has no restrictions on affiliate interactions.

    Environmental

        We are not currently aware of any material environmental liabilities relating to the Salt Plains facility.

    NGPL Contracted Capacity

    Overview

        Since 2001, our subsidiary has contracted for 8.5 Bcf of gas storage capacity on the MidCon leg and the TexOk leg of the NGPL system in the mid-continent. The NGPL system connects and balances Gulf Coast and mid-continent supply basins with Chicago and other midwestern U.S. end-use markets. NGPL has a number of different storage facilities on its system and manages its storage capacity as pools on separate legs of the pipeline. Under NGPL's FERC-approved tariff, NGPL is limited to charging cost-of-service rates for its transportation and storage services. We currently have multiple LTF storage contracts with NGPL that expire on various dates through 2017. We believe the cost-of-service rate that we pay is currently significantly below the market value of such capacity. We have a tariff-based right of first refusal to renew these contracts at NGPL's cost-of-service rate, effectively making this capacity a long-term asset without any invested capital, with an option to exit should the rate be above market value.

        We are able to apply the commercial skills used for our owned and operated facilities to optimize and generate revenues by utilizing our NGPL contract capacity. For example, at November 27, 2009 the approximate value that we could immediately secure by entering into forward commodity contracts was equal to the spread between the forward commodity contracts, which were trading at an average price of $1.15 per dekatherm, or Dth, and the reservation fee that we paid to NGPL of $0.49 per Dth. We expect that this spread will remain positive for the foreseeable future.

    Access Gas Services

        In Canada, we have responded to the growing need for commercial, industrial and retail natural gas marketing services by forming Access Gas Services to serve markets in the lower mainland and interior of British Columbia. In 2008, Access Gas Services Ontario was established to serve similar markets in Eastern Canada, and EnerStream Agency Services was formed to provide agency services to natural gas end-users in Eastern Canada.


Employees

        As of February 16, 2010, we had 126 employees. Our executive officers are employed by AECO Partnership.


Regulation

        Our operations are subject to extensive laws and regulations that have the potential to have a significant impact on our business. We may incur substantial costs in order to conduct our operations in compliance with these laws and regulations. We are subject to regulatory oversight by federal, state, provincial and local regulatory agencies, many of which implement rules and regulations that are

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binding on the natural gas storage and pipeline industry, related businesses and individual participants. The failure to comply with such laws and regulations can result in substantial penalties. The costs of regulatory compliance on our operations increases our costs of doing business and, consequently, affects our profitability. However, we do not believe that we are affected in a significantly different manner by these laws and regulations than are our competitors.

        Our historical and projected operating costs reflect the recurring costs resulting from compliance with these regulations, and we do not anticipate material expenditures in excess of these amounts in the absence of future acquisitions or changes in regulation, or discovery of existing but unknown compliance issues. The following is a summary of the kinds of regulation that may impact our operations. However, you should not rely on such discussion as an exhaustive review of all regulatory considerations affecting our operations.

    Environmental Matters

        Our natural gas storage operations are subject to stringent and complex federal, state, provincial and local laws and regulations governing environmental protection, including air emissions, water quality, wastewater discharges, and solid waste management. Such laws and regulations generally require us to obtain and comply with a wide variety of environmental registrations, licenses, permits and other approvals. These laws and regulations impose numerous obligations that are applicable to our operations, including the acquisition of permits to conduct certain activities under statutes such as the Clean Water Act, the Clean Air Act, and the Safe Drinking Water Act, limiting or preventing the release of materials from our facilities, managing wastes generated by our operations, the installation of pollution control equipment, responding to releases of process materials or wastes from our operations, and the risk of substantial liabilities for pollution resulting from our operations. The Occupational Safety and Health Act, or OSHA, comparable state statutes that regulate the protection of the health and safety of workers, as well as the Occupational Health and Safety Act in the Province of Alberta, and comparable federal legislation in Canada also apply to our operations. Failure to comply with these laws and regulations may trigger a variety of administrative, civil, and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial obligations and the issuance of injunctions limiting or preventing some or all of our operations. We believe that we are in substantial compliance with existing environmental laws and regulations and that such laws and regulations will not have a material adverse effect on our business, financial position or results of operations. Nevertheless, the trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment. As a result, there can be no assurance of the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may be different from the amounts we currently anticipate.

    Climate Change

        There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of greenhouse gases, or GHG. Legislation has been introduced in Congress that would establish an economy-wide cap on emissions of GHGs in the United States and would require most sources of GHG emissions to obtain GHG emission "allowances" corresponding to their annual emissions of GHGs. Similar legislation is also being proposed by various states, including California. Depending on the scope of any particular GHG program, either at the state, regional or federal level, we could be required to obtain and surrender allowances for GHG emissions statutorily attributed to our operations (e.g., emissions from compressor stations or the injection and withdrawal of natural gas). Although we would not be impacted to any greater degree than other similarly situated natural gas storage companies, a stringent GHG control program could have an adverse effect on our cost of doing business and reduce demand for the natural gas storage services we provide.

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        In 2006, the California State Legislature passed and Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which seeks to reduce GHG emissions to 1990 levels by the year 2020, and 80% of 1990 levels by 2050. AB 32 directed the California Air Resources Board, or CARB, to begin developing discrete early actions to reduce GHGs while also preparing a scoping plan to identify how best to reach the 2020 limit. Since the passage of AB 32, the CARB has been working with stakeholders to design a California cap-and-trade program that is enforceable and meets the requirements of AB 32. On November 24, 2009, the CARB released a preliminary draft regulation for a California cap-and-trade program for public comment. Consistent with AB 32, the CARB must adopt the cap-and-trade regulation by January 1, 2011, and the program itself must begin in 2012. No final determination has been made with regard to the potential applicability of the AB 32 cap-and-trade program to our operations. We are therefore not in a position to quantify any potential costs associated with compliance under the program as proposed. However, any limitation a finalized program places on GHG emissions from our equipment and operations could require us to incur costs to reduce the GHG emissions associated with our operations.

        In addition, in December of 2009, the U.S Environmental Protection Agency, or EPA, issued a final rule declaring that six GHGs, including carbon dioxide and methane, "endanger both the public health and the public welfare of current and future generations." The issuance of this "endangerment finding" allows the EPA to begin regulating GHG emissions under existing provisions of the federal Clean Air Act. In late September and early October of 2009, in anticipation of the issuance of the endangerment finding, the EPA officially proposed two sets of rules regarding possible future regulation of GHG emissions under the CAA, one that would regulate GHG emissions from motor vehicles and the other GHG emissions from large stationary sources such as power plants or industrial facilities. Although it may take the EPA several years to adopt and impose regulations limiting GHG emissions, any limitation on such emissions from our equipment and operations could require us to incur costs to reduce the GHG emissions associated with our operations.

        On October 30, 2009, the EPA published a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the United States, beginning in 2011 for emissions occurring in 2010. On March 23, 2010, the EPA announced a proposed rulemaking that would expand its final rule on reporting of GHG emissions to include owners and operators of onshore oil and natural gas production sources. If the proposed rule is finalized in its current form, the newly covered sources would be required to report GHG emissions by the end of the first quarter of 2012, for emissions occurring in 2011. We do not believe that any such requirement will have a material adverse effect on our business, financial position or results of operations.

        Canada is a signatory to the United Nations Framework Convention on Climate Change. The Canadian federal government previously released the Regulatory Framework for Air Emissions, updated March 10, 2008 by Turning the Corner: Regulatory Framework for Industrial Greenhouse Gas Emissions (collectively, the "Regulatory Framework"), for regulating greenhouse gas ("GHG") emissions by proposing mandatory emissions intensity reduction obligations on a sector by sector basis. Legislation to implement the Regulatory Framework had been expected to be put in place this year, but the federal government has delayed the release of any such legislation and potential federal requirements in respect of GHG emissions are unclear. On January 30, 2010, the Canadian federal government announced its new target to reduce overall Canadian GHG emissions by 17% below 2005 levels by 2020, from the previous target of 20% from 2006 levels by 2020, to align itself with U.S. policy. In 2009, the Canadian federal government announced its commitment to work with the provincial governments to implement a North American-wide cap and trade system for GHG emissions, in cooperation with the U.S. Canada would have its own cap-and-trade market for Canadian-specific industrial sectors that could be integrated into a North American market for carbon permits.

        The Canadian federal government currently proposes to enter into equivalency agreements with provinces to establish a consistent regulatory regime for GHGs, but the success of any such plan is

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uncertain, possibly leaving overlapping levels of regulation. It is uncertain whether either federal GHG regulations or an integrated North American cap and trade system will or will not be implemented, or what obligations might be imposed under any such system.

        As the details of the implementation of any federal legislation for GHGs have not been announced, the effect on our operations cannot be determined at this time.

        Alberta regulates GHG emissions under the Climate Change and Emissions Management Act, the Specified Gas Reporting Regulation (the "SGRR"), which imposes GHG emissions reporting requirements, and the Specified Gas Emitters Regulation (the "SGER"), which imposes GHG emissions limits. A facility subject to the SGRR must report if it has GHG emissions of 100,000 metric ton or more from a facility in any year. Under the SGER, GHG emission limits apply once a facility has direct GHG emissions in a year of 100,000 metric ton or more. Under the SGER, any facility coming into commercial production after 2000 will be considered a new facility and will be required to reduce its emission intensity (e.g., metric ton of GHGs emitted per unit of production) by 2% per year beginning in its fourth year of commercial operation. A facility subject to the SGER may meet the applicable emission limits by making emissions intensity improvements at facilities, offsetting GHG emissions by purchasing offset credits or emission performance credits in the open market, or acquiring "fund credits" by making payments of CDN$15 per metric ton to the Alberta Climate Change and Management Fund. The Alberta government recently announced its intention to raise the price of fund credits and increase the required reductions in GHG emissions intensity to unspecified levels. In addition, Alberta facilities must currently report emissions of industrial air pollutants and comply with obligations imposed in permits and under environmental regulations.

    Rates

        Commercial arrangements at our facilities in the U.S. are subject to the jurisdiction of regulators, including FERC, the OCC and the CPUC. With authorization of the Alberta Government, commercial arrangements at our facility in Alberta, Canada, could be regulated by the AUC, but it is not currently Alberta Government policy to apply any such rate regulation. Each of our facilities currently has the ability to negotiate and charge rates based upon market prices, and is not limited to charging cost-of-service rates which are capped at recovery of costs plus a reasonable rate of return. The exemptions we receive under the regulatory regimes applicable to us enable us to buy, sell and store natural gas for our own account at our existing storage assets. The ability to charge market-based rates enables us to charge greater prices than many other storage providers which are required to charge cost-of-service based rates and our ability to buy, sell and store natural gas for our own account enables us to optimize our working gas capacity. In addition, we are permitted to consolidate management, marketing, and administrative functions for efficiencies in matters that some competing operators are prohibited from due to affiliate rules to which they are subject.


Legal Proceedings

        We are not a party to any legal proceeding other than legal proceedings arising in the ordinary course of our business. We are a party to various administrative and regulatory proceedings that have arisen in the ordinary course of our business.


Taxation

    U.S. Taxation

        Absent an election or failure to meet the Qualifying Income Exception described below, a limited liability company, such as Niska Gas Storage Partners LLC, is treated as a partnership for U.S. federal income tax purposes and, therefore, generally is not liable for U.S. federal income taxes.

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        Section 7704 of the Internal Revenue Code provides that publicly-traded partnerships (and limited liability companies treated as partnerships) will, as a general rule, be taxed as corporations. However, an exception, referred to as the "Qualifying Income Exception," exists with respect to publicly-traded partnerships and limited liability companies of which 90% or more of the gross income for every taxable year consists of "qualifying income." Qualifying income includes income and gains derived from the transportation, storage, and marketing of natural resources, including crude oil, natural gas, and products thereof. Other types of qualifying income include interest (other than from a financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes qualifying income.

        We estimate that less than 5% of our expected gross income will not constitute qualifying income; however, this estimate and the portion of our gross income that constitutes qualifying income could change from time to time. Based upon and subject to the factual representations made by us and our manager and assuming the accuracy of this estimate, Vinson & Elkins L.L.P. is of the opinion that at least 90% of our expected gross income constitutes qualifying income and that Niska Gas Storage Partners LLC will be classified as a partnership for federal income tax purposes.

        In rendering its opinion, Vinson & Elkins L.L.P. has relied on factual representations made by us and our manager. Among the various representations made by us and our manager upon which Vinson & Elkins L.L.P. has relied are:

    (1)
    With the exception of Niska Gas Transport Inc., Access Gas Services, Inc., EnerStream Agency Services Inc., Access Gas Services (Ontario) Inc. and Access Gas Services (Alberta) Inc., hereinafter referred to as the "Corporate Subsidiaries," neither we nor any of our subsidiaries has elected or will elect to be treated as a corporation;

    (2)
    For each taxable year, more than 90% of our gross income will be income that Vinson & Elkins L.L.P. has opined or will opine is "qualifying income" within the meaning of Section 7704(d) of the Internal Revenue Code; and

    (3)
    For each taxable year since our formation, each hedging transaction entered into or to be entered into by a member of the Company Group has been or will be appropriately identified as a hedging transaction pursuant to Treasury Regulations § 1.1221-2.

We believe that these representations presently are true and expect that these representations will remain true in the future.

        If we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts), Niska Gas Storage Partners LLC will be treated as if it had transferred all of our assets (other than those of the Corporate Subsidiaries), subject to liabilities, to a newly formed corporation, on the first day of the year in which it fails to meet the Qualifying Income Exception, in return for stock in that corporation, and then distributed that stock to the unitholders in liquidation of their interests in us. This deemed contribution and liquidation should be tax-free to unitholders so long as we, at that time, do not have outstanding liabilities in excess of the tax basis of our assets. Thereafter, we would be treated as a corporation for federal income tax purposes.

        If we were treated as a corporation for U.S. federal income tax purposes for any taxable year for which the statute of limitations remains open or for any future taxable year either as a result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected on only our tax return rather than being passed through to the unitholders, and our net income would be taxed to us at corporate rates. Taxation as a corporation would result in a material reduction in a unitholder's cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.

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        Even though we (as a partnership for U.S. federal income tax purposes) generally are not subject to U.S. federal income tax, the Corporate Subsidiaries are treated as corporations for such purposes and are subject to federal income tax. Moreover, some of our subsidiaries and operations will be subject to income and other taxes in the state and local jurisdictions within the United States in which they are organized or from which they receive income. Further, as set forth below, some of our subsidiaries are subject to non-U.S. income taxation, including Canadian federal and provincial income taxes and Dutch income taxes. Such taxation will reduce the amount of cash we have available for distribution to unitholders.

    Canadian Taxation

        For the purposes of the Canadian Tax Act, Niska Gas Storage Partners LLC will be considered a corporation (and not a partnership) and common units in Niska Gas Storage Partners LLC will be considered share capital (and not interests or units in a partnership). Accordingly, distributions on common units will be considered dividends, or in certain limited circumstances, a return of capital (and not partnership distributions) and the disposition of common units will be considered a disposition of share capital (and not interests or units in a partnership). Provided that the central management and control of Niska Gas Storage Partners LLC is not exercised in Canada, we will not be considered resident in Canada for the purposes of the Canadian Tax Act. Canadian federal income tax law generally provides that a corporation is considered resident in the jurisdiction or jurisdictions in which the corporation's "central management and control" is located. This determination is based on a variety of facts and circumstances, including, without limitation, the jurisdiction of residence of the directors and the location in which the board of directors meets and actually makes board level decisions. Although this determination is based on future facts and circumstances, we believe that at the time of this offering, our central management and control will be located in the U.S. due to the residency of our directors and our governing documentation, including the Operating Agreement. Even if our central management and control were located in Canada, recent Canadian federal income tax case law suggests that there are potential arguments for asserting that we are not resident in Canada because we were formed pursuant to the laws of the State of Delaware.

        A resident of Canada is subject to Canadian federal income tax on its worldwide income while a non-resident of Canada is, generally speaking, only subject to Canadian federal income tax on (1) income from carrying on business in Canada, (2) gains realized on the disposition of what is referred to under the Canadian Tax Act as "taxable Canadian property," and (3) certain distributions from Canada such as interests, dividends, rents and royalties. In addition, a distribution from a corporation resident in Canada to a non-Canadian person would generally be subject to a 25% withholding tax under the Canadian Tax Act, subject to any reduction under an applicable income tax treaty or convention (including the Canada-Netherlands Treaty). For a discussion of the tax consequences of us being resident, or carrying on business, in Canada, see "Risk Factors—Tax Risks."

    The Netherlands Taxation

        We hold the equity interests in our Canadian subsidiaries through a Dutch resident company, or NL Co-op. Pursuant to the participation exemption rules, as set forth in the Dutch corporate income tax act, dividends received by NL Co-op from our Canadian subsidiaries and capital gains realized on any disposal of shares of these Canadian subsidiaries will be exempt from Dutch taxation if certain requirements are met, including the requirement that the Dutch company not hold the shares of the Canadian subsidiary as a passive portfolio investment. We believe that NL Co-op should not be regarded as holding its shares in our Canadian subsidiaries as a passive portfolio investment and have sought an Advance Tax Ruling regarding this treatment with the Dutch tax authorities. We have also sought an Advance Tax Ruling regarding the the appropriate interest rate spread on certain

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intercompany loans we have made to NL Co-op and that NL Co-op has made to certain of our Canadian subsidiaries.

        In addition to the taxation of our Dutch subsidiary, we could be subject to taxation in The Netherlands in the event it were determined that we derive income from a (deemed) permanent establishment in The Netherlands or because we hold a substantial interest in NL Co-op, unless such interest is determined to be part of a business enterprise. We believe we will satisfy these conditions, such that we will not be subject to taxation in The Netherlands on the distributions or interest payments we receive from NL Co-op, or more generally on our income. We have sought an Advance Tax Ruling with the Dutch tax authorities to confirm our position in this regard.

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MANAGEMENT

        

Management of Niska Gas Storage Partners LLC

        Our manager has sole responsibility for conducting our business and for managing our operations. Pursuant to our Operating Agreement, our manager has delegated the power to conduct our business and manage our operations to our board. Our manager may revoke this delegation and resume control of our business at any time. Our manager and our board are not elected by our unitholders and will not be subject to re-election on a regular basis in the future. Unitholders will not be entitled to elect our directors or directly or indirectly participate in our management or operation. Our Operating Agreement provides that our manager must act in "good faith" when making decisions on our behalf. See "The Operating Agreement—Votes Required For Certain Matters" for information regarding matters that require unitholder approval.

        Our directors will oversee our operations. Upon the closing of this offering, our board will have six members. Our manager intends to increase the size of our board to eight members following the closing of this offering. Our manager will appoint all members to our board and we expect that, when the size of our board increases to eight directors, at least three of those directors will be independent as defined under the independence standards established by the NYSE.

        In compliance with the requirements of the NYSE, on the date our common units first trade on the NYSE, our manager will have appointed at least one independent member to our board. Our manager will appoint two additional independent members within 12 months of the effective date of the registration statement. The independent members of our board will serve as the initial members of the audit committee of our board. We are not required under NYSE rules to have a nominating/corporate governance committee or compensation committee so long as we are a controlled company, which is defined as a company in which more than 50% of the voting power is held by an individual, a group or another company. As discussed below, we will establish a compensation committee.

        Whenever our manager makes a determination or takes or declines to take an action in its individual, rather than representative, capacity or in its sole discretion, it is entitled to make such determination or to take or decline to take such other action free of any fiduciary duty or obligation whatsoever to us or any member, and our manager is not required to act in good faith or pursuant to any other standard imposed by our Operating Agreement or under the Delaware Act or any other law. Examples include the exercise of its limited call rights, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation. Actions of our manager which are made in its individual capacity or in its sole discretion will be made by a majority of the owners of our manager.

        In selecting and appointing directors to our board, our manager does not intend to apply a formal diversity policy or set of guidelines. However, when appointing new directors, our manager considers each individual director's qualifications, skills, business experience and capacity to serve as a director, as described below for each director, and the diversity of these attributes for the board as a whole.

    Conflicts Committee

        Whenever a conflict arises between our manager or its affiliates, on the one hand, and us or any unaffiliated member, on the other, our board will resolve that conflict. Our board may establish a conflicts committee to review specific matters that our board refers to it. Our board may, but is not required to, seek the approval of such resolution from the conflicts committee. The conflicts committee will determine if the resolution of the conflict of interest is fair and reasonable to us. Such a committee would consist of a minimum of two members, none of whom can be officers or employees of our manager or directors, officers or employees of its affiliates (other than us and our subsidiaries) and each of whom must meet the independence standards for service on an audit committee established by

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the NYSE and the SEC. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our manager of any duties it may owe us or our unitholders.

        If our board does not seek approval from the conflicts committee, and the board determines that the resolution or course of action taken with respect to the conflict of interest is either (1) on terms no less favorable to us than those generally being provided to or available from unrelated third parties or (2) fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us, then it will be presumed that, in making its decision, our board acted in good faith, and in any proceeding brought by or on behalf of us or any member, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

    Audit Committee

        In connection with the closing of this offering, our board will establish an audit committee to assist it in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and corporate policies and controls. In compliance with the requirements of the NYSE, a majority of the members of the audit committee will be independent directors ninety days after the effective date of the registration statement and all the members of the audit committee will be independent directors within one year of the effective date of the registration statement. The audit committee will have the sole authority to retain and terminate our independent registered public accounting firm, approve all auditing services and related fees and the terms thereof, and pre-approve any non-audit services to be rendered by our independent registered public accounting firm. The audit committee will also be responsible for confirming the independence and objectivity of our independent registered public accounting firm. Our independent registered public accounting firm will be given unrestricted access to the audit committee.

    Compensation Committee

        In connection with the closing of this offering our board will establish a compensation committee to, among other things, oversee the compensation plans described below. The compensation committee will establish and review general policies related to our compensation and benefits. The compensation committee will determine and approve, or make recommendations to the board with respect to, the compensation and benefits of our board and executive officers.

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Directors and Executive Officers

        Our directors hold office until the earlier of their death, resignation, retirement, disqualification or removal by the member of our manager. Our executive officers serve at the discretion of our board. There are no family relationships among any of the directors or executive officers. The following table shows information regarding our current directors and executive officers.

Name
  Age   Position
David F. Pope   53   President, Chief Executive Officer and Director
Darin T. Olson   35   Chief Financial Officer
Simon Dupéré   47   Chief Operating Officer
Paul Amirault   53   Senior Vice President
Rick J. Staples   47   Senior Vice President, Commercial Operations
Jason S. Kulsky   43   Vice President, Business Development
Jason A. Dubchak   37   Vice President, General Counsel & Corporate Secretary
Andrew W. Ward   43   Director
E. Bartow Jones   34   Director
George O'Brien   61   Director
William H. Shea, Jr.    55   Director

        David F. Pope—Mr. Pope is our President and Chief Executive Officer and a member of our board, the board of directors of our manager and the board of supervisors of Niska Holdings, which is our parent. Mr. Pope has been our President and Chief Executive Officer since June 2006. Prior to his current role at Niska Holdings, Mr. Pope served as the President of Seminole Canada Gas Company since 2002, and prior to that has held various positions in the natural gas industry since 1980. In 1992, Mr. Pope began his employment with Enron Corporation after it acquired Canadian Gas Marketing, a company Mr. Pope founded in 1989. He worked for Enron Corporation as Vice President of its gas marketing and trading group from 1992 until March 2001, nine months' prior to Enron Corporation's filing of a voluntary petition for a Chapter 11 reorganization with the U.S. Bankruptcy court in December of 2001. Mr. Pope has served as a director of GEP Midstream Finance Corp., or GEP Midstream, since 2008 and as a director of Gibson Energy ULC, or Gibson Energy, since 2010. Mr. Pope has a Bachelor of Engineering in Chemical Engineering from McGill University and has worked in the natural gas industry for his entire career.

        As a result of his professional background, we believe Mr. Pope brings to us executive-level strategic and financial skills and significant operational experience. Combined with his over 30 years of experience in the natural gas industry and deep knowledge of our business, these attributes make Mr. Pope well-suited to serve on our board.

        Darin T. Olson—Mr. Olson is our Chief Financial Officer. Mr. Olson has served as our Chief Financial Officer since May 2006. Prior to joining us, he was the Controller of Seminole Canada Gas Company from 2002 to 2006. For the ten prior years, Mr. Olson worked in a variety of positions in the natural gas and public accounting industries. Mr. Olson is a chartered accountant and has a Bachelor of Commerce degree from the University of Calgary.

        Simon Dupéré—Mr. Dupéré is our Chief Operating Officer. Mr. Dupéré has served as our Chief Operating Officer since September 2006. He is in charge of our field and facility operations, engineering and geoscience, including our existing operations at our four gas storage facilities and our expansion and development efforts. He has 25 years of active experience in the natural gas industry. Prior to joining us, Mr. Dupéré was the President & Chief Executive Officer at Intragaz Inc., a natural gas storage company engaged in the development and operation of two gas storage projects in Quebec. Mr. Dupéré has a Bachelor of Science in Physics Engineering from Laval University in Quebec City, Quebec.

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        Paul Amirault—Mr. Amirault is our Senior Vice President. Mr. Amirault has served as our Senior Vice President since May 2006. He began working for Alberta Energy Company Ltd. in 1994 in its marketing and gas storage group and commenced working for EnCana Corporation in 2002 when Alberta Energy Company Ltd. and PanCanadian Petroleum Ltd. merged to form EnCana Corporation. Mr. Amirault graduated from McMaster University in Hamilton, Ontario with a degree in Electrical Engineering and Management.

        Rick J. Staples—Mr. Staples is our Senior Vice President, Commercial Operations, responsible for the marketing, trading and commercial operation of our natural gas storage assets. Mr. Staples has served us in this capacity since May 2006. Prior to joining us in 2006, Mr. Staples served as Director of Gas Storage with TransCanada Pipelines Ltd. from 2001 to 2006. Mr. Staples graduated from the University of Alberta with a degree in Mechanical Engineering.

        Jason S. Kulsky—Mr. Kulsky is our Vice President, Business Development, and has held that title since May 2006. Mr. Kulsky previously served with the natural gas storage division of EnCana Corporation and its predecessors, Alberta Energy Company Ltd., most recently serving as Manager, Business Development, prior to joining us. Mr. Kulsky is a Chartered Financial Analyst and has a Bachelor of Commerce (Finance) degree from the University of Calgary and an engineering diploma from SAIT Polytechnic.

        Jason A. Dubchak—Mr. Dubchak is our Vice President, General Counsel & Corporate Secretary. Mr. Dubchak has served as our Vice-President, General Counsel & Corporate Secretary since September 2007. Prior to assuming this role, Mr. Dubchak was Associate General Counsel and was continuously with the natural gas storage division of EnCana Corporation and its predecessors, Alberta Energy Company Ltd., respectively, since 2001. He has a Bachelor of Arts (Honors) from the University of Calgary and a Bachelor of Laws from the University of Alberta.

        Andrew W. Ward—Mr. Ward is a member of our board, the board of directors of our manager and the board of supervisors of Niska Holdings, which is our parent. Mr. Ward has served as a member of the board of supervisors of Niska Holdings since May 2006. He is currently a Managing Director of Riverstone Holdings LLC where he served as a Principal from March 2002 to December 2004. Mr. Ward currently serves on the board of directors of Gibson Energy and GEP Midstream and has previously served on the boards of directors of Buckeye GP LLC, or Buckeye, the general partner of Buckeye Partners, L.P., a refined petroleum products pipeline partnership, and MainLine Management LLC, or MainLine Management, the general partner of Buckeye GP Holdings L.P.

        Mr. Ward has served as a director since our inception. Mr. Ward's experience in evaluating the financial performance and operations of companies in our industry, combined with his leadership skills and business acumen, makes him a valuable member of our board. In addition, Mr. Ward's work with Gibson Energy, GEP Midstream, Buckeye and MainLine Management has given him both an understanding of the midstream sector of the energy business and of the unique issues related to operating publicly-traded limited partnerships, which are similar to us.

        E. Bartow Jones—Mr. Jones is a member of our board, the board of directors of our manager and the board of supervisors of Niska Holdings, which is our parent. Mr. Jones is currently a Managing Director of Riverstone Holdings LLC where he served as a Principal from 2007 to 2010. Mr. Jones has been with Riverstone since 2001. Mr. Jones currently serves on the boards of directors of Foresight Reserves, L.P., or Foresight, and Targe Energy, LLC, or Targe, and he previously served on the boards of directors of Buckeye and Mainline Management.

        Mr. Jones has worked closely with us since our inception. Mr. Jones's experience in evaluating the financial performance and operations of companies in our industry, as well as his leadership skills and business acumen, provide him with the necessary skills to serve as a member of our board. In addition, Mr. Jones's work with Foresight, Buckeye, Targe and MainLine Management has given him both an

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understanding of the broader energy business and of the unique issues related to operating publicly-traded limited partnerships, which are similar to us.

        George O'Brien—Mr. O'Brien is a member of our board and the board of directors of our manager. Mr. O'Brien has served as an independent director of Magellan GP, LLC, and general partner of Magellan Midstream Partners, L.P., or Magellan, a publicly-traded company that is engaged in the transportation, storage and distribution of refined petroleum products, from December, 2003 until November, 2009. Mr. O'Brien was President and CEO of Pacific Lumber Company from August 2006 until July 2008. From 1988 until 2005, he worked for International Paper where he served as Senior Vice President of Forest Products responsible for its forestry, wood products, minerals and specialty chemicals businesses. Other responsibilities during his tenure at International Paper included corporate development, CFO of its New Zealand subsidiary, CEO of the New Zealand pulp, paper and tissue businesses and Vice President of Corporate Development. In January 2007, Pacific Lumber Company filed for voluntary reorganization under Chapter 11 of the United States Bankruptcy Code. Pacific Lumber successfully emerged from Chapter 11 in July, 2008. Mr. O'Brien has an agreement with Riverstone, pursuant to which he has agreed to serve on the boards of Carlyle/Riverstone Funds' portfolio companies.

        As a result of his service to Magellan and International Paper, Mr. O'Brien gained extensive experience in overseeing the strategy, operations, and governance of major public companies. Mr. O'Brien was also selected to serve as a director of our board due to his valuable financial expertise, including extensive experience with capital markets transactions and knowledge of the energy industry. Mr. O'Brien's experience has also given him knowledge of the unique issues related to operating publicly-traded limited partnerships, which are similar to us. We believe this background and skill set makes Mr. O'Brien well-suited to serve as a member of our board.

        William H. Shea, Jr.—Mr. Shea is a member of our board and the board of directors of our manager. Mr. Shea has served as a director of Penn Virginia Corp. since July 2007, as President and Chief Executive Officer of the general partner of Penn Virginia GP Holdings, L.P. since March 2010 and as Chief Executive Officer of Penn Virginia Resource Partners, L.P. since March 2010. Previously, Mr. Shea served as the Chairman of Buckeye GP LLC, the general partner of Buckeye Partners, L.P., a refined petroleum products pipeline partnership from May 2004 to July 2007, as President and Chief Executive Officer of Buckeye GP LLC from September 2000 to July 2007 and as President and Chief Operating Officer of Buckeye GP LLC from July 1998 to September 2000. From August 2006 to July 2007, Mr. Shea served as Chairman of MainLine Management LLC, the general partner of Buckeye GP Holdings, L.P., and as President and Chief Executive Officer of MainLine Management LLC from May 2004 to July 2007. Mr. Shea also serves as a director of Kayne Anderson Energy Total Return Fund, Inc. and Kayne Anderson MLP Investment Company. Mr. Shea has an agreement with Riverstone, pursuant to which he has agreed to serve on the boards of Carlyle/Riverstone Funds' portfolio companies.

        Mr. Shea's experiences as an executive with both Penn Virginia and Buckeye, energy companies that operate across a broad spectrum of sectors, including coal, natural gas gathering and processing and refined petroleum products transportation, have given him valuable knowledge about our industry. In addition, Mr. Shea has valuable experience overseeing the strategy and operations of publicly-traded partnerships, which are similar to us. As a result of this experience and resulting skills set, we believe Mr. Shea is an asset to our board.


Reimbursement of Expenses of Our Manager

        Our manager does not receive any management fee or other compensation for providing management services to us. Our manager will be reimbursed for any expenses incurred on our behalf. There is no limit on the amount of expenses for which our manager may be reimbursed.

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Compensation Discussion and Analysis

        We have been operated as a private company since we acquired our assets in 2006. Since that date, the compensation committee of the board of supervisors of Niska Predecessor, or the predecessor compensation committee, established the compensation of our named executive officers. After the closing of this offering our manager and our board, as its delegate, will manage our operations and activities and will make decisions on our behalf. The compensation of each of our executive officers, including David Pope, Darin Olson, Simon Dupéré, Paul Amirault and Rick Staples (collectively, the "named executive officers"), will be determined by our compensation committee.

        Historically, the objectives of our executive compensation program were to:

    attract and retain the highest quality executive officers in our industry;

    reward the executive officers as a group for our improved performance (measured in terms of Adjusted EBITDA); and

    reward executive officers for their individual performance and contributions to our success.

        The predecessor compensation committee felt that these objectives were best met by providing a mix of cash and equity-based compensation to our executives, and we believe that this mix of compensation elements provided us with a successful compensation program because it has allowed us to retain key employees and attract a quality team of executives, while motivating them to provide a high level of performance to us. Following the closing of this offering, we expect our compensation committee will seek to satisfy the same objectives, although the committee will make certain adjustments to the types of compensation provided and performance metrics used in order to more accurately reflect a compensation program appropriate for a publicly-traded entity.

        This section describes the objectives and elements of our compensation program for the fiscal year ended March 31, 2009 for our named executive officers. This section should be read together with the Compensation Tables that follow, which disclose the compensation awarded to, earned by or paid to the named executive officers with respect to the fiscal years ended March 31, 2009 and March 31, 2010.

    Setting Executive Compensation

        Historically the predecessor compensation committee determined the size, timing and allocation of the bonus based on initial recommendations from our chief executive officer. In addition, the predecessor compensation committee has been responsible for approving any significant changes to executive salaries.

        Elements of Compensation.    The primary elements of our named executive officers' compensation other than the officer's base salary are a combination of cash bonus awards and long-term equity-based compensation awards. For the fiscal years ended March 31, 2009 and March 31, 2010, the compensation for our named executive officers consisted of the following elements:

    base salary;

    discretionary cash bonus awards;

    Niska Holdings Class B and Class C units; and

    retirement, health and welfare and related benefits.

        Base Salary.    The predecessor compensation committee established base salaries for the named executive officers based on various factors, including the amounts it considered necessary to attract and retain high quality executives in our industry and the responsibilities of the named executive officers.

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        For the fiscal year ended March 31, 2010, Mr. Pope had an employment agreement with AECO Partnership, our wholly owned subsidiary that employs and is responsible for providing compensation and benefits for all of our employees and executive officers. The employment agreement provided for a minimum annual base salary of $450,000 (Canadian dollars). This base salary amount was determined based upon the scope of Mr. Pope's responsibilities and commensurate with Mr. Pope's position as chief executive officer. Mr. Pope's salary could be increased above the minimum at the predecessor compensation committee's discretion. In reviewing Mr. Pope's base salary for the year following March 31, 2009, the predecessor compensation committee determined that Mr. Pope's current salary continued to be consistent with the duties and the everyday tasks for which he is responsible.

        The predecessor compensation committee also reviewed the base salaries of the remaining named executive officers in connection with setting compensation levels for the year following March 31, 2009.

        Discretionary Bonus Awards.    A significant portion of the compensation of our named executive officers consists of an annual cash bonus. While base salaries offer an important retention element by providing a guaranteed income stream to our employees, we hope to incentivize and motivate our employees to strive for both individual and overall company success by providing a substantial portion of compensation only when performance for the year calls for an additional compensatory award. We feel that our industry has historically relied heavily on performance-based cash bonuses to compensate executive officers, and we want to compensate our executives in line with our industry trends and practices.

        While the ultimate amount of any cash bonus paid to our named executive officers is determined at the discretion of our board, the bonuses are originally structured around target amounts for each employee, as well as individual and company goals. We communicate a target annual bonus amount to our employees as a certain percentage of their base salary at the beginning of their employment, clearly noting that individual or company performance may significantly impact the relationship of that target annual amount to what is actually paid out in bonuses. Individual performance goals will depend on an employee's unit or particular function within a unit, while company performance has historically been tied to Adjusted EBITDA. We believe that paying a bonus tied to our Adjusted EBITDA aligns the interests of our executives and employees with those of our unitholders and motivates them to provide a high level of performance for the company.

        Historically, we have established a bonus pool for each fiscal year to be allocated among all employees, including the named executive officers. There have been two layers of potential bonus pools, a bonus pool of 3% of our first $80.0 million of Adjusted EBITDA, and an additional pool of 8% of Adjusted EBITDA over $80.0 million. Following a determination of the amount of the available bonus pool, a series of meetings occurs prior to the board's final determination of individual amounts owed to employees. The managers or supervisors of various business units first met with Mr. Pope to discuss the individual performance of employees that have worked directly under such managers. Mr. Pope then compiled this information and met with our predecessor compensation committee, where he made recommendations regarding the allotment of the bonus pool based on either ranges of amounts or a specific amount he believed are appropriate for the year. The predecessor compensation committee then met with our board to pass on its recommendations, which may or may not have been in line with the recommendations of Mr. Pope, as the predecessor compensation committee felt appropriate. The board then made the final determination of specific amounts due to each employee, including our named executive officers. We anticipate that the same process will continue on a going forward basis, although we will substitute our compensation committee for our predecessor compensation committee. Mr. Pope also receives his bonus from the same bonus pool as all other employees, thus by recommending the allotment of the bonus pool for other employees, Mr. Pope indirectly will have inferred the amount of the bonus pool that could potentially be reserved for himself; however, our compensation committee, and then our board, will ultimately make all determinations of Mr. Pope's annual cash bonus, if any. The board's determination regarding any

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individual award may be based solely on the targets and performance measures that have been used as guidelines for that year, or it may take into consideration extraordinary circumstances or past awards of compensation to the individual.

        Niska Predecessor Class B and Class C Units.    In 2006, Niska Predecessor issued Class B units to our employees, including the named executive officers, and Class C units to Mr. Pope pursuant to the terms of his employment agreement and Niska Predecessor's partnership agreements. Prior to our acquisition of Niska Predecessor, Niska Holdings will issue identical Class B units and Class C units to the holders thereof. The Class B and Class C units represent profits interest in Niska Holdings, and entitle the holders to share in distributions by Niska Holdings once the Class A units in Niska Predecessor have received distributions equal to their contributed capital plus an 8% rate of return.

        The Class B and Class C units were granted subject to certain forfeiture restrictions, with the risk of forfeiture set to lapse with respect to half of the units held by each individual upon the passage of set intervals of time and with respect to half upon our meeting Adjusted EBITDA targets.

        The predecessor compensation committee did not exercise subjective discretion with regard to the Class B or Class C units. As of March 31, 2010, the risk of forfeiture had lapsed on all of the Class B and Class C units upon the completion of the time limitations or the achievement of the performance conditions associated with the units as applicable.

    Other Benefits

        Health and Welfare Benefits.    All of our regular full-time employees, including our named executive officers, receive certain health and welfare benefits. The benefits include a health and dental plan, a short- and long-term disability plan, basic and optional life insurance, and basic and optional accidental death and dismemberment insurance coverage. Pursuant to his employment agreement, Mr. Pope is entitled to receive an annual allowance of $6,000 in order to cover additional health care expenses not directly provided or paid for by us. We also own a life insurance policy on the life of Mr. Pope, where we are both the owner and beneficiary. We also make payments on Mr. Pope's behalf for a Critical Illness policy that was previously established by Mr. Pope's prior employer and continued by us.

        Retirement and Pension Benefits.    Our registered retirement savings plan, or RRSP Plan/Non-Registered Employee Savings Plan, provides employees with an opportunity to participate in a retirement savings plan. This type of retirement plan is a Canadian retirement plan with features similar to a 401(k) plan or an individual retirement account administered in the United States. Our employees, including our named executive officers, are allowed to contribute their own funds, and we will provide certain matching contributions as well as discretionary contributions from us on their behalf from time to time. Mr. Pope's employment agreement states that he will receive an annual contribution from us of 8% of his annual base salary, and in the event that Mr. Pope contributes 5% to 25% of his own compensation, a corporate match of up to 5% annually. The 5% corporate match program was discontinued subsequent to March 31, 2009, at which time all employees received a 5% increase in their base salaries.

        Mr. Pope's prior employer maintained a Supplemental Executive Retirement Plan, or the SERP, which Mr. Pope participated in prior to his employment with us. The SERP was intended to provide him with a $250,000 annual retirement benefit for a period of ten years, or in the event of Mr. Pope's death prior to retirement, a death benefit to his beneficiaries of $1,500,000. Pursuant to Mr. Pope's employment agreement with us, we agreed to provide Mr. Pope with the same retirement benefits to which he would have been entitled under the SERP. Mr. Pope's prior employer had begun to fund Mr. Pope's SERP benefit by way of a life insurance policy on the life of Mr. Pope, which we took over as both owner and beneficiary in 2006 in connection with Mr. Pope's execution of his employment agreement with us. We intend to continue funding this life insurance policy as a means of financing Mr. Pope's eventual retirement or death benefit.

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        Perquisites.    We provide our named executive officers with certain perquisites that we feel are in line with industry standards as well as peer companies within our geographic region, and which are necessary to stay competitive with regard to executive compensation. Certain of these perquisites relate to items that are "carry-overs," or perquisites that were provided to the executives when they were employed by EnCana Corporation or its affiliates, and we felt that it would be unjust to take such benefits away from the executives following their employment with us. Our named executives received additional payments to be applied to expenses for home computers, club membership (including industry organizations) and other personal expenses, as well as a monthly automobile allowance and paid parking at our office facilities.


Executive Compensation

        The following tables, footnotes and the above narratives provide information regarding the compensation, benefits and equity holdings in Niska Holdings for the named executive officers.


Summary Compensation for Years Ended March 31, 2009 and 2010

        The following table and footnotes provide information regarding the compensation of the named executive officers during the fiscal years ended March 31, 2009 and March 31, 2010. The year "2009" refers to the fiscal year of April 1, 2008 through March 31, 2009, and the year "2010" refers to the fiscal year of April 1, 2009 through March 31, 2010. Compensation to our named executive officers was paid primarily in Canadian dollars, but is reported in U.S. dollars in the tables that follow, using an exchange rate for each year of 0.952 U.S. dollars for each Canadian dollar (the exchange rate reported by the Bank of Canada on December 31, 2009).

Name and Principal Position
  Year
Covered
  Salary
($)
  Bonus
($)(1)
  Stock Awards
($)(2)
  All Other
Compensation
($)(3)
  Total
Compensation
($)
 

David Pope

    2010     449,820     4,571,384         72,631     5,093,835  
 

Chief Executive Officer

    2009     444,465     2,374,296         108,094     2,926,855  
 

(Principal Executive Officer)

                                     

Darin Olson

   
2010
   
177,310
   
553,112
   
   
31,393
   
761,815
 
 

Chief Financial Officer

    2009     160,301     292,740         33,508     486,549  
 

(Principal Financial Officer)

                                     

Paul Amirault

   
2010
   
213,992
   
658,784
   
   
36,626
   
909,402
 
 

Senior Vice President

    2009     211,796     325,108         41,924     578,828  

Simon Dupéré

   
2010
   
245,378
   
1,767,960
   
   
44,219
   
2,057,557
 
 

Chief Operating Officer

    2009     237,048     849,802         50,001     1,136,852  

Rick Staples

   
2010
   
191,411
   
1,258,544
   
   
49,563
   
1,499,518
 
 

Senior Vice President

    2009     182,724     396,984         50,219     629,928  
 

Commercial Operations

                                     

(1)
Amounts disclosed in the table under the "Bonus" column for the fiscal year ended March 31, 2010 are the amounts determined to be due to the named executive officers by our Compensation Committee for the fiscal year ended March 31, 2010, however, a portion of these amounts will not be paid to the named executive officers until April 30, 2010.

(2)
In the fiscal year ended March 31, 2009, Darin Olson was granted 1,410 Class B units, Paul Amirault was granted 0 Class B units, Simon Dupéré was granted 0 Class B units, and Rick Staples was granted 1,410 Class B units. In the fiscal year ended March 31, 2010, Darin Olson was granted 900 Class B units, Paul Amirault was granted 0 Class B units, Simon Dupéré was granted

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    5,406 Class B units, and Rick Staples was granted 3,604 Class B units. Each of the Class B units granted in the 2010 year was granted fully vested. In accordance with FASB ASC Topic 718, however, we recognized a $0 grant date fair value, and recognize no dollar amount with respect to financial reporting purposes upon the vesting of any previously-granted Class B and Class C units. Class B and Class C units are only eligible to receive a percentage of profits generated upon the occurrence of specified monetization events. No monitization events have occured. Compensation costs will be recorded at the time that the occurrence of a monitization event becomes probable, if at all.

(3)
Amounts disclosed in the "All Other Compensation" column for the fiscal year ending in 2010 consist of the following items and amounts:

Executive Officer
  RRSP Plan Contributions
($)
  Parking
($)
  Vehicle
Allowance
($)
  Miscellaneous
Expenses
Allowance
($)
  Canadian
Pension
Plan
($)
  Employment
Insurance
($)
  Workers
Compensation
Board
Contributions
($)
  Total
($)
 

David Pope

    35,988     4,855     22,848     5,712     2,059     832     337     72,631  

Darin Olson

    14,185     4,855     0     9,139     2,059     832     369     31,393  

Paul Amirault

    17,119     4,855     0     11,424     2,059     832     323     36,626  

Simon Dupéré

    19,630     4,855     17,136     0     2,059     832     337     44,219  

Rick Staples

    15,313     4,855     13,328     12,853     2,059     832     323     49,563  


Outstanding Equity Awards as of Fiscal Year-End March 31, 2010

        As of March 31, 2010, the risk of forfeiture had lapsed with respect to all outstanding equity awards held by our named executive officers. On May 12, 2009, 28,208 Class C units previously granted to David Pope, 3,651 Class B units previously granted to Darin Olson, 3,808 Class B units previously granted to Paul Amirault, 9,214 Class B units previously granted to Simon Dupéré and 6,778 Class B units previously granted to Rick Staples became vested.


Option Exercises and Stock Vested

        The following table presents information regarding the vesting during the fiscal year ended March 31, 2010 of Niska Predecessor Class B and Class C units for the named executive officers. We have not issued any awards in the form of options on our units to any employees, including the named executive officers.


Option Exercises and Stock Vested For Year Ended March 31, 2010

 
  Stock Awards  
Name
  Number of Shares
Acquired on Vesting
(#)(1)
  Value Realized
on Vesting
($)(1)
 

David Pope

    28,208      

Darin Olson

    3,651      

Paul Amirault

    3,808      

Simon Dupéré

    9,214      

Rick Staples

    6,778      

(1)
In the fiscal year ended March 31, 2010, the risk of forfeiture lapsed with respect to Mr. Pope's Class C units noted above, and for the remaining Named Executive Officer's Class B units noted above. As noted above in the footnotes to the Summary Compensation Table, however, the Class B and Class C units are intended to provide profits interests to our executives following certain

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monetization events. Prior to the occurrence of such an event, if one occurs, the units have no recognizable value.


Potential Payments Upon Change of Control or Termination

        As of March 31, 2010, Mr. Pope was the only named executive officer subject to a formal employment agreement that will provide the officer with certain payments and benefits in connection with his termination of employment. His employment agreement with the AECO Partnership was executed in August of 2006.

        In the event we terminate Mr. Pope for Just Cause (as defined below), all compensation payments to Mr. Pope would cease. If we terminate Mr. Pope other than for Just Cause, or Mr. Pope terminates his employment for Good Reason (as defined below), Mr. Pope shall receive a cash payment of $900,000 (Canadian dollars) less applicable withholding taxes, which amount represents two years of salary for Mr. Pope. Where Mr. Pope voluntarily resigns without Good Reason (including a normal retirement), or his employment relationship is terminated due to death or a mental or physical incapacity, all compensation payments would cease at such time. Canada has traditionally had a very robust jurisprudence regarding the notice provided to employees or payments made in lieu of notice (severance), payable to employees upon certain terminations, and we feel that providing the $900,000 payment in the event of Mr. Pope's termination other than for Just Cause or for Good Reason is an equitable result to both Mr. Pope and the company in light of the uncertain, but typically generous, severance payments authorized in the Canadian courts to executives that have litigated a severance issue due to an uncertain or nonexistent employment agreement provision on this subject.

        Any payments that Mr. Pope would be entitled to receive upon a termination of employment will be conditioned upon his execution of a general release in our favor. Mr. Pope will also remain subject to the confidentiality provisions of his employment agreement, as well as the non-competition provisions for a restricted period of one year and the non-solicitation provisions for a restricted period of six months following a termination of employment.

        "Good Reason" is defined as (1) our requirement that Mr. Pope devote the majority of his time to duties inconsistent with his position; (2) a reduction of 20% or more of Mr. Pope's annual base salary; (3) the required relocation of Mr. Pope's primary work location by more than 50 miles from his primary work location at the time of his entrance into the employment agreement; (4) our refusal to allow Mr. Pope to participate in our incentive compensation plans to which are comparable to the same plans in which he participated as an employee of his previous employer; or (5) our refusal to allow Mr. Pope to participate in employment benefit programs that are comparable to the same plans in which he participated as an employee of his previous employer.

        "Just Cause" includes (1) any improper conduct by Mr. Pope which is materially detrimental to us, our business, our employees or our standing in the community; (2) a willful failure to properly carry out his duties; (3) Mr. Pope's conviction of a criminal offense; or (4) any theft, conversion or misappropriation, attempted theft, conversion or misappropriation of any of our property, clients, business or business opportunities.

        Mr. Pope's employment agreement also provides for the continuation of Mr. Pope's SERP benefit. See "—Compensation Discussion and Analysis—Other Benefits."


Long-Term Incentive Plan

        General.    We intend to adopt a Long-Term Incentive Plan, or the Plan, for our employees, consultants and directors. The summary of the Plan contained herein does not purport to be complete and is qualified in its entirety by reference to the Plan. The Plan provides for the grant of unit awards, restricted units, phantom units, unit options, unit appreciation rights, other unit-based awards,

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distribution equivalent rights and substitute awards. Subject to adjustment for certain events, an aggregate of 3,380,474 common units may be delivered pursuant to awards under the Plan. Units that are cancelled, forfeited or are withheld to satisfy the exercise price of an award or our manager's tax withholding obligations are available for delivery pursuant to other awards. The Plan will be administered by our compensation committee. The Plan has been designed to furnish additional compensation to employees, consultants and directors and to align their economic interests with those of common unitholders.

        Unit Awards.    Our compensation committee may grant unit awards to eligible individuals under the Plan. A unit award is an award of common units that are fully vested upon grant and not subject to forfeiture.

        Restricted Units and Phantom Units.    A restricted unit is a common unit that is subject to forfeiture. Upon vesting, the forfeiture restrictions lapse and the recipient holds a common unit that is not subject to forfeiture. A phantom unit is a notional unit that entitles the grantee to receive a common unit upon the vesting of the phantom unit or, in the discretion of the compensation committee, cash equal to the fair market value of a common unit. The compensation committee may make grants of restricted units and phantom units under the Plan to eligible individuals containing such terms, consistent with the Plan, as the compensation committee may determine, including the period over which restricted units and phantom units granted will vest. The compensation committee may, in its discretion, base vesting on the grantee's completion of a period of service or upon the achievement of specified financial objectives or other criteria. In addition, the restricted and phantom units will vest automatically upon a change of control (as defined in the Plan) of us or our manager, subject to any contrary provisions in the award agreement.

        If a grantee's employment, consulting or membership on the board terminates for any reason, the grantee's restricted units and phantom units will be automatically forfeited unless, and to the extent, the award agreement or the compensation committee provides otherwise.

        Distributions made by us with respect to awards of restricted units may, in the discretion of our compensation committee, be subject to the same vesting requirements as the restricted units. Our compensation committee, in its discretion, may also grant tandem distribution equivalent rights with respect to phantom units.

        We intend for restricted units and phantom units granted under the Plan to serve as a means of incentive compensation for performance and not primarily as an opportunity to participate in the equity appreciation of the common units. Therefore, participants will not pay any consideration for the common units they receive with respect to these types of awards, and neither we nor our manager will receive remuneration for the units delivered with respect to these awards.

        Unit Options and Unit Appreciation Rights.    The Plan also permits the grant of options covering common units and unit appreciation rights. Unit options represent the right to purchase a number of common units at a specified exercise price. Unit appreciation rights represent the right to receive the appreciation in the value of a number of common units over a specified exercise price, either in cash or in common units as determined by our compensation committee. Unit options and unit appreciation rights may be granted to such eligible individuals and with such terms as the compensation committee may determine, consistent with the Plan; however, a unit option or unit appreciation right must have an exercise price equal to the fair market value of a common unit on the date of grant.

        Distribution Equivalent Rights.    Distribution equivalent rights are rights to receive all or a portion of the distributions otherwise payable on units during a specified time. Distribution equivalent rights may be granted alone or in combination with another award.

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        By giving participants the benefit of distributions paid to unitholders generally, grants of distribution equivalent rights provide an incentive for participants to operate our business in a manner that allows us to provide increasing distributions to our unitholders. Typically, distribution equivalent rights will be granted in tandem with a phantom unit, so that the amount of the participant's compensation is tied to both the market value of our units and the distributions that unitholders receive while the award is outstanding. We believe this aligns the participant's incentives directly to the measures that drive returns for our unitholders.

        Substitute Awards.    Our compensation committee, in its discretion, may grant substitute or replacement awards to eligible individuals who, in connection with an acquisition made by us, our manager or an affiliate, have forfeited an equity-based award in their former employer.

        Source of Common Units.    Common units to be delivered with respect to awards may be common units acquired by our manager on the open market, common units already owned by our manager, common units acquired by our manager directly from us or any other person or any combination of the foregoing. Our manager will be entitled to reimbursement by us for the cost incurred in acquiring common units. With respect to unit options, our manager will be entitled to reimbursement by us for the difference between the cost incurred by our manager in acquiring these common units and the proceeds received from an optionee at the time of exercise. Thus, we will bear the cost of the unit options. If we issue new common units with respect to these awards, the total number of common units outstanding will increase, and our manager will remit the proceeds it receives from a participant, if any, upon exercise of an award to us. With respect to any awards settled in cash, our manager will be entitled to reimbursement by us for the amount of the cash settlement.

        Amendment or Termination of Long-Term Incentive Plan.    Our board, in its discretion, may terminate the Plan at any time with respect to the common units for which a grant has not theretofore been made. The Plan will automatically terminate on the earlier of the 10th anniversary of the date it was initially approved by our unitholders or when common units are no longer available for delivery pursuant to awards under the Plan. Our board will also have the right to alter or amend the Plan or any part of it from time to time and the compensation committee may amend any award; provided, however, that no change in any outstanding award may be made that would materially impair the rights of the participant without the consent of the affected participant.


Director Compensation

        Officers, employees or paid consultants and advisors of our manager or its affiliates who also serve as our directors will not receive additional compensation for their service as our directors. We anticipate that directors who are not officers, employees or paid consultants and advisors of our manager or its affiliates will receive a combination of cash and restricted common unit grants as compensation for attending meetings of our board and committees thereof. Such directors will also receive reimbursement for out-of-pocket expenses associated with attending meetings of the board or committees and director and officer liability insurance coverage. Each director will be fully indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware law.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth the beneficial ownership of our units following this offering by:

    each person known by us to be a beneficial owner of more than 5% of our outstanding units;

    each of our directors;

    each of our named executive officers; and

    all of our directors and executive officers as a group.

        The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all units shown as beneficially owned by them, subject to community property laws where applicable.

Name of Beneficial Owner
  Common Units
Beneficially
Owned
  Percentage of
Common Units
Beneficially
Owned
  Subordinated
Units
Beneficially
Owned
  Percentage of
Subordinated
Units
Beneficially
Owned
  Percentage of
Total Common
and
Subordinated
Units
Beneficially
Owned
 

Niska Sponsor Holdings Coöperatief U.A.(1)

    16,304,745 (2)   48.2 %   33,804,745     100 %   74.1 %

David Pope

                     

Darin Olson

                     

Simon Dupéré

                     

Paul Amirault

                     

Rick Staples

                     

Jason Kulsky

                     

Jason Dubchak

                     

Andrew Ward

                     

E. Bartow Jones

                     

George O'Brien

                     

William Shea, Jr. 

                     

All directors and executive officers as a group (eleven persons)

                     

(1)
The equity interests in Holdco are indirectly owned by our executive officers, certain of our employees and investment limited partnerships affiliated with the Carlyle/Riverstone Global Energy and Power Fund II, L.P. and Carlyle/Riverstone Global Energy and Power Fund III, L.P. C/R Energy GP III, LLC exercises investment discretion and control over the units held by Holdco through Carlyle/Riverstone Energy Partners III, L.P., of which C/R Energy GP III, LLC is the sole general partner. C/R Energy GP III, LLC is managed by an eight person management committee which includes Andrew Ward, who is a member of our board. Mr. Ward disclaims beneficial ownership of the units owned by Holdco. The address of Holdco and C/R Energy GP III, LLC is 712 Fifth Avenue, 51st Floor, New York, NY 10019.

(2)
Includes 2,625,000 common units that we will issue to Holdco if the underwriters do not exercise their option to purchase additional common units.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        After the closing of this offering, Holdco will own 16,304,745 common units and 33,804,745 subordinated units, representing approximately 74.1% of our units. In addition, our manager will own a 2% managing member interest in us and the incentive distribution rights.


Distributions and Payments to Our Manager and Its Affiliates

        The following table summarizes the distributions and payments made or to be made by us to our manager and its affiliates in connection with our formation and ongoing operation and distributions and payments that would be made by us if we were to liquidate in accordance with the terms of our Operating Agreement. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arm's-length negotiations.

 

Formation Stage

   

The consideration given to Holdco and its affiliates for the contributions of assets and liabilities to us

 

•       13,679,745 common units;

 

•       33,804,745 subordinated units;

 

•       2% managing member interest;

 

•       incentive distribution rights;

 

•       a cash payment of $279.6 million from borrowings under our credit facilities; and

 

•       the right to receive the net proceeds from any exercise of the underwriters' option to purchase additional common units and any common units subject to such option which are not purchased by the underwriters.

 

Operational Stage

   

Distributions of cash to our manager and its affiliates

 

We will generally make cash distributions 98% to unitholders, including Holdco as holder of an aggregate of 16,304,745 common units (assuming no exercise of the underwriters' option to purchase additional common units) and all of the subordinated units, and the remaining 2% to our manager.

Payments to our manager and its affiliates

 

We will reimburse our manager and its affiliates for all expenses incurred on our behalf.

Withdrawal or removal of our manager

 

If our manager withdraws or is removed, its managing member interest and its affiliates' incentive distribution rights will either be sold to the new manager for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. See "The Operating Agreement—Withdrawal or Removal of Our Manager."

 

Liquidation Stage

   

Liquidation

 

Upon our liquidation, our members, including our manager, will be entitled to receive liquidating distributions according to their respective capital account balances.

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Agreements Governing the Transactions

        We have entered into or will enter into various agreements that will effect our formation transactions, including the transfer of assets to, and the assumption of liabilities by, us and our subsidiaries. These agreements are not and will not be the result of arm's-length negotiations and the terms of these agreements are not necessarily at least as favorable to the parties to these agreements as the terms which could have been obtained from unaffiliated third parties. All of the transaction expenses incurred in connection with our formation transactions, including the expenses associated with transferring assets to our subsidiaries, will be paid from the proceeds of this offering.


Services Agreement

        Our subsidiary, AECO Partnership, has entered into a services agreement with certain affiliates of Holdco pursuant to which it will provide employees to manage certain development projects for Holdco or its affiliates in return for a service fee that is to be agreed upon between the parties from time to time. The initial term of the services agreement expires on March 31, 2011, at which point it automatically renews for additional one-year terms unless it is terminated.

Registration Rights Agreement

        Under our Operating Agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any common units, subordinated units or other company securities proposed to be sold by our manager or any of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available. These registration rights continue for two years following any withdrawal or removal of our manager. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions.

        In addition, in connection with this offering, we expect to enter into a registration rights agreement with Holdco. A copy of the form of registration rights agreement is filed as an exhibit to this registration statement on Form S-1 and is incorporated herein by reference. Pursuant to the registration rights agreement, we will be required to file a registration statement to register the common units and subordinated units issued to Holdco and the common units issuable upon the conversion of the subordinated units upon request of Holdco. The registration rights agreement also includes provisions dealing with holdback agreements, indemnification and contribution and allocation of expenses. These registration rights are transferable to affiliates of Holdco and, in certain circumstances, to third parties. See "Units Eligible for Future Sale."

Recent Capital Contribution and Contemplated Distribution

        On January 25, 2010, the holders of Niska Predecessor's Class A units made a contribution to the capital of Niska Predecessor of $18 million in order to fund capital expenditures limited by the previous credit facility. On April 16, 2010, Niska Holdings paid a cash distribution of approximately $25 million to the holders of its Class A units, and prior to the closing of this offering, we expect that Niska Holdings will pay the holders of its Class A units an additional $20 million cash distribution.

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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

Conflicts of Interest

        Conflicts of interest exist and may arise in the future as a result of the relationships between our manager and its affiliates (including Holdco), on the one hand, and us and our unaffiliated members, on the other hand. Our directors and officers have fiduciary duties to manage our manager in a manner beneficial to its owners. At the same time, our manager has a fiduciary duty to manage us in a manner beneficial to our unitholders. Our Operating Agreement contains provisions that specifically define our manager's fiduciary duties to the unitholders. Our Operating Agreement also specifically defines the remedies available to unitholders for actions taken that, without these defined liability standards, might constitute breaches of fiduciary duty under applicable Delaware law. The Delaware Limited Liability Company Act, which we refer to as the Delaware Act, provides that Delaware limited liability companies may, in their Operating Agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by a manager to members and the company.

        Under our Operating Agreement, whenever a conflict arises between our manager or its affiliates, on the one hand, and us or any unaffiliated member or our board as our manager's delegate, on the other, our manager will resolve that conflict. Our manager has delegated this responsibility, along with the power to conduct our business, to our board. Our board may, but is not required to, seek the approval of such resolution from the conflicts committee of our board. An independent third party is not required to evaluate the fairness of the resolution.

        Whenever a potential conflict of interest exists or arises between the manager or any of its affiliates, on the one hand, and us or any of our members, on the other, the resolution or course of action in respect of such conflict of interest shall be permitted and deemed approved by all our members, and shall not constitute a breach of our Operating Agreement, of any agreement contemplated, or of any duty if the resolution or course of action in respect of such conflict of interest is:

    approved by the conflicts committee of our board, although our board is not obligated to seek such approval;

    approved by the vote of a majority of the outstanding common units, excluding any common units owned by our manager or any of its affiliates;

    on terms no less favorable to us than those generally being provided to or available from unaffiliated third parties; or

    fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us.

        If our board does not seek approval from the conflicts committee and determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in making its decision, our board acted in good faith, and in any proceeding brought by or on behalf of us or any of our unitholders, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our Operating Agreement, our board or the conflicts committee of our board may consider any factors it determines in good faith to consider when resolving a conflict. When our Operating Agreement requires someone to act in good faith, it requires that person to reasonably believe that he is acting in the best interests of the company, unless the context otherwise requires. See "Management—Management of Niska Gas Storage Partners LLC" for information about the conflicts committee of our board.

        Conflicts of interest could arise in the situations described below, among others.

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    Actions taken by our board may affect the amount of cash available to pay distributions to unitholders or accelerate the right to convert subordinated units.

        The amount of cash that is available for distribution to unitholders is affected by decisions of our board regarding such matters as:

    amount and timing of asset purchases and sales;

    cash expenditures;

    borrowings;

    issuance of additional units; and

    the creation, reduction or increase of reserves in any quarter.

        In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our manager to our unitholders, including borrowings that have the purpose or effect of:

    enabling our manager or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or

    hastening the expiration of the subordination period.

        For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common units and our subordinated units, our Operating Agreement permits us to borrow funds, which would enable us to make this distribution on all outstanding units. See "Provisions of Our Operating Agreement Relating to Cash Distributions—Subordination Period."

        Our Operating Agreement provides that we and our subsidiaries may borrow funds from our manager and its affiliates. Our manager and its affiliates may not borrow funds from us, our operating company or its operating subsidiaries.

    Neither our Operating Agreement nor any other agreement requires Holdco to pursue a business strategy that favors us or utilizes our assets or dictates what markets to pursue or grow. Holdco's directors and officers have a fiduciary duty to make these decisions in the best interests of the owners of Holdco, which may be contrary to our interests.

        Because our officers and certain of our directors are also directors and/or officers of Holdco, such directors and officers have fiduciary duties to Holdco that may cause them to pursue business strategies that disproportionately benefit Holdco or which otherwise are not in our best interests.

    Our manager is allowed to take into account the interests of parties other than us, such as Holdco, in exercising certain rights under our Operating Agreement.

        Our Operating Agreement contains provisions that permissibly reduce the standards to which our manager would otherwise be held by state fiduciary duty law. For example, our Operating Agreement permits our manager to make a number of decisions in its individual capacity, as opposed to in its capacity as our manager. This entitles our manager to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any member. Examples include the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation.

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    Our manager has limited its liability and reduced its fiduciary duties, and has also restricted the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty.

        In addition to the provisions described above, our Operating Agreement contains provisions that restrict the remedies available to our unitholders for actions that might otherwise constitute breaches of fiduciary duty. For example, our Operating Agreement:

    permits our manager to make a number of decisions in its individual capacity, as opposed to in its capacity as our manager. This entitles our manager to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any member;

    provides that our manager shall not have any liability to us or our unitholders for decisions made in its capacity as a manager so long as it acted in good faith, meaning it believed that the decision was in our best interests;

    generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of our board and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be "fair and reasonable" to us, as determined by our manager in good faith, and that, in determining whether a transaction or resolution is "fair and reasonable," our manager may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us;

    provides that our manager and its officers and directors will not be liable for monetary damages to us or our members for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our manager or those other persons acted in bad faith or engaged in fraud or willful misconduct; and

    provides that in resolving conflicts of interest, it will be presumed that in making its decision the manager or its conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any member or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

        By purchasing a common unit, a common unitholder will agree to become bound by the provisions in our Operating Agreement, including the provisions discussed above. See "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties."

    Our officers or employees may devote substantial time to the business and activities of the affiliates of our manager.

        Affiliates of our manager conduct businesses and activities of their own in which we have no economic interest but which our officers and employees may devote substantial time to pursuant to a services agreement with Holdco. There could be material competition for the time and effort of the officers and employees who provide services to our manager.

    We reimburse our manager and its affiliates for expenses.

        We reimburse our manager and its affiliates for costs incurred in managing and operating us, including costs incurred in rendering staffing and support services to us. Our Operating Agreement provides that our manager will determine the expenses that are allocable to us in good faith. See "Management—Reimbursement of Expenses of Our Manager."

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    Common unitholders have no right to enforce obligations of our manager and its affiliates under agreements with us.

        Any agreements between us, on the one hand, and our manager 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 manager and its affiliates in our favor.

    Contracts between us, on the one hand, and our manager and its affiliates, on the other, are not and will not be the result of arm's-length negotiations.

        Neither our Operating Agreement nor any of the other agreements, contracts and arrangements between us and our manager and its affiliates are or will be the result of arm's-length negotiations. Our Operating Agreement generally provides that any affiliated transaction, such as an agreement, contract or arrangement between us and our manager and its affiliates, must be:

    on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

    "fair and reasonable" to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).

        Our manager will determine, in good faith, the terms of any of these transactions.

        Our manager and its affiliates have no obligation to permit us to use any facilities or assets of our manager and its affiliates, except as may be provided in contracts entered into specifically dealing with that use. Our manager may also enter into additional contractual arrangements with any of its affiliates on our behalf. There is no obligation of our manager and its affiliates to enter into any contracts of this kind.

    Except in limited circumstances, our manager has the power and authority to conduct our business without unitholder approval.

        Under our Operating Agreement, our manager has full power and authority to do all things, other than those items that require unitholder approval or with respect to which our manager has sought the approval of the conflicts committee of its board of directors, on such terms as it determines to be necessary or appropriate to conduct our business including, but not limited to, the following:

    the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into securities of the company, and the incurring of any other obligations;

    the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets;

    the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets or the merger or other combination of us with or into another person;

    the negotiation, execution and performance of any contracts, conveyances or other instruments;

    the distribution of cash;

    the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

    the maintenance of insurance for our benefit and the benefit of our members;

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    the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited partnerships, joint ventures, corporations, limited liability companies or other relationships;

    the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense and the settlement of claims and litigation;

    the indemnification of any person against liabilities and contingencies to the extent permitted by law;

    the purchase, sale or other acquisition or disposition of our membership interests, or the issuance of additional options, rights, warrants and appreciation rights relating to our membership interests; and

    the entering into of agreements with any of its affiliates to render services to us or to itself in the discharge of its duties as our manager.

        See "The Operating Agreement" for information regarding the voting rights of unitholders.

    Common units are subject to our manager's limited call right.

        If at any time our manager and its affiliates own more than 80% of the common units, our manager will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price, as calculated pursuant to the terms of our Operating Agreement. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. Our manager is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call right. There is no restriction in our Operating Agreement that prevents our manager from issuing additional common units and exercising its call right. Our manager may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have his common units purchased from him at an undesirable time or price. See "The Operating Agreement—Limited Call Right."

    We may not choose to retain separate counsel for ourselves or for the holders of common units.

        The attorneys, independent accountants and others who perform services for us have been retained by our manager. Attorneys, independent accountants and others who perform services for us are selected by our manager or the conflicts committee and may perform services for our manager and its affiliates. We may retain separate counsel for ourselves or the holders of common units in the event of a conflict of interest between our manager and its affiliates, on the one hand, and us or the holders of common units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases.

    Our manager's affiliates may compete with us, and neither our manager nor its affiliates have any obligation to present business opportunities to us.

        Our Operating Agreement provides that our manager is restricted from engaging in any business activities other than those incidental to its ownership of interests in us. However, affiliates of our manager are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. Holdco may acquire, construct or dispose of storage or other assets in the future without any obligation to offer us the opportunity to acquire those assets. In addition, under our Operating Agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not

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apply to the manager and its affiliates. As a result, neither the manager nor any of its affiliates have any obligation to present business opportunities to us.


Fiduciary Duties

        Our manager is accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our manager are prescribed by law and in our Operating Agreement. The Delaware Act provides that Delaware limited liability companies may, in their Operating Agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by a manager to members and the company.

        Our Operating Agreement contains various provisions modifying and restricting the fiduciary duties that might otherwise be owed by our manager. We have adopted these provisions to allow our manager or its affiliates to engage in transactions with us that otherwise might be prohibited by state law fiduciary standards and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because our board has fiduciary duties to manage our business in a manner beneficial both to Holdco and our manager as well as to our public unitholders. Without these modifications, our manager's and our board's ability to make decisions involving conflicts of interest would be restricted. The modifications to the fiduciary standards benefit our manager and our board by enabling them to take into consideration all parties involved in the proposed action. These modifications also strengthen the ability of our manager and our board to attract and retain experienced and capable directors. These modifications represent a detriment to our public unitholders because they restrict the remedies available to our public unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as described below, and permit our manager and our board to take into account the interests of third parties in addition to our interests when resolving conflicts of interests. The following is a summary of:

    the fiduciary duties imposed on our manager by the Delaware Act;

    material modifications of these duties contained in our Operating Agreement; and

    certain rights and remedies of unitholders contained in the Delaware Act.

State law fiduciary duty standards

  Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in an Operating Agreement providing otherwise, would generally require a manager to act for the company 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 an Operating Agreement providing otherwise, would generally prohibit a manager of a Delaware limited liability company from taking any action or engaging in any transaction where a conflict of interest is present.

Operating Agreement modified standards

 

Our Operating Agreement contains provisions that waive or consent to conduct by our board and our manager and its affiliates that might otherwise raise issues as to compliance with fiduciary duties or applicable law. For example, our Operating Agreement provides that when our manager is acting in its capacity as our manager, as opposed

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to in its individual capacity, or our board is acting as its delegate, it must act in "good faith" and will not be subject to any other standard under applicable law. In addition, when our manager is acting in its individual capacity, as opposed to in its capacity as our manager, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our manager and our board would otherwise be held.

 

Our Operating Agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of our board must be:

 

•       on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

 

•       "fair and reasonable" to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).

 

All conflicts of interest disclosed in this prospectus (including our agreements and other arrangements with Holdco) have been approved by all of our members under the terms of our Operating Agreement.

 

If our manager does not obtain approval from the conflicts committee of our board or our common unitholders, excluding any common units owned by our manager or its affiliates, and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, our board, which may include board members affected by the conflict of interest, acted in good faith, and in any proceeding brought by or on behalf of any member or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our manager would otherwise be held. In addition to the other more specific provisions limiting the obligations of our manager, our Operating Agreement further provides that our and our manager's officers and directors will not be liable for monetary damages to us or our members for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our manager or its or our officers and directors acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person's conduct was unlawful.

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Rights and remedies of unitholders

 

The Delaware Act generally provides that a member may institute legal action on behalf of a company to recover damages from a third-party where a manager has refused to institute the action or where an effort to cause a manager to do so is not likely to succeed. These actions include actions against a manager for breach of its fiduciary duties or of the company's Operating Agreement. In addition, the statutory or case law of some jurisdictions may permit a member to institute legal action on behalf of himself and all other similarly situated members to recover damages from a manager for violations of its fiduciary duties to the members.

        In order to become one of our members, a common unitholder is required to agree to be bound by the provisions in our Operating Agreement, including the provisions discussed above. See "Description of the Common Units—Transfer of Common Units." This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of operating agreements. The failure of a member to sign our Operating Agreement does not render our Operating Agreement unenforceable against that person.

        Under our Operating Agreement, we must indemnify our manager and its and our officers and directors to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our manager or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct. We also must provide this indemnification for criminal proceedings unless our manager or these other persons acted with knowledge that their conduct was unlawful. Thus, our manager or these other persons could be indemnified for its negligent or grossly negligent acts if they meet the requirements set forth above. Any provision that includes indemnification for liabilities arising under the Securities Act is, according to the SEC, contrary to public policy and therefore unenforceable.

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DESCRIPTION OF THE COMMON UNITS

The Units

        The common units and the subordinated units are separate classes of non-managing membership interests in us. The holders of units are entitled to participate in company distributions and exercise the rights and privileges available to members under our Operating Agreement. For a description of the relative rights and privileges of holders of common units and subordinated units in and to company distributions, see this section and "Provisions of Our Operating Agreement Relating to Cash Distributions." For a description of other rights and privileges of members under our Operating Agreement, including voting rights, see "The Operating Agreement."


Transfer Agent and Registrar

    Duties

        American Stock Transfer & Trust Company, LLC will serve as registrar and transfer agent for the common units. We will pay all fees charged by the transfer agent for transfers of common units except the following, which must be paid by unitholders:

    surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;

    special charges for services requested by a common unitholder; and

    other similar fees or charges.

        There will be no charge to unitholders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and each of their stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.

    Resignation or Removal

        The transfer agent may resign by notice to us or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor is appointed, our manager may act as the transfer agent and registrar until a successor is appointed.


Transfer of Common Units

        By transfer of common units in accordance with our Operating Agreement, each transferee of common units will be admitted as a non-managing member with respect to the common units transferred when such transfer and admission is reflected in our books and records. Each transferee:

    represents that the transferee has the capacity, power and authority to become bound by our Operating Agreement;

    automatically becomes bound by the terms and conditions of our Operating Agreement; and

    gives the consents, waivers and approvals contained in our Operating Agreement, such as the approval of all transactions and agreements we are entering into in connection with our formation and this offering.

        Our board will cause any transfers to be recorded on our books and records no less frequently than quarterly.

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        We may, at our discretion, treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holder's rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.

        Common units are securities and any transfers are subject to the laws governing transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a non-managing member for the transferred common units.

        Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.

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THE OPERATING AGREEMENT

        The following is a summary of the material provisions of our Operating Agreement. The form of our Operating Agreement is included in this prospectus as Appendix A. We will provide prospective investors with a copy of our Operating Agreement upon request at no charge.

        We summarize the following provisions of our Operating Agreement elsewhere in this prospectus:

    with regard to distributions of cash, see "Provisions of Our Operating Agreement Relating to Cash Distributions;"

    with regard to the fiduciary duties of our manager, see "Conflicts of Interest and Fiduciary Duties;"

    with regard to the transfer of common units, see "Description of the Common Units—Transfer of Common Units;" and

    with regard to allocations of taxable income and taxable loss for U.S. federal income tax purposes, see "Material U.S. Tax Consequences to Unitholders."


Organization and Duration

        We were organized on January 27, 2010 and will have a perpetual existence unless terminated pursuant to the terms of our Operating Agreement.


Purpose

        Our purpose under our Operating Agreement is limited to any business activity that is approved by our manager and that lawfully may be conducted by a limited liability company organized under Delaware law; provided that without the approval of unitholders holding at least 90% of the outstanding units (including units held by our manager and its affiliates) voting as a single class, our manager may not cause us to take any action that it determines would be reasonably likely to cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes.

        Although our manager has the ability to cause us and our subsidiaries to engage in activities other than those related to the business of storing natural gas, our board may decline to do so free of any fiduciary duty or obligation whatsoever to us or the members other than the manager, including any duty to act in good faith or in the best interests of us or the members. Our board is authorized in general to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business.


Capital Contributions

        Unitholders are not obligated to make additional capital contributions, except as described below under "—Limited Liability."

        For a discussion of our manager's right to contribute capital to maintain its 2% managing member interest if we issue additional units, see "—Issuance of Additional Membership Interests."

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Votes Required For Certain Matters

        The following is a summary of the unitholder vote required for the matters specified below. Matters requiring the approval of a "unit majority" require:

    during the subordination period, the approval of a majority of the common units, excluding those common units held by our manager and its affiliates, and a majority of the subordinated units, voting as separate classes; and

    after the subordination period, the approval of a majority of the common units.

        In voting their common and subordinated units, our manager and its affiliates will have no fiduciary duty or obligation whatsoever to us or the members, including any duty to act in good faith or in the best interests of us or the members.

        The incentive distribution rights may be entitled to vote in certain circumstances. See "—Voting Rights of Incentive Distribution Rights."

Issuance of additional units

  No approval right.

Amendment of our Operating Agreement

 

Certain amendments may be made by our board without the approval of the unitholders. Other amendments generally require the approval of a unit majority. See "—Amendment of Our Operating Agreement."

Merger of our company or the sale of all or substantially all of our assets

 

Unit majority in certain circumstances. See "—Merger, Sale or Other Disposition of Assets."

Dissolution of our company

 

Unit majority. See "—Termination and Dissolution."

Continuation of our business upon dissolution

 

Unit majority. See "—Termination and Dissolution."

Withdrawal of our manager

 

Under most circumstances, the approval of a majority of the common units, excluding common units held by our manager and its affiliates, is required for the withdrawal of our manager prior to March 31, 2020 in a manner that would cause a dissolution of our company. See "—Withdrawal or Removal of Our Manager."

Removal of our manager

 

Not less than 662/3% of the outstanding units, voting as a single class, including units held by our manager and its affiliates. See "—Withdrawal or Removal of Our Manager."

Transfer of the managing member interest

 

Our manager may transfer all, but not less than all, of its managing member interest without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to, such person. The approval of a majority of the common units, excluding common units held by our manager and its affiliates, is required in other circumstances for a transfer of the managing member interest to a third-party prior to March 31, 2020. See "—Transfer of Managing Member Interest."

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Transfer of incentive distribution rights

 

No approval right.

Transfer of ownership interests in our manager

 

No approval right. See "—Transfer of Ownership Interests in Our Manager."

        If any person or group other than our manager and its affiliates acquires beneficial ownership of 20% or more of any class of units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires the units from our manager or its affiliates and any transferees of that person or group approved by our manager or to any person or group who acquires the units with the specific prior approval of our board.


Applicable Law; Forum, Venue and Jurisdiction

        Our Operating Agreement is governed by Delaware law. Our Operating Agreement requires that any claims, suits, actions or proceedings:

    arising out of or relating in any way to the Operating Agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the Operating Agreement or the duties, obligations or liabilities among members or of members to us, or the rights or powers of, or restrictions on, the members or the company),

    brought in a derivative manner on our behalf,

    asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of us or our manager, or owed by our manager, to us or the members,

    asserting a claim arising pursuant to any provision of the Delaware Act, or 

    asserting a claim governed by the internal affairs doctrine

shall be exclusively brought in the Court of Chancery of the State of Delaware, regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. By purchasing a common unit, you are irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware in connection with any such claims, suits, actions or proceedings.


Limited Liability

        Under the Delaware Act, a limited liability company may not make a distribution to a member if, after the distribution, all liabilities of the limited liability company, other than liabilities to members on account of their membership interests and liabilities for which the recourse of creditors is limited to specific property of the company, would exceed the fair value of the assets of the limited liability company. For the purpose of determining the fair value of the assets of a limited liability company, 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 liability company only to the extent that the fair value of that property exceeds the non-recourse liability. The Delaware Act provides that a member who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act shall be liable to the limited liability company for the amount of the distribution for three years.

        Our subsidiaries conduct business in three states and in Canada and we may have subsidiaries that conduct business in other states or countries in the future. Maintenance of our limited liability as owner of our operating subsidiaries may require compliance with legal requirements in the jurisdictions

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in which the operating subsidiaries conduct business, including qualifying our subsidiaries to do business there. We have attempted to limit our liability for the obligations of our operating subsidiaries by structuring them as limited liability companies or limited partnerships.

        Limitations on the liability of members or partners for the obligations of a limited liability company or limited partnership have not been clearly established in many jurisdictions. If, by virtue of our equity interests in our subsidiaries or otherwise, it were determined that we were conducting business in any jurisdiction without compliance with the applicable limited liability company, partnership or similar statute, or that the right or exercise of the right by the members as a group to remove or replace the manager, to approve some amendments to our Operating Agreement, or to take other action under our Operating Agreement constituted "participation in the control" of our business for purposes of the statutes of any relevant jurisdiction, then the members could be held personally liable for our obligations under the law of that jurisdiction. We will operate in a manner that the board considers reasonable and necessary or appropriate to preserve the limited liability of the members.


Issuance of Additional Membership Interests

        Our Operating Agreement authorizes us to issue an unlimited number of additional membership interests for the consideration and on the terms and conditions determined by our board without the approval of the unitholders.

        It is possible that we will fund acquisitions through the issuance of additional common units, subordinated units or other membership interests. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions. In addition, the issuance of additional common units or other membership 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 Operating Agreement, we may also issue additional membership interests that, as determined by our board, may have special voting rights to which the common units are not entitled. In addition, our Operating Agreement does not prohibit the issuance by our subsidiaries of equity interests that may effectively rank senior to the common units.

        Upon issuance of additional membership interests (other than the issuance of common units upon exercise by the underwriters of their option to purchase additional common units, the issuance of common units to Holdco upon expiration of the option to purchase additional common units, or the issuance of common units upon conversion of the subordinated units), our manager will be entitled, but not required, to make additional capital contributions to the extent necessary to maintain its 2% managing member interest in us. Our manager's 2% interest in us will be reduced if we issue additional units in the future and our manager does not contribute a proportionate amount of capital to us to maintain its 2% managing member interest. Moreover, our manager 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 membership interests whenever, and on the same terms that, we issue membership interests to persons other than our manager and its affiliates, to the extent necessary to maintain the percentage interest of the manager and its affiliates, including such interest represented by common units and subordinated units, that existed immediately prior to each issuance. The holders of common units will not have preemptive rights under our Operating Agreement to acquire additional common units or other membership interests.


Amendment of Our Operating Agreement

    General

        Amendments to our Operating Agreement may be proposed only by our board. However, our board will have no duty or obligation to propose any amendment and may decline to do so free of any

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fiduciary duty or obligation whatsoever to us or the members other than our manager, including any duty to act in good faith or in the best interests of us or the members other than our manager. In order to adopt a proposed amendment, other than the amendments discussed below under "—No Unitholder Approval," our board is required to seek written approval of the holders of the number of units required to approve the amendment or call a meeting of the members to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a unit majority.

    Prohibited Amendments

        No amendment may be made that would:

    enlarge the obligations of any non-managing member without its consent, unless approved by at least a majority of the type or class of non-managing membership interests so affected; or

    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 manager or any of its affiliates without the consent of our manager, which consent may be given or withheld in its sole discretion.

        The provision of our Operating Agreement preventing the amendments having the effects described in any of the clauses above can be amended upon the approval of the holders of at least 90% of the outstanding units voting together as a single class (including units owned by our manager and its affiliates). Upon completion of the offering, our manager and its affiliates will own approximately 74.1% of the outstanding common and subordinated units.

    No Unitholder Approval

        Our board may generally make amendments to our Operating Agreement without the approval of any member to reflect:

    a change in our name, the location of our principal place of business, our registered agent or our registered office;

    the admission, substitution, withdrawal or removal of members in accordance with our Operating Agreement;

    a change that our board determines to be necessary or appropriate to qualify or continue our qualification as a limited liability company or other entity in which the members have limited liability under the laws of any state or to ensure that neither we nor any of our subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed);

    an amendment that is necessary, in the opinion of our counsel, to prevent us or our manager or its directors, officers, agents or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisers Act of 1940, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;

    an amendment that our board determines to be necessary or appropriate for the creation, authorization or issuance of additional membership interests or rights to acquire membership interests;

    any amendment expressly permitted in our Operating Agreement to be made by our manager acting alone;

    an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our Operating Agreement;

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    any amendment that our manager determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by our Operating Agreement;

    a change in our fiscal year or taxable year and related changes;

    mergers with or conveyances to another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the merger or conveyance other than those it receives by way of the merger or conveyance; or

    any other amendments substantially similar to any of the matters described above.

        In addition, our board may make amendments to our Operating Agreement without the approval of any member if our board determines that those amendments:

    do not adversely affect in any material respect the non-managing members considered as a whole or any particular class of non-managing members;

    are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;

    are necessary or appropriate to facilitate the trading of membership interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which membership interests are or will be listed for trading;

    are necessary or appropriate for any action taken by our board relating to splits or combinations of units under the provisions of our Operating Agreement; or

    are required to effect the intent expressed in this prospectus or the intent of the provisions of our Operating Agreement or are otherwise contemplated by our Operating Agreement.

    Opinion of Counsel and Unitholder Approval

        For amendments of the type not requiring unitholder approval, our board will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the members or result in our being treated as an entity for U.S. federal income tax purposes in connection with any of the amendments. No other amendments to our Operating Agreement will become effective without the approval of holders of at least 90% of the outstanding units voting as a single class unless we first obtain an opinion of counsel to the effect that the amendment will not affect the limited liability under Delaware law of any of our members.

        Any amendment that our board determines adversely affects in any material respect one or more particular classes of members will require the approval of at least a majority of the class or classes so affected, but no vote will be required by any class or classes of members that our manager determines are not adversely affected in any material respect.

        Any amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to other classes of units will require the approval of at least a majority of the type or class of units so affected. Any amendment that would reduce the percentage of units required to take any action, other than to remove the manager or call a meeting of unitholders, must be approved by the affirmative vote of members whose aggregate outstanding units constitute not less than the percentage sought to be reduced. Any amendment that would increase the percentage of units required to remove the manager or call a meeting of unitholders must be approved by the affirmative vote of members whose aggregate outstanding units constitute not less than the percentage sought to be increased.

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Merger, Sale or Other Disposition of Assets

        A merger or consolidation of the company requires the prior consent of our manager. However, our manager will have no duty or obligation to consent to any merger or consolidation and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the other members, including any duty to act in good faith or in the best interest of us or the other members.

        In addition, our Operating Agreement generally prohibits our board without the prior approval of the holders of a unit majority, from causing us to sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions. Our manager may, however, mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without that approval. Our manager may also sell all or substantially all of our assets under a foreclosure or other realization upon those encumbrances without that approval. Finally, our manager may consummate any merger without the prior approval of our unitholders if we are the surviving entity in the transaction, our manager has received an opinion of counsel regarding limited liability and tax matters, the transaction would not result in a material amendment to our Operating Agreement (other than an amendment that the manager could adopt without the consent of other members), each of our units will be an identical unit of our company following the transaction, and the membership interests to be issued do not exceed 20% of our outstanding membership interests (other than incentive distribution rights) immediately prior to the transaction.

        If the conditions specified in our Operating Agreement are satisfied, our manager may convert us or any of our subsidiaries into a new limited liability entity or merge us or any of our subsidiaries into, or convey all of our assets to, a newly formed entity if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into another limited liability entity, we have received an opinion of counsel regarding limited liability and tax matters, and the governing instruments of the new entity provide the members and the manager with the same rights and obligations as contained in our Operating Agreement. The unitholders are not entitled to dissenters' rights of appraisal under our Operating Agreement or applicable Delaware law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets or any other similar transaction or event.


Dissolution

        We will continue as a limited liability company until dissolved under our Operating Agreement. We will dissolve upon:

    the election of our manager to dissolve us, if approved by the holders of units representing a unit majority;

    there being no members, unless we are continued without dissolution in accordance with applicable Delaware law;

    the entry of a decree of judicial dissolution of our company; or

    the withdrawal or removal of our manager or any other event that results in its ceasing to be our manager other than by reason of a transfer of its managing member interest in accordance with our Operating Agreement or withdrawal or removal following approval and admission of a successor.

        Upon a dissolution under the last clause above, the holders of a unit majority may also elect, within specific time limitations, to continue our business on the same terms and conditions described in our Operating Agreement by appointing as a successor manager an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion of counsel to the effect that:

    the action would not result in the loss of limited liability under Delaware law of any member; and

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    neither our company nor any of our subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for U.S. federal income tax purposes upon the exercise of that right to continue (to the extent not already so treated or taxed).


Liquidation and Distribution of Proceeds

        Upon our dissolution, unless our business is continued, the liquidator authorized to wind up our affairs will, acting with all of the powers of our manager that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as described in "Provisions of Our Operating Agreement Relating to Cash Distributions—Distributions of Cash Upon Liquidation." The liquidator may defer liquidation or distribution of our assets for a reasonable period of time or distribute assets to members in kind if it determines that a sale would be impractical or would cause undue loss to our members.


Withdrawal or Removal of Our Manager

        Except as described below, our manager has agreed not to withdraw voluntarily as our manager prior to March 31, 2020 without obtaining the approval of the holders of at least a majority of the outstanding common units, excluding common units held by the manager and its affiliates, and furnishing an opinion of counsel regarding limited liability and tax matters. On or after March 31, 2020, our manager may withdraw as manager without first obtaining approval of any unitholder by giving 90 days' written notice, and that withdrawal will not constitute a violation of our Operating Agreement. Notwithstanding the information above, our manager may withdraw without unitholder approval upon 90 days' notice to the other members if at least 50% of the outstanding common units are held or controlled by one person and its affiliates other than the manager and its affiliates. In addition, our Operating Agreement permits our manager in some instances to sell or otherwise transfer all of its managing member interest without the approval of the unitholders. See "—Transfer of Managing Member Interest."

        Upon withdrawal of our manager under any circumstances, other than as a result of a transfer by our manager of all or a part of its managing member interest, the holders of a unit majority may select a successor to that withdrawing manager. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, we will be dissolved, wound up and liquidated, unless within a specified period after that withdrawal, the holders of a unit majority agree in writing to continue our business and to appoint a successor manager. See "—Termination and Dissolution."

        Our manager may not be removed unless that removal is approved by the vote of the holders of not less than 662/3% of the outstanding units, voting together as a single class, including units held by our manager and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of our manager is also subject to the approval of a successor manager by the vote of the holders of a majority of the outstanding common units and subordinated units, voting as separate classes. The ownership of more than 331/3% of the outstanding units by our manager and its affiliates gives them the ability to prevent our manager's removal. At the closing of this offering, Holdco, which is an affiliate of our manager, will own approximately 74.1% of the outstanding common and subordinated units.

        Our Operating Agreement also provides that if our manager is removed as our manager under circumstances where cause does not exist:

    all subordinated units held by any person who did not, and whose affiliates did not, vote any units in favor of the removal of the manager, will immediately convert into common units on a one-for-one basis; and

    if all subordinated units convert as described in the immediately preceding bullet point, the subordination period will end and any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished.

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        In the event of removal of our manager under circumstances where cause exists or withdrawal of our manager where that withdrawal violates our Operating Agreement, a successor manager will have the option to purchase the managing member interest and incentive distribution rights of the departing manager and its affiliates for a cash payment equal to the fair market value of those interests. Under all other circumstances where our manager withdraws or is removed by the members, the departing manager will have the option to require the successor manager to purchase the managing member interest and incentive distribution rights of the departing manager and its affiliates for fair market value. In each case, this fair market value will be determined by agreement between the departing manager and the successor manager. If no agreement is reached, an independent investment banking firm or other independent expert selected by the departing manager and the successor manager (or selected by the experts they select) will determine the fair market value.

        If the option described above is not exercised by either the departing manager or the successor manager, the departing manager's managing member interest and all of its and its affiliates' incentive distribution rights will automatically convert into common units equal to the fair market value of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.

        In addition, we will be required to reimburse the departing manager for all amounts due the departing manager, including, without limitation, all employee-related liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing manager or its affiliates for our benefit.


Transfer of Managing Member Interest

        Except for the transfer by our manager of all, but not less than all, of its managing member interest to:

    an affiliate of our manager (other than an individual); or

    another entity as part of the merger or consolidation of our manager with or into another entity or the transfer by our manager of all or substantially all of its assets to another entity,

our manager may not transfer all or any part of its managing member interest to another person prior to March 31, 2020 without the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our manager and its affiliates. As a condition of any transfer, the transferee must, among other things, assume the rights and duties of our manager, agree to be bound by the provisions of our Operating Agreement and furnish an opinion of counsel regarding limited liability and tax matters.

        Our manager and its affiliates may at any time, transfer units to one or more persons, without unitholder approval, except that they may not transfer subordinated units to us.


Transfer of Ownership Interests in Our Manager

        At any time, the owners of our manager may sell or transfer all or part of their ownership interests in our manager to an affiliate or a third-party without the approval of our unitholders.


Transfer of Subordinated Units and Incentive Distribution Rights

        By transfer of subordinated units or incentive distribution rights in accordance with our Operating Agreement, each transferee of subordinated units or incentive distribution rights will be admitted as a

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non-managing member with respect to the subordinated units or incentive distribution rights transferred when such transfer and admission is reflected in our books and records. Each transferee:

    represents that the transferee has the capacity, power and authority to become bound by our Operating Agreement;

    automatically becomes bound by the terms and conditions of our Operating Agreement; and

    gives the consents, waivers and approvals contained in our Operating Agreement, such as the approval of all transactions and agreements we are entering into in connection with our formation and this offering.

        Our board will cause any transfers to be recorded on our books and records no less frequently than quarterly.

        We may, at our discretion, treat the nominee holder of subordinated units or incentive distribution rights as the absolute owner. In that case, the beneficial holder's rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.

        Subordinated units or incentive distribution rights are securities and any transfers are subject to the laws governing transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a non-managing member for the transferred subordinated units or incentive distribution rights.

        Until a subordinated unit or incentive distribution right has been transferred on our books, we and the transfer agent may treat the record holder of the unit or right as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.


Change of Management Provisions

        Our Operating Agreement contains specific provisions that are intended to discourage a person or group from attempting to remove our manager or otherwise change our management. See "—Withdrawal or Removal of Our Manager" for a discussion of certain consequences of the removal of our manager. If any person or group other than our manager and its affiliates acquires beneficial ownership of 20% or more of any class of units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply in certain circumstances. See "—Meetings; Voting."


Limited Call Right

        If at any time our manager and its affiliates own more than 80% of the then-issued and outstanding membership interests of any class, our manager 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 membership interests of that class held by unaffiliated persons, as of a record date to be selected by our manager, on at least 10 but not more than 60 days notice. The purchase price in the event of such an acquisition will be the greater of:

    the highest price paid by our manager or any of its affiliates for any membership interests of the class purchased within the 90 days preceding the date on which our manager first mails notice of its election to purchase those membership interests; and

    the average of the daily closing prices of the membership interests of the class purchased over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed.

        As a result of our manager's right to purchase common units, a holder of common units may have his units purchased at an undesirable time or at a price that may be lower than market prices at

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various times prior to such purchase or lower than a unitholder may anticipate the market price to be in the future. The U.S. federal income 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. See "Material U.S. Tax Consequences to Unitholders—Disposition of Common Units."


Meetings; Voting

        Except as described below regarding a person or group owning 20% or more of any class of units then outstanding, record holders of units on the record date will be entitled to notice of, and to vote at, meetings of our members and to act upon matters for which approvals may be solicited.

        We do not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by our board or by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.

        Each record holder of a unit has a vote according to his percentage interest in us, although additional membership interests having special voting rights could be issued. See "—Issuance of Additional Membership Interests." However, if at any time any person or group, other than our manager and its affiliates, or a direct or subsequently approved transferee of our manager or its affiliates and purchasers specifically approved by our board, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise. Except as our Operating Agreement otherwise provides, subordinated units will vote together with common units as a single class.

        Any notice, demand, request, report or proxy material required or permitted to be given or made to record holders of common units under our Operating Agreement will be delivered to the record holder by us or by the transfer agent.


Voting Rights of Incentive Distribution Rights

        If a majority of the incentive distribution rights are held by our managing member and its affiliates, the holders of the incentive distribution rights will have no right to vote in respect of such rights on any matter, unless otherwise required by law, and the holders of the incentive distribution rights shall be deemed to have approved any matter approved by our managing member.

        If less than a majority of the incentive distribution rights are held by our managing member and its affiliates, the incentive distribution rights will be entitled to vote on all matters submitted to a vote of unitholders, other than amendments and other matters that our managing member determines do not adversely affect the holders of the incentive distribution rights in any material respect. On any matter in which the holders of incentive distribution rights are entitled to vote, such holders will vote together with the subordinated units, prior to the end of the subordination period, or together with the common units, thereafter, in either case as a single class. The relative voting power of the holders of the

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incentive distribution rights and the subordinated units or common units, depending on which class the holders of incentive distribution rights are voting with, will be set in the same proportion as cumulative cash distributions, if any, in respect of the incentive distribution rights for the four consecutive quarters prior to the record date for the vote bears to the cumulative cash distributions in respect of such class of units for such four quarters.


Status as Member

        By transfer of common units in accordance with our Operating Agreement, each transferee of common units will be admitted as a member with respect to the common units transferred when such transfer and admission is reflected in our books and records. Except as described under "—Limited Liability," the common units will be fully paid, and unitholders will not be required to make additional contributions.


Non-Citizen Assignees; Redemption

        If our board, with the advice of counsel, determines we are subject to U.S. federal, state or local laws or regulations that, in the reasonable determination of our board, create a substantial risk of cancellation or forfeiture of any property that we have an interest in because of the nationality, citizenship or other related status of any member, then our board may adopt such amendments to our Operating Agreement as it determines necessary or advisable to:

    obtain proof of the nationality, citizenship or other related status of our member (and their owners, to the extent relevant); and

    permit us to redeem the units held by any person whose nationality, citizenship or other related status creates substantial risk of cancellation or forfeiture of any property or who fails to comply with the procedures instituted by the board to obtain proof of the nationality, citizenship or other related status. The redemption price in the case of such a redemption will be the average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.


Non-Taxpaying Assignees; Redemption

        To avoid any adverse effect on the maximum applicable rates chargeable to customers by our subsidiaries, or in order to reverse an adverse determination that has occurred regarding such maximum rate, our Operating Agreement provides our board the power to amend the agreement. If our board, with the advice of counsel, determines that our not being treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes, coupled with the tax status (or lack of proof thereof) of one or more of our members, has, or is reasonably likely to have, a material adverse effect on the maximum applicable rates chargeable to customers by our current or future subsidiaries, then our board may adopt such amendments to our Operating Agreement as it determines necessary or advisable to:

    obtain proof of the U.S. federal income tax status of our member (and their owners, to the extent relevant); and

    permit us to redeem the units held by any person whose tax status has or is reasonably likely to have a material adverse effect on the maximum applicable rates or who fails to comply with the procedures instituted by the manager to obtain proof of the U.S. federal income tax status. The redemption price in the case of such a redemption will be the average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.

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Indemnification

        Under our Operating Agreement we will indemnify the following persons, in most circumstances, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:

    our manager;

    any departing manager;

    any person who is or was a director, officer, fiduciary, trustee, manager or managing member of us or any of our subsidiaries, our manager or any departing manager;

    any person who is or was serving as a director, officer, fiduciary, trustee, manager or managing member of another person owing a fiduciary duty to us or any of our subsidiaries at the request of our manager or any departing manager;

    any person who controls our manager; or

    any person designated by our board.

        Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our manager will not be personally liable for, or have any obligation to contribute or loan funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our Operating Agreement.


Reimbursement of Expenses

        Our Operating Agreement requires us to reimburse our manager for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our manager in connection with operating our business. These expenses include salary, benefits, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our manager by its affiliates. Our manager is entitled to determine the expenses that are allocable to us.


Books and Reports

        Our manager is required to keep appropriate books of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For fiscal reporting purposes, our fiscal year ends March 31. For tax purposes our year ends December 31.

        We will furnish or make available to record holders of common units, within 90 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by our independent public accountants. Except for our fourth quarter, we will also furnish or make available summary financial information within 45 days after the close of each quarter. We will be deemed to have made any such report available if we file such report with the SEC on EDGAR or make the report available on a publicly available website which we maintain.

        We will furnish each record holder of a unit with information reasonably required for U.S. federal and state tax reporting purposes within 90 days after the close of each calendar year. This information is expected to be furnished in summary form so that some complex calculations normally required of members can be avoided. Our ability to furnish this summary information to unitholders will depend on the cooperation of unitholders in supplying us with specific information. Every unitholder will receive information to assist him in determining his U.S. federal and state tax liability and filing his federal and state income tax returns, regardless of whether he supplies us with information.

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Right to Inspect Our Books and Records

        Our Operating Agreement provides that a member can, for a purpose reasonably related to his interest as a member, upon reasonable written demand stating the purpose of such demand and at his own expense, have furnished to him:

    a current list of the name and last known address of each member;

    a copy of our tax returns;

    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 member and the date on which each member became a member;

    copies of our Operating Agreement, our certificate of formation, related amendments and any powers of attorney under which they have been executed;

    information regarding the status of our business and financial condition; and

    any other information regarding our affairs as is just and reasonable.

        Our manager may, and intends to, keep confidential from the other members, trade secrets or other information the disclosure of which our manager believes in good faith is not in our best interests or that we are required by law or by agreements with third parties to keep confidential.


Registration Rights

        Under our Operating Agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any common units, subordinated units or other company securities proposed to be sold by our manager or any of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available. These registration rights continue for two years following any withdrawal or removal of our manager. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions.

        In addition, in connection with this offering, we expect to enter into a registration rights agreement, or the registration rights agreement with Holdco. A copy of the form of registration rights agreement is filed as an exhibit to this registration statement on Form S-1 and is incorporated herein by reference. Pursuant to the registration rights agreement, we will be required to file a registration statement to register the common units and subordinated units issued to Holdco and the common units issuable upon the conversion of the subordinated units upon request of Holdco. In addition, the registration rights agreement gives Holdco piggyback registration rights under certain circumstances. The registration rights agreement also includes provisions dealing with holdback agreements, indemnification and contribution and allocation of expenses. These registration rights are transferable to affiliates of Holdco and, in certain circumstances, to third parties. See "Units Eligible for Future Sale."

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UNITS ELIGIBLE FOR FUTURE SALE

        After the sale of the common units offered hereby and assuming that the underwriters do not exercise their option to purchase additional units, management of our manager and Holdco will hold an aggregate of 16,304,745 common units and 33,804,745 subordinated units. The sale of these units could have an adverse impact on the price of the common units or on any trading market that may develop.

        The common units sold in this offering will generally be freely transferable without restriction or further registration under the Securities Act. However, any common units held by an "affiliate" of ours may not be resold publicly except in compliance with the registration requirements of the Securities Act or under an exemption from the registration requirements of the Securities Act pursuant to Rule 144 or otherwise. Rule 144 permits securities acquired by our affiliates to be sold into the market in an amount that does not exceed, during any three-month period, the greater of:

    1% of the total number of the class of securities outstanding; or

    the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale.

        Sales under Rule 144 by our affiliates are also subject to specific manner of sale provisions, holding period requirements, notice requirements and the availability of current public information about us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned common units for at least six months, would be entitled to sell those common units under Rule 144 without regard to the public information requirements, volume limitations, manner of sale provisions and notice requirements of Rule 144.

        Our Operating Agreement provides that we may issue an unlimited number of membership interests of any type without a vote of the unitholders. Any issuance of additional common units or other equity interests would result in a corresponding decrease in the proportionate ownership interest in us represented by, and could adversely affect the cash distributions to and market price of, common units then outstanding. See "The Operating Agreement—Issuance of Additional Membership Interests."

        Under our Operating Agreement and the registration rights agreement, our manager and its affiliates have the right to cause us to register under the Securities Act and applicable state securities laws the offer and sale of any units that they hold. Subject to the terms and conditions of our Operating Agreement, these registration rights allow our manager and its affiliates or their assignees holding any units or other company securities to require registration of any of these units or other company securities and to include any of these units in a registration by us of other units, including units offered by us or by any unitholder. Our manager will continue to have these registration rights for two years after it ceases to be our manager. In connection with any registration of this kind, we will indemnify each unitholder participating in the registration and its officers, directors and controlling persons from and against any liabilities under the Securities Act or any applicable state securities laws arising from the registration statement or prospectus. We will bear all costs and expenses incidental to any registration, excluding any underwriting discounts and commissions. Our manager and its affiliates also may sell their units or other membership interests in private transactions at any time, subject to compliance with applicable laws.

        We, Holdco, our manager, and the directors and executive officers of our manager, have agreed with the underwriters not to sell or offer to sell any common units for a period of 180 days from the date of this prospectus. See "Underwriting" for a description of these lock-up provisions.

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MATERIAL U.S. TAX CONSEQUENCES TO UNITHOLDERS

        This section is a summary of the material U.S. federal, state and local tax consequences that may be relevant to prospective unitholders and, unless otherwise noted in the following discussion, is the opinion of Vinson & Elkins L.L.P., which is counsel to our manager and us, insofar as it relates to legal conclusions with respect to matters of U.S. federal income tax law. Such statements are based on the accuracy of the representations made by us, and statements of fact do not represent opinions of Vinson & Elkins L.L.P. To the extent this section discusses U.S. federal income taxes, that discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), existing and proposed Treasury regulations promulgated thereunder (the "Treasury Regulations") and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to "us" or "we" are references to Niska Gas Storage Partners LLC and our subsidiaries.

        This section does not address all U.S. federal, state and local tax matters that affect our unitholders. To the extent that this section relates to taxation by a state, local or other jurisdiction within the United States, such discussion is intended to provide only general information. We have not sought the opinion of legal counsel regarding U.S. state, local or other taxation and, thus, any portion of the following discussion relating to such taxes does not represent the opinion of Vinson & Elkins L.L.P. or any other legal counsel. Furthermore, this section focuses on unitholders who are individual citizens or residents of the United States whose functional currency is the U.S. dollar and who hold units as a capital asset (generally, property that is held as an investment). This section has only limited application to corporations, estates, trusts, non-resident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt institutions, non-U.S. persons, individual retirement accounts (IRAs), employee benefit plans, real estate investment trusts ("REITs") or mutual funds. Accordingly, we encourage each prospective unitholder to consult, and depend on, such unitholder's own tax advisor in analyzing the U.S. federal, state, local and non-U.S. tax consequences particular to that unitholder resulting from their ownership or disposition of our common units.

        No ruling has been or will be requested from the Internal Revenue Service (the "IRS") regarding any matter that affects us or prospective unitholders. Instead, we will rely on opinions and advice of Vinson & Elkins L.L.P. Unlike a ruling, an opinion of counsel represents only that counsel's best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made herein may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for our common units and the prices at which our common units trade. In addition, the costs of any contest with the IRS, principally legal, accounting and related fees, will result in a reduction in cash available for distribution to our unitholders and our Manager and thus will be borne directly or indirectly by the unitholders and the manager. Furthermore, the tax treatment of us, or of an investment in us, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.

        For the reasons described below, Vinson & Elkins L.L.P. has not rendered an opinion with respect to the following specific U.S. federal income tax issues: (1) the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (see "—U.S. Federal Income Taxation of Unitholders—Treatment of Short Sales"); (2) whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (see "—Disposition of Common Units—Allocations Between Transferors and Transferees"); and (3) whether our method for depreciating Section 743 adjustments is sustainable in certain cases (see "—U.S. Federal Income Taxation of Unitholders—Section 754 Election").

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Taxation of Niska Gas Storage Partners LLC

    Partnership Status

        As described and subject to the limitations in "Business—Taxation—U.S. Taxation," Niska Gas Storage Partners LLC will be treated as a partnership for U.S. federal income tax purposes and, therefore, generally will not be liable for U.S. federal income taxes. Instead, each of the unitholders will be required to take into account its respective share of our items of income, gain, loss and deduction in computing its U.S. federal income tax liability as if the unitholder had earned such income directly, even if no cash distributions are made to the unitholder. Distributions by us to a unitholder generally will not be taxable to the unitholder unless the amount of cash distributed to the unitholder exceeds the unitholder's tax basis in its common units.

        If Niska Gas Storage Partners LLC were treated as a corporation for U.S. federal income tax purposes, our items of income, gain, loss and deduction would be reflected only on its tax return, rather than being passed through to the unitholders, and our net income would be taxed to us at corporate rates. In addition, any distribution made to a unitholder would be treated as taxable dividend income to the extent of our current or accumulated earnings and profits, or, in the absences of earnings and profits, a nontaxable return of capital to the extent of the unitholder's tax basis in its common units, or taxable capital gain, after the unitholder's tax basis in its common units is reduced to zero.

        The remainder of this section has been prepared based on the assumption that we will be classified as a partnership for U.S. federal income tax purposes.


U.S. Federal Income Taxation of Unitholders

    Unitholder Status as Partner

        Unitholders who are admitted as members of Niska Gas Storage Partners LLC, as well as unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of common units, will be treated as tax partners of Niska Gas Storage Partners LLC for U.S. federal income tax purposes. For a discussion related to the risks of losing partner status as a result of short sales, see "—U.S. Federal Income Taxation of Unitholders—Treatment of Short Sales."

        Items of our income, gain, loss, or deductions would not appear to be reportable by a unitholder who is not a partner for federal income tax purposes, and any cash distributions received by a unitholder who is not a partner for federal income tax purposes would therefore be fully taxable as ordinary income. Unitholders are urged to consult their own tax advisors with respect to the consequences of their status as partners in our company for U.S. federal income tax purposes.

    Flow-Through of Taxable Income

        Aside from taxes paid by the Corporate Subsidiary, we will not pay any U.S. federal income tax. However, a portion of our operations and subsidiaries will be subject to U.S. taxes other than federal income taxes. For U.S. federal income tax purposes, each unitholder will be required to report on its income tax return its share of our income, gains, losses and deductions without regard to whether we make cash distributions to our unitholders. Consequently, we may allocate income to a unitholder even if that unitholder has not received a cash distribution. Each unitholder will be required to include in income its allocable share of our income, gains, losses and deductions for our taxable year or years ending with or within its taxable year. Our taxable year ends on December 31.

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    Treatment of Distributions

        Distributions made by us to a unitholder generally will not be taxable to the unitholder for federal income tax purposes, except to the extent the amount of any such cash distribution exceeds its tax basis in its common units immediately before the distribution. Cash distributions made by us to a unitholder in an amount in excess of the unitholder's tax basis in its units generally will be considered to be gain from the sale or exchange of those common units, taxable in accordance with the rules described under "—Disposition of Common Units" below. Any reduction in a unitholder's share of our liabilities, including as a result of future issuances of additional common units, will be treated as a distribution by us of cash to that unitholder. To the extent that cash distributions made by us cause a unitholder's "at risk" amount to be less than zero at the end of any taxable year, that unitholder must recapture any losses deducted in previous years. See "—Limitations on Deductibility of Losses."

        A non-pro rata distribution of money or property, including a deemed distribution, may result in ordinary income to a unitholder, regardless of that unitholder's tax basis in its common units, if the distribution reduces the unitholder's share of our "unrealized receivables," including depreciation recapture, and/or substantially appreciated "inventory items," both as defined in Section 751 of the Internal Revenue Code, and collectively, "Section 751 Assets." To that extent, a unitholder will be treated as having received its proportionate share of the Section 751 Assets and then having exchanged those assets with us in return for an allocable portion of the distribution made to such unitholder. This latter deemed exchange generally will result in the unitholder's realization of ordinary income. That income will equal the excess of (1) the non-pro rata portion of that distribution over (2) the unitholder's tax basis (generally zero) for the share of Section 751 Assets deemed relinquished in the exchange.

    Ratio of Taxable Income to Distributions

        We estimate that a purchaser of common units in this offering who owns those common units from the date of closing of this offering through the record date for distributions for the period ending December 31, 2012, will be allocated, on a cumulative basis, an amount of U.S. federal taxable income for that period that will be 20% or less of the cash distributed with respect to that period. Thereafter, we anticipate that the ratio of allocable taxable income to cash distributions to the unitholders will increase. These estimates are based upon the assumption that gross income from operations will approximate the amount required to make the minimum quarterly distribution on all units and other assumptions with respect to capital expenditures, cash flow, net working capital and anticipated cash distributions.

        These estimates and assumptions are subject to, among other things, numerous business, economic, regulatory, legislative, competitive and political uncertainties beyond our control. Further, the estimates are based on current tax law and tax reporting positions that we will adopt and with which the IRS could disagree. Accordingly, we cannot assure you that these estimates will prove to be correct. The actual percentage of taxable income to distributions could be higher or lower than expected, and any differences could be material and could materially affect the value of the common units. For example, the ratio of allocable taxable income to cash distributions to a purchaser of common units in this offering will be greater, and perhaps substantially greater, than our estimate with respect to the period described above if:

    gross income from operations exceeds the amount required to make minimum quarterly distributions on all units, yet we only distribute the minimum quarterly distributions on all units; or

    we make a future offering of common units and use the proceeds of the offering in a manner that does not produce substantial additional deductions during the period described above, such as to repay indebtedness outstanding at the time of this offering or to acquire property that is

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      not eligible for depreciation or amortization for federal income tax purposes or that is depreciable or amortizable at a rate significantly slower than the rate applicable to our assets at the time of this offering.

    Basis of Common Units

        A unitholder's initial tax basis for its common units will be the amount it paid for the common units plus its share of our liabilities. That basis will be increased by the unitholder's share of our income and by any increases in its share of our liabilities. That basis generally will be decreased, but not below zero, by distributions from us, by the unitholder's share of our losses, by any decreases in its share of our liabilities and by its share of our expenditures that are not deductible in computing taxable income and are not required to be capitalized. A unitholder will have a share, generally based on its share of profits, of our liabilities. See "—Disposition of Common Units—Recognition of Gain or Loss."

    Limitations on Deductibility of Losses

        The deduction by a unitholder of that unitholder's share of our losses will be limited to the tax basis in that unitholder's units and, in the case of an individual unitholder, estate, trust, or corporate unitholder (if more than 50% of the value of the corporate unitholder's stock is owned directly or indirectly by or for five or fewer individuals or some tax-exempt organizations) to the amount for which the unitholder is considered to be "at risk" with respect to our activities, if that is less than the unitholder's tax basis. A common unitholder subject to these limitations must recapture losses deducted in previous years to the extent that distributions cause the unitholder's at risk amount to be less than zero at the end of any taxable year. Losses disallowed to a unitholder or recaptured as a result of these limitations will carry forward and will be allowable as a deduction in a later year to the extent that the unitholder's tax basis or at risk amount, whichever is the limiting factor, is subsequently increased. Upon the taxable disposition of a unit, any gain recognized by a unitholder can be offset by losses that were previously suspended by the at risk limitation but may not be offset by losses suspended by the basis limitation. Any loss previously suspended by the at risk limitation in excess of that gain would not be utilizable.

        In general, a unitholder will be at risk to the extent of the tax basis of the unitholder's units, excluding any portion of that basis attributable to the unitholder's share of our liabilities, reduced by (1) any portion of that basis representing amounts otherwise protected against loss because of a guarantee, stop loss agreement or other similar arrangement and (2) any amount of money the unitholder borrows to acquire or hold its units, if the lender of those borrowed funds owns an interest in us, is related to another unitholder or can look only to the units for repayment. A unitholder's at risk amount will increase or decrease as the tax basis of the unitholder's units increases or decreases, other than tax basis increases or decreases attributable to increases or decreases in the unitholder's share of our liabilities.

        In addition to the basis and at risk limitations on the deductibility of losses, the passive loss limitations generally provide that individuals, estates, trusts and some closely-held corporations and personal service corporations are permitted to deduct losses from passive activities, which are generally defined as trade or business activities in which the taxpayer does not materially participate, only to the extent of the taxpayer's income from those passive activities. The passive loss limitations are applied separately with respect to each publicly-traded partnership. Consequently, any passive losses we generate will be available to offset only our passive income generated in the future and will not be available to offset income from other passive activities or investments, including our investments or a unitholder's investments in other publicly-traded partnerships, or a unitholder's salary or active business income. Passive losses that are not deductible because they exceed a unitholder's share of income we generate may be deducted in full when he disposes of his entire investment in us in a fully taxable

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transaction with an unrelated party. The passive activity loss rules are applied after other applicable limitations on deductions, including the at risk rules and the basis limitation.

        A unitholder's share of our net income may be offset by any of our suspended passive losses, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships.

    Limitations on Interest Deductions

        The deductibility of a non-corporate taxpayer's "investment interest expense" is generally limited to the amount of that taxpayer's "net investment income." Investment interest expense includes:

    interest on indebtedness properly allocable to property held for investment;

    our interest expense attributed to portfolio income; and

    the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.

        The computation of a unitholder's investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment or qualified dividend income. The IRS has indicated that net passive income earned by a publicly-traded partnership will be treated as investment income to its unitholders for purposes of the investment interest expense limitation. In addition, the unitholder's share of our portfolio income will be treated as investment income.

    Entity-Level Collections of Unitholder Taxes

        If we are required or elect under applicable law to pay any U.S. federal, state, local or non-U.S. tax on behalf of any unitholder or our manager or any former unitholder, we are authorized to pay those taxes from our funds. That payment, if made, will be treated as a distribution of cash to the unitholder on whose behalf the payment was made. If the payment is made on behalf of a unitholder whose identity cannot be determined, we are authorized to treat the payment as a distribution to all current unitholders. We are authorized to amend our limited liability company agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of units and to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under our limited liability company agreement is maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in order to obtain a credit or refund.

    Allocation of Income, Gain, Loss and Deduction

        In general, our items of income, gain, loss and deduction will be allocated among our manager and the unitholders in accordance with their percentage interests in us. However, at any time that distributions are made to the common units in excess of distributions to the subordinated units, or incentive distributions are made, gross income will be allocated to the recipients to the extent of these distributions.

        Specified items of our income, gain, loss and deduction will be allocated to account for the difference between the tax basis and fair market value of our assets at the time of this offering and any future offerings or certain other transactions, referred to in this discussion as "Contributed Property." The effect of these allocations, referred to as Section 704(c) Allocations, to a unitholder acquiring

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common units in this offering will be essentially the same as if the tax bases of our assets were equal to their fair market values at the time of this offering. However, in connection with providing this benefit to any future unitholders, similar allocations, will be made to all holders of partnership interests immediately prior to such other transactions, including purchasers of common units in this offering, to account for the difference between the "book" basis for purposes of maintaining capital accounts and the fair market value of all property held by us at the time of such issuance or future transaction.

        In addition, items of recapture income will be allocated to the extent possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize the recognition of ordinary income by some unitholders. Finally, although we do not expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of our income and gain will be allocated in an amount and manner sufficient to eliminate the negative balance as quickly as possible.

        An allocation of items of our income, gain, loss or deduction, other than an allocation required by the Internal Revenue Code to eliminate book-tax disparities generally will be given effect for federal income tax purposes in determining a partner's share of an item of income, gain, loss or deduction only if the allocation has substantial economic effect. In any other case, a partner's share of an item will be determined on the basis of that partner's interest in us, taking into account all the facts and circumstances.

        Vinson & Elkins L.L.P. is of the opinion that, with the exception of the issues described in "—Section 754 Election" and "—Disposition of Common Units—Allocations Between Transferors and Transferees," allocations under our limited liability company agreement will be given effect for federal income tax purposes in determining a partner's share of an item of income, gain, loss or deduction.

    Treatment of Short Sales

        A unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as having disposed of those units. If so, such unitholder would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period:

    any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder;

    any cash distributions received by the unitholder as to those units would be fully taxable; and

    all of these distributions may be subject to tax as ordinary income.

        Vinson & Elkins L.L.P. has not rendered an opinion regarding the tax treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their units. The IRS has announced that it is studying issues relating to the tax treatment of short sales of partnership interests. See "—Disposition of Common Units—Recognition of Gain or Loss."

    Alternative Minimum Tax

        Each unitholder will be required to take into account the unitholder's distributive share of any items of our income, gain, loss or deduction for purposes of the alternative minimum tax. The current minimum tax rate for non-corporate taxpayers is 26% on the first $175,000 of alternative minimum taxable income in excess of the exemption amount and 28% on any additional alternative minimum taxable income. Prospective unitholders are urged to consult with their tax advisors with respect to the impact of an investment in our units on their liability for the alternative minimum tax.

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    Tax Rates

        Under current law, the highest marginal U.S. federal income tax rate applicable to ordinary income of individuals is 35% and the highest marginal U.S. federal income tax rate applicable to long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year) of individuals is 15%. However, absent new legislation extending the current rates, beginning January 1, 2011, the highest marginal U.S. federal income tax rate applicable to ordinary income and long-term capital gains of individuals will increase to 39.6% and 20%, respectively. These rates are subject to change by new legislation at any time.

        The recently enacted Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act of 2010 is scheduled to impose a 3.8% Medicare tax on certain investment income earned by individuals, estates, and trusts for taxable years beginning after December 31, 2012. For these purposes, investment income generally includes a unitholder's allocable share of our income and gain realized by a unitholder from a sale of units. In the case of an individual, the tax will be imposed on the lesser of (i) the unitholder's net investment income from all investments, or (ii) the amount by which the unitholder's modified adjusted gross income exceeds $250,000 (if the unitholder is married and filing jointly or a surviving spouse) or $200,000 (if the unitholder is unmarried). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

    Section 754 Election

        We will make the election permitted by Section 754 of the Internal Revenue Code. That election is irrevocable without the consent of the IRS. That election will generally permit us to adjust a common unit purchaser's tax basis in our assets ("inside basis") under Section 743(b) of the Internal Revenue Code to reflect the unitholder's purchase price. The Section 743(b) adjustment separately applies to any transferee of a unitholder who purchases outstanding common units from another unitholder based upon the values and bases of our assets at the time of the transfer to the transferee. The Section 743(b) adjustment does not apply to a person who purchases common units directly from us, and belongs only to the purchaser and not to other unitholders. See, however, "—Allocation of Income, Gain, Loss and Deduction" above. For purposes of this discussion, a unitholder's inside basis in our assets will be considered to have two components: (1) the unitholder's share of our tax basis in our assets ("common basis") and (2) the unitholder's Section 743(b) adjustment to that basis.

        The timing and calculation of deductions attributable to Section 743(b) adjustments to our common basis will depend upon a number of factors, including the nature of the assets to which the adjustment is allocable, the extent to which the adjustment offsets any Internal Revenue Code Section 704(c) type gain or loss with respect to an asset and certain elections we make as to the manner in which we apply Internal Revenue Code Section 704(c) principles with respect to an asset to which the adjustment is applicable. See "—Allocation of Income, Gain, Loss and Deduction" above.

        The timing of these deductions may affect the uniformity of our units. Under our limited liability company agreement, our manager is authorized to take a position to preserve the uniformity of units even if that position is not consistent with these and any other Treasury Regulations or if the position would result in lower annual depreciation or amortization deductions than would otherwise be allowable to some unitholders. See "—Uniformity of Units." Vinson & Elkins L.L.P. is unable to opine as to the validity of any such alternate tax positions because there is no clear applicable authority. A unitholder's basis in a common unit is reduced by his or her share of our deductions (whether or not such deductions were claimed on an individual income tax return) so that any position that we take that understates deductions will overstate the unitholder's basis in his or her common units and may

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cause the unitholder to understate gain or overstate loss on any sale of such common units. See "—Uniformity of Units" below.

        A Section 754 election is advantageous if the transferee's tax basis in its units is higher than the units' share of the aggregate tax basis of our assets immediately prior to the transfer. In that case, as a result of the election, the transferee would have, among other items, a greater amount of depreciation deductions and the transferee's share of any gain or loss on a sale of assets by us would be less. Conversely, a Section 754 election is disadvantageous if the transferee's tax basis in its units is lower than those units' share of the aggregate tax basis of our assets immediately prior to the transfer. Thus, the fair market value of the units may be affected either favorably or unfavorably by the election. A basis adjustment is required regardless of whether a Section 754 election is made in the case of a transfer of an interest in us if we have a substantial built-in loss immediately after the transfer, or if we distribute property and have a substantial basis reduction. Generally a built-in loss or a basis reduction is substantial if it exceeds $250,000.

        The calculations involved in the Section 754 election are complex and will be made on the basis of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in accordance with the Internal Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment we allocated to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is generally either nonamortizable or amortizable over a longer period of time or under a less accelerated method than our tangible assets. We cannot assure you that the determinations we make will not be successfully challenged by the IRS or that the resulting deductions will not be reduced or disallowed altogether. Should the IRS require a different basis adjustment to be made, and should the manager determine the expense of compliance exceeds the benefit of the election, we may seek permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of units may be allocated more income than such purchaser would have been allocated had the election not been revoked.

    Foreign Tax Credits

        Subject to detailed limitations set forth in the Internal Revenue Code, a unitholder may elect to claim a credit against its liability for U.S. federal income tax for its share of certain non-U.S. taxes paid by us. The amount and availability of such credit will be dependent upon several factors, such as whether the unitholder has sufficient income from foreign sources, whether such income is in the same foreign tax credit category as our income, and the rate of foreign tax to which our income is subject. Given the complexity of the rules relating to the determination of the foreign tax credit, prospective unitholders are urged to consult their own tax advisors to determine whether or to what extent they would be entitled to such credit. Unitholders who do not elect to claim foreign tax credits may instead claim a deduction for their shares of foreign taxes paid by us.


Tax Treatment of Operations

    Accounting Method and Taxable Year

        We will use the year ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Each unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a unitholder who has a taxable year ending on a date other than December 31 and who disposes of all of his units following the close of our taxable year but before the close of his taxable year must include his share of our income, gain, loss and deduction in income for his taxable year, with the result that he will be required to include in income for his taxable year his share of more

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than one year of our income, gain, loss and deduction. See "—Disposition of Common Units—Allocations Between Transferors and Transferees."

    Initial Tax Basis, Depreciation and Amortization

        The tax basis of our assets will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on the disposition of these assets. The federal income tax burden associated with the difference between the fair market value of our assets and their tax basis immediately prior to an offering will be borne by our partners holding interest in us prior to the offering. See "—U.S. Federal Income Taxation of Unitholders—Allocation of Income, Gain, Loss and Deduction."

        To the extent allowable, we may elect to use the depreciation and cost recovery methods that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. We may not be entitled to any amortization deductions with respect to certain goodwill properties conveyed to us or held by us at the time of any future offering. See "—Uniformity of Units." Property we subsequently acquire or construct may be depreciated using accelerated methods permitted by the Internal Revenue Code.

        If we dispose of depreciable property by sale, foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own will likely be required to recapture some or all of those deductions as ordinary income upon a sale of his interest in us. See "—U.S. Federal Income Taxation of Unitholders—Allocation of Income, Gain, Loss and Deduction" and "—Disposition of Common Units—Recognition of Gain or Loss."

        The costs incurred in selling our units (called "syndication expenses") must be capitalized and cannot be deducted currently, ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and commissions we incur will be treated as syndication expenses.

    Valuation and Tax Basis of Our Properties

        The federal income tax consequences of the ownership and disposition of units will depend in part on our estimates of the relative fair market values and the initial tax bases of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deduction previously reported by unitholders might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.


Disposition of Common Units

    Recognition of Gain or Loss

        Gain or loss will be recognized on a sale of units equal to the difference between the unitholder's amount realized and the unitholder's tax basis for the units sold. A unitholder's amount realized will equal the sum of the cash or the fair market value of other property he receives plus his share of our liabilities. Because the amount realized includes a unitholder's share of our liabilities, the gain

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recognized on the sale of units could result in a tax liability in excess of any cash received from the sale.

        Prior distributions from us in excess of cumulative net taxable income for a common unit that decreased a unitholder's tax basis in that common unit will, in effect, become taxable income if the common unit is sold at a price greater than the unitholder's tax basis in that common unit, even if the price received is less than his original cost.

        Except as noted below, gain or loss recognized by a unitholder, other than a "dealer" in units, on the sale or exchange of a unit held for more than one year, will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of units held more than twelve months will generally be taxed at a maximum U.S. federal income tax rate of 15% through December 31, 2010 and 20% thereafter (absent new legislation extending or adjusting the current rate). However, a portion, which will likely be substantial, of this gain or loss will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code to the extent attributable to assets giving rise to depreciation recapture or other "unrealized receivables" or "inventory items" that we own. The term "unrealized receivables" includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized on the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a unit. Thus, a unitholder may recognize both ordinary income and a capital loss upon a sale of units. Net capital loss may offset capital gains and no more than $3,000 of ordinary income, in the case of individuals, and may only be used to offset capital gain in the case of corporations.

        The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an "equitable apportionment" method, which generally means that the tax basis allocated to the interest sold equals an amount that bears the same relation to the partner's tax basis in his entire interest in the partnership as the value of the interest sold bears to the value of the partner's entire interest in the partnership. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use the actual holding period of the common units transferred. Thus, according to the ruling discussed above, a common unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according to the Treasury Regulations, he may designate specific common units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding period of common units transferred must consistently use that identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional units or a sale of common units purchased in separate transactions is urged to consult his tax advisor as to the possible consequences of this ruling and application of the Treasury Regulations.

        Specific provisions of the Internal Revenue Code affect the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold an "appreciated" partnership interest, one in which gain would be recognized if it were sold, assigned or terminated at its fair market value, if the taxpayer or related persons enter(s) into:

    a short sale;

    an offsetting notional principal contract; or

    a futures or forward contract with respect to the partnership interest or substantially identical property.

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        Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to the partnership interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical property. The Secretary of the Treasury is also authorized to issue regulations that treat a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as having constructively sold the financial position.

    Allocations Between Transferors and Transferees

        In general, our taxable income or loss will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month (the "Allocation Date"). However, gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.

        Although simplifying conventions are contemplated by the Internal Revenue Code and most publicly-traded partnerships use similar simplifying conventions, the use of this method may not be permitted under existing Treasury Regulations. Recently, however, the Department of the Treasury and the IRS issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly-traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Existing publicly-traded partnerships are entitled to rely on those proposed Treasury Regulations; however, they are not binding on the IRS and are subject to change until the final Treasury Regulations are issued. Accordingly, Vinson & Elkins L.L.P. is unable to opine on the validity of this method of allocating income and deductions between transferee and transferor unitholders. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholder's interest, our taxable income or losses might be reallocated among the unitholders. We are authorized to revise our method of allocation between transferee and transferor unitholders, as well as among unitholders whose interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.

        A unitholder who owns units at any time during a quarter and who disposes of them prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and deductions attributable to that quarter but will not be entitled to receive that cash distribution.

    Notification Requirements

        A unitholder who sells any of its units is generally required to notify us in writing of that sale within 30 days after the sale (or, if earlier, January 15 of the year following the sale). A purchaser of units who purchases units from another unitholder is also generally required to notify us in writing of that purchase within 30 days after the purchase. Upon receiving such notifications, we are required to notify the IRS of that transaction and to furnish specified information to the transferor and transferee. Failure to notify us of a purchase may, in some cases, lead to the imposition of penalties. However, these reporting requirements do not apply to a sale by an individual who is a citizen of the United States and who effects the sale or exchange through a broker who will satisfy such requirements.

    Constructive Termination

        We will be considered to have terminated our tax partnership for U.S. federal income tax purposes upon the sale or exchange of interests in Niska Gas Storage Partners LLC that, in the aggregate, constitute 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of measuring whether the 50% has been met, multiple sales of the same unit are counted

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only once. A constructive termination results in the closing of our taxable year for all unitholders. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may result in more than twelve months of our taxable income or loss being includable in such unitholder's taxable income for the year of termination. A constructive termination occurring on a date other than December 31 will result in us filing two tax returns for one fiscal year and the cost of the preparation of these returns will be borne by all unitholders. We would be required to make new tax elections after a termination, including a new election under Section 754 of the Internal Revenue Code, and a termination would result in a deferral of our deductions for depreciation. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination.


Uniformity of Units

        Because we cannot match transferors and transferees of units and because of other reasons, we must maintain uniformity of the economic and tax characteristics of the units to a purchaser of these units. In the absence of uniformity, we may be unable to completely comply with a number of federal income tax requirements, both statutory and regulatory. A lack of uniformity could result from a literal application of Treasury Regulation Section 1.167(c)-1(a)(6) and Treasury Regulation Section 1.197-2(g)(3), neither of which is anticipated to apply to a material portion of our assets. Any non-uniformity could have a negative impact on the value of the units. See "—U.S. Federal Income Taxation of Unitholders—Section 754 Election."

        Our Operating Agreement permits our manager to take positions in filing our tax returns that preserve the uniformity of our units even under circumstances like those described above. These positions may include reducing for some unitholders the depreciation, amortization or loss deductions to which they would otherwise be entitled or reporting a slower amortization of Section 743(b) adjustments for some unitholders than that to which they would otherwise be entitled. Our counsel, Vinson & Elkins L.L.P., is unable to opine as to validity of such filing positions. A unitholder's basis in units is reduced by his or her share of our deductions (whether or not such deductions were claimed on an individual income tax return) so that any position that we take that understates deductions will overstate the unitholder's basis in his or her common units, and may cause the unitholder to understate gain or overstate loss on any sale of such units. See "—Disposition of Common Units—Recognition of Gain or Loss" above and "—Tax Consequences of Unit Ownership—Section 754 Election" above. The IRS may challenge one or more of any positions we take to preserve the uniformity of units. If such a challenge were sustained, the uniformity of units might be affected, and, under some circumstances, the gain from the sale of units might be increased without the benefit of additional deductions.


Non-U.S. Investors

        Ownership of units by non-resident aliens (as determined for federal income purposes), non-U.S. corporations or other non-U.S. persons raises issues unique to those investors and, as described below, may have substantially adverse tax consequences to them. If you are a non-U.S. person, you should consult your tax advisor before investing in our common units.

        Under rules applicable to publicly-traded partnerships, our distributions to non-U.S. unitholders are subject to withholding tax at the highest effective applicable rate to the extent attributable to income that is effectively connected with the conduct of a U.S. trade or business. Given the uncertainty at the time of making distributions regarding the amount of any distribution that is attributable to income that is so effectively connected, we intend to treat all of our distributions as attributable to our U.S. operations, and as a result, the entire distribution will be subject to withholding.

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        Non-resident aliens and non-U.S. corporations, trusts or estates that own common units will be considered to be engaged in business in the United States because of their ownership of common units. As a consequence, they will be required to file U.S. federal tax returns to report their shares of our income, gain, loss or deduction that is effectively connected with the conduct of a U.S. trade or business and pay federal income tax at regular rates on their shares of our net income or gain that is effectively connected with the conduct of a U.S. trade or business. Because we have substantial operations both inside and outside of the United States, we anticipate that a portion of our net income or gain will be effectively connected with the conduct of a U.S. trade or business and a portion of our net income or gain will not be effectively connected with the conduct of a U.S. trade or business. However, given the factual nature of such an analysis, we cannot assure you of the level of our net income or gain that will be treated as effectively connected with the conduct of a U.S. trade or business in any year. A non-U.S. unitholder who obtains a taxpayer identification number from the IRS and timely submits that number to our transfer agent on a Form W-8BEN or applicable substitute form may, on his U.S. federal income tax return, apply the taxes withheld from distributions as a credit against the tax liability due with respect to the return and claim a refund of any withholding in excess of that tax liability.

        In addition, because a non-U.S. corporation that owns common units will be treated as engaged in a U.S. trade or business, that corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our income and gain, as adjusted for changes in the non-U.S. corporation's "U.S. net equity," that is effectively connected with the conduct of a U.S. trade or business. That tax may be reduced or eliminated by an income tax treaty between the United States and the country in which the non-U.S. corporate unitholder is a "qualified resident." In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Internal Revenue Code.

        A non-U.S. unitholder who sells or otherwise disposes of a common unit will be subject to U.S. federal income tax on gain realized from the sale or disposition of that unit to the extent the gain is effectively connected with the conduct of a U.S. trade or business of the non-U.S. unitholder. Under a ruling published by the IRS, interpreting the scope of "effectively connected income," part or all of a non-U.S. unitholder's gain would be effectively connected with the U.S. trade or business deemed conducted by the non-U.S. unitholder by virtue of its ownership of an interest in us. Moreover, under the Foreign Investment in Real Property Tax Act, a non-U.S. common unitholder generally will be subject to U.S. federal income tax upon the sale or disposition of a common unit if (1) it owned (directly or constructively applying certain attribution rules) more than 5% of our common units at any time during the five-year period ending on the date of such disposition and (ii) 50% or more of the fair market value of all of our assets consisted of U.S. real property interests at any time during the shorter of the period during which such unitholder held the common units or the 5-year period ending on the date of disposition. Therefore, non-U.S. unitholders may be subject to federal income tax on gain from the sale or disposition of their units.


Tax-Exempt Organizations

        Ownership of units by employee benefit plans and other tax-exempt organizations raises issues unique to those investors and, as described below, may have substantially adverse tax consequences to them. If you are a tax-exempt entity, you should consult your tax advisor before investing in our common units.

        Employee benefit plans and most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject to federal income tax on unrelated business taxable income. Virtually all of our income allocated to a unitholder that is a tax-exempt organization will be unrelated business taxable income and will be taxable to them.

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Administrative Matters

    Information Returns and Audit Procedures

        We intend to furnish to each unitholder, within 90 days after the close of each calendar year, specific tax information, including a Schedule K-1, which describes his share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each unitholder's share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the Internal Revenue Code, Treasury Regulations or administrative interpretations of the IRS. Neither we nor Vinson & Elkins L.L.P. can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any challenge by the IRS could negatively affect the value of the units.

        The IRS may audit our federal income tax information returns. Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year's tax liability, and possibly may result in an audit of his own return. Any audit of a unitholder's return could result in adjustments not related to our returns as well as those related to our returns.

        Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Internal Revenue Code requires that one partner be designated as the "Tax Matters Partner" for these purposes. Our limited liability company agreement names our manager as our Tax Matters Partner.

        The Tax Matters Partner will make some elections on our behalf and on behalf of unitholders. In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each unitholder with an interest in the outcome may participate.

        A unitholder must file a statement with the IRS identifying the treatment of any item on his federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of this consistency requirement may subject a unitholder to substantial penalties.

    Nominee Reporting

        Persons who hold an interest in us as a nominee for another person are required to furnish to us:

    (1)
    the name, address and taxpayer identification number of the beneficial owner and the nominee;

    (2)
    a statement regarding whether the beneficial owner is:

    (a)
    a person that is not a U.S. person;

    (b)
    a non-U.S. government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or

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      (c)
      a tax-exempt entity;

    (3)
    the amount and description of units held, acquired or transferred for the beneficial owner; and

    (4)
    specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales.

        Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on units they acquire, hold or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is imposed by the Internal Revenue Code for failure to report that information to us. The nominee is required to supply the beneficial owner of the units with the information furnished to us.

    Accuracy-Related Penalties

        An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable to one or more specified causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed, however, for any portion of an underpayment if it is shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.

        For individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000. The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted on the return:

    (1)
    for which there is, or was, "substantial authority;" or

    (2)
    as to which there is a reasonable basis and the relevant facts of that position are disclosed on the return.

        If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an "understatement" of income for which no "substantial authority" exists, we must disclose the relevant facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make adequate disclosure on their returns and to take other actions as may be appropriate to permit unitholders to avoid liability for this penalty. More stringent rules apply to "tax shelters," which we do not believe includes us, or any of our investments, plans or arrangements.

        A substantial valuation misstatement exists if (a) the value of any property, or the tax basis of any property, claimed on a tax return is 150% or more of the amount determined to be the correct amount of the valuation or tax basis, (b) the price for any property or services (or for the use of property) claimed on any such return with respect to any transaction between persons described in Internal Revenue Code Section 482 is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct amount of such price, or (c) the net Internal Revenue Code Section 482 transfer price adjustment for the taxable year exceeds the lesser of $5 million or 10% of the taxpayer's gross receipts. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for a corporation other than an S Corporation or a personal holding company). The penalty is increased to 40% in the event of a gross valuation misstatement. We do not anticipate making any valuation misstatements.

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    Reportable Transactions

        If we were to engage in a "reportable transaction," we (and possibly you and others) would be required to make a detailed disclosure of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a "listed transaction" or that it produces certain kinds of losses for partnerships, individuals, S corporations, and trusts in excess of $2 million in any single tax year, or $4 million in any combination of six successive tax years. Our participation in a reportable transaction could increase the likelihood that our federal income tax information return (and possibly your tax return) would be audited by the IRS. See "—Information Returns and Audit Procedures."

        Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, you may be subject to the following provisions of the American Jobs Creation Act of 2004:

    accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at "—Accuracy-Related Penalties;"

    for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability; and

    in the case of a listed transaction, an extended statute of limitations.

        We do not expect to engage in any "reportable transactions."


State and Local Taxation of Unitholders

        In addition to federal income taxes, you will be subject to other taxes, including state, local and income taxes, unincorporated business taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which we do business or own property or in which you are a resident. We will initially own assets and conduct business in California and Oklahoma. Each of these states currently imposes a personal income tax on individuals. Although you may not be required to file a return and pay taxes in some jurisdictions because your income from that jurisdiction falls below the filing and payment requirement, you will be required to file income tax returns and to pay income taxes in many of these jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. In some jurisdictions, tax losses may not produce a tax benefit in the year incurred and may not be available to offset income in subsequent taxable years. Some of the jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular unitholder's income tax liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. Amounts withheld will be treated as if distributed to unitholders for purposes of determining the amounts distributed by us. See "—U.S. Federal Income Taxation of Unitholders—Entity-Level Collections." Based on current law and our estimate of our future operations, our Manager anticipates that any amounts required to be withheld will not be material.

        It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, of such unitholder's investment in us. Accordingly, we strongly recommend that each prospective unitholder consult, and depend upon, its own tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to file all state, local and non-U.S., as well as U.S. federal income tax returns, that may be required of such unitholder. Vinson & Elkins L.L.P. has not rendered an opinion on any state or local tax consequences of an investment in us.

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MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO UNITHOLDERS

        This section is a summary of the material Canadian federal income tax consequences that may be relevant to prospective unitholders who are (1) individual citizens or residents of the United States, or (2) individual or corporate residents of Canada and, unless otherwise noted in the following discussion, is the opinion of Bennett Jones LLP, which is Canadian counsel to our manager and us, insofar as it relates to Canadian federal income tax law. To the extent this section discusses Canadian federal income taxes, that discussion is based upon the Income Tax Act (Canada) (which is referred to in this Registration Statement as the "Canadian Tax Act") and the regulations thereunder (which are referred to in this Registration Statement as the "Canadian Regulations"), applicable case law and the current published administrative and assessing practices and policies of the Canada Revenue Agency (which is referred to in this Registration Statement as the "CRA"), all in effect as of the date of this Registration Statement. This summary also takes into account all proposals to amend the Canadian Tax Act or the Regulations which have been publicly announced by, or on behalf of, the Minister of Finance (Canada) prior to the date of this Registration Statement (which are referred to in this Registration Statement as the "Tax Proposals"), although no assurance can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary does not take into account or anticipate any other changes in law or administrative policy, whether by way of judicial, legislative or governmental decision or action, nor does it take into account provincial, territorial or non-Canadian income tax legislation or considerations, which may differ from the Canadian federal income tax consequences discussed in this summary. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below.

        This section does not address all Canadian federal, provincial, local and other tax matters that affect our unitholders. To the extent that this section relates to taxation by a provincial, local or other jurisdiction within Canada, such discussion is intended to provide only general information. We have not sought the opinion of legal counsel regarding Canadian provincial, local or other taxation matters and, thus, any portion of the following discussion relating to such taxes does not represent the opinion of Bennett Jones LLP or any other legal counsel.

        This summary is of a general nature only and is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in common units. The tax consequences of acquiring, holding and disposing of common units will vary according to the status of the unitholder. This summary is not intended to constitute legal or income tax advice to any particular unitholder. Prospective unitholders should obtain independent advice from their own tax advisors regarding the income tax considerations applicable to investing in common units, based on the unitholder's particular circumstances.

        No ruling has been or will be requested from the CRA regarding any matter that affects us or prospective unitholders. Instead, we will rely on opinions and advice of Bennett Jones LLP. Unlike a ruling, an opinion of counsel represents only that counsel's best legal judgment and does not bind the CRA or the courts. Accordingly, the opinions and statements made herein may not be sustained by a court if contested by the CRA. Any contest of this sort with the CRA may materially and adversely impact the market for our common units and the prices at which our common units trade. In addition, the costs of any contest with the CRA, principally legal, accounting and related fees, will result in a reduction in cash available for distribution to our unitholders and our manager and thus will be borne directly or indirectly by the unitholders and the manager. Furthermore, the tax treatment of us, or of an investment in us, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.

        All statements regarding matters of law and legal conclusions, set forth below, unless otherwise noted, are the opinion of Bennett Jones LLP. Such statements are based on the accuracy of the representations made by us, and statements of fact do not represent opinions of Bennett Jones LLP.

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Taxation of Niska Gas Storage Partners LLC

        For Canadian federal income tax purposes, Niska Gas Storage Partners LLC will be considered a corporation, and common units will be considered share capital. Distributions on common units will be considered dividends, or in certain limited circumstances, returns of capital, and dispositions of common units will be considered dispositions of share capital. Taxation of these items is dependent upon the status of Niska Gas Storage Partners LLC as a non-resident of Canada for purposes of the Canadian Tax Act. As set forth above, at "Business—Taxation—Canadian Taxation," provided that the central management and control of Niska Gas Storage Partners LLC is not exercised in Canada, Niska Gas Storage Partners LLC will not be considered resident in Canada. Even if our central management and control were located in Canada, recent Canadian federal income tax case law suggests that there are potential arguments for asserting that we are not resident in Canada because we were formed pursuant to the laws of the State of Delaware. The remainder of this discussion assumes that Niska Gas Storage Partners LLC is not a resident of Canada for the purposes of the Canadian Tax Act. For a discussion of the tax consequences of Niska Gas Storage Partners LLC being resident, or carrying on business, in Canada, see "Risk Factors—Tax Risks."


Taxation of Unitholders Resident in the United States

        This portion of the summary is applicable only to a unitholder who, for the purposes of the Canadian Tax Act and the Canada—United States Tax Convention (1980) (which is referred to in this Registration Statement as the "Treaty") and at all relevant times: (1) is an individual resident in the United States; (2) deals with us at arm's length; (3) is not affiliated with us; (4) holds our common units as capital property; (5) does not hold and is not deemed under the Canadian Tax Act to use or hold common units in or in the course of carrying on a business in Canada; and (6) does not hold the common units as designated insurance property in connection with an insurance business carried on in Canada and elsewhere. Such a unitholder is referred to in this Registration Statement as a "U.S. Holder." Common units in us will generally be considered to be capital property to a unitholder provided that the unitholder does not hold the common units in the course of carrying on a business and has not acquired the units in a transaction considered to be an adventure or concern in the nature of trade.

    Dividends on Common Units

        A U.S. Holder will not be subject to any Canadian federal income tax (including withholding tax) pursuant to the Canadian Tax Act on dividends received from us.

    Disposition of Common Units

        A U.S. Holder will not be subject to any Canadian federal income tax on gains realized pursuant to a disposition of our common units unless our common units constitute "taxable Canadian property" to a U.S. Holder at the time of the disposition and the U.S. Holder is not entitled to any relief from Canadian federal income tax under the Treaty.

        Provided that our common units are listed on a "designated stock exchange" at the particular time (which includes the NYSE), our common units will only be taxable Canadian property if: (1) at any time in the 60-month period preceding the date of disposition, more than 50% of the value of the property directly held by Niska Gas Storage Partners LLC was taxable Canadian property, a Canadian resource property, timber resource property, or any option therein, and more than 50% of the value of our common units was derived, directly or indirectly, from one or any combination of real property situated in Canada, Canadian resource property and timber resource property; and (2) at any time in the 60-month period preceding the date of disposition, 25% or more of the issued common units were owned by the U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, or any combination thereof. Options or rights to acquire our common units may constitute taxable Canadian property if the U.S. Holder (and any combination of persons who do not deal at arm's length with the U.S. Holder): (1) owns 25% or more of our common units; or (2) holds rights or options to acquire

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25% or more of our common units. Even if our common units or options or rights to acquire our common units, constitute taxable Canadian property to a U.S. Holder, the Treaty provides relief from Canadian federal income tax on any gains realized by a U.S. Holder who is a U.S. resident under the Treaty on a disposition of (1) options or rights to acquire our common units, and (2) common units, provided that Niska Gas Storage Partners LLC is, at the time of the disposition, not a resident of Canada. U.S. Holders whose common units or options or rights to acquire our common units are taxable Canadian property should seek separate Canadian tax advice with respect to any reporting obligations in Canada.

    Taxable Canadian Property

        On March 4, 2010, the Minister of Finance (Canada) announced certain Tax Proposals containing proposed amendments to the Canadian Tax Act and the definition of "taxable Canadian property" under the Canadian Tax Act (which are referred to in this Registration Statement as the "2010 Budget Proposals"). As a relieving measure, the proposed amendments to the definition of taxable Canadian property introduced as part of the 2010 Budget Proposals will eliminate the above-noted requirement that at any time in the 60-month period preceding a U.S. Holder's disposition of our common units, more than 50% of the value of the property directly held by Niska Gas Storage Partners LLC was taxable Canadian property, Canadian resource property, timber resource property, or any option therein. Therefore, provided that our common units are listed on a designated stock exchange at the particular time (which includes the NYSE), our common units will only be taxable Canadian property to a U.S. Holder pursuant to the 2010 Budget Proposals if at any time during the 60-month period preceding the date of disposition: (1) 25% or more of our issued common units are owned by the U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, or any combination thereof; and (2) more than 50% of the value of our common units was derived, directly or indirectly, from one or a combination of (A) real property situated in Canada, (B) Canadian resource property, (C) timber resource property, or (D) an option in respect of, or an interest in, any property described in (A) to (C). No assurance can be given that the 2010 Budget Proposals will be enacted in the form proposed, or at all. U.S. Holders whose common units may constitute taxable Canadian property under the 2010 Budget Proposals should consult their own Canadian tax advisors with respect to any reporting obligations in Canada.


Taxation of Unitholders Resident in Canada

        This portion of the summary is applicable only to a unitholder who, for the purposes of the Canadian Tax Act and the Treaty and at all relevant times: (1) is an individual or corporation resident in Canada; (2) deals with us at arm's length; (3) is not affiliated with us; (4) does not, together with related persons, own a sufficient equity percentage of our common units that we would be considered a "foreign affiliate" of such unitholder; and (5) holds our units as capital property. Such a unitholder is referred to in this Registration Statement as a "Canadian Holder." Common units in us will generally be considered to be capital property to a unitholder provided the unitholder does not hold the common units in the course of carrying on a business and has not acquired the common units in a transaction considered to be an adventure or concern in the nature of trade.

        This summary is not applicable to a Canadian Holder: (1) that is a "financial institution" for purposes of the "mark-to-market" rules, (2) an interest in which is a "tax shelter investment," or (3) that has elected to determine its Canadian tax results in accordance with the "functional currency" rules, as each of those terms is defined in the Canadian Tax Act. Such Canadian Holders should consult their own tax advisors.

    Exchange Rate

        For purposes of the Canadian Tax Act, all amounts relating to the acquisition, holding or disposition of our common units, including dividends, adjusted cost base and proceeds of disposition, must be expressed in Canadian dollars using the rate of exchange quoted by the Bank of Canada at noon on the date such amounts first arose, or such other rate of exchange as is acceptable to the CRA.

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    Dividends on Common Units

        Distributions from us on our common units will generally be characterized as dividends for the purposes of the Canadian Tax Act. The full amount of dividends received or deemed to be received by a Canadian Holder on our common units, including amounts deducted for U.S. withholding tax, if any, will be included in computing the Canadian Holder's income. For an individual (including a trust) the gross-up and dividend tax credit in the Canadian Tax Act will not apply to such dividends. A Canadian Holder that is a corporation will not be entitled to deduct the amount of such dividends in computing its taxable income. A Canadian Holder that is throughout the relevant taxation year a "Canadian-controlled private corporation," (as defined in the Canadian Tax Act), is liable to pay an additional refundable tax of 62/3% on its "aggregate investment income" for the year, which will include such dividends. To the extent U.S. withholding tax is deducted in respect of the dividends paid on our common units, the amount of such tax generally may be eligible for foreign tax credit or deduction treatment, subject to the detailed rules and limitations under the Canadian Tax Act. Canadian Holders should consult their own tax advisors with respect to the availability of a foreign tax credit or deduction, having regard to their own particular circumstances and the fact that we are treated as a partnership for U.S. federal income tax purposes.

    Disposition of Common Units

        A Canadian Holder who disposes of, or is deemed to have disposed of, a common unit (including the purchase of a common unit by us) will realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of the common unit exceed (or are less than) the aggregate of the adjusted cost base of such common unit and any reasonable costs of disposition. One-half of the amount of a capital gain is a taxable capital gain and is required to be included in income in the year the capital gain is realized. One-half of a capital loss is an allowable capital loss and must be deducted against taxable capital gains realized in the year of disposition. The unused portion of an allowable capital loss may be carried back up to three years or forward indefinitely and deducted against net taxable capital gains realized in such years, in the circumstances and to the extent provided under the Canadian Tax Act.

        A "Canadian-controlled private corporation" (as defined in the Canadian Tax Act) is liable to pay an additional refundable tax of 62/3% on its "aggregate investment income" which may include taxable capital gains. Capital gains realized by an individual or trust, other than certain specified trusts, may give rise to a liability for alternative minimum tax under the Canadian Tax Act.

        Canadian Holders that are subject to U.S. taxation on the disposition of our common units should consult their own tax advisors with respect to their entitlement to claim exemption from U.S. taxation on the disposition under the provisions of the Treaty and their eligibility for a foreign tax credit or deduction in respect of such amounts under the Canadian Tax Act.

    Foreign Property Information Reporting

        A Canadian Holder that is a "specified Canadian entity" for a taxation year or a fiscal period and whose total "cost amount" of "specified foreign property" (as such terms are defined in the Canadian Tax Act) at any time in the year or period exceeds CDN$100,000 will be required to file an information return for the year or period disclosing certain prescribed information. Subject to certain exceptions, a Canadian Holder will be a "specified Canadian entity." Our common units will be "specified foreign property." Canadian Holders should consult their own tax advisors regarding whether they are subject to these reporting requirements.

    Offshore Investment Fund Property Tax Proposals

        The 2010 Budget Proposals contain proposed amendments to the Canadian Tax Act (which are referred to in this Registration Statement as the "OIFP Proposals") relating to the income tax treatment of Canadian residents holding interests in property that constitute "offshore investment fund property" (which are referred to in this Registration Statement as the "OIFP Rules"). As a result of

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introducing the OIFP Proposals, all former proposed amendments to the OIFP Rules introduced by the Canadian Parliament on September 7, 2008 in Bill C-10, An Act to Amend the Canadian Tax Act, or otherwise (generally referred to as the "foreign investment entity" or FIE rules), are no longer applicable.

        Pursuant to the OIFP Proposals, where, in a particular year, a resident of Canada holds or has an interest in property that is a share of, an interest in, or a debt of an entity that is not a Canadian resident (or an interest in, right or option to acquire such a share, interest or debt) that may reasonably be considered to derive its primary value, directly or indirectly, from certain listed portfolio investments of that entity or another entity that is not a Canadian resident (which is referred to in this Registration Statement as "Offshore Investment Fund Property"), and one of the main reasons for acquiring an interest in such Offshore Investment Fund Property is to reduce or defer the holder's tax liability that would have applied to the income generated by the portfolio investments if such income had been earned directly by the holder, the holder will generally be required to include in computing income for the year, an amount equal to the amount, if any, by which (1) the product obtained when the holder's "designated cost amount" (as defined in the Canadian Tax Act) of such Offshore Investment Fund Property is multiplied by the three-month-average Canadian Treasury Bill rate plus two percentage points, exceeds (2) the holder's income for the year from such Offshore Investment Fund Property (other than any capital gains realized by the holder on the disposition of such Offshore Investment Fund Property).

        As at the date of this Registration Statement, the OIFP Proposals do not contain any specific language for the proposed amendments to the Canadian Tax Act. In addition, public comments on the OIFP Proposals are being accepted until May 4, 2010. As a result, no assurance can be given that the OIFP Proposals will be enacted in the form proposed, or at all.

        Although not free from doubt, a Canadian Holder's investment in our common units may constitute an interest in Offshore Investment Fund Property under the OIFP Rules and the OIFP Proposals. As a result, each Canadian Holder will have to make a determination of whether one of the main reasons for making an investment in our common units was to reduce or defer the Canadian Holder's tax that would otherwise have been payable if the income generated by the portfolio investments held by us had been earned directly by the Canadian Holder, although the fact that we intend to make quarterly distributions to the holders of our common units should be a mitigating factor. Canadian Holders are advised to consult their own tax advisors for a detailed understanding of the OIFP Rules and the OIFP Proposals, and their potential application to an investment in our common units.

    Eligibility For Investment

        Subject to the provisions of any particular plan and provided that our common units are listed at all relevant times on a "designated stock exchange" within the meaning of the Canadian Tax Act (which includes the New York Stock Exchange), our common units will, if issued on the date hereof, be qualified investments under the Canadian Tax Act for a trust governed by a registered retirement savings plan, registered education savings plan, registered retirement income fund, deferred profit sharing plan, registered disability savings plan and a tax-free savings account (a "TFSA"). Notwithstanding that our common units may be a qualified investment for a trust governed by a TFSA, the Canadian Holder of a TFSA will be subject to a penalty tax on the common units held in the TFSA if such common units are a "prohibited investment" for the purposes of the Canadian Tax Act. The common units will generally be a "prohibited investment" if the Canadian Holder of the TFSA does not deal at arm's length with us for the purposes of the Canadian Tax Act or the Canadian Holder of the TFSA has a "significant interest" (as defined in the Canadian Tax Act) in us or a corporation, partnership or trust with which we do not deal at arm's length for the purposes of the Canadian Tax Act. Such Canadian Holders are urged to consult their own tax advisors.

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INVESTMENT IN NISKA GAS STORAGE PARTNERS LLC BY EMPLOYEE BENEFIT PLANS

        An investment in us by an employee benefit plan is subject to additional considerations because the investments of these plans are subject to the fiduciary responsibility and prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended, or ERISA, as well as the prohibited transaction restrictions imposed by Section 4975 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. For these purposes, the term "employee benefit plan" includes, but is not limited to, qualified pension, profit-sharing, and stock bonus plans, certain Keogh plans, certain simplified employee pension plans, and tax-deferred annuities or IRAs established or maintained by an employer or employee organization. Among other things, consideration should be given to:

    whether the investment is prudent under Section 404(a)(1)(B) of ERISA;

    whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(l)(C) of ERISA;

    whether the investment is permitted under the terms of the applicable documents governing the plan;

    whether the investment will constitute a "prohibited transaction" under Section 406 of ERISA and Section 4975 of the Internal Revenue Code (see below);

    whether in making the investment, that plan will be considered to hold as plan assets (1) only the investment in our units or (2) an undivided interest in our underlying assets (see below); and

    whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return.

        The person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should determine whether an investment in us is authorized by the appropriate governing plan instruments and whether such investment is otherwise a proper investment for the plan.

        Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit plans, and certain IRAs that are not considered part of an employee benefit plan, from engaging in specified transactions ("prohibited transactions") involving "plan assets" with parties that are "parties in interest" under ERISA or "disqualified persons" under the Internal Revenue Code with respect to the plan.

        In addition to considering whether the purchase of common units is a prohibited transaction, a fiduciary of an employee benefit plan should consider whether the plan will, by investing in us, be deemed to own an undivided interest in our assets, with the result that our manager also would be a fiduciary of the plan and our operations would be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the Internal Revenue Code.

        The Department of Labor regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be deemed "plan assets" under some circumstances. Under these regulations, an entity's underlying assets generally would not be considered to be "plan assets" if, among other things:

    the equity interests acquired by employee benefit plans are "publicly offered securities;" i.e., the equity interests are part of a class of securities that are widely held by 100 or more investors independent of the issuer and each other, "freely transferable" (as defined in the regulations),

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      and either part of a class of securities registered under some provisions of the federal securities laws or sold to the plan as part of a public offering under certain conditions;

    the entity is an "operating company,"—i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority owned subsidiary or subsidiaries; or

    there is no significant investment by benefit plan investors, which is defined to mean that, immediately after the most recent acquisition by a plan of an equity interest in an entity, less than 25% of the total value of each class of equity interest, disregarding some interests held by our manager, its affiliates, and some other persons, is held by "benefit plan investors." Our assets should not be considered "plan assets" under these regulations because it is expected that the investment will satisfy the requirements in the first bullet point above.

        Plan fiduciaries contemplating a purchase of our common units should consult with their own counsel regarding the consequences under ERISA and the Internal Revenue Code in light of the serious penalties imposed on persons who engage in prohibited transactions or other ERISA violations.

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UNDERWRITING

        Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated are acting as representatives of the underwriters named below. Under the terms of an underwriting agreement, a form of which is filed as an exhibit to the registration statement relating to this prospectus, each of the underwriters named below has severally agreed to purchase from us the respective number of common units shown opposite its name below.

Underwriters
  Number of
Common Units
 

Goldman, Sachs & Co. 

       

Morgan Stanley & Co. Incorporated

       

Barclays Capital Inc. 

       

Citigroup Global Markets Inc. 

       

Credit Suisse Securities (USA) LLC

       

RBC Capital Markets Corporation

       

UBS Securities LLC

       

Raymond James & Associates, Inc. 

       

Wells Fargo Securities, LLC

       

Lazard Capital Markets LLC

       

Stifel Nicolaus & Company Incorporated

       
       
 

Total

    17,500,000  
       

        The underwriting agreement provides that the underwriters' obligation to purchase the common units depends on the satisfaction of the conditions contained in the underwriting agreement including:

    the obligation to purchase all of the common units offered hereby (other than those common units covered by their option to purchase additional common units as described below) if any of the common units are purchased;

    the representations and warranties made by us to the underwriters are true;

    there has been no material change in our business or the financial markets; and

    we deliver customary closing documents to the underwriters.


Commissions and Expenses

        The following table summarizes the underwriting discounts and commissions we will pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional common units. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to us for the common units.

 
  No Exercise   Full Exercise  

Paid by us per unit

  $     $    

Total

  $     $    

        We will pay a structuring fee equal to 0.375% of the gross proceeds from this offering (excluding any proceeds from the exercise of the option to purchase additional units) to Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated for evaluation, analysis and structuring of our company.

        The representatives of the underwriters have advised us that the underwriters propose to offer the common units directly to the public at the public offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $            per common unit. After the offering, the representatives may change the offering

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price and other selling terms. The offering of the common units by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.

        The expenses of the offering that are payable by us are estimated to be approximately $5.4 million (exclusive of underwriting discounts and structuring fees).

        The total compensation to be paid to the participating Financial Industry Regulatory Authority members will not exceed 10% of the gross proceeds from the sale of securities being registered hereby.


Option to Purchase Additional Common Units

        We have granted the underwriters an option exercisable for 30 days after the date of the underwriting agreement to purchase, from time to time, in whole or in part, up to an aggregate of 2,625,000 additional common units at the public offering price less underwriting discounts. This option may be exercised if the underwriters sell more than 17,500,000 common units in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional common units based on the underwriter's percentage underwriting commitment in the offering as indicated in the table at the beginning of this Underwriting section. If and to the extent the underwriters exercise their option, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Holdco. The net proceeds from any exercise of the underwriters' option to purchase additional common units will be used to pay a distribution to Holdco.


Lock-Up Agreements

        We, our subsidiaries, our manager, Holdco and its affiliates, including our directors and executive officers, have agreed that without the prior written consent of Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, we and they will not, for a period of 180 days from the date of this prospectus, directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise hedge or dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any of our common units, any options or warrants to purchase common units or securities convertible into or exercisable or exchangeable for, or that represent the right to receive, common units.

        The restrictions described above do not apply to:

    the issuance by us of unit-based awards pursuant to our Long-Term Incentive Plan that are not exercisable and do not vest during the 180-day restricted period;

    the sale of common units to the underwriters pursuant to the underwriting agreement; or

    the issuance of common units to Holdco upon expiration of the underwriters' option to purchase additional common units.

        The 180-day restricted period described in the preceding paragraph will be extended if:

    during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs; or

    prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 180-day period,

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or the occurrence of the material event, unless such extension is waived in writing by Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated.

        Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, in their sole discretion, may release the common units and other securities subject to the lock-up agreements described above in

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whole or in part at any time with or without notice. When determining whether or not to release common units and other securities from lock-up agreements, Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated will consider, among other factors, the holder's reasons for requesting the release, the number of common units and other securities for which the release is being requested and market conditions at the time.


Offering Price Determination

        Prior to this offering, there has been no public market for our common units. The initial public offering price will be negotiated between the representatives and us. In determining the initial public offering price of our common units, the representatives considered:

    the history and prospects for the industry in which we compete;

    our financial information;

    the ability of our management and our business potential and earning prospects;

    the prevailing securities markets at the time of this offering; and

    the recent market prices of, and the demand for, publicly-traded common units of generally comparable master limited partnerships.


United Kingdom

        Our company may constitute a "collective investment scheme" as defined by section 235 of the Financial Services and Markets Act 2000 ("FSMA") that is not a "recognised collective investment scheme" for the purposes of FSMA ("CIS") and that has not been authorised or otherwise approved. As an unregulated scheme, it cannot be marketed in the United Kingdom to the general public, except in accordance with FSMA. This prospectus is only being distributed in the United Kingdom to, and are only directed at:

    (1)
    if our company is a CIS and is marketed by a person who is an authorised person under FSMA, (a) investment professionals falling within Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) Order 2001, as amended (the "CIS Promotion Order") or (b) high net worth companies and other persons falling with Article 22(2)(a) to (d) of the CIS Promotion Order; or

    (2)
    otherwise, if marketed by a person who is not an authorised person under FSMA, (a) persons who fall within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Financial Promotion Order") or (b) Article 49(2)(a) to (d) of the Financial Promotion Order; and

    (3)
    in both cases (1) and (2) to any other person to whom it may otherwise lawfully be made, (all such persons together being referred to as "relevant persons"). The common units are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such common units will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

An invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) in connection with the issue or sale of the common units which are the subject of the offering contemplated by this prospectus will only be communicated or caused to be communicated in circumstances in which Section 21(1) of FSMA does not apply to our company.


Indemnification

        We and certain of our subsidiaries have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act and to contribute to payments that the underwriters may be required to make for these liabilities.

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Stabilization, Short Positions and Penalty Bids

        The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common units, in accordance with Regulation M under the Exchange Act.

    Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

    A short position involves a sale by the underwriters of the common units in excess of the number of common units the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of common units involved in the sales made by the underwriters in excess of the number of common units they are obligated to purchase is not greater than the number of common units that they may purchase by exercising their option to purchase additional common units. In a naked short position, the number of common units involved is greater than the number of common units in their option to purchase additional common units. The underwriters may close out any short position by either exercising their option to purchase additional common units and/or purchasing common units in the open market. In determining the source of common units to close out the short position, the underwriters will consider, among other things, the price of common units available for purchase in the open market as compared to the price at which they may purchase common units through their option to purchase additional common units. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common units in the open market after pricing that could adversely affect investors who purchase in the offering.

    Syndicate covering transactions involve purchases of the common units in the open market after the distribution has been completed in order to cover syndicate short positions.

    Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common units or preventing or retarding a decline in the market price of the common units. As a result, the price of the common units may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NYSE or otherwise and, if commenced, may be discontinued at any time.

        Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common units. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.


Electronic Distribution

        A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of common units for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.

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        Other than the prospectus in electronic format, the information on any underwriter's or selling group member's web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.


New York Stock Exchange

        Our common units have been approved for listing on the NYSE under the symbol "NKA."


Discretionary Sales

        The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 10% of the total number of common units offered by them.


Relationships

        The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their affiliates have performed investment banking, commercial banking and advisory services for us for which they have received customary fees and expenses. The underwriters and their affiliates may in the future perform investment banking, commercial banking and advisory services for us and our affiliates from time to time for which they may in the future receive customary fees and expenses. In particular, affiliates of Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, RBC Capital Markets Corporation and UBS Securities LLC are lenders under our credit facilities. A portion of the proceeds from this offering will be used to pay down indebtedness under our credit facilities. Also, affiliates of Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, RBC Capital Markets Corporation and UBS Securities LLC participated as initial purchasers in the non-public offering of $800.0 million aggregate principal amount of senior notes by Niska US and Niska Canada. Affiliates of Goldman, Sachs & Co., Barclays Capital Inc., Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC contract with us for storage capacity from time to time. Affiliates of Barclays Capital Inc., Citigroup Global Markets Inc. and Wells Fargo Securities, LLC are counterparties for certain of our hedging transactions.

        Lazard Frères & Co. LLC referred this transaction to Lazard Capital Markets LLC and will receive a referral fee from Lazard Capital Markets LLC in connection therewith.

        In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the issuer.


FINRA Conduct Rules

        Because the Financial Industry Regulatory Authority, or FINRA, views the common units offered hereby as interests in a direct participation program, the offering is being made in compliance with Rule 2310 of the FINRA Conduct Rules. Investor suitability with respect to the common units should be judged similarly to the suitability with respect to other securities that are listed for trading on a national securities exchange.

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VALIDITY OF THE COMMON UNITS

        The validity of the common units will be passed upon for us by Vinson & Elkins L.L.P., New York, New York. Certain legal matters in connection with the common units offered hereby will be passed upon for the underwriters by Baker Botts L.L.P., Houston, Texas.


EXPERTS

        The combined financial statements of Niska Predecessor as of December 31, 2009, March 31, 2009 and March 31, 2008, and for the nine-month period ended December 31, 2009, the years ended March 31, 2009 and 2008, and the period from May 12, 2006 to March 31, 2007, have been included herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

        The statement of financial position of Niska Gas Storage Partners LLC as of January 27, 2010 has been included herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

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WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-l regarding the common units. This prospectus does not contain all of the information found in the registration statement. For further information regarding us and the common units offered by this prospectus, you may desire to review the full registration statement, including its exhibits and schedules, filed under the Securities Act. The registration statement of which this prospectus forms a part, including its exhibits and schedules, may be inspected and copied at the public reference room maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of the materials may also be obtained from the SEC at prescribed rates by writing to the public reference room maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

        The SEC maintains a web site on the Internet at http://www.sec.gov. Our registration statement, of which this prospectus constitutes a part, can be downloaded from the SEC's web site and can also be inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

        You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

        Upon completion of this offering, we will file with or furnish to the SEC periodic reports and other information. These reports and other information may be inspected and copied at the public reference facilities maintained by the SEC or obtained from the SEC's website as provided above. Our website on the Internet will be located at http://www.niskapartners.com and will be activated following the closing of this offering. We make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

        We intend to furnish or make available to our unitholders annual reports containing our audited financial statements and furnish or make available to our unitholders quarterly reports containing our unaudited interim financial information, including the information required by Form 10-Q, for the first three fiscal quarters of each fiscal year.

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FORWARD-LOOKING STATEMENTS

        Some of the information in this prospectus may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," or "continue," and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

    changes in general economic conditions;

    competitive conditions in our industry;

    actions taken by third-party operators, processors and transporters;

    changes in the availability and cost of capital;

    operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;

    the effects of existing and future laws and governmental regulations;

    the effects of future litigation; and

    certain factors discussed elsewhere in this prospectus.

        All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

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INDEX TO FINANCIAL STATEMENTS

NISKA GAS STORAGE PARTNERS LLC UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

   
 

Introduction

 
F-2
 

Unaudited Pro Forma Combined Balance Sheet as of December 31, 2009

  F-3
 

Unaudited Pro Forma Combined Statement of Income for the Year Ended March 31, 2009

  F-4
 

Unaudited Pro Forma Combined Statements of Income for the Nine Months Ended December 31, 2009

  F-5
 

Unaudited Pro Forma Combined Statements of Income for the Nine Months Ended December 31, 2008

  F-6
 

Notes to Unaudited Pro Forma Combined Financial Statements

  F-7

NISKA GS HOLDINGS I, L.P. AND NISKA GS HOLDINGS II, L.P. HISTORICAL COMBINED FINANCIAL STATEMENTS

   
 

Report of Independent Registered Public Accounting Firm

 
F-11
 

Combined Statements of Earnings and Comprehensive Income for the Years Ended March 31, 2009 and March 31, 2008, Nine Months Ended December 31, 2009 and December 31, 2008 and Period from May 12, 2006 through March 31, 2007

  F-12
 

Combined Balance Sheets as of March 31, 2009 and 2008 and December 31, 2009

  F-13
 

Combined Statements of Cash Flows for the Years Ended March 31, 2009 and March 31, 2008, Nine Months Ended December 31, 2009 and December 31, 2008 and Period from May 12, 2006 through March 31, 2007

  F-14
 

Combined Statements of Partners' Equity as of December 31, 2009, March 31, 2009, March 31, 2008, March 31, 2007 and May 12, 2006

  F-15
 

Notes to Combined Financial Statements

  F-16

NISKA GAS STORAGE PARTNERS LLC HISTORICAL STATEMENT OF FINANCIAL POSITION

   
 

Report of Independent Registered Public Accounting Firm

 
F-48
 

Statement of Financial Position as of January 27, 2010

  F-49
 

Notes to the Statement of Financial Position

  F-50

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NISKA GAS STORAGE PARTNERS LLC
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

INTRODUCTION

        In connection with the closing of this offering, Niska GS Holdings US, L.P. and Niska GS Holdings Canada, L.P. (collectively, "Niska Holdings") will, directly or indirectly, contribute 100% of the ownership interests in Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P. (collectively "Niska Predecessor") to Niska Gas Storage Partners LLC, a newly formed Delaware limited liability corporation. The assets, liabilities and results of operations of Niska Predecessor for the periods prior to their actual contribution to Niska Gas Storage Partners LLC are presented as Niska Predecessor.

        The accompanying unaudited pro forma combined financial statements of Niska Gas Storage Partners LLC should be read together with the historical combined financial statements of Niska Predecessor included elsewhere in this prospectus. The accompanying unaudited pro forma combined financial statements of Niska Gas Storage Partners LLC were derived by making certain adjustments to the historical combined financial statements of Niska Predecessor. The adjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual adjustments may differ from the pro forma adjustments.

        The accompanying unaudited pro forma financial statements give effect to the contribution of 100% of the ownership interests in Niska Predecessor by Niska Holdings to Niska Gas Storage Partners LLC, the issuance of senior notes by certain subsidiaries of Niska Predecessor prior to such contribution, the offering of units representing limited liability company interests to the public hereunder and the application of proceeds therefrom and certain related transactions in connection with the closing of this offering. The unaudited pro forma combined balance sheet assumes that the above-noted transactions occurred on December 31, 2009 and the unaudited pro forma combined statements of income assume the above-noted transactions occurred as of April 1, 2008. All of the assets and liabilities of Niska Predecessor contributed to Niska Gas Storage Partners LLC will be recorded at historical cost as the transaction is considered to be a reorganization of entities under common control.

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NISKA GAS STORAGE PARTNERS LLC

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

DECEMBER 31, 2009

(Thousands of U.S. dollars)

 
  December 31,
2009
  Pro Forma
Adjustments
  Pro Forma
December 31,
2009
 

ASSETS

                       

Current Assets:

                       

Cash and cash equivalents

  $ 37,964   $ 60,000   2(d)   $ 59,389  

          (11,575 ) 2(h)        

          (27,000 ) 2(g)        

Margin deposits

   
7,718
             
7,718
 

Trade receivables

    3,540               3,540  

Accrued receivables

    106,289               106,289  

Natural gas inventory

    210,857               210,857  

Prepaid expenses

    3,476               3,476  

Current income taxes

    48               48  

Short-term risk management assets

    64,377               64,377  
                   

    434,269     21,425         455,694  
                   

Long-term Assets:

                       

Property, plant and equipment, net of accumulated depreciation

    974,278     (23,176 ) 2(a)     951,102  

Goodwill

    486,258     (2,350 ) 2(a)     483,908  

Long-term natural gas inventory

    15,264               15,264  

Intangible assets, net of accumulated amortization

    135,423               135,423  

Deferred charges, net of accumulated depreciation

    7,928     24,836   2(c)     24,836  

          (7,928 ) 2(i)        

Long-term risk management assets

    17,598               17,598  
                   

    1,636,749     (8,618 )       1,628,131  
                   

Total Assets

    2,071,018     12,807         2,083,825  
                   

LIABILITIES AND PARTNERS' EQUITY

                       

Current Liabilities:

                       

Current portion of debt

  $ 196,420   $ (6,420 ) 2(c)   $ 115,000  

          (75,000 ) 2(c)        

          (115,000 ) 2(c)        

          115,000   2(e)        

Trade payables

    430               430  

Current portion of deferred taxes

    39,582               39,582  

Deferred revenue

    9,142               9,142  

Accrued liabilities

    47,514               47,514  

Short-term risk management liabilities

    25,920               25,920  
                   

    319,008     (81,420 )       237,588  

Long-term Liabilities:

                       

Long-term risk management liabilities

    33,525     (11,575 ) 2(h)     21,950  

Asset retirement obligations

    1,344               1,344  

Funds held on deposit

    112               112  

Deferred income taxes

    161,218     (678 ) 2(f)     160,540  

Long-term debt

    586,579     800,000   2(c)     800,000  

          (586,579 ) 2(c)        
                   

    1,101,786     119,748         1,221,534  

PARTNERS'/MEMBERS' EQUITY

                       

Partners' capital

    969,232     (25,526 ) 2(a)      

          (936,456 ) 2(b)        

          (7,928 ) 2(i)        

          678   2(f)        

Held by Public:

                       
 

Common units

          367,500   2(d)     339,613  
 

          (23,887 ) 2(d)        
 

          (4,000 ) 2(d)        

Held by managing member and affiliates:

                       
 

Common units

        (33,902 ) 2(c)     165,351  
 

          (88,457 ) 2(d)        
 

          296,251   2(b)        
 

          (8,541 ) 2(g)        
 

Subordinated units

        (70,390 ) 2(c)     343,314  

          (183,660 ) 2(d)        

          615,099   2(b)        

          (17,735 ) 2(g)        
 

Managing member interest

        (2,873 ) 2(c)     14,013  
 

          (7,496 ) 2(d)        
 

          25,106   2(b)        
 

          (724 ) 2(g)        
                   

    969,232     (106,941 )       862,291  
                   

Total liabilities and partners'/members' equity

  $ 2,071,018   $ 12,807       $ 2,083,825  
                   

Common units issued and outstanding

          33,804,745         33,804,745  

Subordinated units issued and outstanding

          33,804,745         33,804,745  

The accompanying notes are an integral part of these Pro Forma Combined Financial Statements.

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NISKA GAS STORAGE PARTNERS LLC

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME

YEAR ENDED MARCH 31, 2009

(Thousands of U.S. dollars, except unit and per unit amounts)

 
  Year ended
March 31, 2009
  Pro Forma
Adjustments
  Pro Forma twelve
months ended
March 31, 2009
 

REVENUES

                   

Short-term contract revenue

  $ 52,040         $ 52,040  

Long-term contract revenue

    110,730           110,730  

Optimization revenue, net

    89,411           89,411  
               

    252,181         252,181  

EXPENSES (INCOME)

                   

Operating expenses

    45,412           45,412  

General and administrative

    24,182           24,182  

Depreciation and amortization

    54,750           54,750  

Impairment of goodwill

    21,962           21,962  

Impairment of assets

    2,106   $ (2,106 )3(a)    

(Gain) on sale of assets

    (11 )         (11 )

Interest expense

    53,486     (53,486 )3(a),(b)   79,965  

          74,105   3(c)      

          5,860   3(d)      

Foreign exchange (gain)

    (25,843 )         (25,843 )

Other income

    (20,812 )         (20,812 )
               

EARNINGS BEFORE INCOME TAXES

    96,949     (24,373 )   72,576  

Income taxes (benefit)

                   

Current

    314           314  

Deferred

    (12,185 )   (10,402 )3(e)   (22,587 )
               

    (11,871 )   (10,402 )   (22,273 )

NET EARNINGS (LOSS)

  $ 108,820   $ 13,971   $ 94,849  

Managing member's interest in net earnings (loss)

                1,897  

Non-managing members' interest in net earnings (loss)

                   
 

Common units

                46,476  
 

Subordinated units

                46,476  
 

Incentive distribution rights

                0  

Net earnings (loss) per unit

                   
 

Common units (basic and diluted)

                1.37  
 

Subordinated units (basic and diluted)

                1.37  

Weighted average number of units outstanding

                   
 

Common units (basic and diluted)

                33,804,745  
 

Subordinated units (basic and diluted)

                33,804,745  

The accompanying notes are an integral part of these Pro Forma Combined Financial Statements.

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NISKA GAS STORAGE PARTNERS LLC

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME

NINE MONTHS ENDED DECEMBER 31, 2009

(Thousands of U.S. dollars, except unit and per unit amounts)

 
  Nine months ended
December 31, 2009
  Pro Forma
Adjustments
  Pro Forma nine
months ended
December 31, 2009
 

REVENUES

                   

Short-term contract revenue

  $ 39,939         $ 39,939  

Long-term contract revenue

    81,799           81,799  

Optimization revenue, net

    27,939           27,939  
               

    149,677         149,677  

EXPENSES (INCOME)

                   

Operating expenses

    28,388           28,388  

General and administrative

    21,532   $ (654 )3(a)   20,878  

Depreciation and amortization

    32,891           32,891  

Interest expense

    20,140     (20,140 )3(b)   62,254  

          55,579   3(c)      

          6,675   3(d)      

Foreign exchange gain

    (8,222 )         (8,222 )

Other income

    (88 )         (88 )
               

EARNINGS BEFORE INCOME TAXES

    55,036     41,460     13,576  

Income taxes (benefit)

                   

Current

    212           212  

Deferred

    51,636     (10,922 )3(e)   40,714  
               

    51,848     (10,922 )   40,926  

NET EARNINGS (LOSS)

  $ 3,188   $ (30,538 ) $ (27,350 )

Managing member's interest in net earnings (loss)

                (546 )

Non-managing members' interest in net earnings (loss)

                   
 

Common units

                (13,402 )
 

Subordinated units

                (13,402 )
 

Incentive distribution rights

                0  

Net earnings (loss) per unit

                   
 

Common units (basic and diluted)

                (0.40 )
 

Subordinated units (basic and diluted)

                (0.40 )

Weighted average number of units outstanding

                   
 

Common units (basic and diluted)

                33,804,745  
 

Subordinated units (basic and diluted)

                33,804,745  

The accompanying notes are an integral part of these Pro Forma Combined Financial Statements.

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NISKA GAS STORAGE PARTNERS LLC

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME

NINE MONTHS ENDED DECEMBER 31, 2008

(Thousands of U.S. dollars, except unit and per unit amounts)

 
  Nine months ended
December 31, 2008
  Pro Forma
Adjustments
  Pro Forma nine
months ended
December 31, 2008
 

REVENUES

                   

Short-term contract revenue

  $ 32,775         $ 32,775  

Long-term contract revenue

    85,895           85,895  

Optimization revenue, net

    92,944           92,944  
               

    211,614         211,614  

EXPENSES (INCOME)

                   

Operating expenses

    34,490           34,490  

General and administrative

    20,412           20,412  

Depreciation and amortization

    43,433           43,433  

Loss/(gain) on sale of assets

    734           734  

Interest expense

    43,498   $ (43,498 )3(b)   60,093  

          55,578   3(c)      

          4,515   3(d)      

Foreign exchange gain

    (15,959 )         (15,959 )

Other income

    (360 )         (360 )
               

EARNINGS BEFORE INCOME TAXES

   
85,366
   
(16,595

)
 
68,771
 

Income taxes (benefit)

                   

Current

    320           320  

Deferred

    (15,731 )   (7,633) 3(e)   (23,364 )
               

    (15,411 )   (7,633 )   (23,044 )

NET EARNINGS (LOSS)

 
$

100,777
 
$

(8,962

)

$

91,815
 

Managing member's interest in net earnings (loss)

                1,836  

Non-managing members' interest in net earnings (loss)

                   
 

Common units

                44,989  
 

Subordinated units

                44,989  
 

Incentive distribution rights

                1,026  

Net earnings (loss) per unit

                   
 

Common units (basic and diluted)

                1.33  
 

Subordinated units (basic and diluted)

                1.33  

Weighted average number of units outstanding

                   
 

Common units (basic and diluted)

                33,804,745  
 

Subordinated units (basic and diluted)

                33,804,745  

The accompanying notes are an integral part of these Pro Forma Combined Financial Statements.

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NISKA GAS STORAGE PARTNERS LLC

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1.     Basis of Presentation

        The unaudited pro forma combined balance sheet of Niska Gas Storage Partners LLC as of December 31, 2009, and the related unaudited pro forma combined statements of income for the year ended March 31, 2009 and the nine-month periods ended December 31, 2009 and 2008 are derived from the historical combined financial statements of Niska Predecessor included elsewhere in the prospectus.

        The unaudited pro forma combined financial statements reflect the contribution by Niska Holdings of Niska Gas Storage US, LLC ("Niska US") and Niska Gas Storage Canada ULC ("Niska Canada") to Niska Gas Storage Partners LLC ("Niska Partners") as well as the other transactions discussed in notes 2 and 3. As the contribution of Niska US and Niska Canada will be a reorganization of entities under common control, the pro forma combined financial statements reflect the historical carrying amount of the net assets of Niska Predecessor. The pro forma combined financial statements also reflect that Niska Holdings will retain two potential development projects, Starks Gas Storage, L.L.C. ("Starks") and Coastal Bend Gas Storage, LLC ("Coastal Bend").

        The pro forma adjustments herein assume no exercise of underwriters' option to purchase additional common units. If the underwriters exercise their option to purchase additional common units in full, Niska Partners would receive $51.7 million in exchange for 2,625,000 common units (at an assumed initial offering price of $21.00 per common unit) and will use the proceeds from the issuance of these units to pay a distribution to Niska Holdings.

        Upon completion of this offering, Niska Partners anticipates incurring incremental general and administrative expenses related to becoming a separate public entity (e.g., cost of tax return preparation, annual and quarterly reports to unitholders, stock exchange listing fees and registrar and transfer agent fees) in an annual amount of approximately $3.4 million. The unaudited pro forma combined financial statements do not reflect these incremental general and administrative expenses.

2.     Pro Forma Balance Sheet Adjustments

        The following pro forma balance sheet adjustments assume the following transactions occurred on December 31, 2009:

            (a)   Reflects the elimination of property, plant and equipment of $23.2 million and goodwill of $2.3 million relating to Niska Holdings retaining its net investment in Starks and Coastal Bend of $25.5 million (comprising partner's capital of $30.1 million and deficit of $4.6 million).

            (b)   Reflects the contribution by Niska Holdings of its net investment in Niska Predecessor of $936.5 million after the reduction related to 2(a) above in exchange for:

              (i)    $296.3 million for 16,304,745 common units of Niska Partners;

              (ii)   $615.1 million for 33,804,745 subordinated units of Niska Partners; and

              (iii)  $25.1 million for the 2% managing member interest of Niska Partners.

            (c)   Reflects the issuance of 8.875% unsecured senior notes by Niska Canada and Niska US for aggregate proceeds of $800.0 million. Niska Predecessor used the net proceeds of $782.0 million, after debt financing costs of $18.0 million, as follows:

              (i)    to repay the entire $593.0 million of borrowings under the syndicated term loans of Niska Predecessor (comprising a current portion of $6.4 million and a long-term portion of $586.6 million);

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NISKA GAS STORAGE PARTNERS LLC

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)

              (ii)   to repay the $75.0 million of borrowing under the previous revolving credit facilities of Niska Predecessor;

              (iii)  to pay a distribution to Niska Holdings of $107.2 million; and

              (iv)  to pay fees and expenses related to the new credit facilities of $6.8 million.

        The 8.875% unsecured senior notes will mature on March 15, 2018 however, upon certain corporate a change of control or asset sale event, Niska Partners may be required immediately to repay the outstanding principal, any accrued interest on and any other amounts owed by Niska Partners under the notes. In addition, Niska Partners may redeem the notes prior to March 15, 2018 under certain circumstances pursuant to the indenture. The indenture governing the senior notes contains certain covenants that, among other things, limit Niska Partners' and its subsidiaries' ability to:

    incur additional indebtedness;

    pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments;

    make certain investments;

    sell, transfer, or otherwise convey certain assets;

    create liens;

    consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; and

    enter into certain transactions with affiliates.

            (d)   Reflects the issuance by Niska Partners of 17,500,000 common units to the public at an assumed initial offering price of $21.00 per common unit resulting in aggregate gross proceeds of $367.5 million. Niska Partners will use the net proceeds of $343.6 million, after estimated underwriting discounts and structuring fees of $23.9 million, as follows:

              (i)    to repay borrowings under the credit facilities which will be used to pay a distribution to Niska Holdings of $279.6 million;

              (ii)   to pay estimated offering expenses of $4.0 million; and

              (iii)  retain the remaining $60.0 million for general company purposes.

            (e)   Represents the amount that would have been drawn under the new $400 million variable-rate revolving credit facility to repay the drawings under the previous revolving credit facility that would have been outstanding had the transaction occurred on December 31, 2009.

        Niska Partners' credit facilities mature on March 5, 2014; upon the occurrence of certain events of default, Niska Partners' obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, including the senior notes, voluntary and involuntary bankruptcy proceedings, material money judgments, material pension-plan events, certain change of control events and other customary events of default. In addition, Niska Partners will be required to make prepayments under the revolving credit facilities at any time when, and to the extent that, the aggregate amount of the outstanding loans and letters of credit under such revolving credit facility exceeds the lesser of the aggregate amount of commitments in respect of such revolving credit facility and the applicable borrowing base.

            (f)    Reflects the income tax impact of pro forma balance sheet adjustments made above to the extent that they relate to taxable entities at an effective income tax rate of 29.42% for the year

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NISKA GAS STORAGE PARTNERS LLC

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)

    ended March 31, 2009 and the nine months ended December 31, 2008, and 28.83% for the nine months ended December 31, 2009.

            (g)   Reflects a contribution of $18.0 million in January 2010 to fund capital expenditures that would otherwise not have been allowed under our previous credit facility. Additionally, distributions of $25.0 million and $20.0 million made and planned to be made, respectively, to our sponsor prior to this offering have also been reflected.

            (h)   Reflects the pro forma liquidation of interest rate hedge liabilities associated with the previous credit facilities at the December 31, 2009 values of $11.6 million. The actual amounts of $13.8 million of interest rate hedge liabilities were liquidated on March 5, 2010 in connection with the repayment of the prior credit facilities described in 2(c) above.

            (i)    Reflects the write off of $7.9 million of costs associated with the liquidation of the previous credit facilities reflected in adjustment 2(c) above.

3.     Pro Forma Statements of Income Adjustments

        The following pro forma statements of income adjustments assume the above-noted transactions occurred as of April 1, 2008:

            (a)   Reflects the elimination of general and administrative expenses and long-lived asset impairment expenses related to Starks and Coastal Bend.

            (b)   Reflects the elimination of historical interest expense (including amortization of debt issue costs and interest rate swaps) relating to the previous revolving credit facilities and the previous syndicated term loans of Niska Predecessor. This adjustment eliminates the effect of Niska Predecessor's previous financing structure to reflect the financing transactions discussed in note 2.

            (c)   Reflects the inclusion of interest expense relating to the issuance of 8.875% unsecured senior notes for aggregate proceeds of $800.0 million. Interest expense includes the amortization of related debt issue costs over the eight-year term of the unsecured senior notes.

            (d)   Reflects the inclusion of (1) interest expense relating to the variable-rate revolving credit facilities based on the actual average revolver drawings of $67.3 million, $118.4 million and $71.1 million for the year ended March 31, 2009 and the nine months ended December 31, 2009 and 2008, respectively, using the currently applicable interest rate of 5% (assumes LIBOR plus 350 basis points, where LIBOR is approximately 1.50%) and (2) a commitment fee relating to the unused balances that would have been undrawn under the $400.0 million maximum availability using the applicable fee of 0.75% applicable to such unused balances.

            (e)   Reflects the income tax impact of pro forma statements of income adjustments made above to the extent that they relate to taxable entities at an effective income tax rate of 29.42% for the year ended March 31, 2009 and the nine months ended December 31, 2008, and 28.83% for the nine months ended December 31, 2009.

4.     Pro Forma Net Earnings per Unit

        Niska Partners computes earnings per unit using the two-class method. Net earnings available to common and subordinated unitholders for purposes of the basic earnings per unit computation is allocated between the common and subordinated unitholders by applying the provisions of the Operating Agreement as if all net earnings for the period had been distributed as cash. Under the two-class method, any excess of distributions declared over net earnings (loss) shall be allocated to the

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NISKA GAS STORAGE PARTNERS LLC

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)


members based on their respective sharing of losses specified in Operating Agreement (that is, the provisions for allocation of losses to the members' capital accounts for the period presented). For purposes of pro forma calculation we have assumed that distributions were declared for each common and subordinated unit equal to the minimum quarterly distribution for each quarter in the pro forma periods.

        Pro forma basic net earnings per unit is determined by dividing the pro forma net earnings available to common and subordinated unitholders of Niska Partners by the number of common and subordinated units expected to be outstanding at the closing of the offering. For purposes of this calculation, the number of common and subordinated units outstanding was assumed to be 33,804,745 units and 33,804,745 units, respectively. All units were assumed to have been outstanding since the beginning of the periods presented.

        Pursuant to the Operating Agreement of Niska Partners, Niska Holdings is entitled to receive certain incentive distributions that, when applying the provisions of the Operating Agreement as if all net earnings for the period had been distributed as cash, will result in less net earnings allocable to common and subordinated unitholders provided that the net earnings exceed certain targets. The incentive distribution rights are a separate equity interest and represent participating securities. No cash distributions would have been declared to the incentive distribution rights during any of the periods, based upon the assumption that distributions were declared equal to the minimum quarterly distribution, but net income would have been allocated to the incentive distribution rights during the nine months ended December 31, 2008 based upon the application of the provisions of the Operating Agreement to the net earnings for such period.

        Pro forma basic and diluted net earnings per unit are the same because (1) there would be no dilutive impact, applying the if-converted method, had the subordinated units been converted to common units at the beginning of the respective reporting unit as pro forma net income allocated to common and subordinated unitholders was the same on a per unit basis, and (2) as there are no other potentially dilutive units expected to be outstanding at the closing of the offering.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P.:

        We have audited the accompanying combined balance sheets of Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P. (the "Niska Predecessor") as of December 31, 2009 and March 31, 2009 and 2008, and the related combined statements of earnings and comprehensive income, cash flows and partners' equity for the nine-month period ended December 31, 2009, each of the years in the two-year period ended March 31, 2009 and the period from May 12, 2006 to March 31, 2007. These combined financial statements are the responsibility of Niska Predecessor's management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Niska Predecessor as of December 31, 2009 and March 31, 2009 and 2008, and the combined results of its operations and its combined cash flows for the nine-month period ended December 31, 2009, each of the years in the two-year period ended March 31, 2009 and the period from May 12, 2006 to March 31, 2007 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP
Chartered Accountants

Calgary, Canada
April 14, 2010

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Niska Predecessor

Combined Statements of Earnings and Comprehensive Income

(Thousands of U.S. dollars)

 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12, 2006
to March 31, 2007
 
 
   
  (Unaudited)
   
   
   
 

REVENUES

                               
 

Short-term contract revenue

  $ 39,939   $ 32,775   $ 52,040   $ 35,512   $ 32,113  
 

Long-term contract revenue

    81,799     85,895     110,730     121,353     104,463  
 

Optimization revenue, net (Note 15)

    27,939     92,944     89,411     76,023     57,183  
                       

Total Revenues

    149,677     211,614     252,181     232,888     193,759  

EXPENSES (INCOME)

                               
 

Operating expenses

    28,388     34,490     45,412     44,627     28,752  
 

General and administrative (Notes 4, 17 and 18)

    21,532     20,412     24,182     30,100     19,867  
 

Depreciation and amortization

    32,891     43,433     54,750     42,522     46,649  
 

Impairment of goodwill (Note 7)

            21,962          
 

Impairment of assets (Note 2)

            2,106     2,500      
 

Loss (gain) on sale of assets

        734     (11 )   2,252      
 

Interest expense (Note 16)

    20,140     43,498     53,486     73,853     60,188  
 

Foreign exchange gains

    (8,222 )   (15,959 )   (25,843 )   (7,224 )   (2,634 )
 

Other income (Note 4)

    (88 )   (360 )   (20,812 )   (707 )   (421 )
                       

Total Expenses

    94,641     126,248     155,232     187,923     152,401  

EARNINGS BEFORE INCOME TAXES

   
55,036
   
85,366
   
96,949
   
44,965
   
41,358
 
                       

Income taxes (benefit) (Note 11)

                               
 

Current

    212     320     314     321      
 

Deferred

    51,636     (15,731 )   (12,185 )   (3,691 )   (12,103 )
                       

    51,848     (15,411 )   (11,871 )   (3,370 )   (12,103 )

NET EARNINGS AND COMPREHENSIVE INCOME

 
$

3,188
 
$

100,777
 
$

108,820
 
$

48,335
 
$

53,461
 
                       

(See notes to the combined financial statements)

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Niska Predecessor

Combined Balance Sheets

(Thousands of U.S. dollars)

 
  December 31,
2009
  March 31,
2009
  March 31,
2008
 

ASSETS

                   

Current Assets

                   
 

Cash and cash equivalents (Note 5)

  $ 37,964   $ 25,760   $ 50,273  
 

Margin deposits

    7,718         22,348  
 

Trade receivables

    3,540     1,435     1,843  
 

Accrued receivables

    106,289     71,050     89,363  
 

Natural gas inventory

    210,857     133,084     31,469  
 

Prepaid expenses

    3,476     14,814     947  
 

Current income taxes (Note 11)

    48          
   

Short-term risk management assets (Note 12 and 13)

    64,377     109,765     29,458  
               

    434,269     355,908     225,701  
               

Long-term Assets

                   
   

Property, plant and equipment, net of accumulated depreciation (Note 6)

    974,278     940,245     955,654  
 

Goodwill (Note 7)

    486,258     486,258     508,221  
 

Long-term natural gas inventory

    15,264     15,264     25,492  
 

Intangible assets, net of accumulated amortization (Note 7)

    135,423     147,730     163,906  
 

Deferred charges, net of accumulated depreciation (Note 8)

    7,928     12,039     14,968  
 

Long-term risk management assets (Note 12 and 13)

    17,598     45,425     11,246  
               

    1,636,749     1,646,961     1,679,487  
               

  $ 2,071,018   $ 2,002,869   $ 1,905,188  
               

LIABILITIES AND PARTNERS' EQUITY

                   

Current Liabilities:

                   
 

Current portion of debt (Note 9)

  $ 196,420   $ 70,947   $ 6,517  
 

Margin deposits

        47,977      
 

Funds held on deposit

        1,500      
 

Trade payables

    430     350     1,337  
 

Current income taxes (Note 11)

        14     321  
 

Current portion of deferred taxes (note 11)

    39,582     4,539     2,168  
 

Deferred revenue

    9,142     17,897      
 

Accrued liabilities

    47,514     55,680     90,535  
 

Short-term risk management liabilities (Note 12 and 13)

    25,920     66,691     49,124  
               

    319,008     265,595     150,002  

Long-term Liabilities:

                   
 

Long-term risk management liabilities (Note 12 and 13)

    33,525     23,606     4,004  
 

Asset retirement obligations (Note 10)

    1,344     566     536  
 

Funds held on deposit

    112     93      
 

Deferred income taxes (Note 11)

    161,218     144,626     196,302  
 

Long-term debt (Note 9)

    586,579     591,009     687,284  
               

    1,101,786     1,025,495     1,038,128  

PARTNERS' EQUITY

                   
 

Partners' capital (Note 14)

    831,991     816,991     766,991  
 

Retained earnings

    137,241     160,383     100,068  
               

    969,232     977,374     867,059  

Commitments and contingencies (Notes 9, 14 and 18)

                   

Subsequent events (Note 23)

                   

  $ 2,071,018   $ 2,002,869   $ 1,905,188  
               

(See notes to the combined financial statements)

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Niska Predecessor

Combined Statements of Cash Flows

(Thousands of U.S. dollars)

 
  Nine months ended December 31, 2009   Nine months ended December 31, 2008   Year ended March 31, 2009   Year ended March 31, 2008   From May 12, 2006 to March 31, 2007  
 
   
  (Unaudited)
   
   
   
 

Operating Activities

                               

Net earnings

  $ 3,188   $ 100,777   $ 108,820   $ 48,335   $ 53,461  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

                               
 

Unrealized foreign exchange (gain) loss

    (233 )   (29,469 )   (37,188 )   162     (355 )
 

Deferred income taxes (benefit)

    51,636     (15,731 )   (12,185 )   (3,691 )   (12,103 )
 

Unrealized risk management losses (gains) (Note 12 and 13)

    42,364     (87,690 )   (77,333 )   6,903     5,520  
 

Depreciation and amortization

    32,891     43,433     54,750     42,522     46,649  
 

Deferred charges amortization (Note 16)

    4,111     2,197     2,929     2,922     2,672  
 

Loss (gain) on disposal of assets

        734     (11 )   2,252      
 

Impairment of goodwill

            21,962          
 

Impairment of assets

            2,106     2,500      
 

Write-down of inventory

        50,120     62,257          

Changes in non-cash working capital (Note 19)

    (195,249 )   (138,165 )   (104,621 )   83,995     (82,664 )
                       

Net cash (used in) provided by operating activities

    (61,292 )   (73,794 )   21,486     185,900     13,180  
                       

Investing Activities

                               
 

Property, plant and equipment expenditures

    (46,802 )   (17,493 )   (18,962 )   (37,492 )   (27,738 )
 

Business acquisitions (Note 4)

                    (1,529,934 )
 

Proceeds on disposal of assets

        3,653     3,653     7,596      
 

Other

        (331 )   (331 )        
                       

Net cash used in investing activities

    (46,802 )   (14,171 )   (15,640 )   (29,896 )   (1,557,672 )
                       

Financing Activities

                               
 

Proceeds from debt issuance

    185,473     167,005     167,005         886,548  
 

Debt repayments

    (64,430 )   (7,188 )   (198,866 )   (139,887 )   (52,861 )
 

Deferred charges

                    (20,562 )
 

Capital contributions from partners

    15,000         50,000         781,992  
 

Unit issuance costs

                    (15,001 )
 

Distribution to partners (Note 14)

    (15,798 )   (37,600 )   (48,505 )   (1,728 )    
                       

Net cash provided by (used in) financing activities

    120,245     122,217     (30,366 )   (141,615 )   1,580,116  
                       

Effect of translation on foreign currency cash and cash equivalents

    53     40     7     (128 )   388  

Net increase (decrease) in cash and cash equivalents

    12,204     34,293     (24,513 )   14,261     36,012  

Cash and cash equivalents, beginning of period

    25,760     50,273     50,273     36,012      
                       

Cash and cash equivalents, end of period (Note 5)

  $ 37,964   $ 84,566   $ 25,760   $ 50,273   $ 36,012  
                       

Supplemental cash flow disclosures (Note 20)

                               

(See notes to the combined financial statements)

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Niska Predecessor

Combined Statements of Partners' Equity

(Thousands of U.S. dollars)

 
  Partners'
Capital
  Retained
Earnings
  Total Partners' Equity  

Balance at May 12, 2006

  $   $   $  

Capital contributions

   
766,991
   
   
766,991
 

Net earnings

        53,461     53,461  
               

Balance at March 31, 2007

    766,991     53,461     820,452  
               

Net earnings

   
   
48,335
   
48,335
 

Distributions paid (Note 14)

        (1,728 )   (1,728 )
               

Balance at March 31, 2008

    766,991     100,068     867,059  
               

Capital contributions

   
50,000
   
   
50,000
 

Net earnings

        108,820     108,820  

Distributions paid (Note 14)

        (48,505 )   (48,505 )
               

Balance at March 31, 2009

    816,991     160,383     977,374  
               

Capital contributions

    15,000         15,000  

Net earnings

        3,188     3,188  

Distributions paid (Note 14)

        (26,330 )   (26,330 )
               

Balance at December 31, 2009

  $ 831,991   $ 137,241   $ 969,232  
               

(See notes to the combined financial statements)

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Niska Predecessor

Notes to the Combined Financial Statements

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

1. Description of Business

        Niska Predecessor, representing the predecessor combined financial statements of Niska GS Holdings II, L.P. ("Niska Canada"), and Niska GS Holdings I, L.P. ("Niska US") (collectively, "Niska" or the "Partnerships") and their subsidiaries own and operate natural gas storage facilities in North America. Niska Canada and Niska US are under common control by virtue of their general partner, Carlyle/Riverstone Energy Partners III, L.P.

        These combined financial statements have been prepared with the intention of being included in the registration for the initial public offering of Niska Gas Storage Partners LLC.

        Two projects under development, Starks Gas Storage L.L.C. and Coastal Bend Gas Storage, LLC, are not expected to be transferred to Niska Gas Storage Partners LLC ("Niska Partners"). These projects represent approximately $26.2 million in assets as at December 31, 2009 and an impairment charge of $ nil for the nine month period ended December 31, 2009, $ nil in the nine months ended December 31, 2008, $2.1 million during the year ended March 31, 2009, $2.5 million during the year ended March 31, 2008, and $ nil in the period ended March 31, 2007.

        Niska Canada operates the Countess and Suffield gas storage facilities (collectively, AECO HubTM) and Niska US operates several gas storage facilities in the United States of America. Both Niska US and Niska Canada market storage services of their working gas capacity in addition to optimizing capacity with their own proprietary gas purchases.

2. Significant Accounting Policies

Basis of presentation

        These combined financial statements have been prepared to reflect the combined financial position, results of operations and cash flows of the predecessor Partnerships and their subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

        These financial statements include the accounts of Niska and its wholly-owned subsidiaries, including AECO Gas Storage Partnership, Wild Goose Storage, LLC, Niska Gas Storage, LLC and Salt Plains Storage, LLC, Coastal Bend Gas Storage LLC, and Starks Gas Storage, L.L.C. All material inter-entity transactions have been eliminated.

        The interim financial statements for the periods ended and as at December 31, 2009 and 2008 furnished reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Niska's earnings and cash flows from operations are heavily influenced by the seasonality of proprietary optimization activities and fluctuate significantly from period-to-period.

Use of estimates

        In preparing these financial statements, Niska is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

2. Significant Accounting Policies (Continued)


determination of these items may be dependent on future events. Management uses the most current information available and exercises careful judgment in making these estimates. Although Management believes that these consolidated financial statements have been prepared within limits of materiality and within the framework of its significant accounting policies summarized below, actual results could differ from these estimates. Changes in estimates are accounted for on a prospective basis.

        Management has made key assumptions at the balance sheet date that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities relating to the valuation of risk management assets and liabilities, inventory, and goodwill. Estimates affect, among other items, valuing identified intangible assets, evaluating impairments of long-lived assets, depreciation of cushion gas, establishing estimated useful lives for long-lived assets, estimating revenues and expense accruals, assessing income tax expense and the requirement for a valuation allowance against the deferred income tax asset, valuing asset retirement obligations and in determining liabilities, if any, for legal contingencies.

Revenue recognition

        The Partnerships' assessment of each of the four revenue recognition criteria as they relate to their revenue producing activities is as follows:

        Persuasive evidence of an arrangement exists.    The Partnerships' customary practices are to enter into a written contract, executed by both the customer and the Partnerships.

        Delivery.    Delivery is deemed to have occurred at the time the natural gas is delivered and title is transferred, or in the case of fee-based arrangements, when the services are rendered. To the extent the Partnerships retain their inventory, delivery occurs when the inventory is subsequently sold and title is transferred to the third party purchaser.

        The fee is fixed or determinable.    The Partnerships negotiate the fee for its services at the outset of their fee-based arrangements. In these arrangements, the fees are nonrefundable. The fees are generally due on the 25th of the month following the delivery or services rendered. For other arrangements, the amount of revenue is determinable when the sale of the applicable product has been completed upon delivery and transfer of title.

        Collectability is reasonably assured.    Collectability is evaluated on a customer-by-customer basis. New and existing customers are subject to a credit review process, which evaluates the customers' financial position (e.g. cash position and credit rating) and their ability to pay. If collectability is not considered reasonably assured at the outset of an arrangement in accordance with the Partnerships' credit review process, revenue is recognized when the fee is collected.

        Long-term contract revenue consists of monthly storage fees and fuel and commodity charges for injections and withdrawals. Long-term contract revenue is accrued on a monthly basis in accordance with the terms of the customer contracts. Customer charges for injections and withdrawals are recorded in the month of injection or withdrawal.

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

2. Significant Accounting Policies (Continued)

        Short-term contract revenue consists of fees for injections and withdrawals, which include fuel and commodity charges. One half of the fees are earned at the time of injection by the customer and one half of the fees are charged at the time of withdrawal by the customer.

        Energy trading contracts resulting in the delivery of a commodity where Niska is the principal in the transaction are recorded as optimization revenues or purchases at the time of physical delivery. Realized and unrealized gains and losses on financial energy trading contracts are included in optimization revenue (see Note 12).

Cash and cash equivalents

        Niska considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents (see Note 5).

Margin deposits

        Cash held in margin accounts collateralizes certain commodity financial derivatives entered into in support of the Partnerships' risk management activities. These derivatives are marked-to-market daily; the profit or loss on the daily position is then paid to or received from the account as appropriate under the terms of the Partnerships' contract with their broker.

Inventory

        The Partnerships' inventory is natural gas injected into storage which is held for resale. Long-term inventory represents non-cycling working gas. Non-cycling working gas is injected by the Partnerships on a temporary basis to increase pressure within the reservoirs to allow them to market higher cycling contracts or previously un-saleable gas from an underutilized reservoir that can be sold into the market when the Partnerships add mechanical compression to the reservoir. This mechanical compression will allow access to natural gas that was previously required to maintain pressure within the reservoir. Inventory is valued at the lower of average cost and market. Costs to store the gas are recognized as operating expenses in the period the costs are incurred. For the period ended December 31, 2009, the Partnerships recorded a write-down of $ nil (December 31, 2008—$50.1 million), which is included in optimization revenue, net (years ended March 31, 2009—$62.3 million; March 31, 2008—$ nil, March 31, 2007—$ nil).

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

2. Significant Accounting Policies (Continued)

Property, plant and equipment

        Property, plant and equipment are recorded at cost when purchased. Depreciation is computed using the declining balance method for each category of asset using the following rates:

Facilities

    5% and 15%  

Wells

    5%  

Pipelines and measurement

    5%  

Office furniture and fixtures

    20%  

Computer hardware

    30%  

Other

    10%  

        Certain volumes of gas defined as cushion gas are required for maintaining a minimum field pressure. Cushion gas is considered a component of the facility and as such is not amortized because it is expected to ultimately be recovered and sold. Cushion gas is monitored to ensure that it provides effective pressure support. In the event that gas moves to another area of the reservoir where it does not provide effective pressure support, a loss is recorded, within depreciation expense, equal to the estimated volumes that have migrated. For the nine months ended December 31, 2009 a loss of $1.8 million of cushion gas was recorded for the estimated amount of cushion gas migrated (nine months ended December 31, 2008—$11.9 million; years ended March 31, 2009—$11.9 million; March 31, 2008—$ nil; March 31, 2007—$ nil).

        Repairs, maintenance and renewals that do not extend the useful lives of the assets are expensed as incurred. Interest costs for the construction or development of long-lived assets held by operational entities are capitalized and amortized over the related asset's estimated useful life.

Asset retirement obligations

        Niska records a liability for an asset retirement obligation when the legal obligation to retire the asset has been incurred with an offsetting increase to the carrying value of the related tangible long-lived asset. The recognition of an asset retirement obligation requires that management make numerous estimates, assumptions and judgments regarding such factors as the estimated probabilities, amounts and timing of settlements; the credit-adjusted risk-free rate to be used; inflation rates, and future advances in technology. In periods subsequent to initial measurement of the liability, the Partnerships must recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Over time, the liability is accreted to its future value, and the capitalized cost is depreciated over the useful life of the related asset. Accretion of the asset retirement obligations due to the passage of time is recorded as an expense in the statement of earnings. Upon settlement of the liability, the Partnerships either settle the obligation for its recorded amount or incur a gain or loss.

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

2. Significant Accounting Policies (Continued)

Impairment of long-lived assets

        Niska evaluates whether events or circumstances have occurred that indicate that long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, the Partnerships assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows. In the event that the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. For the period ended December 31, 2009, Niska recorded an impairment loss of $ nil (period ended December 31, 2008, $ nil; years ended March 31, 2009—$2.1 million; March 31, 2008—$2.5 million; March 31, 2007—$ nil).

Goodwill and other intangible assets

        Niska accounts for business acquisitions using the purchase method of accounting and accordingly the assets and liabilities of the acquired entities are recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired is attributed to goodwill.

        Goodwill is not amortized and is re-evaluated on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.

        Goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, the Partnerships perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill.

        Other intangible assets represent contractual rights obtained in connection with a business combination that had favorable contractual terms relative to market as of the acquisition date.

        Intangible assets representing customer contracts are amortized over their useful lives. These assets are reviewed for impairment as impairment indicators arise. When such events or circumstances are present, the recoverability of long-lived assets is assessed by determining whether the carrying value will be recovered through the expected undiscounted future cash flows. In the event that the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded.

        Pipeline rights of way are formal agreements granting rights of way in perpetuity and are not subject to amortization but are subject to an annual impairment test.

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

2. Significant Accounting Policies (Continued)

Risk management activities

        The Partnerships use natural gas derivatives and other financial instruments to manage their exposure to changes in natural gas prices, foreign exchange, and interest rates. These financial assets and liabilities, which are recorded at fair value on a recurring basis, are included into one of three categories based on a fair value hierarchy with realized and unrealized gains (losses) recognized in earnings (Note 13).

        The fair value of the Partnerships' derivative risk management contracts are recorded as a component of risk management assets and liabilities, which are classified as current or non-current assets or liabilities based upon the anticipated settlement date of the contracts.

Foreign currency translation

        The functional and reporting currency of the Partnerships is the US dollar. Non-US dollar denominated monetary items are translated into US dollars at the rate of exchange in effect at the balance sheet date. Non-US dollar denominated non-monetary items are translated to US dollars at the exchange rate in effect when the transaction occurred. Revenues and expenses denominated in foreign currencies are translated at the average exchange rate in effect during the period. Foreign exchange gains or losses on translation are included in income.

Deferred charges

        Deferred charges relate to costs incurred on the issuance of debt and are amortized over the term of the related debt to interest expense using the effective interest method.

Income taxes

        The Partnerships are not taxable entities. Income taxes on their income are the responsibility of the individual partners and have accordingly not been recorded in the consolidated financial statements. Niska Canada has corporate subsidiaries, which are taxable corporations subject to Canadian federal and provincial income taxes, which are included in the consolidated financial statements.

        Income taxes on the Canadian corporate subsidiaries are provided based on the asset and liability method, which results in deferred income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. This method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The asset and liability method also requires that deferred income tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.

        The Partnerships' policy is to recognize accrued interest and penalties on accrued tax balances as components of interest expense. The Partnerships had not accrued any interest and expense penalties during the periods reported.

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

2. Significant Accounting Policies (Continued)

        The Canadian subsidiaries remain subject to examination by Canadian federal and provincial tax jurisdictions for all years filed after 2006. The Partnerships' unitholders remain subject to examination by US federal and state tax jurisdictions for years after 2006.

Unit-based compensation

        Each of the Partnerships has a long-term incentive plan as described in note 14 under which they may issue their respective Class B and Class C units to directors, officers and employees. The plans are liability-classified unit-based compensation awards which have both a service condition and performance conditions. Unit-based compensation related to the plan is recognized, based on the period-end fair value, as the service condition is met if the occurrence of the performance conditions is probable.

3. New Accounting Pronouncements

a)
The following new accounting pronouncements were adopted in the periods noted and the effect of such adoption has been presented in the accompanying combined financial statements:

Generally Accepted Accounting Principles (ASC 105)

        This accounting standard results in the Financial Accounting Standards Board (FASB) Accounting Standards Codification ("ASC" or the "Codification") becoming the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC are also considered sources of authoritative GAAP for SEC registrants. The Codification supersedes all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The adoption of the provisions of this accounting standard did not change the application of existing GAAP, and as a result, did not have any impact on the Partnerships' combined results of operations, financial position or cash flows.

Fair Value Measurement (ASC 820)

        Niska adopted a new fair value measurement standard as of April 1, 2008. ASC 820 defines fair value, establishes a framework for measuring fair value under existing accounting pronouncements that require fair value measurements and expands fair value measurement disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The standard characterizes inputs used in determining fair value according to a hierarchy that prioritizes inputs based upon the degree to which they are observable. The three levels of the fair value hierarchy are as follows:

            Level 1—inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives).

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

3. New Accounting Pronouncements (Continued)

            Level 2—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market corroborated inputs).

            Level 3—inputs that are not observable from objective sources, such as the Partnerships' internally developed assumptions about market participant assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in the Partnerships internally developed present value of future cash flows model that underlies the fair value measurement).

        In determining fair value, Niska utilizes observable market data when available, or models that utilize observable market data. In addition to market information, Niska incorporates transaction-specific details that, in management's judgment, market participants would take into account in measuring fair value.

        In forming fair value estimates, Niska utilizes the most observable inputs available for the valuation technique employed. If a fair value measurement reflects inputs at multiple levels within the hierarchy, the fair value measurement is characterized based upon the lowest level of input that is significant to the fair value measurement. For Niska, recurring fair value measurements are performed for commodity, interest rate and foreign currency derivatives.

        The carrying amount of cash and cash equivalents, margin deposits, trade receivables, accrued receivables, trade payables and accrued liabilities reported on the balance sheet approximates fair value. The fair value of debt is the estimated amount the Partnerships would have to pay to repurchase its debt, including any premium or discount attributable to the difference between the stated interest rate and market rate of interest at the balance sheet date. Fair values are based on valuations of similar debt at the balance sheet date and supported by observable market transactions when available. See Note 9 for disclosures regarding the fair value of debt. See Note 13 for disclosures regarding the fair value of derivative instruments.

        Niska elected to implement the standard with the one-year deferral permitted for nonfinancial assets and nonfinancial liabilities, except those nonfinancial items recognized or disclosed at fair value on a recurring basis (at least annually). The deferral period ended on April 1, 2009. Accordingly, Niska now applies the fair value framework to nonfinancial assets and nonfinancial liabilities initially measured at fair value, such as assets acquired in a business combination, impaired long-lived assets (asset groups), intangible assets and goodwill and initial recognition of asset retirement obligations.

Disclosures about Derivative Instruments and Hedging Activities (ASC 815-10)

        Niska adopted a new standard for its derivative instruments and hedging activities, effective April 1, 2009. ASC 815-10 does not change Niska's accounting for derivatives, but requires enhanced disclosures regarding the Partnerships' methodology and purpose for entering into derivative instruments, accounting for derivative instruments and related hedged items (if any), and the impact of

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

3. New Accounting Pronouncements (Continued)


derivative instruments on the Partnerships' combined financial position, results of operations and cash flows. See Notes 12 and 13.

Business Combinations (ASC 805)

        Niska adopted a new accounting standard for business combinations, effective April 1, 2009. ASC 805 applies prospectively to Niska for future business combinations. ASC 805 expands the definition of what qualifies as a business, thereby increasing the scope of transactions that qualify as business combinations. Furthermore, under ASC 805, changes in estimates of income tax liabilities existing at the date of, or arising in connection with, past business combinations are accounted for as adjustments to current period income as opposed to adjustments to goodwill. The adoption of ASC 805 had no impact on the Partnership's combined financial position, results of operations or cash flows.

Subsequent Events (ASC 855-10)

        Niska adopted a new standard on subsequent events, effective April 1, 2009. ASC 855-10 defines subsequent events as either recognized subsequent events (events that provide additional evidence about conditions at the balance sheet date) or nonrecognized subsequent events (events that provide evidence about conditions that arose after the balance sheet date). Recognized subsequent events are recorded in the financial statements for the current period presented, while nonrecognized subsequent events are not. Both types of subsequent events require disclosure in the combined financial statements if nondisclosure of such events causes the financial statements to be misleading. Niska is also required to disclose the date through which subsequent events have been evaluated. The adoption of ASC 855-10 had no impact on the Partnerships' combined financial statements. The Partnerships have evaluated subsequent events through February 19, 2010 (Note 23).

b)
The following new accounting pronouncements were issued but not adopted as of December 31, 2009:

Fair Value Measurement (ASC 810-10)

        This new standard requires disclosure of fair value information of financial instruments at each interim reporting period. The disclosures include the relevant carrying value as well as the methods and significant assumptions used to estimate the fair value. The guidance was effective for interim and annual periods beginning after December 15, 2009. For period beginning as of April 1, 2010, the Partnerships will be required to disclose additional fair value measurement information such as transfers into and out of levels 1 and 2 and further details of movements within level 3. The new standard clarifies the level of disaggregation required and inputs and valuation techniques used to measure fair value.

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

4. Acquisitions

        On May 12, 2006 and November 16, 2006, the Partnerships completed two acquisitions of substantially all of EnCana Corporation's gas storage business segment (the "EnCana Gas Storage acquisition"). The aggregate purchase price for these acquisitions was approximately $1.5 billion (after closing adjustments and transaction costs and expenses). The Partnerships did not assume any indebtedness of EnCana Corporation in connection with the acquisitions. The acquisitions were accounted for as business combinations.

        The following table summarizes the fair values of the assets acquired and liabilities assumed on May 12, 2006:

Net assets acquired:

       
 

Property, plant and equipment:

       
   

Pipelines and measurement, facilities, wells, land and other

  $ 404,202  
   

Cushion gas

    298,349  
 

Long-term inventory

    47,857  
 

Goodwill

    443,308  
 

Intangible assets—customer contracts

    172,395  
 

Deferred income taxes

    (214,263 )
 

Asset retirement obligations

    (270 )
       

Cash purchase price consideration

  $ 1,151,578  
       

        The following table summarizes the fair values of the assets acquired and liabilities assumed on November 16, 2006:

Net assets acquired:

       
 

Property, plant and equipment:

       
   

Pipelines and measurement, facilities, wells, land and other

  $ 122,109  
   

Cushion gas

    151,321  
 

Long-term inventory

    32,773  
 

Goodwill

    64,912  
 

Intangible assets—customer contracts

    7,440  
 

Deferred income taxes

     
 

Asset retirement obligations

    (199 )
       

Cash purchase price consideration

  $ 378,356  
       

        The results of operations from these acquisitions have been included in these financial statements from the date of the respective acquisitions.

        During the year ended March 31, 2009, one year after the measurement period, Niska US recovered $17.8 million, in addition to $2.7 million in interest and $1.9 million in legal cost recoveries, as a result of settling a dispute relating to the EnCana Gas Storage acquisition of certain of the storage facilities. $20.5 million of the settlement has been included in other income. The recovery of legal costs was recorded as a reduction of general and administrative expenses.

F-25


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

5. Cash and Cash Equivalents

        Cash and cash equivalents include:

 
  As at
December 31,
2009
  As at
March 31,
2009
  As at
March 31,
2008
 

Cash

  $ 37,964   $ 25,760   $ 43,873  
               

Guaranteed investments

            6,400  
               

Total cash and cash equivalents

  $ 37,964   $ 25,760   $ 50,273  
               

6. Property, Plant and Equipment

        Property, plant and equipment are comprised of the following:

 
  As at December 31, 2009  
 
  Cost   Accumulated
Amortization
  Net book value  

Cushion gas

  $ 462,643   $   $ 462,643  

Pipelines and measurement

    263,635     (44,579 )   219,056  

Wells

    122,484     (20,344 )   102,140  

Facilities

    145,320     (31,533 )   113,787  

Computer hardware

    2,419     (1,521 )   898  

Construction in progress

    74,033         74,033  

Other

    1,540     (336 )   1,204  

Office furniture and equipment

    832     (315 )   517  
               

  $ 1,072,906   $ (98,628 ) $ 974,278  
               

 

 
  As at March 31, 2009   As at March 31, 2008  
 
  Cost   Accumulated
Amortization
  Net book
value
  Cost   Accumulated
Amortization
  Net book
value
 

Cushion gas

  $ 464,498   $   $ 464,498   $ 454,475   $   $ 454,475  

Pipelines and measurement

    263,642     (36,215 )   227,427     263,637     (24,509 )   239,128  

Wells

    122,005     (16,452 )   105,553     121,355     (11,049 )   110,306  

Facilities

    142,475     (25,465 )   117,010     139,616     (16,867 )   122,749  

Computer hardware

    2,405     (1,301 )   1,104     2,275     (930 )   1,345  

Construction in progress

    22,886         22,886     25,654         25,654  

Other

    1,428     (248 )   1,180     1,406     (123 )   1,283  

Office furniture and equipment

    830     (243 )   587     830     (116 )   714  
                           

  $ 1,020,169   $ (79,924 ) $ 940,245   $ 1,009,248   $ (53,594 ) $ 955,654  
                           

F-26


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

6. Property, Plant and Equipment (Continued)

        During the year ended March 31, 2009 long-lived assets held in relation to a project under development with a carrying amount of $9.9 million were written down to their fair value of $7.9 million, resulting in an impairment charge of $2.1 million, which was included in net earnings for the fiscal year ended March 31, 2009 (March 31, 2008—$2.5 million). No write down was required as at December 31, 2009. The project under development will not be included in the transfer of assets from the Partnerships to Niska Gas Storage Partners LLC ("Niska Partners") described in notes 1 and 23.

        For the nine months ended December 31, 2009, a loss of $1.8 million of cushion gas was recorded in depreciation and amortization expense on the income statement for the estimated amount of cushion gas migrated (nine months ended December 31, 2008—$11.9; years ended March 31, 2009—$11.9; March 31, 2008—$ nil; March 31, 2007—$ nil).

7. Goodwill and Other Intangible Assets

Goodwill

        The goodwill of a Niska US operating unit with a carrying amount of $21.9 million was written down to its implied fair value zero, at March 31, 2009 resulting in an impairment charge of $21.9 million. The impairment charges were recorded following a period of overall negative economic conditions during the fiscal year ended March 31, 2009. Declines were noted in the multiples of designated peer group companies of each of the Partnerships' reporting units and were a factor in the resulting impairment charge. No impairment to goodwill was required as at December 31, 2009.

        Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions. These assumptions are dependent on several subjective factors including the timing of future cash flows and future growth rates. The fair value of Niska's reporting units is determined based on a weighting of multiples of potential earnings approaches which is classified as a Level 3 fair value measurement under FASB ASC 820. The multiples of earnings approach estimates fair value by applying multiples of potential earnings, working gas capacity, and cycle-ability of similar entities. Results using the multiples of potential earnings and the multiples of gas capacity and cycle-ability are given equal weighting when determining the valuation using this approach. The future operating projections are based on consideration of past performance and the projections and assumptions used in the Partnerships' current operating plans and adjusted for market participant assumptions as appropriate. The affected Partnership then assigns a weighting to the multiple or earnings to derive the fair value of the reporting unit.

Other intangible assets

        Intangible assets are comprised of customer contracts and relationships and pipeline rights of way. Customer contracts and relationships and are amortized over their estimated useful life. Pipeline rights of way are indefinite life assets and not subject to amortization but are subject to an annual impairment test. To date, no impairment has been recognized.

F-27


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

7. Goodwill and Other Intangible Assets (Continued)

        Information regarding the Partnerships' intangible assets is included in the following table:

 
  As at
December 31,
2009
  As at
March 31,
2009
  As at
March 31,
2008
 

Customer contracts and relationships

  $ 180,166   $ 180,166   $ 179,835  
               

Less accumulated amortization

    (63,650 )   (51,343 )   (34,836 )
               

    116,516     128,823     144,999  
               

Pipeline rights of way

    18,907     18,907     18,907  
               

  $ 135,423   $ 147,730   $ 163,906  
               

        Customer contracts and relationships are amortized over the term of the respective contracts, being 1 to 20 years remaining at December 31, 2009. The following tables present actual amortization expense recognized during reported periods and an estimate of future amortization expense based upon the Partnerships' intangible assets at December 31, 2009:

Amortization expense by period:

       

December 31, 2009

  $ 12,307  

December 31, 2008 (unaudited)

    12,381  

March 31, 2009

    16,507  

March 31, 2008

    15,434  

March 31, 2007

    19,402  
       

Future amortization expense estimated for the fiscal year ending:

       

March 31, 2010

  $ 4,102  

March 31, 2011

    14,605  

March 31, 2012

    13,703  

March 31, 2013

    11,321  

March 31, 2014 and thereafter

    72,785  

8. Deferred Charges

 
  As at
December 31,
2009
  As at
March 31,
2009
  As at
March 31,
2008
 

Deferred charges—cost

  $ 20,562   $ 20,562   $ 20,562  

Less accumulated amortization

    (12,634 )   (8,523 )   (5,594 )
               

Net book value

  $ 7,928   $ 12,039   $ 14,968  
               

Life in years

    4     5     6  

F-28


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

8. Deferred Charges (Continued)

        The following tables present actual amortization expense recognized during each period reported and an estimate of future amortization expense based upon the Partnerships' deferred charges at December 31, 2009:

Amortization expense by period:

       

December 31, 2009

  $ 4,111  

December 31, 2008 (unaudited)

    2,197  

March 31, 2009

    2,929  

March 31, 2008

    2,922  

March 31, 2007

    2,672  

Future amortization expense estimated for the fiscal year ending:

       

March 31, 2010

  $ 592  

March 31, 2011

    2,373  

March 31, 2012

    2,379  

March 31, 2013

    2,385  

March 31, 2014 and thereafter

    199  

9. Debt

Long-Term Debt

        Long-term debt at December 31, 2009 and March 31, 2009 and 2008 consisted of the following:

 
  As at
December 31, 2009
  As at
March 31, 2009
  As at
March 31, 2008
 
 
  Weighted
Average
Interest
Rate
  Amount   Weighted
Average
Interest
Rate
  Amount   Weighted
Average
Interest
Rate
  Amount  

Secured Canadian Term B Loan

    2.10 % $ 505,604     4.62 % $ 509,358     6.93 % $ 516,234  

Secured US Term B Loan

    2.10 %   51,820     4.59 %   52,223     6.93 %   83,053  

Asset Sale Term Loan

                        6.80 %   38,254  

Delayed Draw Term Loan B

    2.10 %   35,102     4.24 %   35,375     6.80 %   56,260  
                           

          592,526           596,956           693,801  

Less portion classified as current

          5,947           5,947           6,517  
                                 

        $ 586,579         $ 591,009         $ 687,284  
                                 

F-29


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

9. Debt (Continued)

Current Portion of Debt

        Current portion of debt at December 31, 2009 and March 31, 2009 and 2008 consisted of the following:

 
  As at
December 31,
2009
  As at
March 31,
2009
  As at
March 31,
2008
 

Revolving Credit Facilities Debt

  $ 190,000   $ 65,000   $  

Current Portion of Long Term Debt

    5,947     5,947     6,517  

Overdraft

    473          
               

  $ 196,420   $ 70,947   $ 6,517  
               

Term loans

        The Partnerships have term loan and revolving credit facility agreements with a syndicate of commercial banks. The Niska US debt is comprised of a US Term B loan and a Delayed Draw Term B Loan and Niska Canada debt is comprised of a Canadian Term B Loan, which are all secured by specified amounts of cushion gas and the facilities. The Asset Sales Term loan was repaid during the year ended March 31, 2009. The US dollar denominated loans bear interest at LIBOR plus between 1.75% and 2.25% per annum, depending on the debt covenant calculations derived from the Partnerships' operating results. Average interest rates incurred for the nine months ended December 31, 2009 were 2.10% for the US Term Loan, 2.10% for the Delayed Draw Term B Loan and 2.10% for the Canadian Term B Loan. Niska US and Niska Canada must make quarterly principal repayments of 0.25% of the outstanding balance of the US Term B Loan, the Delayed Draw Term B Loan and Canadian Term B Loan.

        At December 31, 2009 the fair value of the Canadian Term B Loan at December 31, 2009 amounted to approximately $482.9 (March 31, 2009—$443.1 million; March 31, 2008—$525.4 million). The fair value of the Secured US Term B Loan amounted to approximately $49.5 (March 31, 2009—$45.4 million; March 31, 2008—$78.7 million), and the fair value of Delayed Draw Term Loan B amounted to approximately $33.5 (March 31, 2009—$30.8 million; March 31, 2008—$53.3 million) based on third-party pricing which is supported by observable transactions executed in the marketplace.

Revolving credit facilities

        The Partnerships each had five year, $175.0 million revolving credit facilities with the same syndicate that finances the term debt. At December 31, 2009, $145.3 million of the Partnerships' undrawn remaining, credit availability was accessible under the terms of the revolving credit facilities (March 31, 2009—$193.0 million; March 31, 2008—$250.8 million), of which $21.9 million (March 31, 2009 $41.9 million; March 31, 2008—$44.2 million) was being utilized via issued and outstanding letters of credit to various counterparties to support natural gas purchase commitments.

F-30


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

9. Debt (Continued)

        Borrowings under these revolving credit facilities were made on a when-and-as-needed basis at the discretion of the bank. The Partnerships' credit capacities and the amount of unused borrowing capacities are affected by the seasonal nature of the natural gas business. Short-term borrowing requirements are typically highest during colder winter months. The Partnerships' working capital needs can vary significantly due to changes in the price of natural gas charged by suppliers and the increased gas supplies required to meet customers' needs during periods of cold weather.

        Borrowings under the revolving credit facilities were able to be made either as Base rate or Eurodollar rate loans. Revolving loan borrowings will bear interest at a floating rate equal to a base rate (defined as the higher of 0.50% per annum above the Federal Funds rate or the lender's prime rate) plus between 0.75% and 1.25%. Eurodollar rate loan borrowings will bear interest at a floating rate equal to a base rate based upon LIBOR for the applicable interest period, plus between 1.75% and 2.25% per annum, depending on the Partnerships' leverage ratio, as defined in the credit agreement. Borrowings drawn down under letters of credit issued by the banks will bear interest from between 1.75% and 2.25% per annum, depending on the Partnerships' leverage ratio. The interest rate at December 31, 2009 was 2.10%.

Covenants

        Niska is required to comply with certain covenants contained within its credit facilities. These covenants include, but are not limited to, certain financial measurements such as leverage, interest coverage and current ratios and are tested on a quarterly basis. Additionally, expenditures on property, plant and equipment may not exceed certain threshold amounts over any rolling four quarter period. As at December 31, 2009 and March 31, 2009 and 2008, Niska was in compliance with these covenants.

        The availability of funds under the Partnerships' credit facilities are subject to conditions specified in the credit agreements, all of which are currently satisfied. These conditions include the compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements.

10. Asset Retirement Obligations

        Niska's asset retirement obligations relate to plugging and abandonment of the storage facilities at the end of their estimated useful economic lives. At December 31, 2009, the estimated undiscounted cash flows required to settle the asset retirement obligations are approximately $26.4 million, calculated using an inflation rate of 2% per annum. The estimated fair value of this liability at December 31, 2009

F-31


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

10. Asset Retirement Obligations (Continued)


was $1.2 million after discounting the estimated cash flows at a rate of 8% per annum. At December 31, 2009, the expected timing of payment for settlement of the obligations is 47 years.

 
  Nine month
period ended
December 31,
2009
  Year ended
March 31,
2009
  Year ended
March 31,
2008
 

Balance, beginning of period

  $ 566   $ 536   $ 471  

Additions

    668          

Accretion

    65     65     65  

Effect of foreign exchange translation

    45     (35 )    
               

Balance, end of period

  $ 1,344   $ 566   $ 536  
               

11. Income Taxes

        Total income tax expense (benefit) differed from the amounts computed by applying the tax rate to earnings before income taxes as a result of the following:

 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12,
2006 to
March 31,
2007
 
 
   
  (Unaudited)
   
   
   
 

Net earnings before taxes

  $ 55,030   $ 85,366   $ 96,949   $ 44,965   $ 41,358  

U.S. federal corporate statutory rate

    35.00 %   35.00 %   35.00 %   35.00 %   35.00 %
                       

Expected tax

    19,260     29,878     33,932     15,738     14,475  

Earnings of non-taxable entities

    (10,568 )   (22,434 )   (26,710 )   (17,952 )   (10,961 )

Foreign exchange adjustments

    23,437     (41,250 )   (21,665 )   22,627     (8,428 )

Canadian statutory tax rate differences

    (4,628 )   13,639     (3,485 )   (24,287 )   (7,008 )

Non-deductible interest

    4,197     1,498     2,094     890     1,599  

Change in valuation allowance

    20,472     394     994     324     702  

Other permanent differences

    (322 )   2,864     2,969     (710 )   (2,482 )
                       

Income tax expense (benefit)

  $ 51,848   $ (15,411 ) $ (11,871 ) $ (3,370 ) $ (12,103 )
                       

F-32


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

11. Income Taxes (Continued)

        The Partnerships are not taxable entities. Income taxes on their income are the responsibility of individual partners and have accordingly not been recorded in the combined financial statements. Niska Canada has Canadian corporate subsidiaries, which are taxable corporations subject to Canadian federal and provincial income taxes, which are included in the combined financial statements.

        As at December 31, 2009, Niska Canada had accumulated non-capital losses of approximately $23.8 million that can be carried forward and applied against future taxable income. These non-capital losses have resulted in deferred income tax assets of $6.2 million. Additionally, Niska Canada had recognized deferred income tax assets related to capital losses of $16.7 million at December 31, 2009. Non-capital losses will expire between 2027 and 2030, and substantially all have been offset by a valuation allowance due to the uncertainty of their realization.

        During the period ended December 31, 2009, two of the Canadian subsidiaries of Niska Canada elected to adopt the US dollar as their currency to file their Canadian tax returns. As a result of the currency election, temporary differences pertaining to non-monetary items caused the deferred income tax liability and deferred income tax expense to increase by $23.4 million.

        On April 1, 2008, Niska adopted the provisions of FIN 48, however, there was no impact on the opening accumulated deficit of the Partnerships as a result of this adoption. For the periods ended December 31, 2009 and December 31, 2008, Niska had not recognized any amounts in respect of potential interest and penalties associated with uncertain tax positions. The Partnerships file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and other foreign jurisdictions. The Partnerships are subject to income tax examinations for the fiscal years ended 2007 through 2009 in most jurisdictions.

        Deferred income tax assets and liabilities reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that give rise to

F-33


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

11. Income Taxes (Continued)


significant components of the deferred income tax liabilities and deferred income tax assets are presented below:

 
  As at
December 31,
2009
  As at
March 31,
2009
  As at
March 31,
2008
 

Deferred income tax assets:

                   

Non-capital loss carry forwards

  $ 6,215   $ 10,764   $ 21,409  

Risk management liabilities

    16,555     22,968     6,086  

Long-term debt

        7,725      

Capital losses

    16,731     582      

Other

    210     109     76  
               

    39,711     42,148     27,571  
               

Valuation allowance

    (21,561 )   (1,089 )   (372 )
               

Total deferred income tax assets

  $ 18,150   $ 41,059   $ 27,199  
               

Deferred income tax liabilities:

                   

Property, plant and equipment

  $ 136,141   $ 121,120   $ 152,279  

Intangible assets

    32,556     28,487     39,463  

Partnership deferral income

    30,063     16,284     24,978  

Risk management assets

    19,827     23,666     3,064  

Other

    363     667     5,885  
               

Total deferred income tax liabilities

    218,950     190,224     225,669  
               

Net deferred income tax liabilities

  $ 200,800   $ 149,165   $ 198,470  
               

        The classification of net deferred income tax liabilities recorded on the balance sheets is as follows:

 
  As at
December 31,
2009
  As at
March 31,
2009
  As at
March 31,
2008
 

Deferred income tax liabilities:

                   

Current

  $ 39,582   $ 4,539   $ 2,168  

Long-term

    161,218     144,626     196,302  
               

  $ 200,800   $ 149,165   $ 198,470  
               

F-34


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

12. Risk Management Activities and Financial Instruments

Risk management overview

        The Partnerships have exposure to commodity price, foreign currency, counterparty credit, interest rate, and liquidity risk. Risk management activities are tailored to the risk they are designed to mitigate.

Commodity price risk

        As a result of its natural gas inventory, Niska is exposed to risks associated with changes in price when buying and selling natural gas across future time periods. To manage this risk, the Partnerships utilize a combination of financial and physical derivative contracts, including forwards, futures, swaps and option contracts. The use of these contracts is subject to the Partnerships' risk management policies, which are monitored daily for compliance.

        Forwards and futures are contractual agreements to purchase or sell a specific financial instrument or natural gas at a specified price and date in the future. The Partnerships enter into forwards and futures to mitigate the impact of price volatility. In addition to cash settlement, exchange traded futures may also be settled by physical delivery of natural gas.

        Swap contracts are agreements between two parties to exchange streams of payments over time according to specified terms. Swap contracts require receipt of payment for the notional quantity of the commodity based on the difference between a fixed price and the market price on the settlement date. The Partnerships enter into commodity swaps to mitigate the impact of changes in natural gas prices.

        Option contracts are contractual agreements to convey the right, but not the obligation, for the purchaser of the option to buy or sell a specific physical or notional amount of a commodity at a fixed price, either at a fixed date or at any time within a specified period. Niska enters into option agreements to mitigate the impact of changes in natural gas prices.

        To limit its exposure to changes in commodity prices, Niska enters into purchases and sales of natural gas inventory and concurrently matches the volumes in these transactions with offsetting forward contracts. In order to comply with covenants set forth in its credit agreement (Note 9), Niska is required to be limit its exposure of unmatched volumes to 0.1 billion cubic feet ("Bcf") for each legal entity defined in the credit agreement, with an overall limit of 0.7 Bcf. As at December 31, 2009, 50.2 Bcf of natural gas inventory was offset, representing 99.2% of total current inventory. Non-cycling working gas, which is included in long-term inventory, and fuel gas used for operating our facilities are excluded from the credit agreement covenant. Total volumes of non-cycling working gas and fuel gas at December 31, 2009 are 3.4 Bcf and 0.3 Bcf, respectively.

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

12. Risk Management Activities and Financial Instruments (Continued)

Counterparty credit risk

        Counterparty credit risk is the risk of financial loss to the Partnerships if a customer fails to perform its contractual obligations. Niska engages in transactions for the purchase and sale of products and services with major companies in the energy industry and with industrial, commercial, residential and municipal energy consumers. Credit risk associated with trade accounts receivable is mitigated by the high percentage of investment grade customers, collateral support of receivables and the Partnerships' ability to take ownership of customer-owned natural gas stored in its facilities in the event of non-payment.

        Management believes based on its credit policies, that the Partnerships' financial position, results of operations and cash flows will not be materially affected as a result of non-performance by any single counterparty. An allowance for doubtful accounts is established based on collections experience and specific accounts where Niska is aware of a customer's inability to pay. It is Management's opinion that no allowance for doubtful accounts is required at December 31, 2009 and March 31, 2009 and 2008.

        Exchange traded futures and options have minimal credit exposure as the exchanges guarantee every contract will be margined on a daily basis. In the event of any default, Niska's account on the exchange would be absorbed by other clearing members. Because every member posts an initial margin, the exchange can protect the exchange members if or when a clearing member defaults.

Interest rate risk

        The Partnerships assess interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows. In order to reduce exposure to variable interest rates, management enters into interest rate swap and swaption agreements to manage fluctuations in cash flows resulting from interest rate risk. Under the terms of the interest rate swap or swaption agreements, the Partnerships receive variable interest rate payments and makes fixed interest rate payments. Interest rate swaps or swaptions are not designated as accounting hedges and related realized and unrealized gains (losses) are reported as a component of interest expense.

        Niska had three interest rate swap or swaption agreements with a notional amount of $250.0 million (March 31, 2009—$250.0 million; March 31, 2008—$ nil) and a fair value liability at December 31, 2009 of $11.6 million (March 31, 2009—$12.7 million; March 31, 2008 -$ nil). At December 31, 2009, there were no interest rate swap or swaption agreements with amortizing notional amounts. As at March 31, 2009, four interest rate swap or swaption agreements had an amortizing notional amount of $84.9 million and a fair value liability of $1.7 million (March 31, 2008—amortizing notional amount of $343.3 million and a fair value liability of $9.0 million).

Liquidity risk

        Liquidity risk is the risk that Niska will not be able to meet its financial obligations as they become due. The Partnerships' approach to managing liquidity risk is to contract a substantial part of their

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

12. Risk Management Activities and Financial Instruments (Continued)


facilities to generate constant cash flow and to ensure that they always have sufficient cash and credit facilities to meet their obligations when due, under both normal and stressed conditions, without incurring unacceptable losses or damage to reputation. See note 9 for details of the Partnerships' debt.

Foreign currency risk

        Foreign currency risk is created by fluctuations in foreign exchange rates. As Niska Canada conducts a portion of activities in Canadian dollars, earnings are subject to currency fluctuations. The performance of the Canadian dollar relative to the US dollar could positively or negatively affect earnings. Niska Canada enters into currency swaps to mitigate the impact of changes in foreign exchange rates. The notional value of currency swaps as at December 31, 2009 was $126.5 million.

13. Fair value measurements

        The following table shows the fair values of the Partnerships' risk management assets and liabilities:

As at December 31, 2009
  Energye
Contracts
  Currency
Contracts
  Interest
Contracts
  Total  

Short-term risk management assets

  $ 64,337   $ 40   $   $ 64,377  

Long-term risk management assets

    17,591     7         17,598  

Short-term risk management liabilities

    (19,372 )   (6,548 )       (25,920 )

Long-term risk management liabilities

    (21,950 )       (11,575 )   (33,525 )
                   

  $ 40,606   $ (6,501 ) $ (11,575 ) $ 22,530  
                   

 

As at March 31, 2009
  Energy
Contracts
  Currency
Contracts
  Interest
Contracts
  Total  

Short-term risk management assets

  $ 105,064   $ 4,701   $   $ 109,765  

Long-term risk management assets

    45,425             45,425  

Short-term risk management liabilities

    (60,591 )   (112 )   (5,988 )   (66,691 )

Long-term risk management liabilities

    (15,135 )       (8,471 )   (23,606 )
                   

  $ 74,763   $ 4,589   $ (14,459 ) $ 64,893  
                   

 

As at March 31, 2008
  Energy
Contracts
  Interest
Contracts
  Total  

Short-term risk management assets

  $ 29,458   $   $ 29,458  

Long-term risk management assets

    11,246         11,246  

Short-term risk management liabilities

    (41,438 )   (7,686 )   (49,124 )

Long-term risk management liabilities

    (2,658 )   (1,346 )   (4,004 )
               

  $ (3,392 ) $ (9,032 ) $ (12,424 )
               

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

13. Fair value measurements (Continued)

        The following amounts represent the Partnerships' expected recognition into earnings for derivative instruments, based upon the fair value of these derivatives as of December 31, 2009:

 
  Energy
Contracts
  Currency
Contracts
  Interest
Contracts
  Total  

2010

  $ 44,965   $ (6,508 ) $   $ 38,457  

2011

    (4,359 )   7     (11,575 )   (15,927 )
                   

  $ 40,606   $ (6,501 ) $ (11,575 ) $ 22,530  
                   

        Realized gains and losses from these contracts are summarized as follows:

 
  Gain (Loss) Recognized in Income
 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From
May 12,
2006 to
March 31,
2007
  Classification
 
   
  (unaudited)
   
   
   
   

Energy contracts

  $ 29,678   $ 82,265   $ 106,010   $ 44,887   $ 27,763   Optimization revenue, net

Currency contracts

    (2,731 )   (1,255 )   5,616           Optimization revenue, net

Interest contracts

    (5,979 )   (5,574 )   (6,935 )   (222 )     Interest expense
                         

  $ 20,968   $ 75,436   $ 104,692   $ 45,665   $ 27,763    
                         

        Fair values have been determined as follows for the Partnerships' financial assets and liabilities that were accounted for or disclosed at fair value on a recurring basis as of December 31, 2009 and March 31, 2009:

As at December 31, 2009
  Level 1   Level 2   Level 3   Total  

Assets

                         

Commodity derivatives

  $   $ 81,928   $   $ 81,928  

Currency derivatives

        47         47  

Interest rate derivatives

                 
                   

Total assets

        81,975         81,975  

Liabilities

                         

Commodity derivatives

        41,322         41,322  

Currency derivatives

        6,548         6,548  

Interest rate derivatives

        11,575         11,575  
                   

Total liabilities

        59,444         59,444  
                   

Net

  $   $ 22,530   $   $ 22,530  
                   

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

13. Fair value measurements (Continued)

As at March 31, 2009
  Level 1   Level 2   Level 3   Total  

Assets

                         

Commodity derivatives

  $   $ 150,490   $   $ 150,490  

Currency derivatives

        4,702         4,702  

Interest rate derivatives

                   
                   

Total assets

        155,192         155,192  

Liabilities

                         

Commodity derivatives

        75,726         75,726  

Currency derivatives

        111         111  

Interest rate derivatives

        14,460         14,460  
                   

Total liabilities

        90,297         90,297  
                   

Net

  $   $ 64,895   $   $ 64,895  
                   

        Niska enters into financial contracts with six counterparties, all of which have investment grade credit ratings, resulting in minimal credit exposure.

14. Partners' Units and Unit Based Compensation

        Partners' units consist of the following:

Class A units

        Niska US has issued 2,845,927 Class A units for net proceeds of $280.4 million and Niska Canada has issued 5,623,987 Class A units for net proceeds of $551.6 million. Each unit represents an equal and undivided interest in voting rights and shares proportionately in any distributions. In the event of certain monetization events, each Class A unit shall be entitled to receive an 8% cumulative annual distribution from inception and receive 96% of the net proceeds from the monetization event, in excess of their return of capital. No cumulative annual distributions have been paid to date. At December 31, 2009, cumulative dividends payable upon a monetization event are $236.5 million.

        The Partnership Agreements of the Partnerships require them to distribute quarterly earnings when declared by the board of directors in the amount of the estimated taxes payable of the unit holders relating to Niska's earnings. During the nine months ended December 31, 2009, the Partnerships declared distributions in the amount of $26.3 million (nine months ended December 31, 2008—$ 37.6 million; years ended March 31, 2009—$48.5 million; March 31, 2008—$1.7 million; March 31, 2007—$ nil) pursuant to this requirement, of which $15.8 million was paid during the period. $11.0 million in distributions payable is included in accrued liabilities on the balance sheet as at December 31, 2009.

        At the close of the EnCana Gas Storage acquisition (Note 4), Niska paid a fee of $14.6 million to a company, in which directors of the Partnerships are management, for services rendered in raising the Partnerships' partners' capital. This amount has been recorded at the exchange amount and has been deducted from partners' capital.

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

14. Partners' Units and Unit Based Compensation (Continued)

Unit-based compensation plan

        Each of the Partnerships has a long-term incentive plan under which the board of directors of each of the Partnership may issue Class B and Class C non-voting units to directors, officers and employees. The plans are liability-classified unit-based compensation awards which have both a service condition and performance conditions.

        Each class of units, as a group, is entitled to a cash payment of 2% of net proceeds from a monetization events, as defined in the plan, in excess of the Class A unitholders capital contribution and 8% cumulative annual dividends (both of which are due upon a monetization event) to the extent of vested units over total units of the respective class. Each holder of Class B and Class C units is then allocated their pro-rata share of the respective class of unit's entitlement based on the number of units held over the total number of units in that class of units. Half of the units granted to a unitholder vest 30%, 30% and 40%, respectively, on each successive anniversary following the date on which the unit holder was first granted units, subject to certain service conditions, including the unit holder remaining employed with Niska until such anniversary date. The other half of the units granted to a unit holder vest 30%, 30%, 40%, respectively, at the end of each fiscal year, beginning with the period from May 12, 2006 to March 31, 2007, if the Partnerships achieve defined annual performance targets and the unit holder remains employed with Niska through the end of the respective fiscal year. The units have no expiry date provided the employee remains employed with Niska.

        Niska US:

        The number of authorized, issued and vested Class B units is summarized as follows:

 
  Authorized   Issued   Vested  

As at March 31, 2008

    45,748     37,468     16,860  

As at March 31, 2009

    56,165     51,615     40,618  

As at December 31, 2009

    59,290     54,487     53,716  

        The number of authorized, issued and vested Class C units are summarized as follows:

 
  Authorized   Issued   Vested  

As at March 31, 2008

    45,748     45,748     20,586  

As at March 31, 2009

    56,165     56,165     44,932  

As at December 31, 2009

    59,290     59,290     59,290  

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

14. Partners' Units and Unit Based Compensation (continued)

        Niska Canada:

        The number of authorized, issued and vested Class B units is summarized as follows:

 
  Authorized   Issued   Vested  

As at March 31, 2008

    117,166     95,959     43,181  

As at March 31, 2009

    117,166     107,675     84,734  

As at December 31, 2009

    117,166     117,116     117,116  

        The number of authorized, issued and vested Class C units are summarized as follows:

 
  Authorized   Issued   Vested  

As at March 31, 2008

    117,116     117,116     52,724  

As at March 31, 2009

    117,116     117,116     93,733  

As at December 31, 2009

    117,116     117,116     117,116  

        As at December 31, 2009, no compensation expense or liability has been recorded related to the Class B and C units because no monetization event has occurred or is probable.

        The transfer of assets from the Partnerships to Niska Partners (as described in Note 1) is not expected to trigger a qualifying monetization event. Further, the plan will remain with the Partnerships and will not be a liability of Niska Partners.

15. Optimization Revenue, Net

        The following table presents a reconciliation of optimization revenue, net:

 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12,
2006 to
March 31,
2007
 
 
   
  (unaudited)
   
   
   
 

Realized optimization revenue, net

  $ 73,189   $ 49,308   $ 68,929   $ 74,566   $ 60,008  
                       

Unrealized risk management gains (losses) (note 12)

    (45,250 )   93,757     82,787     1,457     (2,825 )

Write-down of inventory (note 2)

        (50,121 )   (62,305 )        
                       

  $ 27,939   $ 92,944   $ 89,411   $ 76,023   $ 57,183  
                       

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Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

16. Interest Expense

        The following table presents a reconciliation of interest expense:

 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12,
2006 to
March 31,
2007
 
 
   
  (unaudited)
   
   
   
 

Interest expense

  $ 18,916   $ 35,234   $ 45,130   $ 64,593   $ 54,821  

Unrealized loss (gain) on interest rate swaps

    (2,887 )   6,067     5,427     6,338     2,695  

Deferred charges amortization

    4,111     2,197     2,929     2,922     2,672  
                       

  $ 20,140   $ 43,498   $ 53,486   $ 73,853   $ 60,188  
                       

17. Related Party Transactions

        During the nine months ended December 31, 2009, Niska paid a fee of $1.0 million (March 31, 2009—$1.0 million; March 31, 2008—$1.0 million; March 31, 2007—$1.0 million) to a company, in which directors of the Partnerships are management, for management services rendered. These costs were recorded as general and administrative costs.

18. Commitments and Contingencies

Contingencies

        The Partnerships and their subsidiaries are subject to various legal proceedings and actions arising in the normal course of business. While the outcome of such legal proceedings and actions cannot be predicted with certainty, it is the opinion of Management that the resolution of such proceedings and actions will not have a material impact on the Partnerships' combined consolidated financial position or results of operations.

Commitments

        Niska has entered into non-cancelable operating leases for office space, leases for land use rights at their operating facilities, storage capacity at other facilities, and vehicles used in their operations. The remaining lease terms expire between June 2013 and June 2059 and provide for the payment of taxes, insurance and maintenance by the lessee. A renewal option exists on the office space lease to extend the term for another five years, exercisable prior to the termination of the original lease.

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

18. Commitments and Contingencies (Continued)

        The related future minimum lease payments at December 31, 2009 were as follows:

 
  Operating
leases
 

2010

  $ 12,448  

2011

    12,437  

2012

    12,556  

2013

    8,715  

2014 and thereafter

    208,123  
       

Total minimum lease payments

  $ 254,279  
       

        Combined lease and rental expense amounted to $7.2 million for the nine months ended December 31, 2009 (years ended March 31, 2009—$5.2 million; March 31, 2008—$2.8 million).

19. Changes in non-cash working capital:

        Changes in non-cash working capital include:

 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12,
2006 to
March 31,
2007
 
 
   
  (Unaudited)
   
   
   
 

Margin deposits

  $ (55,695 ) $ 72,739   $ 70,325   $ (2,165 ) $ (20,182 )

Trade receivables

    (2,089 )   (1,643 )   410     (1,533 )   (326 )

Accrued receivables

    (34,856 )   (20,341 )   18,375     (46,263 )   (43,364 )

Inventory

    (77,789 )   (202,421 )   (163,277 )   78,306     (109,775 )

Long-term inventory

                10,329     44,809  

Prepaid expenses

    11,338     127     (13,839 )   2,124     (3,072 )

Trade payables

    79     (982 )   (988 )   (2,526 )   3,871  

Accrued liabilities

    (25,935 )   4,725     (34,810 )   45,394     45,375  

Income taxes

    (62 )   (250 )   (307 )   329      

Deferred revenue

    (8,758 )   8,287     17,897          

Funds held on deposit

    (1,482 )   1,594     1,593          
                       

Net changes in non-cash working capital

  $ (195,249 ) $ (138,165 ) $ (104,621 ) $ 83,995   $ (82,664 )
                       

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

20. Supplemental cash flow disclosures:

 
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12,
2006 to
March 31,
2007
 
 
   
  (Unaudited)
   
   
   
 

Interest paid

  $ 18,916   $ 35,234   $ 45,130   $ 64,593   $ 54,821  

Taxes paid (recovered)

        320     314     321      

Non-cash investing activities:

                               
 

Non-cash working capital related to capital additions

  $ 7,130   $   $ 9,626   $   $  

21. Segment Disclosures

        The Partnerships' process for the identification of reportable segments involves examining the nature of services offered, the types of customer contracts entered into and the nature of the economic and regulatory environment.

        Since inception, the Partnerships have operated along functional lines in their commercial, engineering, and operations teams for operations in Alberta, Northern California, and the U.S. Midcontinent. All functional lines and facilities offer the same services: firm storage contracts, short-term firm services, and optimization. All services are delivered using reservoir storage. The Partnerships measure profitability consistently along all functional lines based on revenues and earnings before interest, taxes, depreciation and amortization, before unrealized risk management gains and losses. The Partnerships have aggregated their operating segments into one reportable segment as at and for the periods ending December 31, 2009 and 2008 as well as March 31, 2009, and March 31, 2008 and 2007.

        Information pertaining to the Partnerships' short term and long term contract services and net optimization revenues is presented on the combined statements of earnings and comprehensive income. All facilities have the same types of customers: major companies in the energy industry, industrial, commercial, and local distribution companies, and municipal energy consumers.

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Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

21. Segment Disclosures (Continued)

        The following tables summarize the net revenues and assets by geographic area.

Segment Information
  Nine months
ended
December 31,
2009
  Nine months
ended
December 31,
2008
  Year ended
March 31,
2009
  Year ended
March 31,
2008
  From May 12,
2006 to
March 31,
2007
 
 
   
  (unaudited)
   
   
   
 

Information by geographic location

                               
 

External revenues, net

                               
   

U.S. 

  $ 86,654   $ 30,580   $ 32,034   $ 82,380   $ 58,766  
   

Canada

    108,273     87,277     137,360     149,051     137,818  
   

Inter-entity

                               
   

U.S. 

    (50 )                
   

Canada

    50                  
                       

  $ 194,927   $ 117,857   $ 169,394   $ 231,431   $ 196,584  
                       
 

Long-lived assets

                               
   

U.S. 

  $ 411,814   $ 425,748   $ 375,315   $ 389,136   $ 385,562  
   

Canada

    1,224,935     1,260,929     1,271,646     1,290,351     1,293,925  
                       

  $ 1,636,749   $ 1,686,677   $ 1,646,961   $ 1,679,487   $ 1,679,487  
                       

22. Economic Dependence

        Although Niska attempts to mitigate its risk by transacting with a broad customer base, it does rely on a small proportion of its customers for a significant percentage of its revenues. During the nine months ended December 31, 2009, one of the Partnerships' customers amounted to approximately 44% of their gross revenue (March 31, 2009—one customer amounted to 28%, December 31, 2008—three customers amounted to 41%, March 31, 2008—two customers amounted to 44%, March 31, 2007—one customer amounted to 22%). These customers have investment grade ratings as determined by rating agencies.

23. Subsequent events

        The Partnerships have evaluated all events or transactions occurring after December 31, 2009 through March 29, 2010, the date Niska Partners filed the amended initial public offering on Form S-1 for the financial period ended December 31, 2009.

Senior Notes Offering

        On February 26, 2010, the Partnerships undertook a non-public senior notes offering to certain qualified institutional investors for 800,000 units with an aggregate principal amount of $800.0 million. The notes offering closed on March 5, 2010.

F-45


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

23. Subsequent events (Continued)

        Each senior note offered consisted of $1,000 principal amount due March 15, 2018. Interest is payable semiannually on the notes at a per annum rate of 8.875%, on March 15 and September 15 of each year, commencing September 15, 2010.

        The notes are senior obligations of the Partnerships, but will be effectively junior to the extent of the value of the collateral securing the Partnerships' obligations under the credit agreement. The notes will be senior in right of payment to any future subordinated indebtedness.

        Proceeds from the notes offering were utilized to repay the previous revolving credit facility of $75.0 million, repay term debt of $592.5 million, plus accrued interest of $0.5 million, make a distribution to equity holders of $107.1 million ($4.9 million of which has been deferred until certain closing items have been finalized), and pay fees, and expenses of $24.9 million.

        The 8.875% unsecured senior notes will mature on March 15, 2018; however, upon a change of control or asset sale event, we may be required to immediately repay the outstanding principal, any accrued interest on the notes and any other amounts owed by us under our anticipated credit facility, along with other outstanding indebtedness. In addition, we may redeem the notes prior to March 15, 2018 under certain circumstances pursuant to the indenture. The indenture governing our senior notes contains certain covenants that, among other things, limit our and certain of our subsidiaries' ability to:

    incur additional indebtedness;

    pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

    make certain investments;

    sell, transfer, or otherwise convey certain assets;

    create liens;

    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

    enter into certain transactions with our affiliates.

Revolving Credit Facility

        On March 5, 2010, subsidiaries of the Partnerships entered into revolving credit facilities with a borrowing capacity of $400.0 million with the Royal Bank of Canada, secured by specified amounts of cushion gas and property, plant and equipment. Availability under the revolving credit facility is subject to a borrowing base, which is determined based on the value of cash and cash equivalents, accounts receivable, and specified inventory.

        Borrowings under the revolving credit facilities can be made either as Base rate, Canadian Prime Rate, Canadian US Dollar Base Rate, or Eurodollar rate loans. Revolving loan borrowings will bear interest at a floating rate equal to a base rate calculated using the applicable Base, Prime, or Eurodollar rate for the applicable interest period, plus between 2.25% and 3.75% per annum,

F-46


Table of Contents


Niska Predecessor

Notes to the Combined Financial Statements (Continued)

For the Nine Months Ended December 31, 2009 and 2008, Years Ended March 31, 2009 and 2008,
and the Period From May 12, 2006 to March 31, 2007

(Tabular amounts expressed in thousands of US dollars unless otherwise noted)

23. Subsequent events (Continued)


depending on the Partnerships' leverage ratio, as defined in the credit agreement. Borrowings drawn down under letters of credit issued by the banks will bear interest ranging from 3.25% and 3.75% per annum, depending on the Partnerships' leverage ratio. Interest will be calculated daily and paid monthly.

Covenants

        Under the terms of the senior notes and revolving credit facility agreements, the Partnerships are required to comply with certain covenants. These covenants include, but are not limited to, certain financial measurements which will be tested on a quarterly basis.

Termination of existing facility

        The Partnerships terminated their existing term loan and credit facility agreement and their related interest rate swaps effective March 5, 2010. The cost of terminating the interest rate swaps was $13.8 million.

F-47


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Niska Gas Storage Partners LLC

        We have audited the accompanying statement of financial position of Niska Gas Storage Partners LLC (the "Company") as of January 27, 2010. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is 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 audit provides a reasonable basis for our opinion.

        In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of the Company as of January 27, 2010 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP
Chartered Accountants

Calgary, Canada
February 19, 2010

F-48


Table of Contents


NISKA GAS STORAGE PARTNERS LLC

STATEMENT OF FINANCIAL POSITION

As of January 27, 2010

Assets

  $  
       

Member's Equity

       
 

Member's equity

  $ 1,000  
 

Receivable from member

    (1,000 )
       

Total Member's Equity

  $  

(See notes to the statement of financial position)

F-49


Table of Contents


NISKA GAS STORAGE PARTNERS LLC

NOTES TO THE STATEMENT OF FINANCIAL POSITION

1. Description of Business

        Niska Gas Storage Partners LLC ("Niska Partners"), is a Delaware limited liability company formed on January 27, 2010, to acquire certain assets of Niska GS Holdings I, LP and Niska GS Holdings II, LP (collectively, "Niska Predecessor").

        Niska Gas Storage Management LLC ("Niska Management"), as sole member, committed to contribute $1,000 to Niska Partners. This contribution receivable has been reflected as a reduction to member's equity.

        Niska Partners will issue common and subordinated units, each representing a limited partner interest in Niska Partners, to the present owners of Niska Predecessor, who, after restructuring, will own these interests through a newly formed holding company. Niska Partners will also issue a 2% management membership interest to Niska Management, as well as incentive distribution rights, all of which will be indirectly owned by the present owners of Niska Predecessor.

        Niska Partners also intends to issue and sell common units to the public in connection with its initial public offering.

2. Significant Accounting Policies

Basis of presentation

        This statement of financial position has been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Separate Statements of Income, Changes in Member's Equity and of Cash Flows have not been presented in the financial statement because there have been no activities of this entity.

F-50



Appendix A

FIRST AMENDED AND RESTATED
OPERATING AGREEMENT

OF

NISKA GAS STORAGE PARTNERS LLC



TABLE OF CONTENTS

 
   
  Page

ARTICLE I
DEFINITIONS

Section 1.1

 

Definitions

 
A-1

Section 1.2

 

Construction

  A-17

ARTICLE II
ORGANIZATION

Section 2.1

 

Formation

 
A-17

Section 2.2

 

Name

  A-17

Section 2.3

 

Registered Office; Registered Agent; Principal Office; Other Offices

  A-17

Section 2.4

 

Purpose and Business

  A-17

Section 2.5

 

Powers

  A-18

Section 2.6

 

Term

  A-18

Section 2.7

 

Title to Company Assets

  A-18

ARTICLE III
RIGHTS OF MEMBERS

Section 3.1

 

Limitation of Liability

 
A-18

Section 3.2

 

Management of Business

  A-18

Section 3.3

 

Outside Activities of the Non-Managing Members

  A-18

Section 3.4

 

Rights of Non-Managing Members

  A-18

ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF MEMBERSHIP INTERESTS;
REDEMPTION OF MEMBERSHIP INTERESTS

Section 4.1

 

Certificates

 
A-19

Section 4.2

 

Mutilated, Destroyed, Lost or Stolen Certificates

  A-19

Section 4.3

 

Record Holders

  A-20

Section 4.4

 

Transfer Generally

  A-20

Section 4.5

 

Registration and Transfer of Non-Managing Member Interests

  A-21

Section 4.6

 

Transfer of the Manager's Managing Member Interest

  A-22

Section 4.7

 

Restrictions on Transfers

  A-22

Section 4.8

 

Eligibility Certificates; Ineligible Holders

  A-23

Section 4.9

 

Redemption of Membership Interests of Ineligible Holders

  A-24

ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF MEMBERSHIP INTERESTS

Section 5.1

 

Organizational Contributions

 
A-25

Section 5.2

 

Contributions by the Manager and its Affiliates

  A-25

Section 5.3

 

Contributions by Initial Members

  A-25

Section 5.4

 

Interest and Withdrawal

  A-26

Section 5.5

 

Capital Accounts

  A-26

Section 5.6

 

Issuances of Additional Membership Interests

  A-28

Section 5.7

 

Conversion of Subordinated Units

  A-29

Section 5.8

 

Limited Preemptive Right

  A-30

Section 5.9

 

Splits and Combinations

  A-30

Section 5.10

 

Fully Paid and Non-Assessable Nature of Membership Interests

  A-30

A-i


 
   
  Page

ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

Section 6.1

 

Allocations for Capital Account Purposes

 
A-30

Section 6.2

 

Allocations for Tax Purposes

  A-37

Section 6.3

 

Distributions; Characterization of Distributions; Distributions to Record Holders

  A-39

Section 6.4

 

Distributions from Operating Surplus

  A-39

Section 6.5

 

Distributions from Capital Surplus

  A-41

Section 6.6

 

Adjustment of Minimum Quarterly Distribution and Target Distribution Levels

  A-41

Section 6.7

 

Special Provisions Relating to the Holders of Subordinated Units

  A-41

Section 6.8

 

Entity Level Taxation

  A-42

ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

Section 7.1

 

Management

 
A-43

Section 7.2

 

Board of Directors

  A-44

Section 7.3

 

Officers

  A-46

Section 7.4

 

Certificate of Formation

  A-48

Section 7.5

 

Restrictions on the Manager's Authority

  A-48

Section 7.6

 

Reimbursement of the Manager

  A-48

Section 7.7

 

Outside Activities

  A-49

Section 7.8

 

Loans from the Manager; Loans or Contributions from the Company or Group Members

  A-50

Section 7.9

 

Indemnification

  A-51

Section 7.10

 

Liability of Indemnitees

  A-52

Section 7.11

 

Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties

  A-53

Section 7.12

 

Other Matters Concerning the Manager

  A-54

Section 7.13

 

Purchase or Sale of Membership Interests

  A-55

Section 7.14

 

Registration Rights of the Manager and its Affiliates

  A-55

Section 7.15

 

Reliance by Third Parties

  A-57

ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 8.1

 

Records and Accounting

 
A-57

Section 8.2

 

Fiscal Year

  A-57

Section 8.3

 

Reports

  A-57

ARTICLE IX
TAX MATTERS

Section 9.1

 

Tax Returns and Information

 
A-58

Section 9.2

 

Tax Elections

  A-58

Section 9.3

 

Tax Controversies

  A-58

Section 9.4

 

Withholding

  A-59

ARTICLE X
ADMISSION OF MEMBERS

Section 10.1

 

Admission of Non-Managing Members

 
A-59

Section 10.2

 

Admission of Successor Manager

  A-59

Section 10.3

 

Amendment of Agreement and Certificate of Formation

  A-60

A-ii


 
   
  Page

ARTICLE XI
WITHDRAWAL OR REMOVAL OF MEMBERS

Section 11.1

 

Withdrawal of the Manager

 
A-60

Section 11.2

 

Removal of the Manager

  A-61

Section 11.3

 

Interest of Departing Manager and Successor Manager

  A-61

Section 11.4

 

Termination of Subordination Period, Conversion of Subordinated Units and Extinguishment of Cumulative Common Unit Arrearages

  A-63

Section 11.5

 

Withdrawal of Non-Managing Members

  A-63

ARTICLE XII
DISSOLUTION AND LIQUIDATION

Section 12.1

 

Dissolution

 
A-63

Section 12.2

 

Continuation of the Business of the Company After Dissolution

  A-63

Section 12.3

 

Liquidator

  A-64

Section 12.4

 

Liquidation

  A-64

Section 12.5

 

Cancellation of Certificate of Formation

  A-65

Section 12.6

 

Return of Contributions

  A-65

Section 12.7

 

Waiver of Partition

  A-65

Section 12.8

 

Capital Account Restoration

  A-65

ARTICLE XIII
AMENDMENT OF OPERATING AGREEMENT; MEETINGS; RECORD DATE

Section 13.1

 

Amendments to be Adopted Solely by the Manager

 
A-65

Section 13.2

 

Amendment Procedures

  A-66

Section 13.3

 

Amendment Requirements

  A-67

Section 13.4

 

Special Meetings

  A-68

Section 13.5

 

Notice of a Meeting

  A-68

Section 13.6

 

Record Date

  A-68

Section 13.7

 

Adjournment

  A-68

Section 13.8

 

Waiver of Notice; Approval of Meeting; Approval of Minutes

  A-68

Section 13.9

 

Quorum and Voting

  A-69

Section 13.10

 

Conduct of a Meeting

  A-69

Section 13.11

 

Action Without a Meeting

  A-69

Section 13.12

 

Right to Vote and Related Matters

  A-70

Section 13.13

 

Voting of Incentive Distribtuion Rights

  A-70

ARTICLE XIV
MERGER

Section 14.1

 

Authority

 
A-71

Section 14.2

 

Procedure for Merger or Consolidation

  A-71

Section 14.3

 

Approval by Non-Managing Members of Merger or Consolidation

  A-72

Section 14.4

 

Certificate of Merger

  A-73

Section 14.5

 

Amendment of Company Agreement

  A-73

Section 14.6

 

Effect of Merger

  A-73

ARTICLE XV
RIGHT TO ACQUIRE NON-MANAGING MEMBERSHIP INTERESTS

Section 15.1

 

Right to Acquire Non-Managing Member Interests

 
A-73

A-iii


 
   
  Page
ARTICLE XVI
GENERAL PROVISIONS

Section 16.1

 

Addresses and Notices

  A-74

Section 16.2

 

Further Action

  A-75

Section 16.3

 

Binding Effect

  A-75

Section 16.4

 

Integration

  A-75

Section 16.5

 

Creditors

  A-75

Section 16.6

 

Waiver

  A-75

Section 16.7

 

Counterparts

  A-75

Section 16.8

 

Applicable Law; Forum, Venue and Jurisdiction

  A-76

Section 16.9

 

Invalidity of Provisions

  A-76

Section 16.10

 

Consent of Members

  A-76

Section 16.11

 

Facsimile Signatures

  A-76

Section 16.12

 

Third Party Beneficiaries

  A-77

A-iv



FIRST AMENDED AND RESTATED OPERATING AGREEMENT
OF NISKA GAS STORAGE PARTNERS LLC

        THIS FIRST AMENDED AND RESTATED OPERATING AGREEMENT OF NISKA GAS STORAGE PARTNERS LLC, dated as of                        , 2010, is entered into by Niska Gas Storage Management LLC, a Delaware limited liability company, as the Manager, together with any other Persons who become Members in the Company or parties hereto as provided herein. In consideration of the covenants, conditions and agreements contained herein, the parties agree as follows:


ARTICLE I
DEFINITIONS

        Section 1.1    Definitions.    The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.

        "Additional Book Basis" means the portion of any remaining Carrying Value of an Adjusted Property that is attributable to positive adjustments made to such Carrying Value as a result of Book-Up Events. For purposes of determining the extent that Carrying Value constitutes Additional Book Basis:

          (i)  any negative adjustment made to the Carrying Value of an Adjusted Property as a result of either a Book-Down Event or a Book-Up Event shall first be deemed to offset or decrease that portion of the Carrying Value of such Adjusted Property that is attributable to any prior positive adjustments made thereto pursuant to a Book-Up Event or Book-Down Event; and

         (ii)  if Carrying Value that constitutes Additional Book Basis is reduced as a result of a Book-Down Event and the Carrying Value of other property is increased as a result of such Book-Down Event, an allocable portion of any such increase in Carrying Value shall be treated as Additional Book Basis; provided, that the amount treated as Additional Book Basis pursuant hereto as a result of such Book-Down Event shall not exceed the amount by which the Aggregate Remaining Net Positive Adjustments after such Book-Down Event exceeds the remaining Additional Book Basis attributable to all of the Company's Adjusted Property after such Book-Down Event (determined without regard to the application of this clause (ii) to such Book-Down Event).

        "Additional Book Basis Derivative Items" means any Book Basis Derivative Items that are computed with reference to Additional Book Basis. To the extent that the Additional Book Basis attributable to all of the Company's Adjusted Property as of the beginning of any taxable period exceeds the Aggregate Remaining Net Positive Adjustments as of the beginning of such period (the "Excess Additional Book Basis"), the Additional Book Basis Derivative Items for such period shall be reduced by the amount that bears the same ratio to the amount of Additional Book Basis Derivative Items determined without regard to this sentence as the Excess Additional Book Basis bears to the Additional Book Basis as of the beginning of such period. With respect to a Disposed of Adjusted Property, the Additional Book Basis Derivative items shall be the amount of Additional Book Basis taken into account in computing gain or loss from the disposition of such Disposed of Adjusted Property.

        "Adjusted Capital Account" means the Capital Account maintained for each Member as of the end of each taxable period of the Company, (a) increased by any amounts that such Member is obligated to restore under the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses and deductions that, as of the end of such taxable period, are reasonably expected to be allocated to such Member in subsequent taxable periods under Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end of such taxable period, are reasonably expected to be made to such

A-1



Member in subsequent taxable periods in accordance with the terms of this Agreement or otherwise to the extent they exceed offsetting increases to such Member's Capital Account that are reasonably expected to occur during (or prior to) the taxable period in which such distributions are reasonably expected to be made (other than increases as a result of a minimum gain chargeback pursuant to Section 6.1(d)(i) or Section 6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. The "Adjusted Capital Account" of a Member in respect of any Membership Interest shall be the amount that such Adjusted Capital Account would be if such Membership Interest were the only interest in the Company held by such Member from and after the date on which such Membership Interest was first issued.

        "Adjusted Property" means any property the Carrying Value of which has been adjusted pursuant to Section 5.5(d).

        "Affiliate" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

        "Aggregate Remaining Net Positive Adjustments" means, as of the end of any taxable period, the sum of the Remaining Net Positive Adjustments of all the Members.

        "Agreed Allocation" means any allocation, other than a Required Allocation, of an item of income, gain, loss or deduction pursuant to the provisions of Section 6.1, including a Curative Allocation (if appropriate to the context in which the term "Agreed Allocation" is used).

        "Agreed Value" of any Contributed Property means the fair market value of such property at the time of contribution and in the case of an Adjusted Property the fair market value of such Adjusted Property on the date of the revaluation event as described in Section 5.5(d), in both cases as determined by the Manager.

        "Agreement" means this First Amended and Restated Operating Agreement of Niska Gas Storage Partners LLC, as it may be amended, supplemented or restated from time to time.

        "Associate" means, when used to indicate a relationship with any Person, (a) any corporation or organization of which such Person is a director, officer, manager, general partner or managing member or is, directly or indirectly, the owner of 20% or more of any class of voting stock or other voting interest; (b) any trust or other estate in which such Person has at least a 20% beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same principal residence as such Person.

        "Board of Directors" means the board of directors appointed by the Manager pursuant to Section 7.2(b) or, if the Manager revokes the delegation to such board of directors, the board of directors of the Manager.

        "Book Basis Derivative Items" means any item of income, deduction, gain or loss that is computed with reference to the Carrying Value of an Adjusted Property (e.g., depreciation, depletion, or gain or loss with respect to an Adjusted Property).

        "Book-Down Event" means an event that triggers a negative adjustment to the Capital Accounts of the Members pursuant to Section 5.5(d).

        "Book-Tax Disparity" means with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for U.S. federal income tax

A-2



purposes as of such date. A Member's share of the Company's Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Member's Capital Account balance as maintained pursuant to Section 5.5 and the hypothetical balance of such Member's Capital Account computed as if it had been maintained strictly in accordance with U.S. federal income tax accounting principles.

        "Book-Up Event" means an event that triggers a positive adjustment to the Capital Accounts of the Members pursuant to Section 5.5(d).

        "Business Day" means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.

        "Capital Account" means the capital account maintained for a Member pursuant to Section 5.5. The "Capital Account" of a Member in respect of any Membership Interest shall be the amount that such Capital Account would be if such Membership Interest were the only interest in the Company held by such Member from and after the date on which such Membership Interest was first issued.

        "Capital Contribution" means any cash, cash equivalents or the Net Agreed Value of Contributed Property that a Member contributes to the Company or that is contributed, directly or indirectly, to the Company on behalf of a Member; provided that in the case of an underwritten offering of Units, the amount of any underwriting discounts or commissions shall be treated as having been contributed to the Company.

        "Capital Improvement" means any (a) addition or improvement to the capital assets owned by any Group Member, (b) acquisition (through an asset acquisition, merger, stock acquisition or other form of investment) of existing, or the construction of new, capital assets, or (c) capital contribution by a Group Member to a Person that is not a Subsidiary, in which a Group Member has, or after such capital contribution will have, an equity interest to fund the Group Member's pro rata share of the cost of the acquisition of existing, or the construction of new or the improvement of existing, capital assets, in each case if such addition, improvement, acquisition or construction is made to increase the long-term operating capacity or operating income of the Company Group from the long-term operating capacity or operating income of the Company Group, in the case of clauses (a) and (b), or such Person, in the case of clause (c), from that existing immediately prior to such addition, improvement, acquisition or construction.

        "Capital Surplus" means cash and cash equivalents distributed by the Company in excess of Operating Surplus, as described in Section 6.3(a).

        "Carrying Value" means (a) with respect to a Contributed Property or Adjusted Property, the Agreed Value of such property reduced (but not below zero) by all depreciation, amortization and cost recovery deductions charged to the Members' Capital Accounts in respect of such property, and (b) with respect to any other Company property, the adjusted basis of such property for U.S. federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Section 5.5(d) and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Company properties, as deemed appropriate by the Manager.

        "Cause" means a court of competent jurisdiction has entered a final, non-appealable judgment finding the Manager is liable for actual fraud or willful misconduct in its capacity as a managing member of the Company.

        "Certificate" means a certificate in such form (including global form if permitted by applicable rules and regulations) as may be adopted by the Manager, issued by the Company evidencing

A-3



ownership of one or more Membership Interests. The initial form of certificate approved by the Manager for Common Units is attached as Exhibit A to this Agreement.

        "Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware as referenced in Section 7.3, as such Certificate of Formation may be amended, supplemented or restated from time to time.

        "Citizenship Eligibility Trigger" has the meaning assigned to such term in Section 4.8(a)(ii).

        "claim" (as used in Section 7.14(c)) has the meaning assigned to such term in Section 7.14(c).

        "Closing Date" means the first date on which Common Units are sold by the Company to the Underwriters pursuant to the provisions of the Underwriting Agreement.

        "Closing Price" means, in respect of any class of Non-Managing Member Interests, as of the date of determination, the last sale price on such day, regular way, or in case no such sale takes place on such day, the average of the closing bid and asked prices on such day, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal National Securities Exchange on which the respective Non-Managing Member Interests are listed or admitted to trading or, if such Non-Managing Member Interests are not listed or admitted to trading on any National Securities Exchange, the last quoted price on such day or, if not so quoted, the average of the high bid and low asked prices on such day in the over-the-counter market, as reported by the primary reporting system then in use in relation to such Non-Managing Member Interests of such class, or, if on any such day such Non-Managing Member Interests of such class are not quoted by any such organization, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in such Non-Managing Member Interests of such class selected by the Manager, or if on any such day no market maker is making a market in such Non-Managing Member Interests of such class, the fair value of such Non-Managing Member Interests on such day as determined by the Manager.

        "Code" means the U.S. Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of any successor law.

        "Combined Interest" has the meaning assigned to such term in Section 11.3(a).

        "Commences Commercial Service" means a Capital Improvement is first put into commercial service by a Group Member following, if applicable, completion of construction and testing.

        "Commission" means the United States Securities and Exchange Commission.

        "Common Unit" means a Unit representing a fractional part of the Membership Interests of all Non-Managing Members, and having the rights and obligations specified with respect to Common Units in this Agreement. The term "Common Unit" does not refer to, or include, any Subordinated Unit prior to its conversion into a Common Unit pursuant to the terms hereof.

        "Common Unit Arrearage" means, with respect to any Common Unit, whenever issued, with respect to any Quarter wholly within the Subordination Period, the excess, if any, of (a) the Minimum Quarterly Distribution with respect to a Common Unit in respect of such Quarter over (b) the sum of all cash and cash equivalents distributed with respect to a Common Unit in respect of such Quarter pursuant to Section 6.4(a)(i).

        "Company" means Niska Gas Storage Partners LLC, a Delaware limited liability company.

        "Company Group" means the Company and its Subsidiaries treated as a single entity.

        "Company Minimum Gain" means the amount of "partnership minimum gain" determined in accordance with the principles of Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).

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        "Conflicts Committee" means a committee of the Board of Directors composed entirely of two or more directors who are not (a) officers or employees of the Manager, (b) officers, directors or employees of any Affiliate of the Manager (other than Group Members) or (c) holders of any ownership interest in the Manager or any of its affiliates, including any Group Member other than Common Units and awards that are granted to such director under the Long-Term Incentive Plan and who also meet the independence standards required of directors who serve on an audit committee of a board of directors established by the Securities Exchange Act and the rules and regulations of the Commission thereunder and by the National Securities Exchange on which any class of Membership Interests is listed or admitted to trading.

        "Contributed Property" means each property, in such form as may be permitted by the Delaware Act, but excluding cash, contributed to the Company. Once the Carrying Value of a Contributed Property is adjusted pursuant to Section 5.5(d), such property shall no longer constitute a Contributed Property, but shall be deemed an Adjusted Property.

        "Contribution Agreement" means that certain Contribution, Assignment and Assumption Agreement, dated as of the Closing Date, among the Manager, the Company, Holdings US and Holdings Canada, and certain other parties, together with the additional conveyance documents and instruments contemplated or referenced thereunder, as such may be amended, supplemented or restated from time to time.

        "Cumulative Common Unit Arrearage" means, with respect to any Common Unit, whenever issued, and as of the end of any Quarter, the excess, if any, of (a) the sum of the Common Unit Arrearages with respect to an Initial Common Unit for each of the Quarters wholly within the Subordination Period ending on or before the last day of such Quarter over (b) the sum of any distributions theretofore made pursuant to Section 6.4(a)(ii) and the second sentence of Section 6.5 with respect to an Initial Common Unit (including any distributions to be made in respect of the last of such Quarters).

        "Curative Allocation" means any allocation of an item of income, gain, deduction, loss or credit pursuant to the provisions of Section 6.1(d)(xi).

        "Current Market Price" means, in respect of any class of Non-Managing Member Interests, as of the date of determination, the average of the daily Closing Prices per Non-Managing Member Interest of such class for the 20 consecutive Trading Days immediately prior to such date.

        "Deferred Issuance and Distribution" means both (a) the issuance by the Company of a number of additional Common Units that is equal to the excess, if any, of (x) 2,625,000 over (y) the aggregate number, if any, of Common Units actually purchased by and issued to the Underwriters pursuant to the Over-Allotment Option on the Option Closing Date(s), and (b) a distribution in an amount equal to the aggregate amount of cash, if any, contributed by the Underwriters to the Company on the Option Closing Date(s) with respect to Common Units issued by the Company upon each exercise of the Over-Allotment Option as described in Section 5.3(b), if any.

        "Delaware Act" means the Delaware Limited Liability Company Act, 6 Del C. Section 18-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.

        "Departing Manager" means a former Manager from and after the effective date of any withdrawal or removal of such former Manager pursuant to Section 11.1 or Section 11.2.

        "Disposed of Adjusted Property" has the meaning assigned to such term in Section 6.1(d)(xii)(B).

        "Economic Risk of Loss" has the meaning set forth in Treasury Regulation Section 1.752-2(a).

        "Eligibility Certificate" has the meaning assigned to such term in Section 4.8(b).

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        "Eligible Holder" means a Member whose (a) U.S. federal income tax status would not, in the determination of the Manager, have the material adverse effect described in Section 4.8(a)(i) or (b) nationality, citizenship or other related status would not, in the determination of the Manager, create a substantial risk of cancellation or forfeiture as described in Section 4.8(a)(ii).

        "Estimated Incremental Quarterly Tax Amount" has the meaning assigned to such term in Section 6.8.

        "Event of Withdrawal" has the meaning assigned to such term in Section 11.1(a).

        "Excess Distribution" has the meaning assigned to such term in Section 6.1(d)(iii)(A).

        "Excess Distribution Unit" has the meaning assigned to such term in Section 6.1(d)(iii)(A).

        "Expansion Capital Expenditures" means cash expenditures for Capital Improvements. Expansion Capital Expenditures shall not include Maintenance Capital Expenditures or Investment Capital Expenditures. Expansion Capital Expenditures shall include interest (and related fees) on debt incurred to finance the construction of a Capital Improvement and paid in respect of the period beginning on the date that a Group Member enters into a binding obligation to commence construction of a Capital Improvement and ending on the earlier to occur of (a) the date that such Capital Improvement Commences Commercial Service and (b) the date that such Capital Improvement is abandoned or disposed of. Debt incurred to fund interest payments described in the immediately preceding sentence or incurred to fund distributions in respect of equity issued (including incremental Incentive Distributions related thereto) to fund the construction of a Capital Improvement as described in clause (a)(iv) of the definition of Operating Surplus shall also be deemed to be debt incurred to finance the construction of a Capital Improvement. Where capital expenditures are made in part for Expansion Capital Expenditures and in part for other purposes, the Manager shall determine the allocation between the amounts paid for each.

        "Final Subordinated Units" has the meaning assigned to such term in Section 6.1(d)(x).

        "First Liquidation Target Amount" has the meaning assigned to such term in Section 6.1(c)(i)(C).

        "First Target Distribution" means $0.4025 per Unit per Quarter (or, with respect to periods of less than a full fiscal quarter, it means the product of such amount multiplied by a fraction of which the numerator is the number of days in such period and the denominator is the total number of days in such fiscal quarter), subject to adjustment in accordance with Sections 6.6 and 6.8.

        "Gross Liability Value" means, with respect to any Liability of the Company described in Treasury Regulation Section 1.752-7(b)(3)(i), the amount of cash that a willing assignor would pay to a willing assignee to assume such Liability in an arm's-length transaction.

        "Group" means a Person that with or through any of its Affiliates or Associates has any contract, arrangement, understanding or relationship for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent given to such Person in response to a proxy or consent solicitation made to 10 or more Persons), exercising investment power or disposing of any Membership Interests with any other Person that beneficially owns, or whose Affiliates or Associates beneficially own, directly or indirectly, Membership Interests.

        "Group Member" means a member of the Company Group.

        "Group Member Agreement" means the partnership agreement of any Group Member that is a limited or general partnership, the limited liability company agreement of any Group Member, other than the Company, that is a limited liability company, the certificate of incorporation and bylaws or similar organizational documents of any Group Member that is a corporation, the joint venture agreement or similar governing document of any Group Member that is a joint venture and the governing or organizational or similar documents of any other Group Member that is a Person other than a limited or general partnership, limited liability company, corporation or joint venture, as such may be amended, supplemented or restated from time to time.

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        "Hedge Contract" means any exchange, swap, forward, cap, floor, collar or other similar agreement or arrangement that is entered into for the purpose of hedging the Company Group's exposure to fluctuations in the price of hydrocarbons, interest rates, basis differentials or currency exchange rates in their operations or financing activities and not for speculative purposes. The term "Long-Term Hedge Contract" refers to any Hedge Contract with a specified termination date more than twelve months after the date the Hedge Contract is entered into and the term "Current Hedge Contract" refers to all other Hedge Contracts.

        "Holder" as used in Section 7.14, has the meaning assigned to such term in Section 7.14(a).

        "Holdings Canada" means Niska GS Holdings Canada, L.P., a Delaware limited partnership.

        "Holdings US" means Niska GS Holdings US, L.P., a Delaware limited partnership.

        "Incentive Distribution Right" means a Non-Managing Member Interest representing a fractional part of the Membership Interests of all Non-Managing Members, and having the rights and obligations specified with respect to Incentive Distribution Rights in this Agreement.

        "Incentive Distributions" means any amount of cash distributed to the holders of the Incentive Distribution Rights pursuant to Section 6.4.

        "Incremental Income Taxes" has the meaning assigned to such term in Section 6.8.

        "Indemnified Persons" has the meaning assigned to such term in Section 7.14(c).

        "Indemnitee" means (a) any Manager, (b) any Departing Manager, (c) any Person who is or was a director, officer, fiduciary, trustee, manager or managing member of any Group Member, a Manager or any Departing Manager, (d) any Person who is or was serving at the request of a Manager or any Departing Manager as a director, officer, fiduciary, trustee, manager or managing member of another Person owing a fiduciary duty to any Group Member; provided that a Person shall not be an Indemnitee by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial services, (e) any Person who controls the Manager and (f) any Person the Manager designates as an "Indemnitee" for purposes of this Agreement.

        "Ineligible Holder" has the meaning assigned to such term in Section 4.8(c).

        "Initial Common Units" means the Common Units sold in the Initial Offering.

        "Initial Offering" means the initial offering and sale of Common Units to the public, as described in the Registration Statement, including any offering and sale of Common Units pursuant to the Over-Allotment Option.

        "Initial Unit Price" means (a) with respect to the Common Units and the Subordinated Units, the initial public offering price per Common Unit at which the Underwriters offered the Common Units to the public for sale as set forth on the cover page of the prospectus included as part of the Registration Statement and first issued at or after the time the Registration Statement first became effective or (b) with respect to any other class or series of Units, the price per Unit at which such class or series of Units is initially sold by the Company, as determined by the Manager, in each case adjusted as the Manager determines to be appropriate to give effect to any distribution, subdivision or combination of Units.

        "Interim Capital Transactions" means the following transactions if they occur prior to the Liquidation Date: (a) borrowings, refinancings or refundings of indebtedness (other than Working Capital Borrowings and other than for items purchased on open account or for a deferred purchase price in the ordinary course of business) by any Group Member and sales of debt securities of any Group Member; (b) sales of equity interests of any Group Member (including the Common Units sold to the Underwriters pursuant to the exercise of the Over-Allotment Option); and (c) sales or other

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voluntary or involuntary dispositions of any assets of any Group Member other than (i) sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, and (ii) sales or other dispositions of assets as part of normal retirements or replacements.

        "Investment Capital Expenditures" means capital expenditures that are neither Expansion Capital Expenditures nor Maintenance Capital Expenditures.

        "Liability" means any liability or obligation of any nature, whether accrued, contingent or otherwise.

        "Liquidation Date" means (a) in the case of an event giving rise to the dissolution of the Company of the type described in clauses (a) and (b) of the first sentence of Section 12.2, the date on which the applicable time period during which the holders of Outstanding Units have the right to elect to continue the business of the Company has expired without such an election being made, and (b) in the case of any other event giving rise to the dissolution of the Company, the date on which such event occurs.

        "Liquidator" means one or more Persons selected by the Manager to perform the functions described in Section 12.4 as liquidating trustee of the Company within the meaning of the Delaware Act.

        "Long-Term Incentive Plan" means the Niska Gas Storage Partners LLC 2010 Long-Term Incentive Plan, as may be amended, or any equity compensation plan successor thereto.

        "Maintenance Capital Expenditures" means cash expenditures (including expenditures for the addition or improvement to or replacement of the capital assets owned by any Group Member or for the acquisition of existing, or the construction or development of new, capital assets) made to maintain the long-term operating capacity or operating income of the Company Group.

        "Manager" means Niska Gas Storage Management LLC, a Delaware limited liability company, and its successors and permitted assigns that are admitted to the Company as managing member of the Company, in their capacity as managing member of the Company.

        "Manager Contribution Interest" has the meaning assigned to it in the Contribution Agreement.

        "Managing Member Interest" means the management and ownership interest of the Manager in the Company (in its capacity as the managing member without reference to any Non-Managing Member Interest held by it) and includes any and all benefits to which the Manager is entitled as provided in this Agreement, together with all obligations of the Manager to comply with the terms and provisions of this Agreement.

        "Member Nonrecourse Debt" has the meaning ascribed to the term "partner nonrecourse debt" set forth in Treasury Regulation Section 1.704-2(b)(4).

        "Member Nonrecourse Debt Minimum Gain" has the meaning ascribed to the term "partner nonrecourse debt minimum gain" set forth in Treasury Regulation Section 1.704-2(i)(2).

        "Member Nonrecourse Deductions" means any and all items of loss, deduction or expenditure (including any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(i) with respect to "partner nonrecourse deductions," are attributable to a Member Nonrecourse Debt.

        "Members" means the Manager and the Non-Managing Members.

        "Membership Interest" means any class or series of equity interest in the Company (but excluding any options, rights, warrants and appreciation rights relating to an equity interest in the Company), including Common Units, Subordinated Units, the Managing Member Interest and the Incentive Distribution Rights.

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        "Merger Agreement" has the meaning assigned to such term in Section 14.1.

        "Minimum Quarterly Distribution" means $0.3500 per Unit per Quarter (or, with respect to periods of less than a full fiscal quarter, it means the product of such amount multiplied by a fraction of which the numerator is the number of days in such period and the denominator is the total number of days in such fiscal quarter), subject to adjustment in accordance with Sections 6.6 and 6.8.

        "National Securities Exchange" means an exchange registered with the Commission under Section 6(a) of the Securities Exchange Act (or any successor to such Section) and any other securities exchange (whether or not registered with the Commission under Section 6(a) (or successor to such Section) of the Securities Exchange Act) that the Manager shall designate as a National Securities Exchange for purposes of this Agreement.

        "Net Agreed Value" means, (a) in the case of any Contributed Property, the Agreed Value of such property reduced by any Liabilities either assumed by the Company upon such contribution or to which such property is subject when contributed and (b) in the case of any property distributed to a Member by the Company, the Company's Carrying Value of such property (as adjusted pursuant to Section 5.5(d)(ii)) at the time such property is distributed, reduced by any Liabilities either assumed by such Member upon such distribution or to which such property is subject at the time of distribution.

        "Net Income" means, for any taxable period, the excess, if any, of the Company's items of income and gain (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such taxable period over the Company's items of loss and deduction (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with Section 5.5(b) and shall not include any items specially allocated under Section 6.1(d); provided, that the determination of the items that have been specially allocated under Section 6.1(d) shall be made without regard to any reversal of such items under Section 6.1(d)(xii).

        "Net Loss" means, for any taxable period, the excess, if any, of the Company's items of loss and deduction (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such taxable period over the Company's items of income and gain (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with Section 5.5(b) and shall not include any items specially allocated under Section 6.1(d); provided, that the determination of the items that have been specially allocated under Section 6.1(d) shall be made without regard to any reversal of such items under Section 6.1(d)(xii).

        "Net Positive Adjustments" means, with respect to any Member, the excess, if any, of the total positive adjustments over the total negative adjustments made to the Capital Account of such Member pursuant to Book-Up Events and Book-Down Events.

        "Net Termination Gain" means, for any taxable period, the sum, if positive, of all items of Company income, gain, loss or deduction (determined in accordance with Section 5.5(b)) that are (a) recognized (i) after the Liquidation Date or (ii) upon the sale, exchange or other disposition of all or substantially all of the assets of the Company Group, taken as a whole, in a single transaction or a series of related transactions (excluding any disposition to a member of the Company Group), or (b) deemed recognized by the Company pursuant to Section 5.5(d); provided, however, the items included in the determination of Net Termination Gain shall not include any items of income, gain or loss specially allocated under Section 6.1(d).

        "Net Termination Loss" means, for any taxable period, the sum, if negative, of all items of Company income, gain, loss or deduction (determined in accordance with Section 5.5(b)) that are (a) recognized by the Company (i) after the Liquidation Date or (ii) upon the sale, exchange or other disposition of all or substantially all of the assets of the Company Group, taken as a whole, in a single

A-9



transaction or a series of related transactions (excluding any disposition to a member of the Company Group) or (b) deemed recognized by the Company pursuant to Section 5.5(d); provided, however, the items included in the determination of Net Termination Loss shall not include any items of income, gain or loss specially allocated under Section 6.1(d).

        "Non-Managing Member" means, unless the context otherwise requires, each Person that becomes a Non-Managing Member pursuant to the terms of this Agreement and any Departing Manager upon the change of its status from Manager to Non-Managing Member pursuant to Section 11.3, in each case, in such Person's capacity as a Non-Managing Member of the Company; provided, however, that when the term "Non-Managing Member" is used herein in the context of any vote or other approval, including Articles XIII and XIV, such term shall not, solely for such purpose, include any holder of an Incentive Distribution Right (solely with respect to its Incentive Distribution Rights and not with respect to any other Non-Managing Member Interest held by such Person) except as may otherwise be required by law.

        "Non-Managing Member Interest" means the ownership interest of a Non-Managing Member in the Company, which may be evidenced by Common Units, Subordinated Units, Incentive Distribution Rights or other Membership Interests (other than the Managing Member Interest) or a combination thereof or interest therein, and includes any and all benefits to which such Non-Managing Member is entitled as provided in this Agreement, together with all obligations of such Non-Managing Member to comply with the terms and provisions of this Agreement.

        "Nonrecourse Built-in Gain" means with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Members pursuant to Section 6.2(b) if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration.

        "Nonrecourse Deductions" means any and all items of loss, deduction or expenditure (including any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse Liability.

        "Nonrecourse Liability" has the meaning set forth in Treasury Regulation Section 1.752-1(a)(2).

        "Notice of Election to Purchase" has the meaning assigned to such term in Section 15.1(b).

        "Notional Manager Units" means notional units used solely to calculate the Manager's Percentage Interest. Notional Manager Units shall not constitute "Units" for any purpose of this Agreement. There shall initially be 1,379,786 Notional Manager Units (resulting in the Manager's Percentage Interest being 2% after giving effect to any exercise of the Over-Allotment Option and the Deferred Issuance and Distribution). If the Manager makes additional Capital Contributions pursuant to Section 5.2(b) to maintain its Percentage Interest, the number of Notional Manager Units shall be increased proportionally to reflect the maintenance of such Percentage Interest.

        "Operating Expenditures" means all Company Group cash expenditures (or the Company's proportionate share of expenditures in the case of Subsidiaries that are not wholly owned), including taxes, reimbursements of expenses of the Manager, payments made in the ordinary course of business under Hedge Contracts, repayment of Working Capital Borrowings, debt service payments and capital expenditures, subject to the following:

        (a)   repayment of Working Capital Borrowings deducted from Operating Surplus pursuant to clause (b)(iii) of the definition of Operating Surplus shall not constitute Operating Expenditures when actually repaid;

        (b)   payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than Working Capital Borrowings shall not constitute Operating Expenditures;

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        (c)   Operating Expenditures shall not include (i) Expansion Capital Expenditures or Investment Capital Expenditures, (ii) payment of transaction expenses relating to Interim Capital Transactions, (iii) distributions to Members or (iv) repurchases of Membership Interests of any class, other than repurchases of Membership Interests to satisfy obligations under employee benefit plans, or reimbursements of expenses of the Manager for such purchases. Where capital expenditures are made in part for Expansion Capital Expenditures and in part for other purposes, the Manager shall determine the allocation between the amounts paid for each; and

        (d)   payments made in connection with the initial purchase of a Long-Term Hedge Contract shall be amortized over the life of the applicable Hedge Contract, and payments made in connection with the termination of any Long-Term Hedge Contract prior to the expiration of its stipulated settlement or termination date shall be amortized over what would have been the remaining life of the Long-Term Hedge Contract had it not been so terminated.

        "Operating Surplus" means, with respect to any period ending prior to the Liquidation Date, on a cumulative basis and without duplication,

        (a)   the sum of (i) $50 million, (ii) all cash receipts of the Company Group (or the Company's proportionate share of cash receipts in the case of Subsidiaries that are not wholly owned) for the period beginning on the Closing Date and ending on the last day of such period, but excluding cash receipts from Interim Capital Transactions and the termination of Long-Term Hedge Contracts (provided that cash receipts from the termination of a Long-Term Hedge Contract prior to its specified termination date shall be included in Operating Surplus in equal quarterly installments over the remaining scheduled life of such Hedge Contract), (iii) all cash receipts of the Company Group (or the Company's proportionate share of cash receipts in the case of Subsidiaries that are not wholly owned) after the end of such period but on or before the date of determination of Operating Surplus with respect to such period resulting from Working Capital Borrowings and (iv) the amount of distributions paid on equity (including incremental Incentive Distributions) issued, other than equity issued in the Initial Offering, to finance all or a portion of the construction, acquisition or improvement of a Capital Improvement and paid in respect of the period beginning on the date that the Group Member enters into a binding obligation to commence construction or improvement of, or to acquire, such Capital Improvement and ending on the earlier to occur of (A) the date that such Capital Improvement Commences Commercial Service and (B) the date that it is abandoned or disposed of (equity issued, other than equity issued in the Initial Offering, to fund the construction period interest payments on debt incurred (including periodic net payments under related interest rate swap agreements), or construction period distributions on equity issued, to finance the construction, acquisition or improvement of a Capital Improvement shall also be deemed to be equity issued to finance the construction, acquisition or improvement of a Capital Improvement for purposes of this clause (iv)), less

        (b)   the sum of (i) Operating Expenditures for the period beginning on the Closing Date and ending on the last day of such period, (ii) the amount of cash reserves established by the Manager (or the Company's proportionate share of cash reserves in the case of Subsidiaries that are not wholly owned) to provide funds for future Operating Expenditures, (iii) all Working Capital Borrowings not repaid within twelve months after having been incurred and (iv) any cash loss realized on disposition of an Investment Capital Expenditure; provided, however, that disbursements made (including contributions to a Group Member or disbursements on behalf of a Group Member) or cash reserves established, increased or reduced after the end of such period but on or before the date of determination of cash to be distributed with respect to such period shall be deemed to have been made, established, increased or reduced, for purposes of determining Operating Surplus, within such period if the Manager so determines.

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        Notwithstanding the foregoing, "Operating Surplus" with respect to the Quarter in which the Liquidation Date occurs and any subsequent Quarter shall equal zero. Cash receipts from an Investment Capital Expenditures shall be treated as cash receipts only to the extent they are a return on principal, but return of principal shall not be treated as cash receipts.

        "Opinion of Counsel" means a written opinion of counsel (who may be regular counsel to the Company or the Manager or any of its Affiliates) acceptable to the Manager.

        "Option Closing Date" means the date or dates on which any Common Units are sold by the Company to the Underwriters upon exercise of the Over-Allotment Option.

        "Outstanding" means, with respect to Membership Interests, all Membership Interests that are issued by the Company and reflected as outstanding on the Company's books and records as of the date of determination; provided, however, that if at any time any Person or Group (other than the Manager or its Affiliates) beneficially owns 20% or more of the Outstanding Membership Interests of any class then Outstanding, all Membership Interests owned by such Person or Group shall not be entitled to be voted on any matter and shall not be considered to be Outstanding when sending notices of a meeting of Members to vote on any matter (unless otherwise required by law), calculating required votes, determining the presence of a quorum or for other similar purposes under this Agreement, except that Membership Interests so owned shall be considered to be Outstanding for purposes of Section 11.1(b)(iv) (such Membership Interests shall not, however, be treated as a separate class of Membership Interests for purposes of this Agreement or the Delaware Act); provided, further, that the foregoing limitation shall not apply to (i) any Person or Group who acquired 20% or more of the Outstanding Membership Interests of any class then Outstanding directly from the Manager or its Affiliates (other than the Company), (ii) any Person or Group who acquired 20% or more of the Outstanding Membership Interests of any class then Outstanding directly or indirectly from a Person or Group described in clause (i) provided that the Manager shall have notified such Person or Group in writing that such limitation shall not apply, or (iii) any Person or Group who acquired 20% or more of any Membership Interests issued by the Company provided that the Manager shall have notified such Person or Group in writing that such limitation shall not apply.

        "Over-Allotment Option" means the over-allotment option granted to the Underwriters by the Company pursuant to the Underwriting Agreement.

        "Per Unit Capital Amount" means, as of any date of determination, the Capital Account, stated on a per Unit basis, underlying any class of Units held by a Person other than the Manager or any Affiliate of the Manager who holds Units.

        "Percentage Interest" means as of any date of determination (a) as to the Manager, with respect to the Managing Member Interest (calculated based upon a number of Notional Manager Units), and as to any Unitholder with respect to Units, the product obtained by multiplying (i) 100% less the percentage applicable to clause (b) below by (ii) the quotient obtained by dividing (A) the number of Notional Manager Units deemed held by the Managing Member or the number of Units held by such Unitholder, as applicable, by (B) the total number of Outstanding Units and Notional Manager Units, and (b) as to the holders of other Membership Interests issued by the Company in accordance with Section 5.6, the percentage established as a part of such issuance. The Percentage Interest with respect to an Incentive Distribution Right shall at all times be zero.

        "Person" means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.

        "Pro Rata" means (a) when modifying Units or any class thereof, apportioned equally among all designated Units in accordance with their relative Percentage Interests, (b) when modifying Members or Record Holders, apportioned among all Members or Record Holders in accordance with their

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relative Percentage Interests and (c) when used with respect to holders of Incentive Distribution Rights, apportioned equally among all holders of Incentive Distribution Rights in accordance with the relative number or percentage of Incentive Distribution Rights held by each such holder.

        "Purchase Date" means the date determined by the Manager as the date for purchase of all Outstanding Non-Managing Member Interests of a certain class (other than Non-Managing Member Interests owned by the Manager and its Affiliates) pursuant to Article XV.

        "Quarter" means, unless the context requires otherwise, a fiscal quarter of the Company, or, with respect to the fiscal quarter of the Company that includes the Closing Date, the portion of such fiscal quarter after the Closing Date.

        "Rate Eligibility Trigger" has the meaning assigned to such term in Section 4.8(a)(i).

        "Recapture Income" means any gain recognized by the Company (computed without regard to any adjustment required by Section 734 or Section 743 of the Code) upon the disposition of any property or asset of the Company, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such property or asset.

        "Record Date" means the date established by the Manager or otherwise in accordance with this Agreement for determining (a) the identity of the Record Holders entitled to notice of, or to vote at, any meeting of Non-Managing Members or entitled to vote by ballot or give approval of Company action in writing without a meeting or entitled to exercise rights in respect of any lawful action of Non-Managing Members or (b) the identity of Record Holders entitled to receive any report or distribution or to participate in any offer.

        "Record Holder" means (a) with respect to Membership Interests of any class of Membership Interests for which a Transfer Agent has been appointed, the Person in whose name a Membership Interest of such class is registered on the books of the Transfer Agent as of the opening of business on a particular Business Day, or (b) with respect to other classes of Membership Interests, the Person in whose name any such other Membership Interest is registered on the books that the Manager has caused to be kept as of the opening of business on such Business Day.

        "Redeemable Interests" means any Membership Interests for which a redemption notice has been given, and has not been withdrawn, pursuant to Section 4.9.

        "Registration Statement" means the Registration Statement on Form S-1 (File No. 333-165007) as it has been or as it may be amended or supplemented from time to time, filed by the Company with the Commission under the Securities Act to register the offering and sale of the Common Units in the Initial Offering.

        "Remaining Net Positive Adjustments" means as of the end of any taxable period, (i) with respect to the Unitholders, the excess of (a) the Net Positive Adjustments of the Unitholders as of the end of such taxable period over (b) the sum of those Members' Share of Additional Book Basis Derivative Items for each prior taxable period, (ii) with respect to the Manager (in respect of the Managing Member Interest), the excess of (a) the Net Positive Adjustments of the Manager as of the end of such taxable period over (b) the sum of the Manager's Share of Additional Book Basis Derivative Items with respect to the Managing Member Interest for each prior taxable period, and (iii) with respect to the holders of Incentive Distribution Rights, the excess of (a) the Net Positive Adjustments of the holders of Incentive Distribution Rights as of the end of such taxable period over (b) the sum of the Share of Additional Book Basis Derivative Items of the holders of the Incentive Distribution Rights for each prior taxable period.

        "Required Allocations" means any allocation of an item of income, gain, loss or deduction pursuant to Section 6.1(b)(ii), Section 6.1(c)(ii)(D), Section 6.1(c)(iii)(B), Section 6.1(d)(i), Section 6.1(d)(ii), Section 6.1(d)(iv), Section 6.1(d)(vi), Section 6.1(d)(vii) or Section 6.1(d)(ix).

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        "Second Liquidation Target Amount" has the meaning assigned to such term in Section 6.1(c)(i)(D).

        "Second Target Distribution" means $0.4375 per Unit per Quarter (or, with respect to periods of less than a full fiscal quarter, it means the product of such amount multiplied by a fraction of which the numerator is the number of days in such period and the denominator is the total number of days in such fiscal quarter), subject to adjustment in accordance with Sections 6.6 and 6.8.

        "Securities Act" means the Securities Act of 1933, as amended, supplemented or restated from time to time and any successor to such statute.

        "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time and any successor to such statute.

        "Share of Additional Book Basis Derivative Items" means in connection with any allocation of Additional Book Basis Derivative Items for any taxable period, (i) with respect to the Unitholders, the amount that bears the same ratio to such Additional Book Basis Derivative Items as the Unitholders' Remaining Net Positive Adjustments as of the end of such taxable period bears to the Aggregate Remaining Net Positive Adjustments as of that time, (ii) with respect to the Manager (in respect of the Managing Member Interest), the amount that bears the same ratio to such Additional Book Basis Derivative Items as the Manager's Remaining Net Positive Adjustments as of the end of such taxable period bears to the Aggregate Remaining Net Positive Adjustment as of that time, and (iii) with respect to the Members holding Incentive Distribution Rights, the amount that bears the same ratio to such Additional Book Basis Derivative Items as the Remaining Net Positive Adjustments of the Members holding the Incentive Distribution Rights as of the end of such period bears to the Aggregate Remaining Net Positive Adjustments as of that time.

        "Special Approval" means approval by a majority of the members of the Conflicts Committee.

        "Subordinated Unit" means a Unit representing a fractional part of the Membership Interests of all Non-Managing Members and having the rights and obligations specified with respect to Subordinated Units in this Agreement. The term "Subordinated Unit" does not include, or refer to, any Common Unit. A Subordinated Unit that is convertible into a Common Unit shall not constitute a Common Unit until such conversion occurs.

        "Subordination Period" means the period commencing on the Closing Date and ending on the first to occur of the following dates:

        (a)   the second Business Day following the distribution of cash or cash equivalents to Members pursuant to Section 6.3(a) in respect of any Quarter, beginning with the Quarter ending March 31, 2013, if each of the following requirements is met:

              (i)  distributions of cash and cash equivalents from Operating Surplus on each of the Outstanding Common Units and Subordinated Units, and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units, with respect to each of the most recent twelve consecutive, non-overlapping, Quarters equaled or exceeded the Minimum Quarterly Distribution;

             (ii)  the Operating Surplus generated in respect of such twelve Quarters, in the aggregate, including Operating Surplus generated by increases in Working Capital Borrowings and treating cash drawn from cash reserves established in prior Quarters as cash received in such twelve Quarters but excluding the amount specified in clause (a)(i) in the definition of Operating Surplus, equaled or exceeded the amount of all distributions of cash and cash equivalents paid by the Company in respect of such Quarters (excluding any distribution of proceeds from the Initial Offering); and

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            (iii)  the Conflicts Committee determines, or the Board of Directors determines based on the recommendation of the Conflicts Committee, that the Company should be expected to maintain or increase the quarterly distribution per Unit from Operating Surplus in respect of each of the four succeeding Quarters, as provided in Section 5.7(a); or

        (b)   the date all Subordinated Units convert to Common Units pursuant to Section 11.4.

        "Subsidiary" means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries (as defined, but excluding subsection (d) of this definition) of such Person or a combination thereof, (b) a partnership (whether general or limited) in which such Person or a Subsidiary (as defined, but excluding subsection (d) of this definition) of such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the partnership interests of such partnership (considering all of the partnership interests of the partnership as a single class) is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries (as defined, but excluding subsection (d) of this definition) of such Person, or a combination thereof, (c) any other Person (other than a corporation or a partnership) in which such Person, one or more Subsidiaries (as defined, but excluding subsection (d) of this definition) of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person or (d) any other Person in which such Person, one or more Subsidiaries (as defined, but excluding subsection (d) of this definition) of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) less than a majority ownership interest or (ii) less than the power to elect or direct the election of a majority of the directors or other governing body of such Person, provided that (A) such Person, one or more Subsidiaries (as defined, but excluding this subsection (d) of this definition) of such Person, or a combination thereof, directly or indirectly, at the date of the determination, has at least a 20% ownership interest in such other Person, (B) such Person accounts for such other Person (under U.S. GAAP, as in effect on the later of the date of investment in such other Person or material expansion of the operations of such other Person) on a consolidated or equity accounting basis, (C) such Person has directly or indirectly material negative control rights regarding such other Person including over such other Person's ability to materially expand its operations beyond that contemplated at the date of investment in such other Person, and (D) such other Person is (i) formed and maintained for the sole purpose of developing or owning a natural gas storage facility, and (ii) obligated under its constituent documents, or as a result of a unanimous agreement of its owners, to distribute to its owners all of its income on at least an annual basis (less any cash reserves that are approved by such Person).

        "Surviving Business Entity" has the meaning assigned to such term in Section 14.2(b)(ii).

        "Third Target Distribution" means $0.5250 per Unit per Quarter (or, with respect to periods of less than a full fiscal quarter, it means the product of such amount multiplied by a fraction of which the numerator is the number of days in such period and the denominator is the total number of days in such fiscal quarter), subject to adjustment in accordance with Sections 6.6 and 6.8.

        "Trading Day" means, for the purpose of determining the Current Market Price of any class of Non-Managing Member Interests, a day on which the principal National Securities Exchange on which such class of Non-Managing Member Interests is listed or admitted to trading is open for the transaction of business or, if Non-Managing Member Interests of a class are not listed or admitted to trading on any National Securities Exchange, a day on which banking institutions in New York City generally are open.

        "transfer" has the meaning assigned to such term in Section 4.4(a).

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        "Transfer Agent" means such bank, trust company or other Person (including the Manager or one of its Affiliates) as may be appointed from time to time by the Company to act as registrar and transfer agent for any class of Membership Interests; provided that if no Transfer Agent is specifically designated for any class of Membership Interests, the Manager shall act in such capacity.

        "Underwriter" means each Person named as an underwriter in the Underwriting Agreement who purchases Common Units pursuant thereto.

        "Underwriting Agreement" means that certain Underwriting Agreement dated                        , 2010 among the Underwriters, the Company, the Manager and the other parties thereto, providing for the purchase of Common Units by the Underwriters.

        "Unit" means a Membership Interest that is designated as a "Unit" and shall include Common Units and Subordinated Units but shall not include (i) the Managing Member Interest or (ii) the Incentive Distribution Rights.

        "Unit Majority" means (i) during the Subordination Period, at least a majority of the Outstanding Common Units (excluding Common Units owned by the Manager and its Affiliates), voting as a class, and at least a majority of the Outstanding Subordinated Units voting as a class and (ii) after the end of the Subordination Period, at least a majority of the Outstanding Common Units.

        "Unitholders" means the holders of Units.

        "Unpaid MQD" has the meaning assigned to such term in Section 6.1(c)(i)(A).

        "Unrealized Gain" attributable to any item of Company property means, as of any date of determination, the excess, if any, of (a) the fair market value of such property as of such date (as determined under Section 5.5(d)) over (b) the Carrying Value of such property as of such date (prior to any adjustment to be made pursuant to Section 5.5(d) as of such date).

        "Unrealized Loss" attributable to any item of Company property means, as of any date of determination, the excess, if any, of (a) the Carrying Value of such property as of such date (prior to any adjustment to be made pursuant to Section 5.5(d) as of such date) over (b) the fair market value of such property as of such date (as determined under Section 5.5(d)).

        "Unrecovered Initial Unit Price" means at any time, with respect to a Unit, the Initial Unit Price less the sum of all distributions constituting Capital Surplus theretofore made in respect of an Initial Common Unit and any distributions of cash (or the Net Agreed Value of any distributions in kind) in connection with the dissolution and liquidation of the Company theretofore made in respect of an Initial Common Unit, adjusted as the Manager determines to be appropriate to give effect to any distribution, subdivision or combination of such Units.

        "Unrestricted Person" means (a) each Indemnitee, (b) each Member, (c) each Person who is or was a member, partner, director, officer, employee or agent of any Group Member, a Manager or any Departing Manager or any Affiliate of any Group Member, a Manager or any Departing Manager and (d) any Person the Manager designates as an "Unrestricted Person" for purposes of this Agreement.

        "U.S. GAAP" means United States generally accepted accounting principles, as in effect from time to time, consistently applied.

        "Withdrawal Opinion of Counsel" has the meaning assigned to such term in Section 11.1(b).

        "Working Capital Borrowings" means borrowings, used solely for working capital purposes, including the purchase of inventory and other current assets or to fund current liabilities, and specifically excluding any borrowings for the purchase of property, plant and equipment, Capital Improvements, or to pay distributions to Members, made in the ordinary course of business pursuant to a credit facility, commercial paper facility or similar financing arrangement; provided that when

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incurred it is the intent of the borrower to repay such borrowings within twelve months from sources other than additional Working Capital Borrowings.

        Section 1.2    Construction.    Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter form; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; (c) the terms "include", "includes", "including" and words of like import shall be deemed to be followed by the words "without limitation"; and (d) the terms "hereof", "herein" and "hereunder" refer to this Agreement as a whole and not to any particular provision of this Agreement. The table of contents and headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.


ARTICLE II
ORGANIZATION

        Section 2.1    Formation.    The Manager has previously formed the Company as a limited liability company pursuant to the provisions of the Delaware Act and hereby amends and restates the original Operating Agreement of Niska Gas Storage Partners LLC in its entirety. This amendment and restatement shall become effective on the date of this Agreement. Except as expressly provided to the contrary in this Agreement, the rights, duties (including fiduciary duties), liabilities and obligations of the Members and the administration, dissolution and termination of the Company shall be governed by the Delaware Act.

        Section 2.2    Name.    The name of the Company shall be "Niska Gas Storage Partners LLC." The Company's business may be conducted under any other name or names as determined by the Manager, including the name of the Manager. The words "Limited Liability Company," the letters "LLC," or similar words or letters shall be included in the Company's name where necessary for the purpose of complying with the laws of any jurisdiction that so requires. The Manager may change the name of the Company at any time and from time to time and shall notify the Non-Managing Members of such change in the next regular communication to the Non-Managing Members.

        Section 2.3    Registered Office; Registered Agent; Principal Office; Other Offices.    Unless and until changed by the Manager, the registered office of the Company in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware 19801, and the registered agent for service of process on the Company in the State of Delaware at such registered office shall be The Corporation Trust Company. The principal office of the Company shall be located at 1001 Fannin Street, Suite 2500, Houston, TX 77002 or such other place as the Manager may from time to time designate by notice to the Non-Managing Members. The Company may maintain offices at such other place or places within or outside the State of Delaware as the Manager determines to be necessary or appropriate.

        Section 2.4    Purpose and Business.    The purpose and nature of the business to be conducted by the Company shall be to engage directly in, or enter into or form, hold and dispose of any corporation, partnership, joint venture, limited liability company or other arrangement to engage indirectly in, any business activity that is approved by the Manager in its sole discretion and that lawfully may be conducted by a limited liability company organized pursuant to the Delaware Act and, in connection therewith, to exercise all of the rights and powers conferred upon the Company pursuant to the agreements relating to such business activity, and do anything necessary or appropriate to the foregoing, including the making of capital contributions or loans to a Group Member; provided, however, that without the approval of Members (including the Manager and its Affiliates) holding at least 90% of the Percentage Interests of all Members, the Manager shall not cause the Company to take any action that the that the Manager determines would be reasonably likely to cause the Company to be treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes. To the fullest extent permitted by law, the Manager shall have no duty or

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obligation to propose or approve, and may, in its sole discretion, decline to propose or approve, the conduct by the Company of any business.

        Section 2.5    Powers.    The Company shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described in Section 2.4 and for the protection and benefit of the Company.

        Section 2.6    Term.    The term of the Company commenced upon the filing of the Certificate of Formation in accordance with the Delaware Act and shall continue until the dissolution of the Company in accordance with the provisions of Article XII. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation as provided in the Delaware Act.

        Section 2.7    Title to Company Assets.    Title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of the Company assets may be held in the name of the Company, the Manager, one or more of its Affiliates or one or more nominees, as the Manager may determine. The Manager hereby declares and warrants that any Company assets for which record title is held in the name of the Manager or one or more of its Affiliates or one or more nominees shall be held by the Manager or such Affiliate or nominee for the use and benefit of the Company in accordance with the provisions of this Agreement; provided, however, that the Manager shall use reasonable efforts to cause record title to such assets (other than those assets in respect of which the Manager determines that the expense and difficulty of conveyancing makes transfer of record title to the Company impracticable) to be vested in the Company as soon as reasonably practicable; provided, further, that, prior to the withdrawal or removal of the Manager or as soon thereafter as practicable, the Manager shall use reasonable efforts to effect the transfer of record title to the Company and, prior to any such transfer, will provide for the use of such assets in a manner satisfactory to the Manager. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which record title to such Company assets is held.


ARTICLE III
RIGHTS OF MEMBERS

        Section 3.1    Limitation of Liability.    The Members shall have no liability under this Agreement except as expressly provided in this Agreement or the Delaware Act.

        Section 3.2    Management of Business.    No Non-Managing Member, in its capacity as such, shall participate in the operation, management or control of the Company's business, transact any business in the Company's name or have the power to sign documents for or otherwise bind the Company.

        Section 3.3    Outside Activities of the Non-Managing Members.    Subject to the provisions of Section 7.7, which shall continue to be applicable to the Persons referred to therein, regardless of whether such Persons shall also be Non-Managing Members, each Non-Managing Member shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities in direct competition with the Company Group. Neither the Company nor any of the other Members shall have any rights by virtue of this Agreement in any business ventures of any Non-Managing Member.

        Section 3.4    Rights of Non-Managing Members.    

        (a)   In addition to other rights provided by this Agreement or by applicable law, and except as limited by Section 3.4(b), each Non-Managing Member shall have the right, for a purpose reasonably related to such Non-Managing Member's interest as a Member in the Company, upon reasonable

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written demand stating the purpose of such demand and at such Non-Managing Member's own expense to obtain:

              (i)  true and full information regarding the status of the business and financial condition of the Company;

             (ii)  promptly after its becoming available, a copy of the Company's federal, state and local income tax returns for each year;

            (iii)  a current list of the name and last known business, residence or mailing address of each Member (and any manager);

            (iv)  a copy of this Agreement and the Certificate of Formation and all amendments thereto, together with copies of the executed copies of all powers of attorney pursuant to which this Agreement, the Certificate of Formation and all amendments thereto have been executed;

             (v)  true and full information regarding the amount of cash and a description and statement of the Net Agreed Value of any other Capital Contribution by each Member and that each Member has agreed to contribute in the future, and the date on which each became a Member; and

            (vi)  such other information regarding the affairs of the Company as is just and reasonable.

        (b)   The Manager may keep confidential from the Non-Managing Members, for such period of time as the Manager deems reasonable, (i) any information that the Manager reasonably believes to be in the nature of trade secrets or (ii) other information the disclosure of which the Manager believes (A) is not in the best interests of the Company Group, (B) could damage the Company Group or its business or (C) that any Group Member is required by law or by agreement with any third party to keep confidential (other than agreements with Affiliates of the Company the primary purpose of which is to circumvent the obligations set forth in this Section 3.4).


ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF MEMBERSHIP INTERESTS;
REDEMPTION OF MEMBERSHIP INTERESTS

        Section 4.1    Certificates.    Notwithstanding anything otherwise to the contrary herein, unless the Manager shall determine otherwise in respect of some or all of any or all classes of Membership Interests, Membership Interests shall not be evidenced by certificates. Certificates that may be issued shall be executed on behalf of the Company by the Chairman of the Board, President or any Vice President and the Secretary or any Assistant Secretary of the Manager. If a Transfer Agent has been appointed for a class of Membership Interests, no Certificate for such class of Membership Interests shall be valid for any purpose until it has been countersigned by the Transfer Agent; provided, however, that if the Manager elects to cause the Company to issue Membership Interests of such class in global form, the Certificate shall be valid upon receipt of a certificate from the Transfer Agent certifying that the Membership Interests have been duly registered in accordance with the directions of the Company. Subject to the requirements of Section 6.7, if Common Units are evidenced by Certificates the Record Holders of Subordinated Units, (i) may, if the Subordinated Units are evidenced by Certificates, exchange such Certificates for Certificates evidencing Common Units or (ii) if the Subordinated Units are not evidenced by Certificates, shall be issued Certificates evidencing Common Units, in either case on or after the date on which such Subordinated Units are converted into Common Units pursuant to the terms of Section 5.7.

        Section 4.2    Mutilated, Destroyed, Lost or Stolen Certificates.    

        (a)   If any mutilated Certificate is surrendered to the Transfer Agent, the appropriate officers of the Manager on behalf of the Company shall execute, and the Transfer Agent shall countersign and

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deliver in exchange therefor, a new Certificate evidencing the same number and type of Membership Interests as the Certificate so surrendered.

        (b)   The appropriate officers of the Manager on behalf of the Company shall execute and deliver, and the Transfer Agent shall countersign, a new Certificate in place of any Certificate previously issued if the Record Holder of the Certificate:

              (i)  makes proof by affidavit, in form and substance satisfactory to the Manager, that a previously issued Certificate has been lost, destroyed or stolen;

             (ii)  requests the issuance of a new Certificate before the Manager has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;

            (iii)  if requested by the Manager, delivers to the Manager a bond, in form and substance satisfactory to the Manager, with surety or sureties and with fixed or open penalty as the Manager may direct, to indemnify the Company, the Members, the Manager and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and

            (iv)  satisfies any other reasonable requirements imposed by the Manager.

        If a Non-Managing Member fails to notify the Manager within a reasonable period of time after such Non-Managing Member has notice of the loss, destruction or theft of a Certificate, and a transfer of the Non-Managing Member Interests represented by the Certificate is registered before the Company, the Manager or the Transfer Agent receives such notification, the Non-Managing Member shall be precluded from making any claim against the Company, the Manager or the Transfer Agent for such transfer or for a new Certificate.

        (c)   As a condition to the issuance of any new Certificate under this Section 4.2, the Manager may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.

        Section 4.3    Record Holders.    The Company shall be entitled to recognize the Record Holder as the Member with respect to any Membership Interest and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such Membership Interest on the part of any other Person, regardless of whether the Company shall have actual or other notice thereof, except as otherwise provided by law or any applicable rule, regulation, guideline or requirement of any National Securities Exchange on which such Membership Interests are listed or admitted to trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Membership Interests, as between the Company on the one hand, and such other Persons on the other, such representative Person shall be (a) the Record Holder of such Membership Interest and (b) bound by this Agreement and shall have the rights and obligations of a Member hereunder as, and to the extent, provided herein.

        Section 4.4    Transfer Generally.    

        (a)   The term "transfer," when used in this Agreement with respect to a Membership Interest, shall mean a transaction (i) by which the Manager assigns its Managing Member Interest to another Person and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise or (ii) by which the holder of a Non-Managing Member Interest assigns such Non-Managing Member Interest to another Person who is or becomes a Non-Managing Member, and includes a sale, assignment, gift, exchange or any other disposition by law

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or otherwise, including any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.

        (b)   No Membership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article IV. Any transfer or purported transfer of a Membership Interest not made in accordance with this Article IV shall be, to the fullest extent permitted by law, null and void.

        (c)   Nothing contained in this Agreement shall be construed to prevent a disposition by any stockholder, member, partner or other owner of the Manager or any Non-Managing Member of any or all of the shares of stock, membership or limited liability company interests, partnership interests or other ownership interests in the Manager or Non-Managing Member and the term "transfer" shall not mean any such disposition.

        Section 4.5    Registration and Transfer of Non-Managing Member Interests.    

        (a)   The Manager shall keep or cause to be kept on behalf of the Company a register in which, subject to such reasonable regulations as it may prescribe and subject to the provisions of Section 4.5(b), the Company will provide for the registration and transfer of Non-Managing Member Interests.

        (b)   The Company shall not recognize any transfer of Non-Managing Member Interests evidenced by Certificates until the Certificates evidencing such Non-Managing Member Interests are surrendered for registration of transfer. No charge shall be imposed by the Manager for such transfer; provided, that as a condition to the issuance of any new Certificate under this Section 4.5, the Manager may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto. Upon surrender of a Certificate for registration of transfer of any Non-Managing Member Interests evidenced by a Certificate, and subject to the provisions hereof, the appropriate officers of the Manager on behalf of the Company shall execute and deliver, and in the case of Certificates evidencing Non-Managing Member Interests for which a Transfer Agent has been appointed, the Transfer Agent shall countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Certificates evidencing the same aggregate number and type of Non-Managing Member Interests as was evidenced by the Certificate so surrendered.

        (c)   By acceptance of the transfer of any Non-Managing Member Interests in accordance with this Section 4.5 and except as provided in Section 4.8, each transferee of a Non-Managing Member Interest (including any nominee holder or an agent or representative acquiring such Non-Managing Member Interests for the account of another Person) (i) shall be admitted to the Company as a Non-Managing Member with respect to the Non-Managing Member Interests so transferred to such Person when any such transfer or admission is reflected in the books and records of the Company and such Non-Managing Member becomes the Record Holder of the Non-Managing Member Interests so transferred, with or without execution of this Agreement, (ii) shall become bound by the terms of this Agreement, (iii) represents that the transferee has the capacity, power and authority to enter into this Agreement and (iv) makes the consents and waivers contained in this Agreement. The transfer of any Non-Managing Member Interests and the admission of any new Non-Managing Member shall not constitute an amendment to this Agreement.

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        (d)   Subject to (i) the foregoing provisions of this Section 4.5, (ii) Section 4.3, (iii) Section 4.7, (iv) with respect to any class or series of Non-Managing Member Interests, the provisions of any statement of designations or an amendment to this Agreement establishing such class or series, (v) any contractual provisions binding on any Non-Managing Member and (vi) provisions of applicable law including the Securities Act, Non-Managing Member Interests (other than the Incentive Distribution Rights) shall be freely transferable.

        (e)   The Manager and its Affiliates shall have the right at any time to transfer their Subordinated Units, Common Units (whether issued upon conversion of the Subordinated Units or otherwise) and Incentive Distribution Rights to one or more Persons.

        Section 4.6    Transfer of the Manager's Managing Member Interest.    

        (a)   Subject to Section 4.6(c) below, prior to March 31, 2020, the Manager shall not transfer all or any part of its Managing Member Interest to a Person unless such transfer (i) has been approved by the prior written consent or vote of the holders of at least a majority of the Outstanding Common Units (excluding Common Units held by the Manager and its Affiliates) or (ii) is of all, but not less than all, of its Managing Member Interest to (A) an Affiliate of the Manager (other than an individual) or (B) another Person (other than an individual) in connection with the merger or consolidation of the Manager with or into such other Person or the transfer by the Manager of all or substantially all of its assets to such other Person.

        (b)   Subject to Section 4.6(c) below, on or after March 31, 2020, the Manager may transfer all or any part of its Managing Member Interest without Unitholder approval.

        (c)   Notwithstanding anything herein to the contrary, no transfer by the Manager of all or any part of its Managing Member Interest to another Person shall be permitted unless (i) the transferee agrees to assume the rights and duties of the Manager under this Agreement and to be bound by the provisions of this Agreement, (ii) the Company receives an Opinion of Counsel that such transfer would not result in the loss of limited liability under the Delaware Act of any Non-Managing Member or cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed) and (iii) such transferee also agrees to purchase all (or the appropriate portion thereof, if applicable) of the partnership or membership or limited liability company interest of the Manager as the general partner or managing member, if any, of each other Group Member. In the case of a transfer pursuant to and in compliance with this Section 4.6, the transferee or successor (as the case may be) shall, subject to compliance with the terms of Section 10.2, be admitted to the Company as the Manager effective immediately prior to the transfer of the Managing Member Interest, and the business of the Company shall continue without dissolution.

        Section 4.7    Restrictions on Transfers.    

        (a)   Except as provided in Section 4.7(d) below, but notwithstanding the other provisions of this Article IV, no transfer of any Membership Interests shall be made if such transfer would (i) violate the then applicable U.S. federal or state securities laws or rules and regulations of the Commission, any state securities commission or any other governmental authority with jurisdiction over such transfer, (ii) terminate the existence or qualification of the Company under the laws of the jurisdiction of its formation, or (iii) cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed).

        (b)   The Manager may impose restrictions on the transfer of a Membership Interest or Membership Interests if it determines, with the advice of counsel, that such restrictions are necessary or advisable to (i) avoid a significant risk of the Company becoming taxable as a corporation or otherwise becoming taxable as an entity for U.S. federal income tax purposes or (ii) preserve uniformity of the

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Non-Managing Member Interests (or any class or classes thereof). The Manager may impose such restrictions by amending this Agreement; provided, however, that any amendment that would result in the delisting or suspension of trading of any class of Membership Interests on the principal National Securities Exchange on which such class of Membership Interests is then listed or admitted to trading must be approved, prior to such amendment being effected, by the holders of at least a majority of the Outstanding Non-Managing Member Interests of such class.

        (c)   The transfer of a Subordinated Unit that has converted into a Common Unit shall be subject to the restrictions imposed by Section 6.7.

        (d)   Nothing contained in this Article IV, or elsewhere in this Agreement, shall preclude the settlement of any transactions involving Membership Interests entered into through the facilities of any National Securities Exchange on which such Membership Interests are listed or admitted to trading.

        Section 4.8    Eligibility Certificates; Ineligible Holders.    

        (a)   If at any time the Manager determines, with the advice of counsel, that

              (i)  the Company's status other than as an association taxable as a corporation for U.S. federal income tax purposes or the failure of the Company otherwise to be subject to an entity-level tax for U.S. federal, state or local income tax purposes, coupled with the tax status (or lack of proof of the U.S. federal income tax status) of one or more Members, has or will reasonably likely have a material adverse effect on the maximum applicable rate that can be charged to customers by Subsidiaries of the Company (a "Rate Eligibility Trigger"), or

             (ii)  any Group Member is subject to any federal, state or local law or regulation that would create a substantial risk of cancellation or forfeiture of any property in which the Group Member has an interest based on the nationality, citizenship or other related status of a Member (a "Citizenship Eligibility Trigger");

            (iii)  then, the Manager may adopt such amendments to this Agreement as it determines to be necessary or advisable to (x) in the case of a Rate Eligibility Trigger, obtain such proof of the U.S. federal income tax status of the Members and, to the extent relevant, their beneficial owners, as the Manager determines to be necessary to establish those Members whose U.S. federal income tax status does not or would not have a material adverse effect on the maximum applicable rate that can be charged to customers by Subsidiaries of the Company that are subject to rate regulation by FERC or (y) in the case of a Citizenship Eligibility Trigger, obtain such proof of the nationality, citizenship or other related status (or, if the Manager is a nominee holding for the account of another Person, the nationality, citizenship or other related status of such Person) of the Member as the Manager determines to be necessary to establish and those Members whose status as a Member does not or would not subject any Group Member to a significant risk of cancellation or forfeiture of any of its properties or interests therein.

        (b)   Such amendments may include provisions requiring all Members to certify as to their (and their beneficial owners') status as Eligible Holders upon demand and on a regular basis, as determined by the Manager, and may require transferees of Units to so certify prior to being admitted to the Company as a Member (any such required certificate, an "Eligibility Certificate").

        (c)   Such amendments may provide that any Member who fails to furnish to the Manager within a reasonable period requested proof of its (and its' beneficial owners') status as an Eligible Holder or if upon receipt of such Eligibility Certificate or other requested information the Manager determines that a Member is not an Eligible Holder (such a Member an "Ineligible Holder"), the Membership Interests owned by such Member shall be subject to redemption in accordance with the provisions of Section 4.9. In addition, the Manager shall be substituted for all Non-Managing Members that are Ineligible Holder as the Non-Managing Member in respect of the Ineligible Holder's Membership Interests.

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        (d)   The Manager shall, in exercising voting rights in respect of Non-Managing Member Interests held by it on behalf of Ineligible Holders, distribute the votes in the same ratios as the votes of Members (including the Manager and its Affiliates) in respect of Non-Managing Member Interests other than those of Ineligible Holders are cast, either for, against or abstaining as to the matter.

        (e)   Upon dissolution of the Company, an Ineligible Holder shall have no right to receive a distribution in kind pursuant to Section 12.4 but shall be entitled to the cash equivalent thereof, and the Company shall provide cash in exchange for an assignment of the Ineligible Holder's share of any distribution in kind. Such payment and assignment shall be treated for Company purposes as a purchase by the Company from the Ineligible Holder of his Membership Interest (representing his right to receive his share of such distribution in kind).

        (f)    At any time after he can and does certify that he has become an Eligible Holder, an Ineligible Holder may, upon application to the Manager, request that with respect to any Membership Interests of such Ineligible Holder not redeemed pursuant to Section 4.9, such Ineligible Holder be admitted as a Member, and upon approval of the Manager, such Ineligible Holder shall be admitted as a Member and shall no longer constitute an Ineligible Holder and the Manager shall cease to be deemed to be the Non-Managing Member in respect of the Ineligible Holder's Non-Managing Member Interests.

        Section 4.9    Redemption of Membership Interests of Ineligible Holders.    

        (a)   If at any time a Member fails to furnish an Eligibility Certification or other information requested within a reasonable period of time specified in amendments adopted pursuant to Section 4.8, or if upon receipt of such Eligibility Certification or other information the Manager determines, with the advice of counsel, that a Member is an Ineligible Holder, the Company may, unless the Member establishes to the satisfaction of the Manager that such Member is not an Ineligible Holder or has transferred his Membership Interests to a Person who is an Eligible Holder and who furnishes an Eligibility Certification to the Manager prior to the date fixed for redemption as provided below, redeem the Membership Interest of such Member as follows:

              (i)  The Manager shall, not later than the 30th day before the date fixed for redemption, give notice of redemption to the Member, at his last address designated on the records of the Company or the Transfer Agent, by registered or certified mail, postage prepaid. The notice shall be deemed to have been given when so mailed. The notice shall specify the Redeemable Interests, the date fixed for redemption, the place of payment, that payment of the redemption price will be made upon redemption of the Redeemable Interests (or, if later in the case of Redeemable Interests evidenced by Certificates, upon surrender of the Certificate evidencing the Redeemable Interests and that on and after the date fixed for redemption no further allocations or distributions to which the Non-Managing Member would otherwise be entitled in respect of the Redeemable Interests will accrue or be made.

             (ii)  The aggregate redemption price for Redeemable Interests shall be an amount equal to the Current Market Price (the date of determination of which shall be the date fixed for redemption) of Membership Interests of the class to be so redeemed multiplied by the number of Membership Interests of each such class included among the Redeemable Interests. The redemption price shall be paid, as determined by the Manager, in cash or by delivery of a promissory note of the Company in the principal amount of the redemption price, bearing interest at the rate of 10% annually and payable in three equal annual installments of principal together with accrued interest, commencing one year after the redemption date.

            (iii)  The Member, or Transferee or his duly authorized representative shall be entitled to receive the payment for the Redeemable Interests at the place of payment specified in the notice of redemption on the redemption date (or, if later in the case of Redeemable Interests evidenced by Certificates, upon surrender by or on behalf of the Member or Transferee at the place specified

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    in the notice of redemption, of the Certificate evidencing the Redeemable Interests, duly endorsed in blank or accompanied by an assignment duly executed in blank).

            (iv)  After the redemption date, Redeemable Interests shall no longer constitute issued and Outstanding Membership Interests.

        (b)   The provisions of this Section 4.9 shall also be applicable to Membership Interests held by a Member as nominee of a Person determined to be other than an Eligible Holder.

        (c)   Nothing in this Section 4.9 shall prevent the recipient of a notice of redemption from transferring his Membership Interest before the redemption date if such transfer is otherwise permitted under this Agreement. Upon receipt of notice of such a transfer, the Manager shall withdraw the notice of redemption, provided the transferee of such Membership Interest certifies to the satisfaction of the Manager that he is an Eligible Holder. If the transferee fails to make such certification, such redemption shall be effected from the transferee on the original redemption date.


ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF MEMBERSHIP INTERESTS

        Section 5.1    Organizational Contributions.    In connection with the formation of the Company under the Delaware Act, the Manager made an initial Capital Contribution to the Company in the amount of $1,000.00 for all of the Membership Interest in the Company and has been admitted as the Manager of the Company. As of the Closing Date, the initial Capital Contribution of the Manager shall be refunded and all interest or other profit that may have resulted from the investment or other use of such initial Capital Contributions shall be allocated and distributed to the Manager.

        Section 5.2    Contributions by the Manager and its Affiliates.    

        (a)   On the Closing Date and pursuant to the Contribution Agreement: (i) Holdings Canada shall acquire 8,891,834 Common Units, 21,973,084 Subordinated Units, 65% of the Incentive Distribution Rights, 65% of the Manager Contribution Interest and the right to receive 65% of the Deferred Issuance and Distribution, (ii) Holdings US shall acquire 4,787,911 Common Units, 11,831,661 Subordinated Units, 35% of the Incentive Distribution Rights, 35% of the Manager Contribution Interest and the right to receive 35% of the Deferred Issuance and Distribution, (iii) Holdings Canada and Holdings US shall contribute all of such acquired Common Units, Subordinated Units, Incentive Distribution Rights, Manager Contribution Interest and right to receive the Deferred Issuance and Distribution to Niska Sponsor Holdings Coöpertief U.A., a coöpertief formed in the Netherlands, and (iv) Niska Sponsor Holdings Coöpertief U.A. shall contribute the Manager Contribution Interest to the Manager. Upon receipt thereof, the Manager Contribution Interest shall be automatically and without further action be recharacterized as, and become, the Managing Member Interest.

        (b)   Upon the issuance of any additional Membership Interests by the Company (other than the Common Units issued in the Initial Offering, including the Common Units issued pursuant to the Over-Allotment Option or the Deferred Issuance and Distribution, and the Common Units issued upon conversion of the Subordinated Units), the Manager may, in order to maintain its Percentage Interest, make additional Capital Contributions in an amount equal to the product obtained by multiplying (i) the quotient determined by dividing (A) the Manager's Percentage Interest by (B) 100 less the Manager's Percentage Interest times (ii) the amount contributed to the Company by the Members in exchange for such additional Membership Interests. The Manager shall not be obligated to make any additional Capital Contributions to the Company.

        Section 5.3    Contributions by Initial Members.    

        (a)   On the Closing Date and pursuant to the Underwriting Agreement, each Underwriter shall contribute cash to the Company in exchange for the issuance by the Company of Common Units to each Underwriter, all as set forth in the Underwriting Agreement.

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        (b)   Upon the exercise, if any, of the Over-Allotment Option, each Underwriter shall contribute cash to the Company in exchange for the issuance by the Company of Common Units to each Underwriter, all as set forth in the Underwriting Agreement.

        Section 5.4    Interest and Withdrawal.    No interest on Capital Contributions shall be paid by the Company. No Member shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon liquidation of the Company may be considered as such by law and then only to the extent provided for in this Agreement. Except to the extent expressly provided in this Agreement, no Member shall have priority over any other Member either as to the return of Capital Contributions or as to profits, losses or distributions. Any such return shall be a compromise to which all Members agree within the meaning of Section 18-502(b) of the Delaware Act.

        Section 5.5    Capital Accounts.    

        (a)   The Company shall maintain for each Member (or a beneficial owner of Membership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Company in accordance with Section 6031(c) of the Code or any other method acceptable to the Manager) owning a Membership Interest a separate Capital Account with respect to such Membership Interest in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Company with respect to such Membership Interest and (ii) all items of Company income and gain (including income and gain exempt from tax) computed in accordance with Section 5.5(b) and allocated with respect to such Membership Interest pursuant to Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed distributions of cash or property made with respect to such Membership Interest and (y) all items of Company deduction and loss computed in accordance with Section 5.5(b) and allocated with respect to such Membership Interest pursuant to Section 6.1.

        (b)   For purposes of computing the amount of any item of income, gain, loss or deduction that is to be allocated pursuant to Article VI and is to be reflected in the Members' Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes (including any method of depreciation, cost recovery or amortization used for that purpose), provided, that:

              (i)  Solely for purposes of this Section 5.5, the Company shall be treated as owning directly its proportionate share (as determined by the Manager based upon the provisions of the applicable Group Member Agreement) of all property owned by (x) any other Group Member that is classified as a partnership for U.S. federal income tax purposes and (y) any other partnership, limited liability company, unincorporated business or other entity classified as a partnership for U.S. federal income tax purposes of which a Group Member is, directly or indirectly, a partner, member or other equityholder.

             (ii)  All fees and other expenses incurred by the Company to promote the sale of (or to sell) a Membership Interest that can neither be deducted nor amortized under Section 709 of the Code, if any, shall, for purposes of Capital Account maintenance, be treated as an item of deduction at the time such fees and other expenses are incurred and shall be allocated among the Members pursuant to Section 6.1.

            (iii)  Except as otherwise provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code that may be made by the Company and, as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalized for U.S. federal income tax purposes. To the extent an adjustment to the adjusted tax basis of any

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    Company asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment in the Capital Accounts shall be treated as an item of gain or loss.

            (iv)  Any income, gain or loss attributable to the taxable disposition of any Company property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Company's Carrying Value with respect to such property as of such date.

             (v)  In accordance with the requirements of Section 704(b) of the Code, any deductions for depreciation, cost recovery or amortization attributable to any Contributed Property shall be determined as if the adjusted basis of such property on the date it was acquired by the Company were equal to the Agreed Value of such property. Upon an adjustment pursuant to Section 5.5(d) to the Carrying Value of any Company property subject to depreciation, cost recovery or amortization, any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined under the rules prescribed by Treasury Regulation Section 1.704-3(d)(2) as if the adjusted basis of such property were equal to the Carrying Value of such property immediately following such adjustment.

            (vi)  If the Company's adjusted basis in a depreciable or cost recovery property is reduced for U.S. federal income tax purposes pursuant to Section 50(c)(1) or 50(c)(3) of the Code, the amount of such reduction shall, solely for purposes hereof, be deemed to be an additional depreciation or cost recovery deduction in the taxable period such property is placed in service and shall be allocated among the Members pursuant to Section 6.1. Any restoration of such basis pursuant to Section 50(c)(2) of the Code shall, to the extent possible, be allocated in the same manner to the Members to whom such deemed deduction was allocated.

           (vii)  The Gross Liability Value of each Liability of the Company described in Treasury Regulation Section 1.752-7(b)(3)(i) shall be adjusted at such times as provided in this Agreement for an adjustment to Carrying Values. The amount of any such adjustment shall be treated for purposes hereof as an item of loss (if the adjustment increases the Carrying Value of such Liability of the Partnership) or an item of gain (if the adjustment decreases the Carrying Value of such Liability of the Partnership).

        (c)   (i) A transferee of a Membership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Membership Interest so transferred.

             (ii)  Subject to Section 6.7, immediately prior to the transfer of a Subordinated Unit or of a Subordinated Unit that has converted into a Common Unit pursuant to Section 5.7 by a holder thereof (other than a transfer to an Affiliate unless the Manager elects to have this subparagraph (c)(ii) apply), the Capital Account maintained for such Person with respect to its Subordinated Units or converted Subordinated Units will (A) first, be allocated to the Subordinated Units or converted Subordinated Units to be transferred in an amount equal to the product of (x) the number of such Subordinated Units or converted Subordinated Units to be transferred and (y) the Per Unit Capital Amount for a Common Unit, and (B) second, any remaining balance in such Capital Account will be retained by the transferor, regardless of whether it has retained any Subordinated Units or converted Subordinated Units. Following any such allocation, the transferor's Capital Account, if any, maintained with respect to the retained Subordinated Units or retained converted Subordinated Units, if any, will have a balance equal to the amount allocated under clause (B) hereinabove, and the transferee's Capital Account established with respect to the transferred Subordinated Units or transferred converted Subordinated Units will have a balance equal to the amount allocated under clause (A) hereinabove.

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        (d)   (i) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), upon an issuance of additional Membership Interests for cash or Contributed Property, the issuance of Membership Interests as consideration for the provision of services or the conversion of the Combined Interest to Units pursuant to Section 11.3(b), the Carrying Value of each Company property immediately prior to such issuance shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property and any such Unrealized Gain or Unrealized Loss shall be treated, for purposes of maintaining Capital Accounts, as if it had been recognized on an actual sale of each such property for an amount equal to its fair market value immediately prior to such issuance and had been allocated among the Members at such time pursuant to Section 6.1 in the same manner as any item of gain or loss actually recognized following an event giving rise to the liquidation of the Company would have been allocated; provided, however, that in the event of an issuance of Membership Interests for a de minimis amount of cash or Contributed Property, or in the event of an issuance of a de minimis amount of Membership Interests as consideration for the provision of services, the Manager may determine that such adjustments are unnecessary for the proper administration of the Company. In determining such Unrealized Gain or Unrealized Loss, the fair market value of all Company property (including cash or cash equivalents) immediately prior to the issuance of additional Membership Interests shall be determined by the Manager using such method of valuation as it may adopt. In making its determination of the fair market values of individual properties, the Manager may determine that it is appropriate to first determine an aggregate value for the Company, based on the current trading price of the Common Units, and taking fully into account the fair market value of the Membership Interests of all Members at such time, and then allocate such aggregate value among the individual properties of the Company (in such manner as it determines appropriate).

             (ii)  In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a Member of any Company property (other than a distribution of cash that is not in redemption or retirement of a Membership Interest), the Carrying Value of all Company property shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property and any such Unrealized Gain or Unrealized Loss shall be treated, for purposes of maintaining Capital Accounts, as if it had been recognized on an actual sale of each such property immediately prior to such distribution for an amount equal to its fair market value and had been allocated among the Members, at such time, pursuant to Section 6.1 in the same manner as any item of gain or loss actually recognized following an event giving rise to the dissolution of the Company would have been allocated. In determining such Unrealized Gain or Unrealized Loss the fair market value of all Company property (including cash or cash equivalents) immediately prior to a distribution shall (A) in the case of an actual distribution that is not made pursuant to Section 12.4 or in the case of a deemed distribution, be determined in the same manner as that provided in Section 5.5(d)(i) or (B) in the case of a liquidating distribution pursuant to Section 12.4, be determined by the Liquidator using such method of valuation as it may adopt.

        Section 5.6    Issuances of Additional Membership Interests.    

        (a)   The Company may issue additional Membership Interests and options, rights, warrants and appreciation rights relating to the Membership Interests (including as described in Section 7.6(d)) for any Company purpose at any time and from time to time to such Persons for such consideration and on such terms and conditions as the Manager shall determine, all without the approval of any Non-Managing Members.

        (b)   Each additional Membership Interest authorized to be issued by the Company pursuant to Section 5.6(a) may be issued in one or more classes, or one or more series of any such classes, with such designations, preferences, rights, powers and duties (which may be senior to existing classes and series of Membership Interests), as shall be fixed by the Manager, including (i) the right to share in Company profits and losses or items thereof; (ii) the right to share in Company distributions; (iii) the

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rights upon dissolution and liquidation of the Company; (iv) whether, and the terms and conditions upon which, the Company may, or shall be required to, redeem the Membership Interest (including sinking fund provisions); (v) whether such Membership Interest is issued with the privilege of conversion or exchange and, if so, the terms and conditions of such conversion or exchange; (vi) the terms and conditions upon which each Membership Interest will be issued, evidenced by certificates and assigned or transferred; (vii) the method for determining the Percentage Interest as to such Membership Interest; and (viii) the right, if any, of each such Membership Interest to vote on Company matters, including matters relating to the relative rights, preferences and privileges of such Membership Interest.

        (c)   The Manager shall take all actions that it determines to be necessary or appropriate in connection with (i) each issuance of Membership Interests and options, rights, warrants and appreciation rights relating to Membership Interests pursuant to this Section 5.6, (ii) the conversion of the Combined Interest into Units pursuant to the terms of this Agreement, (iii) reflecting the admission of such additional Members in the books and records of the Company as the Record Holder of such Membership Interest, and (iv) all additional issuances of Membership Interests. The Manager shall determine the relative rights, powers and duties of the holders of the Units or other Membership Interests being so issued. The Manager shall do all things necessary to comply with the Delaware Act and is authorized and directed to do all things that it determines to be necessary or appropriate in connection with any future issuance of Membership Interests or in connection with the conversion of the Combined Interest into Units pursuant to the terms of this Agreement, including compliance with any statute, rule, regulation or guideline of any federal, state or other governmental agency or any National Securities Exchange on which the Units or other Membership Interests are listed or admitted to trading.

        (d)   No fractional Units shall be issued by the Company.

        Section 5.7    Conversion of Subordinated Units.    

        (a)   The determination that the Company should be expected to maintain or increase the quarterly distribution per Unit from Operating Surplus in respect of the four succeeding Quarters for purposes of satisfying the requirement set forth in clause (a)(iii) of the definition of "Subordination Period" shall be based upon such projections, estimates, assumptions and other information and considerations as the Conflicts Committee (in making its determination or recommendation, as applicable) and Board of Directors (in making its determination, if applicable) determine to be reasonable and appropriate; provided, that the projections and estimates for such four succeeding Quarters shall not include:

              (i)  any Working Capital Borrowings to be made during such Quarters to fund Operating Expenditures or distributions to Members after such Quarters; or

             (ii)  any net increase in Working Capital Borrowings (comparing the balance as of the day immediately prior to such Quarters to the expected balance as of the end of the last of such Quarters) other than those reasonably related to growth or other change in the Company Group's business or an increase in cash distributions expected to occur during such Quarters.

        (b)   The determination of whether the Subordination Period has ended shall be made by the Conflicts Committee or the Board of Directors upon the recommendation of the Conflicts Committee.

        (c)   The Subordinated Units shall convert into Common Units on a one-for-one basis on the second Business Day following the distribution of cash and cash equivalents to Members pursuant to Section 6.3(a) in respect of the final Quarter of the Subordination Period.

        (d)   Subordinated Units may also convert into Common Units on a one-for-one basis as set forth in, and pursuant to the terms of, Section 11.4.

        (e)   A Subordinated Unit that has converted into a Common Unit shall be subject to the provisions of Section 6.7.

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        Section 5.8    Limited Preemptive Right.    Except as provided in this Section 5.8 and in Section 5.2 or as otherwise provided in a separate agreement by the Company, no Person shall have any preemptive, preferential or other similar right with respect to the issuance of any Membership Interest, whether unissued, held in the treasury or hereafter created. The Manager shall have the right, which it may from time to time assign in whole or in part to any of its Affiliates, to purchase Membership Interests from the Company whenever, and on the same terms that, the Company issues Membership Interests to Persons other than the Manager and its Affiliates, to the extent necessary to maintain the Percentage Interests of the Manager and its Affiliates equal to that which existed immediately prior to the issuance of such Membership Interests.

        Section 5.9    Splits and Combinations.    

        (a)   Subject to Sections 5.9(d), 6.6 and 6.8 (dealing with adjustments of distribution levels), the Company may make a Pro Rata distribution of Membership Interests to all Record Holders or may effect a subdivision or combination of Membership Interests so long as, after any such event, each Member shall have the same Percentage Interest in the Company as before such event, and any amounts calculated on a per Unit basis (including any Common Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a number of Units are proportionately adjusted retroactive to the beginning of the Company.

        (b)   Whenever such a distribution, subdivision or combination of Membership Interests is declared, the Manager shall select a Record Date as of which the distribution, subdivision or combination shall be effective and shall send notice thereof at least 20 days prior to such Record Date to each Record Holder as of a date not less than 10 days prior to the date of such notice. The Manager also may cause a firm of independent public accountants selected by it to calculate the number of Membership Interests to be held by each Record Holder after giving effect to such distribution, subdivision or combination. The Manager shall be entitled to rely on any certificate provided by such firm as conclusive evidence of the accuracy of such calculation.

        (c)   Promptly following any such distribution, subdivision or combination, the Company may issue Certificates to the Record Holders of Membership Interests as of the applicable Record Date representing the new number of Membership Interests held by such Record Holders, or the Manager may adopt such other procedures that it determines to be necessary or appropriate to reflect such changes. If any such combination results in a smaller total number of Membership Interests Outstanding, the Company shall require, as a condition to the delivery to a Record Holder of any such new Certificate, the surrender of any Certificate held by such Record Holder immediately prior to such Record Date.

        (d)   The Company shall not issue fractional Units upon any distribution, subdivision or combination of Units. If a distribution, subdivision or combination of Units would result in the issuance of fractional Units but for the provisions of Section 5.6(d) and this Section 5.9(d), each fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit shall be rounded to the next higher Unit).

        Section 5.10    Fully Paid and Non-Assessable Nature of Membership Interests.    All Membership Interests issued pursuant to, and in accordance with the requirements of, this Article V shall be fully paid and non-assessable Membership Interests in the Company, except as such non-assessability may be affected by Sections 18-607 or 18-804 of the Delaware Act.


ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

        Section 6.1    Allocations for Capital Account Purposes.    For purposes of maintaining Capital Accounts and in determining the rights of the Members among themselves, the Company's items of

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income, gain, loss and deduction (computed in accordance with Section 5.5(b)) for each taxable period shall be allocated among the Members as provided herein below.

        (a)   Net Income. Net Income for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Income for such taxable period shall be allocated to the Manager and the Unitholders, Pro Rata.

        (b)   Net Loss. Net Loss for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Loss for such taxable period shall be allocated as follows:

              (i)  First, to the Manager and the Unitholders, Pro Rata; provided that Net Loss shall not be allocated pursuant to this Section 6.1(b)(i) to the extent such allocation would cause any Member to have a deficit balance in its Adjusted Capital Account at the end of such taxable period (or increase any existing deficit in its Adjusted Capital Account); and

             (ii)  Second, the balance, if any, to the Members in proportion to the amounts that may be so allocated without causing them to have deficit balances in their Adjusted Capital Accounts (or increasing any such deficit balance) at the end of such taxable period.

        (c)   Net Termination Gains and Losses. Net Termination Gain or Net Termination Loss (including a pro rata part of each item of income, gain, loss and deduction taken into account in computing Net Termination Gain or Net Termination Loss) for such taxable period shall be allocated in the manner set forth in this Section 6.1(c). All allocations under this Section 6.1(c) shall be made after Capital Account balances have been adjusted by all other allocations provided under this Section 6.1 and after all distributions of cash and cash equivalents provided under Sections 6.4 and 6.5 have been made; provided, however, that solely for purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant to Section 12.4.

              (i)  Except as provided in Section 6.1(c)(iv), Net Termination Gain (including a pro rata part of each item of income, gain, loss and deduction taken into account in computing Net Termination Gain) shall be allocated:

              (A)  First, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) its Unrecovered Initial Unit Price, (2) the Minimum Quarterly Distribution for the Quarter during which the Liquidation Date occurs, reduced by any distribution pursuant to Section 6.4(a)(i) or (b)(i) with respect to such Common Unit for such Quarter (the amount determined pursuant to this clause (2) is hereinafter referred to as the "Unpaid MQD") and (3) any then existing Cumulative Common Unit Arrearage;

              (B)  Second, if such Net Termination Gain is recognized (or is deemed to be recognized) prior to the conversion of the last Outstanding Subordinated Unit into a Common Unit, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Subordinated Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until the Capital Account in respect of each Subordinated Unit then Outstanding equals the sum of (1) its Unrecovered Initial Unit Price, determined for the taxable period (or portion thereof) to which this allocation of gain relates, and (2) the Minimum Quarterly Distribution for the Quarter during which the Liquidation Date occurs, reduced by any distribution pursuant to Section 6.4(a)(iii) with respect to such Subordinated Unit for such Quarter;

              (C)  Third, to the Manager and all Unitholders, Pro Rata, until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) its Unrecovered Initial Unit Price, (2) the Unpaid MQD, (3) any then existing Cumulative Common Unit

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      Arrearage, and (4) the excess of (aa) the First Target Distribution less the Minimum Quarterly Distribution for each Quarter of the Company's existence over (bb) the cumulative per Unit amount of any distributions of cash and cash equivalents that is deemed to be Operating Surplus made pursuant to Section 6.4(a)(iv) and Section 6.4(b)(ii) (the sum of (1), (2), (3) and (4) is hereinafter referred to as the "First Liquidation Target Amount");

              (D)  Fourth, (x) to the Manager in accordance with its Percentage Interest, (y) 13% to the holders of the Incentive Distribution Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (x) and (y) of this clause (E), until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) the First Liquidation Target Amount, and (2) the excess of (aa) the Second Target Distribution less the First Target Distribution for each Quarter of the Company's existence over (bb) the cumulative per Unit amount of any distributions of cash and cash equivalents that is deemed to be Operating Surplus made pursuant to Sections 6.4(a)(v) and 6.4(b)(iii) (the sum of (1) and (2) is hereinafter referred to as the "Second Liquidation Target Amount");

              (E)  Fifth, (x) to the Manager in accordance with its Percentage Interest, (y) 23% to the holders of the Incentive Distribution Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (x) and (y) of this clause (F), until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) the Second Liquidation Target Amount, and (2) the excess of (aa) the Third Target Distribution less the Second Target Distribution for each Quarter of the Company's existence over (bb) the cumulative per Unit amount of any distributions of cash and cash equivalents that is deemed to be Operating Surplus made pursuant to Sections 6.4(a)(vi) and 6.4(b)(iv); and

              (F)  Finally, (x) to the Manager in accordance with its Percentage Interest, (y) 48% to the holders of the Incentive Distribution Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (x) and (y) of this clause (G).

             (ii)  Except as otherwise provided by Section 6.1(c)(iii), Net Termination Loss (including a pro rata part of each item of income, gain, loss and deduction taken into account in computing Net Termination Loss) shall be allocated:

              (A)  First, if Subordinated Units remain Outstanding, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Subordinated Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until the Capital Account in respect of each Subordinated Unit then Outstanding has been reduced to zero;

              (B)  Second, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until the Capital Account in respect of each Common Unit then Outstanding has been reduced to zero;

              (C)  Third, to the Manager and the Unitholders, Pro Rata; provided that Net Termination Loss shall not be allocated pursuant to this Section 6.1(c)(ii)(C) to the extent such allocation would cause any Member to have a deficit balance in its Adjusted Capital Account (or increase any existing deficit in its Adjusted Capital Account); and

              (D)  Fourth, the balance, if any, to the Members in proportion to the amounts that may be so allocated without causing them to have deficit balances in their Adjusted Capital Accounts (or increasing any such deficit balance) at the end of such taxable period.

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            (iii)  If a Net Termination Loss is deemed to be recognized pursuant to Section 5.5(d) prior to the Liquidation Date, such Net Termination Loss shall be allocated:

              (A)  First, to the Manager and the Unitholders, Pro Rata; provided that Net Termination Loss shall not be allocated pursuant to this Section 6.1(c)(iii)(A) to the extent such allocation would cause any Member to have a deficit balance in its Adjusted Capital Account at the end of such taxable period (or increase any existing deficit in its Adjusted Capital Account); and

              (B)  Second, the balance, if any, to the Members in proportion to the amounts that may be so allocated without causing them to have deficit balances in their Adjusted Capital Accounts (or increasing any such deficit balance) at the end of such taxable period.

            (iv)  If a Net Termination Loss has been allocated pursuant to Section 6.1(c)(iii), any subsequent Net Termination Gain deemed recognized pursuant to Section 5.5(d) prior to a Liquidation Date shall be allocated:

              (A)  First, to the Manager and the Unitholders, Pro Rata, until the aggregate Net Termination Gain allocated to such Members pursuant to this Section 6.1(c)(iv)(B) is equal to the aggregate Net Termination Loss previously allocated pursuant to Section 6.1(c)(iii)(A); and

              (B)  Second, the balance, if any, pursuant to the provisions of Section 6.1(c)(i).

        (d)   Special Allocations. Notwithstanding any other provision of this Section 6.1, the following special allocations shall be made for such taxable period:

              (i)  Company Minimum Gain Chargeback. Notwithstanding any other provision of this Section 6.1, if there is a net decrease in Company Minimum Gain during any Company taxable period, each Member shall be allocated items of Company income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of this Section 6.1(d), each Member's Adjusted Capital Account balance shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 6.1(d) with respect to such taxable period (other than an allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii)). This Section 6.1(d)(i) is intended to comply with the Company Minimum Gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.

             (ii)  Chargeback of Member Nonrecourse Debt Minimum Gain. Notwithstanding the other provisions of this Section 6.1 (other than Section 6.1(d)(i)), except as provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease in Member Nonrecourse Debt Minimum Gain during any Company taxable period, any Member with a share of Member Nonrecourse Debt Minimum Gain at the beginning of such taxable period shall be allocated items of Company income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section 6.1(d), each Member's Adjusted Capital Account balance shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 6.1(d), other than Section 6.1(d)(i) and other than an allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii), with respect to such taxable period. This Section 6.1(d)(ii) is intended to comply with the chargeback of items of income and gain requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

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            (iii)  Priority Allocations.

              (A)  If the amount of cash or the Net Agreed Value of any property distributed (except cash or property distributed pursuant to Section 12.4) with respect to a Unit exceeds the amount of cash or the Net Agreed Value of property distributed with respect to another Unit (the amount of the excess, an "Excess Distribution" and the Unit with respect to which the greater distribution is paid, an "Excess Distribution Unit"), then (1) there shall be allocated gross income and gain to each Unitholder receiving an Excess Distribution with respect to the Excess Distribution Unit until the aggregate amount of such items allocated with respect to such Excess Distribution Unit pursuant to this Section 6.1(d)(iii)(A) for the current taxable period and all previous taxable periods is equal to the amount of the Excess Distribution; and (2) the Manager shall be allocated gross income and gain with respect to each such Excess Distribution in an amount equal to the product obtained by multiplying (aa) the quotient determined by dividing (x) the Manager's Percentage Interest at the time when the Excess Distribution occurs by (y) a percentage equal to 100% less the Manager's Percentage Interest at the time when the Excess Distribution occurs, times (bb) the amount allocated in clause (1) above with respect to such Excess Distribution.

              (B)  After the application of Section 6.1(d)(iii)(A), the remaining items of Company gross income or gain for the taxable period, if any, shall be allocated (1) to the holders of Incentive Distribution Rights, Pro Rata, until the aggregate amount of such items allocated to the holders of Incentive Distribution Rights pursuant to this Section 6.1(d)(iii)(B) for the current taxable period and all previous taxable periods is equal to the cumulative amount of all Incentive Distributions made to the holders of Incentive Distribution Rights from the Closing Date to a date 45 days after the end of the current taxable period; and (2) to the Manager an amount equal to the product of (aa) an amount equal to the quotient determined by dividing (x) the Manager's Percentage Interest by (y) the sum of 100 percent less the Manager's Percentage Interest times (bb) the sum of the amounts allocated in clause (1) above.

            (iv)  Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company gross income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations promulgated under Section 704(b) of the Code, the deficit balance, if any, in its Adjusted Capital Account created by such adjustments, allocations or distributions as quickly as possible; provided, that an allocation pursuant to this Section 6.1(d)(iv) shall be made only if and to the extent that such Member would have a deficit balance in its Adjusted Capital Account as adjusted after all other allocations provided for in this Section 6.1 have been tentatively made as if this Section 6.1(d)(iv) were not in this Agreement.

             (v)  Gross Income Allocation. In the event any Member has a deficit balance in its Capital Account at the end of any taxable period in excess of the sum of (A) the amount such Member is required to restore pursuant to the provisions of this Agreement and (B) the amount such Member is deemed obligated to restore pursuant to Treasury Regulation Section 1.704-2(g) and 1.704-2(i)(5), such Member shall be specially allocated items of the Company's gross income and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 6.1(d)(v) shall be made only if and to the extent that such Member would have a deficit balance in its Capital Account as so adjusted after all other allocations provided for in this Section 6.1 have been tentatively made as if Section 6.1(d)(iv) and this Section 6.1(d)(v) were not in this Agreement.

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            (vi)  Nonrecourse Deductions. Nonrecourse Deductions for any taxable period shall be allocated to the Members Pro Rata. If the Manager determines that the Company's Nonrecourse Deductions should be allocated in a different ratio to satisfy the safe harbor requirements of the Treasury Regulations promulgated under Section 704(b) of the Code, the Manager is authorized, upon notice to the other Members, to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements.

           (vii)  Member Nonrecourse Deductions. Member Nonrecourse Deductions for any taxable period shall be allocated 100% to the Member that bears the Economic Risk of Loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i). If more than one Member bears the Economic Risk of Loss with respect to a Member Nonrecourse Debt, such Member Nonrecourse Deductions attributable thereto shall be allocated between or among such Members in accordance with the ratios in which they share such Economic Risk of Loss.

          (viii)  Nonrecourse Liabilities. For purposes of Treasury Regulation Section 1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of the Company in excess of the sum of (A) the amount of Company Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be allocated among the Members Pro Rata.

            (ix)  Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury Regulations.

             (x)  Economic Uniformity; Changes in Law. (A) At the election of the Manager with respect to any taxable period ending upon, or after, the termination of the Subordination Period, all or a portion of the remaining items of Company gross income or gain for such taxable period, after taking into account allocations pursuant to Section 6.1(d)(iii), shall be allocated 100% to each Member holding Subordinated Units that are Outstanding as of the termination of the Subordination Period ("Final Subordinated Units") in the proportion of the number of Final Subordinated Units held by such Member to the total number of Final Subordinated Units then Outstanding, until each such Member has been allocated an amount of gross income or gain that increases the Capital Account maintained with respect to such Final Subordinated Units to an amount that after taking into account the other allocations of income, gain, loss, and deduction to be made with respect to such taxable period will equal the product of (A) the number of Final Subordinated Units held by such Member and (B) the Per Unit Capital Amount for a Common Unit. The purpose of this allocation is to establish uniformity between the Capital Accounts underlying Final Subordinated Units and the Capital Accounts underlying Common Units held by Persons other than the Manager and its Affiliates immediately prior to the conversion of such Final Subordinated Units into Common Units. This allocation method for establishing such economic uniformity will be available to the Manager only if the method for allocating the Capital Account maintained with respect to the Subordinated Units between the transferred and retained Subordinated Units pursuant to Section 5.5(c)(ii) does not otherwise provide such economic uniformity to the Final Subordinated Units.

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              (B)  For the proper administration of the Company and for the preservation of uniformity of the Non-Managing Member Interests (or any class or classes thereof), the Manager shall (i) adopt such conventions as it deems appropriate in determining the amount of depreciation, amortization and cost recovery deductions; (ii) make special allocations of income, gain, loss or deduction of the Company; and (iii) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury Regulations under Section 704(b) or section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of the Non-Managing Member Interests (or any class or classes thereof). The Manager may adopt such conventions, make such allocations and make such amendments to this Agreement as provided in this Section 6.1(d)(x)(B) only if such conventions, allocations or amendments would not have a material adverse effect on the Members, the holders of any class or classes of Non-Managing Member Interests issued and Outstanding of the Company, and if such allocations are consistent with the principles of Section 704 of the Code.

            (xi)  Curative Allocation.

              (A)  Notwithstanding any other provision of this Section 6.1, other than the Required Allocations, the Required Allocations shall be taken into account in making the Agreed Allocations so that, to the extent possible, the net amount of items of gross income, gain, loss and deduction allocated to each Member pursuant to the Required Allocations and the Agreed Allocations, together, shall be equal to the net amount of such items that would have been allocated to each such Member under the Agreed Allocations had the Required Allocations and the related Curative Allocation not otherwise been provided in this Section 6.1. In exercising its discretion under this Section 6.1(d)(xi)(A), the Manager may take into account future Required Allocations that, although not yet made, are likely to offset other Required Allocations previously made. Allocations pursuant to this Section 6.1(d)(xi)(A) shall only be made with respect to Required Allocations to the extent the Manager determines that such allocations will otherwise be inconsistent with the economic agreement among the Members.

              (B)  The Manager shall, with respect to each taxable period, (1) apply the provisions of Section 6.1(d)(xi)(A) in whatever order is most likely to minimize the economic distortions that might otherwise result from the Required Allocations, and (2) divide all allocations pursuant to Section 6.1(d)(xi)(A) among the Members in a manner that is likely to minimize such economic distortions.

           (xii)  Corrective and Other Allocations. In the event of any allocation of Additional Book Basis Derivative Items or any Book-Down Event or any recognition of a Net Termination Loss, the following rules shall apply:

              (A)  Except as provided in Section 6.1(d)(xii)(B), in the case of any allocation of Additional Book Basis Derivative Items (other than an allocation of Unrealized Gain or Unrealized Loss under Section 5.5(d) hereof), the Manager shall allocate such Additional Book Basis Derivative Items to (1) the holders of Incentive Distribution Rights and the Manager to the same extent that the Unrealized Gain or Unrealized Loss giving rise to such Additional Book Basis Derivative Items was allocated to them pursuant to Section 5.5(d)(i) or Section 5.5(d)(ii) and (2) all Unitholders, Pro Rata, to the extent that the Unrealized Gain or Unrealized Loss giving rise to such Additional Book Basis Derivative Items was allocated to any Unitholders pursuant to Section 5.5(d)(i) or Section 5.5(d)(ii).

              (B)  In the case of any allocation of Additional Book Basis Derivative Items (other than an allocation of Unrealized Gain or Unrealized Loss under Section 5.5(d) hereof or an allocation of Net Termination Gain or Net Termination Loss pursuant to Section 6.1(c) hereof) as a result of a sale or other taxable disposition of any Company asset that is an

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      Adjusted Property ("Disposed of Adjusted Property"), the Manager shall allocate (1) additional items of gross income and gain (aa) away from the holders of Incentive Distribution Rights and (bb) to the Unitholders, or (2) additional items of deduction and loss (aa) away from the Unitholders and (bb) to the holders of Incentive Distribution Rights, to the extent that the Additional Book Basis Derivative Items allocated to the Unitholders exceed their Share of Additional Book Basis Derivative Items with respect to such Disposed of Adjusted Property. Any allocation made pursuant to this Section 6.1(d)(xii)(B) shall be made after all of the other Agreed Allocations have been made as if this Section 6.1(d)(xii) were not in this Agreement and, to the extent necessary, shall require the reallocation of items that have been allocated pursuant to such other Agreed Allocations.

              (C)  In the case of any negative adjustments to the Capital Accounts of the Members resulting from a Book-Down Event or from the recognition of a Net Termination Loss, such negative adjustment (1) shall first be allocated, to the extent of the Aggregate Remaining Net Positive Adjustments, in such a manner, as determined by the Manager, that to the extent possible the aggregate Capital Accounts of the Members will equal the amount that would have been the Capital Account balances of the Members if no prior Book-Up Events had occurred, and (2) any negative adjustment in excess of the Aggregate Remaining Net Positive Adjustments shall be allocated pursuant to Section 6.1(c) hereof.

              (D)  For purposes of this Section 6.1(d)(xii), the Unitholders shall be treated as being allocated Additional Book Basis Derivative Items to the extent that such Additional Book Basis Derivative Items have reduced the amount of income that would otherwise have been allocated to the Unitholders under this Agreement. In making the allocations required under this Section 6.1(d)(xii), the Manager may apply whatever conventions or other methodology it determines will satisfy the purpose of this Section 6.1(d)(xii). Without limiting the foregoing, if an Adjusted Property is contributed by the Company to another entity classified as a partnership for U.S. federal income tax purposes (the "lower tier partnership"), the Manager may make allocations similar to those described in Sections 6.1(d)(xii)(A)-(C) to the extent the Manager determines such allocations are necessary to account for the Company's allocable share of income, gain, loss, and deduction of the lower tier partnership that relate to the contributed Adjusted Property in a manner that is consistent with the purpose of this Section 6.1(d)(xii).

          (xiii)  Special Curative Allocation in Event of Liquidation Prior to End of Subordination Period. Notwithstanding any other provision of this Section 6.1 (other than the Required Allocations), if the Liquidation Date occurs prior to the conversion of the last Outstanding Subordinated Unit, then items of income, gain, loss and deduction for the taxable period that includes the Liquidation Date (and, if necessary, items arising in previous taxable periods to the extent the Manager determines such items may be so allocated), shall be specially allocated among the Members in the manner determined appropriate by the Manager so as to cause, to the maximum extent possible, the Capital Account in respect of each Common Unit to equal the amount such Capital Account would have been if all prior allocations of Net Termination Gain and Net Termination Loss had been made pursuant to Section 6.1(c)(i) or Section 6.1(c)(ii), as applicable.

        Section 6.2    Allocations for Tax Purposes.    

        (a)   Except as otherwise provided herein, for U.S. federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Section 6.1.

        (b)   In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, depreciation, amortization and cost recovery deductions shall be allocated for U.S. federal income tax purposes among the Members in the manner provided

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under Section 704(c) of the Code, and the Treasury Regulations promulgated under Section 704(b) and 704(c) of the Code, as determined appropriate by the Manager (taking into account the Manager's discretion under Section 6.1(d)(x)(B)); provided that the Manager shall apply the principles of Treasury Regulation Section 1.704-3(d) in all events.

        (c)   The Manager may determine to depreciate or amortize the portion of an adjustment under Section 743(b) of the Code attributable to unrealized appreciation in any Adjusted Property (to the extent of the unamortized Book-Tax Disparity) using a predetermined rate derived from the depreciation or amortization method and useful life applied to the unamortized Book-Tax Disparity of such property, despite any inconsistency of such approach with Treasury Regulation Section 1.167(c)-l(a)(6) or any successor regulations thereto. If the Manager determines that such reporting position cannot reasonably be taken, the Manager may adopt depreciation and amortization conventions under which all purchasers acquiring Non-Managing Member Interests in the same month would receive depreciation and amortization deductions, based upon the same applicable rate as if they had purchased a direct interest in the Company's property. If the Manager chooses not to utilize such aggregate method, the Manager may use any other depreciation and amortization conventions to preserve the uniformity of the intrinsic tax characteristics of any Non-Managing Member Interests, so long as such conventions would not have a material adverse effect on the Non-Managing Members or the Record Holders of any class or classes of Non-Managing Member Interests.

        (d)   In accordance with Treasury Regulation Sections 1.1245-1(e) and 1.1250-1(f), any gain allocated to the Members upon the sale or other taxable disposition of any Company asset shall, to the extent possible, after taking into account other required allocations of gain pursuant to this Section 6.2, be characterized as Recapture Income in the same proportions and to the same extent as such Members (or their predecessors in interest) have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income.

        (e)   All items of income, gain, loss, deduction and credit recognized by the Company for U.S. federal income tax purposes and allocated to the Members in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code that may be made by the Company; provided, however, that such allocations, once made, shall be adjusted (in the manner determined by the Manager) to take into account those adjustments permitted or required by Sections 734 and 743 of the Code.

        (f)    Each item of Company income, gain, loss and deduction shall, for U.S. federal income tax purposes, be determined for each taxable period and prorated on a monthly basis and shall be allocated to the Members as of the opening of the National Securities Exchange on which the Company's Units are listed or admitted to trading on the first Business Day of each month; provided, however, such items for the period beginning on the Closing Date and ending on the last day of the month in which the Over-Allotment Option is exercised in full or the expiration of the Over-Allotment Option occurs shall be allocated to the Members as of the opening of the National Securities Exchange on which the Company's Units are listed or admitted to trading on the first Business Day of the next succeeding month; and provided, further, that gain or loss on a sale or other disposition of any assets of the Company or any other extraordinary item of income, gain, loss or deduction, as determined by the Manager, shall be allocated to the Members as of the opening of the National Securities Exchange on which the Company's Units are listed or admitted to trading on the first Business Day of the month in which such item is recognized for U.S. federal income tax purposes. The Manager may revise, alter or otherwise modify such methods of allocation to the extent permitted or required by Section 706 of the Code and the regulations promulgated thereunder.

        (g)   Allocations that would otherwise be made to a Non-Managing Member under the provisions of this Article VI shall instead be made to the beneficial owner of Non-Managing Member Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the

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Company in accordance with Section 6031(c) of the Code or any other method determined by the Manager.

        Section 6.3    Distributions; Characterization of Distributions; Distributions to Record Holders.    

        (a)   It is the policy of the Company to pay regular quarterly cash distributions of substantially all of the Company's cash available for distribution. Each Quarter, the Manager will make a determination of the amount of cash available for distribution to Members, based upon cash on hand at the end of the Quarter, after establishing reserves for the prudent conduct of the Company's business or for distributions to Members in respect of future Quarters as the Manager may determine to be appropriate. This policy is subject to change by the Manager at any time, without amendment to this Agreement.

        (b)   All amounts of cash and cash equivalents distributed by the Company on any date from any source shall be deemed to be Operating Surplus until the sum of all amounts of cash and cash equivalents theretofore distributed by the Company to the Members pursuant to Section 6.4 equals the Operating Surplus from the Closing Date through the close of the immediately preceding Quarter. Any remaining amounts of cash and cash equivalents distributed by the Company on such date shall, except as otherwise provided in Section 6.5, be deemed to be Capital Surplus. All distributions required to be made under this Agreement shall be subject to Sections 18-607 and 18-804 of the Delaware Act.

        (c)   Notwithstanding Section 6.3(a), in the event of the dissolution and liquidation of the Company, all cash received during or after the Quarter in which the Liquidation Date occurs, other than from Working Capital Borrowings, shall be applied and distributed solely in accordance with, and subject to the terms and conditions of, Section 12.4.

        (d)   Each distribution in respect of a Membership Interest shall be paid by the Company, directly or through any Transfer Agent or through any other Person or agent, only to the Record Holder of such Membership Interest as of the Record Date set for such distribution. Such payment shall constitute full payment and satisfaction of the Company's liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise.

        Section 6.4    Distributions from Operating Surplus.    

        (a)   During Subordination Period. Cash and cash equivalents distributed in respect of any Quarter wholly within the Subordination Period that is deemed to be Operating Surplus pursuant to the provisions of Section 6.3 or 6.5 shall be distributed as follows, except as otherwise contemplated by Section 5.6(b) in respect of other Membership Interests issued pursuant thereto:

              (i)  First, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;

             (ii)  Second, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Cumulative Common Unit Arrearage existing with respect to such Quarter;

            (iii)  Third, (x) to the Manager in accordance with its Percentage Interest and (y) to all Unitholders holding Subordinated Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until there has been distributed in respect of each Subordinated Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;

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            (iv)  Fourth, to the Manager and all Unitholders, Pro Rata, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution for such Quarter;

             (v)  Fifth, (A) to the Manager in accordance with its Percentage Interest; (B) 13% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (v) until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution for such Quarter;

            (vi)  Sixth, (A) to the Manager in accordance with its Percentage Interest, (B) 23% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (vi), until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution for such Quarter; and

           (vii)  Thereafter, (A) to the Manager in accordance with its Percentage Interest; (B) 48% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (vii);

provided, however, if the Minimum Quarterly Distribution, the First Target Distribution, the Second Target Distribution and the Third Target Distribution have been reduced to zero pursuant to the second sentence of Section 6.6(a), the distribution of cash and cash equivalents that is deemed to be Operating Surplus with respect to any Quarter will be made solely in accordance with Section 6.4(a)(vii).

        (b)   After Subordination Period. Cash and cash equivalents distributed in respect of any Quarter after the Subordination Period that is deemed to be Operating Surplus pursuant to the provisions of Section 6.3 or 6.5 shall be distributed as follows, except as otherwise contemplated by Section 5.6(b) in respect of additional Membership Interests issued pursuant thereto:

              (i)  First, 100% to the Manager and the Unitholders, Pro Rata, until there has been distributed in respect of each Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;

             (ii)  Second, 100% to the Manager and the Unitholders, Pro Rata, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution for such Quarter;

            (iii)  Third, (A) to the Manager in accordance with its Percentage Interest; (B) 13% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (iii), until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution for such Quarter;

            (iv)  Fourth, (A) to the Manager in accordance with its Percentage Interest; (B) 23% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (iv), until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution for such Quarter; and

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             (v)  Thereafter, (A) to the Manager in accordance with its Percentage Interest; (B) 48% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (v);

provided, however, if the Minimum Quarterly Distribution, the First Target Distribution, the Second Target Distribution and the Third Target Distribution have been reduced to zero pursuant to the second sentence of Section 6.6(a), the distribution of cash and cash equivalents that is deemed to be Operating Surplus with respect to any Quarter will be made solely in accordance with Section 6.4(b)(v).

        Section 6.5    Distributions from Capital Surplus.    Cash and cash equivalents that are distributed and deemed to be Capital Surplus pursuant to the provisions of Section 6.3(a) shall be distributed, unless the provisions of Section 6.3 require otherwise, 100% to the Manager and the Unitholders, Pro Rata, until the Minimum Quarterly Distribution has been reduced to zero pursuant to the second sentence of Section 6.6(a). Cash and cash equivalents that are deemed to be Capital Surplus shall then be distributed (A) to the Manager in accordance with its Percentage Interest and (B) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the Manager's Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Cumulative Common Unit Arrearage. Thereafter, all cash and cash equivalents that are distributed shall be distributed as if it were Operating Surplus and shall be distributed in accordance with Section 6.4.

        Section 6.6    Adjustment of Minimum Quarterly Distribution and Target Distribution Levels.    

        (a)   The Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution, Third Target Distribution, Common Unit Arrearages and Cumulative Common Unit Arrearages shall be proportionately adjusted in the event of any distribution, combination or subdivision (whether effected by a distribution payable in Units or otherwise) of Units or other Membership Interests in accordance with Section 5.9. In the event of a distribution of cash or cash equivalents that is deemed to be from Capital Surplus, the then applicable Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution shall be reduced in the same proportion that the distribution had to the fair market value of the Common Units immediately prior to the announcement of the distribution. If the Common Units are publicly traded on a National Securities Exchange, the fair market value will be the Current Market Price before the ex-dividend date. If the Common Units are not publicly traded, the fair market value will be determined by the Board of Directors.

        (b)   The Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution, shall also be subject to adjustment pursuant to Section 6.8.

        Section 6.7    Special Provisions Relating to the Holders of Subordinated Units.    

        (a)   Except with respect to the right to vote on or approve matters requiring the vote or approval of a percentage of the holders of Outstanding Common Units and the right to participate in allocations of income, gain, loss and deduction and distributions made with respect to Common Units, the holder of a Subordinated Unit shall have all of the rights and obligations of a Unitholder holding Common Units hereunder; provided, however, that immediately upon the conversion of Subordinated Units into Common Units pursuant to Section 5.7, the Unitholder holding a Subordinated Unit shall possess all of the rights and obligations of a Unitholder holding Common Units hereunder, including the right to vote as a Common Unitholder and the right to participate in allocations of income, gain, loss and deduction and distributions made with respect to Common Units; provided, however, that such converted Subordinated Units shall remain subject to the provisions of Sections 5.5(c)(ii), 6.1(d)(x) and Section 6.7.

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        (b)   A Unitholder shall not be permitted to transfer a Subordinated Unit or a Subordinated Unit that has converted into a Common Unit pursuant to Section 5.7 (other than a transfer to an Affiliate) if the remaining balance in the transferring Unitholder's Capital Account with respect to the retained Subordinated Units or retained converted Subordinated Units would be negative after giving effect to the allocation under Section 5.5(c)(ii)(B).

        (c)   A Unitholder holding a Common Unit that has resulted from the conversion of a Subordinated Unit pursuant to Section 5.7 shall not be issued a Common Unit Certificate pursuant to Section 4.1, if the Common Units are evidenced by Certificates, and shall not be permitted to transfer such Common Units to a Person that is not an Affiliate of the holder until such time as the Manager determines, based on advice of counsel, that each such Common Unit should have, as a substantive matter, like intrinsic economic and U.S. federal income tax characteristics, in all material respects, to the intrinsic economic and U.S. federal income tax characteristics of an Initial Common Unit. In connection with the condition imposed by this Section 6.7(c), the Manager may take whatever steps are required to provide economic uniformity to such Common Units in preparation for a transfer of such converted Subordinated Units, including the application of Sections 6.5(c)(ii) and 6.1(d)(x); provided, however, that no such steps may be taken that would have a material adverse effect on the Unitholders holding Common Units.

        Section 6.8    Entity Level Taxation.    If legislation is enacted or the official interpretation of existing legislation is modified by a governmental authority, which after giving effect to such enactment or modification, results in a Group Member becoming subject to U.S. federal, state or local or non-U.S. income or withholding taxes in excess of the amount of such taxes due from the Group Member prior to such enactment or modification (including, for the avoidance of doubt, any increase in the rate of such taxation applicable to the Group Member), then the Manager may, in its sole discretion, reduce the Minimum Quarterly Distribution, the First Target Distribution, the Second Target Distribution and the Third Target Distribution by the amount of such income or withholding taxes that are payable by reason of any such new legislation or interpretation (the "Incremental Income Tax"), or any portion thereof selected by the Manager, in the manner provided in this Section 6.8. If the Manager elects to reduce the Minimum Quarterly Distribution, the First Target Distribution, the Second Target Distribution and the Third Target Distribution for any Quarter with respect to all or a portion of the Incremental Income Taxes, the Manager shall estimate for such Quarter the Company Group's aggregate liability (the "Estimated Incremental Quarterly Tax Amount") for all (or the relevant portion of) such Incremental Income Taxes; provided that any difference between such estimate and the actual liability for Incremental Income Taxes (or the relevant portion thereof) for such Quarter may, to the extent determined by the Manager, be taken into account in determining the Estimated Incremental Quarterly Tax Amount with respect to each Quarter in which any such difference can be determined. For each such Quarter, the Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution, shall be the product obtained by multiplying (a) the amounts therefor that are set out herein prior to the application of this Section 6.8 times (b) the quotient obtained by dividing (i) cash and cash equivalents available for distribution with respect to such Quarter by (ii) the sum of cash and cash equivalents available for distribution with respect to such Quarter and the Estimated Incremental Quarterly Tax Amount for such Quarter, as determined by the Manager. For purposes of the foregoing, cash and cash equivalents available for distribution with respect to a Quarter will be deemed reduced by the Estimated Incremental Quarterly Tax Amount for that Quarter.

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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

        Section 7.1    Management.    

        (a)   The Manager, or its delegate, shall conduct, direct and manage all activities of the Company. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Company shall be exclusively vested in the Manager or its delegates, and no Non-Managing Member shall have any management power over the business and affairs of the Company. In addition to the powers now or hereafter granted a managing member of a limited liability company under applicable law or that are granted to the Manager under any other provision of this Agreement, the Manager, subject to Section 7.5, shall have full power and authority to do all things and on such terms as it determines to be necessary or appropriate to conduct the business of the Company, to exercise all powers set forth in Section 2.5 and to effectuate the purposes set forth in Section 2.4, including the following:

              (i)  the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible or exchangeable into Membership Interests, and the incurring of any other obligations;

             (ii)  the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Company;

            (iii)  the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Company or the merger or other combination of the Company with or into another Person (the matters described in this clause (iii) being subject, however, to any prior approval that may be required by Section 7.5 or Article XIV);

            (iv)  the use of the assets of the Company (including cash on hand) for any purpose consistent with the terms of this Agreement, including the financing of the conduct of the operations of the Company Group; subject to Section 7.8(a), the lending of funds to other Persons (including other Group Members); the repayment or guarantee of obligations of any Group Member; and the making of capital contributions to any Group Member;

             (v)  the negotiation, execution and performance of any contracts, conveyances or other instruments (including instruments that limit the liability of the Company under contractual arrangements to all or particular assets of the Company);

            (vi)  the distribution of Company cash;

           (vii)  the selection and dismissal of employees (including employees having titles such as "president," "vice president," "secretary" and "treasurer") and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

          (viii)  the maintenance of insurance for the benefit of the Company Group, the Members and Indemnitees;

            (ix)  the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited or general partnerships, joint ventures, corporations, limited liability companies or other Persons (including the acquisition of interests in, and the contributions of property to, any Group Member from time to time) subject to the restrictions set forth in Section 2.4;

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             (x)  the control of any matters affecting the rights and obligations of the Company, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense and the settlement of claims and litigation;

            (xi)  the indemnification of any Person against liabilities and contingencies to the extent permitted by law;

           (xii)  the entering into of listing agreements with any National Securities Exchange and the delisting of some or all of the Membership Interests from, or requesting that trading be suspended on, any such exchange (subject to any prior approval that may be required under Section 4.7);

          (xiii)  the purchase, sale or other acquisition or disposition of Membership Interests, or the issuance of options, rights, warrants and appreciation rights relating to Membership Interests;

          (xiv)  the undertaking of any action in connection with the Company's participation in the management of any Group Member; and

           (xv)  the entering into of agreements with any of its Affiliates to render services to a Group Member or to itself in the discharge of its duties as Manager of the Company.

        (b)   Notwithstanding any other provision of this Agreement, any Group Member Agreement, the Delaware Act or any applicable law, rule or regulation, each of the Members and each other Person who may acquire an interest in Membership Interests or is otherwise bound by this Agreement hereby (i) approves, ratifies and confirms the execution, delivery and performance by the parties thereto of this Agreement, the Underwriting Agreement, the Contribution Agreement and the other agreements described in or filed as exhibits to the Registration Statement that are related to the transactions contemplated by the Registration Statement (in each case other than this Agreement, without giving effect to any amendments, supplements or restatements after the date hereof); (ii) agrees that the Manager (on its own or on behalf of the Company) is authorized to execute, deliver and perform the agreements referred to in clause (i) of this sentence and the other agreements, acts, transactions and matters described in or contemplated by the Registration Statement on behalf of the Company without any further act, approval or vote of the Members or the other Persons who may acquire an interest in Membership Interests or is otherwise bound by this Agreement; and (iii) agrees that the execution, delivery or performance by the Manager, any Group Member or any Affiliate of any of them of this Agreement or any agreement authorized or permitted under this Agreement (including the exercise by the Manager or any Affiliate of the Manager of the rights accorded pursuant to Article XV) shall not constitute a breach by the Manager of any duty that the Manager may owe the Company or the Non-Managing Members or any other Persons under this Agreement (or any other agreements) or of any duty existing at law, in equity or otherwise.

        Section 7.2    Board of Directors    

        (a)   Delegation to Board of Directors.    Except as otherwise expressly provided for herein, the Manager hereby delegates all management powers over the business and affairs of the Company to the Board of Directors. The Manager may, in its sole discretion, revoke, modify or condition the delegation of authority to the Board of Directors and is hereby authorized to amend this Agreement to the extent necessary or appropriate to reflect any such revocation, modification or condition. Following any such revocation, this Section 7.2 and Section 7.3 shall have no further force or effect and shall not be binding upon the Manager with respect to governance of the Manager or the composition, function, role or operation of the Board of Directors thereafter. For so long as such delegation is in effect, the Manager hereby consents to the exercise by the Board of Directors of all such powers and rights conferred on it by the Act or otherwise by applicable law with respect to the management and control of the Company. The Board of Directors shall possess all rights and powers which are possessed by

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"managers" under the Act and otherwise by applicable law, pursuant to Section 18-402 of the Act, subject to the provisions of this Agreement.

        (b)   Election; Term of Office.    The number of directors ("Directors") constituting the Board of Directors shall be at least five and not more than eight, unless otherwise fixed from time to time pursuant to a resolution adopted by the Board of Directors or the Manager. The Directors shall be elected or approved by the Manager and shall serve as Directors of the Company until the removal of such Director in accordance with the provisions of this Agreement or until the earlier death or resignation of such Director. Any Director may resign at any time by giving written notice of such Director's resignation to the Board of Directors. Any such resignation shall take effect at the time the Board receives such notice or at any later effective time specified in such notice. Unless otherwise specified in such notice, the acceptance by the Board of Directors of such Director's resignation shall not be necessary to make such resignation effective. Notwithstanding anything herein or under applicable law to the contrary, any Director may be removed at any time with or without cause by the Manager.

        (c)   Delegation by the Board of Directors.    The Board of Directors shall have the power and authority to delegate to one or more other Persons the Board of Directors' rights and powers to manage and control the business and affairs of the Company, including delegating such rights and powers of the Board to agents and employees of the Company (including Officers). The Board of Directors may authorize any Person (including the Manager, or any Director or Officer) to enter into any document on behalf of the Company and perform the obligations of the Company thereunder. Notwithstanding the foregoing, the Board of Directors shall not have the power and authority to delegate any rights or powers customarily requiring the approval of the directors of a corporation and no Officer or other Person shall be authorized or empowered to act on behalf of the Company in any way beyond the customary rights and powers of an officer of a corporation.

        (d)   Committees.

              (i)  The Board of Directors may establish committees of the Board of Directors and may delegate certain of its responsibilities to such committees.

             (ii)  The Board of Directors shall have an audit committee comprised of at least one Director as of the date that the Common Units first trade on a National Securities Exchange, at least two Directors within 90 days of the effective date of the Registration Statement and at least three Directors within one year of such effective date, all of whom shall meet the independence standards required of directors who serve on an audit committee of a board of directors established by the Securities Exchange Act and the rules and regulations of the Commission thereunder and by the National Securities Exchange on which any class of Membership Interests is listed or admitted to trading. Such audit committee shall establish a written audit committee charter in accordance with the rules of the National Securities Exchange on which any class of Membership Interests is listed or admitted to trading.

        (e)   Chairman.    The Board of Directors may elect a Chairman. The Chairman, if elected, shall be a member of the Board of Directors and shall preside at all meetings of the Board of Directors and of the Members. The Chairman shall not be an officer of the Company by virtue of being the Chairman but may otherwise be an officer. The Chairman may be removed either with or without cause at any time by the affirmative vote of a majority of the Board of Directors. No removal or resignation as Chairman shall affect such Chairman's status as a Director.

        (f)    Meetings.

              (i)  The Board of Directors (or any committee thereof) shall meet at such time and at such place as the Chairman (or the chairman of such committee) may designate. Written notice of all regular meetings of the Board of Directors (or any committee thereof) must be given to all

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    Directors (or all members of such committee) at least ten days prior to the regular meeting of the Board of Directors (or such committee). Special meetings of the Board of Directors (or any committee thereof) shall be held at the request of a majority of the Directors (or a majority of the members of such committee) upon at least two days (if the meeting is to be held in person) or twenty-four hours (if the meeting is to be held telephonically) oral or written notice to the Directors (or the members of such committee) or upon such shorter notice as may be approved by the Directors (or the members of such committee). All notices and other communications to be given to Directors (or members of a committee) shall be sufficiently given for all purposes hereunder if in writing and delivered by hand, courier or overnight delivery service or three days after being mailed by certified or registered mail, return receipt requested, with appropriate postage prepaid, or when received in the form of a telegram or facsimile, and shall be directed to the address or facsimile number as such Director (or member) shall designate by notice to the Company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board (or committee) need be specified in the notice of such meeting. Any Director (or member of such committee) may waive the requirement of such notice as to such Director (or such member).

             (ii)  Conduct of Meetings.    Any meeting of the Board of Directors (or any committee thereof) may be held in person or by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.

            (iii)  Quorum.    Fifty percent or more of all Directors (or members of a committee thereof), present in person or participating in accordance with Section 7.2(f)(ii), shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors (or committee) there shall be less than a quorum present, a majority of the Directors (or members) present may adjourn the meeting without further notice. The Directors (or members of a committee) present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors (or members) to leave less than a quorum; provided, however, that only the acts of the Directors (or members) meeting the requirements of Section 7.2(g) shall be deemed to be acts of the Board of Directors (or such committee).

            (iv)  Chairman of the Board.    The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors. The Directors also may elect a vice-chairman to act in the place of the chairman upon his absence or inability to act.

        (g)   Voting.    Except as otherwise provided in this Agreement, the effectiveness of any vote, consent or other action of the Board of Directors (or any committee thereof) in respect of any matter shall require either (i) the presence of a quorum and the affirmative vote of at least a majority of the Directors (or members of such committee) present or (ii) the unanimous written consent (in lieu of meeting) of the Directors (or members of such committee) who are then in office. Any Director may vote in person or by proxy (pursuant to a power of attorney) on any matter that is to be voted on by the Board of Directors at a meeting thereof.

        (h)   Devotion of Time.    The Directors shall not be obligated and shall not be expected to devote all of their time or business efforts to the affairs of the Company (except, to the extent appropriate, in their capacity as employees of the Company).

        Section 7.3    Officers.    

        (a)   Generally.    The Board of Directors shall appoint agents of the Company, referred to as "Officers" of the Company as described in this Section 7.3, who shall be responsible for the day-to-day business affairs of the Company, subject to the overall direction and control of the Board of Directors.

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Unless provided otherwise by the Board of Directors, the Officers shall have the titles, power, authority and duties described below in this Section 7.3.

        (b)   Titles and Number.    The Officers shall be one or more Presidents, any and all Vice Presidents, the Secretary and any and all Assistant Secretaries and any Treasurer and any and all Assistant Treasurers and any other Officers appointed pursuant to this Section 7.3. There shall be appointed from time to time, in accordance with this Section 7.3, such Vice Presidents, Secretaries, Assistant Secretaries, Treasurers and Assistant Treasurers as the Board of Directors may desire. Any person may hold two or more offices.

              (i)  Presidents.    The Board of Directors shall elect one or more individuals to serve as Presidents. In general, each President, subject to the direction and supervision of the Board of Directors, shall be the chief executive officer of the Company and shall have general and active control of the general management and affairs and business and general supervision of the Company and its officers, agents and employees, and shall perform all duties incident to the office of chief executive officer of the Company and such other duties as may be prescribed from time to time by the Board of Directors. Each President shall have the nonexclusive authority to sign on behalf of the Company any deeds, mortgages, leases, bonds, notes, certificates, contracts or other instruments, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by this Agreement to some other officer or agent of the Company or shall be required by law to be otherwise executed. In the absence of the Chairman, or the Vice Chairman, if there is one, or in the event of the Chairman's inability or refusal to act, the President shall perform the duties of the Chairman, and each President, when so acting, shall have all of the powers of the Chairman.

             (ii)  Vice Presidents.    The Board of Directors, in its discretion, may elect one or more Vice Presidents. In the absence of any President or in the event of the Presidents' inability or refusal to act, the Vice President (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and the Vice President, when so acting, shall have all of the powers and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties as from time to time may be assigned by a President or the Board of Directors.

            (iii)  Secretary and Assistant Secretaries.    The Board of Directors, in its discretion, may elect a Secretary and one or more Assistant Secretaries. The Secretary shall record or cause to be recorded in books provided for that purpose the minutes of the meetings or actions of the Board of Directors and of the Sole Member, shall see that all notices are duly given in accordance with the provisions of this Agreement and as required by law, shall be custodian of all records (other than financial), shall see that the books, reports, statements, certificates and all other documents and records required by law are properly kept and filed, and, in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned to him by this Agreement, the Board of Directors or a President. The Assistant Secretaries shall exercise the powers of the Secretary during that Officer's absence or inability or refusal to act.

            (iv)  Treasurer and Assistant Treasurers.    The Board of Directors, in its discretion, may elect a Treasurer and one or more Assistant Treasurers. The Treasurer shall keep or cause to be kept the books of account of the Company and shall render statements of the financial affairs of the Company in such form and as often as required by this Agreement, the Board of Directors or a President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Company. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as this Agreement, the Board of Directors or a President, shall designate from time to time. The Assistant

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    Treasurers shall exercise the power of the Treasurer during that Officer's absence or inability or refusal to act. Each of the Assistant Treasurers shall possess the same power as the Treasurer to sign all certificates, contracts, obligations and other instruments of the Company. If no Treasurer or Assistant Treasurer is appointed and serving or in the absence of the appointed Treasurer and Assistant Treasurer, the President or such other Officer as the Board of Directors shall select, shall have the powers and duties conferred upon the Treasurer.

        (c)   Other Officers and Agents.    The Board of Directors may appoint such other Officers and agents as may from time to time appear to be necessary or advisable in the conduct of the affairs of the Company, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

        (d)   Appointment and Term of Office.    The Officers shall be appointed by the Board of Directors at such time and for such terms as the Board of Directors shall determine. Any Officer may be removed, with or without cause, only by the Board of Directors. Vacancies in any office may be filled only by the Board of Directors.

        (e)   Powers of Attorney.    The Board of Directors may grant powers of attorney or other authority as appropriate to establish and evidence the authority of the Officers and other Persons.

        (f)    Officers' Delegation of Authority.    Unless otherwise provided by resolution of the Board of Directors, no Officer shall have the power or authority to delegate to any Person such Officer's rights and powers as an Officer to manage the business and affairs of the Company

        (g)   The Officers shall receive such compensation for their services as may be designated by the Board of Directors.

        Section 7.4    Certificate of Formation.    The Manager has caused the Certificate of Formation to be filed with the Secretary of State of the State of Delaware as required by the Delaware Act. The Manager shall use all reasonable efforts to cause to be filed such other certificates or documents that the Manager determines to be necessary or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Delaware or any other state in which the Company may elect to do business or own property. To the extent the Manager determines such action to be necessary or appropriate, the Manager shall file amendments to and restatements of the Certificate of Formation and do all things to maintain the Company as a limited liability company under the laws of the State of Delaware or of any other state in which the Company may elect to do business or own property. Subject to the terms of Section 3.4(a), the Manager shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Formation, any qualification document or any amendment thereto to any Non-Managing Member.

        Section 7.5    Restrictions on the Manager's Authority.    Except as provided in Articles XII and XIV, the Manager may not sell, exchange or otherwise dispose of all or substantially all of the assets of the Company Group, taken as a whole, in a single transaction or a series of related transactions without the approval of holders of a Unit Majority; provided, however, that this provision shall not preclude or limit the Manager's ability to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the assets of the Company Group and shall not apply to any forced sale of any or all of the assets of the Company Group pursuant to the foreclosure of, or other realization upon, any such encumbrance.

        Section 7.6    Reimbursement of the Manager.    

        (a)   Except as provided in this Section 7.6 and elsewhere in this Agreement, the Manager shall not be compensated for its services as a managing member or general partner of any Group Member.

        (b)   The Manager shall be reimbursed on a monthly basis, or such other basis as the Manager may determine, for (i) all direct and indirect expenses it incurs or payments it makes on behalf of the

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Company Group (including salary, bonus, incentive compensation and other amounts paid to any Person including Affiliates of the Manager to perform services for the Company Group or for the Manager in the discharge of its duties to the Company Group), and (ii) all other expenses allocable to the Company Group or otherwise incurred by the Manager in connection with operating the Company Group's business (including expenses allocated to the Manager by its Affiliates). The Manager shall determine the expenses that are allocable to the Company Group. Reimbursements pursuant to this Section 7.6 shall be in addition to any reimbursement to the Manager as a result of indemnification pursuant to Section 7.9.

        (c)   The Manager and its Affiliates may charge any member of the Company Group a management fee to the extent necessary to allow the Company Group to reduce the amount of any state franchise or income tax or any tax based upon the revenues or gross margin of any member of the Company Group if the tax benefit produced by the payment of such management fee or fees exceeds the amount of such fee or fees.

        (d)   The Manager, without the approval of the Non-Managing Members (who shall have no right to vote in respect thereof), may propose and adopt on behalf of the Company benefit plans, programs and practices (including plans, programs and practices involving the issuance of Membership Interests or options to purchase or rights, warrants or appreciation rights or phantom or tracking interests relating to Membership Interests), or cause the Company to issue Membership Interests in connection with, or pursuant to, any benefit plan, program or practice maintained or sponsored by the Manager or any of its Affiliates, in each case for the benefit of employees and directors of the Manager or its Affiliates, any Group Member or their Affiliates, or any of them, in respect of services performed, directly or indirectly, for the benefit of the Company Group. The Company agrees to issue and sell to the Manager or any of its Affiliates any Membership Interests that the Manager or such Affiliates are obligated to provide to any employees and directors pursuant to any such benefit plans, programs or practices. Expenses incurred by the Manager in connection with any such plans, programs and practices (including the net cost to the Manager or such Affiliates of Membership Interests purchased by the Manager or such Affiliates, from the Company or otherwise, to fulfill options or awards under such plans, programs and practices) shall be reimbursed in accordance with Section 7.6(b). Any and all obligations of the Manager under any benefit plans, programs or practices adopted by the Manager as permitted by this Section 7.6(d) shall constitute obligations of the Manager hereunder and shall be assumed by any successor Manager approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the Manager's Managing Member Interest pursuant to Section 4.6.

        Section 7.7    Outside Activities.    

        (a)   The Manager, for so long as it is the Manager of the Company (i) agrees that its sole business will be to act as a managing member or general partner, as the case may be, of the Company and any other partnership or limited liability company of which the Company is, directly or indirectly, a partner or member and to undertake activities that are ancillary or related thereto (including being a Non-Managing Member in the Company) and (ii) shall not engage in any business or activity or incur any debts or liabilities except in connection with or incidental to (A) its performance as managing member or general partner, if any, of one or more Group Members or as described in or contemplated by the Registration Statement, or (B) the acquiring, owning or disposing of debt securities or equity interests in any Group Member.

        (b)   Each Unrestricted Person (other than the Manager) shall have the right to engage in businesses of every type and description and other activities for profit and to engage in and possess an interest in other business ventures of any and every type or description, whether in businesses engaged in or anticipated to be engaged in by any Group Member, independently or with others, including business interests and activities in direct competition with the business and activities of any Group

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Member, and none of the same shall constitute a breach of this Agreement or any duty otherwise existing at law, in equity or otherwise, to any Group Member or any Member.

        (c)   Notwithstanding anything to the contrary in this Agreement, the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to any Unrestricted Person (including the Manager). No Unrestricted Person (including the Manager) who acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an opportunity for the Company shall have any duty to communicate or offer such opportunity to the Company, and such Unrestricted Person (including the Manager) shall not be liable to the Company, to any Non-Managing Member or any other Person for breach of any fiduciary or other duty by reason of the fact that such Unrestricted Person (including the Manager) pursues or acquires such opportunity for itself, directs such opportunity to another Person or does not communicate such opportunity or information to the Company.

        (d)   Subject to the terms of Section 7.7(a) and Section 7.7(b), but otherwise notwithstanding anything to the contrary in this Agreement, (i) the engaging in competitive activities by any Unrestricted Person (other than the Manager) in accordance with the provisions of this Section 7.7 is hereby approved by the Company and all Members, and (ii) it shall be deemed not to be a breach of any fiduciary duty or any other duty or obligation of any type whatsoever of the Manager or of any other Unrestricted Person for the Unrestricted Person (other than the Manager) to engage in such business interests and activities in preference to or to the exclusion of the Company and the other Group Members; provided such Unrestricted Person does not engage in such business or activity as a result of or using confidential or proprietary information provided by or on behalf of the Company to such Unrestricted Person.

        (e)   The Manager and each of its Affiliates may acquire Units or other Membership Interests in addition to those acquired on the Closing Date and, except as otherwise expressly provided in this Agreement, shall be entitled to exercise, at their option, all rights relating to all Units or other Membership Interests acquired by them. The term "Affiliates" when used in this Section 7.7(e) with respect to the Manager shall not include any Group Member.

        (f)    Notwithstanding anything to the contrary in this Agreement, to the extent that any provision of this Agreement purports or is interpreted to have the effect of restricting the fiduciary duties that might otherwise, as a result of Delaware or other applicable law, be owed by the Manager to the Company and the Non-Managing Members, or to constitute a waiver or consent by the Non-Managing Members to any such restriction, such provisions shall be deemed to have been approved by the Members.

        Section 7.8    Loans from the Manager; Loans or Contributions from the Company or Group Members.    

        (a)   The Manager or any of its Affiliates may, but shall be under no obligation to, lend to any Group Member, and any Group Member may borrow from the Manager or any of its Affiliates, funds needed or desired by the Group Member for such periods of time and in such amounts as the Manager may determine; provided, however, that in any such case the lending party may not charge the borrowing party interest at a rate greater than the rate that would be charged the borrowing party or impose terms less favorable to the borrowing party than would be charged or imposed on the borrowing party by unrelated lenders on comparable loans made on an arm's length basis (without reference to the lending party's financial abilities or guarantees), all as determined by the Manager. The borrowing party shall reimburse the lending party for any costs (other than any additional interest costs) incurred by the lending party in connection with the borrowing of such funds. For purposes of this Section 7.8(a) and Section 7.8(b), the term "Group Member" shall include any Affiliate of a Group Member that is controlled by the Group Member.

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        (b)   The Company may lend or contribute to any Group Member, and any Group Member may borrow from the Company, funds on terms and conditions determined by the Manager.

        (c)   No borrowing by any Group Member or the approval thereof by the Manager shall be deemed to constitute a breach of any duty, expressed or implied, of the Manager or its Affiliates to the Company or the Non-Managing Members by reason of the fact that the purpose or effect of such borrowing is directly or indirectly to (i) enable distributions to the Manager or its Affiliates (including in their capacities as Non-Managing Members) to exceed the Manager's Percentage Interest of the total amount distributed to all Members or (ii) hasten the expiration of the Subordination Period or the conversion of any Subordinated Units into Common Units.

        Section 7.9    Indemnification.    

        (a)   To the fullest extent permitted by law but subject to the limitations expressly provided in this Agreement, all Indemnitees shall be indemnified and held harmless by the Company from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnitee; provided, that the Indemnitee shall not be indemnified and held harmless if there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter for which the Indemnitee is seeking indemnification pursuant to this Section 7.9, the Indemnitee acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitee's conduct was unlawful; provided, further, no indemnification pursuant to this Section 7.9 shall be available to the Manager or its Affiliates (other than a Group Member) with respect to its or their obligations incurred pursuant to the Underwriting Agreement or the Contribution Agreement (other than obligations incurred by the Manager on behalf of the Company). Any indemnification pursuant to this Section 7.9 shall be made only out of the assets of the Company, it being agreed that the Manager shall not be personally liable for such indemnification and shall have no obligation to contribute or loan any monies or property to the Company to enable it to effectuate such indemnification.

        (b)   To the fullest extent permitted by law, expenses (including legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant to Section 7.9(a) in appearing at, participating in or defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to a final and non-appealable determination that the Indemnitee is not entitled to be indemnified upon receipt by the Company of any undertaking by or on behalf of the Indemnitee to repay such amount if it shall be ultimately determined that the Indemnitee is not entitled to be indemnified as authorized in this Section 7.9.

        (c)   The indemnification provided by this Section 7.9 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, pursuant to any vote of the holders of Outstanding Non-Managing Member Interests, as a matter of law, in equity or otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and as to actions in any other capacity (including any capacity under the Underwriting Agreement), and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.

        (d)   The Company may purchase and maintain (or reimburse the Manager or its Affiliates for the cost of) insurance, on behalf of the Manager, its Affiliates, the Indemnitees and such other Persons as the Manager shall determine, against any liability that may be asserted against, or expense that may be incurred by, such Person in connection with the Company's activities or such Person's activities on

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behalf of the Company, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.

        (e)   For purposes of this Section 7.9, the Company shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Company also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute "fines" within the meaning of Section 7.9(a); and action taken or omitted by an Indemnitee with respect to any employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the best interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose that is in the best interests of the Company.

        (f)    In no event may an Indemnitee subject the Non-Managing Members to personal liability by reason of the indemnification provisions set forth in this Agreement.

        (g)   An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.9 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

        (h)   The provisions of this Section 7.9 are for the benefit of the Indemnitees and their heirs, successors, assigns, executors and administrators and shall not be deemed to create any rights for the benefit of any other Persons.

        (i)    No amendment, modification or repeal of this Section 7.9 or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified by the Company, nor the obligations of the Company to indemnify any such Indemnitee under and in accordance with the provisions of this Section 7.9 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

        Section 7.10    Liability of Indemnitees.    

        (a)   Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall be liable for monetary damages to the Company, the Non-Managing Members or any other Persons who have acquired interests in the Membership Interests, for losses sustained or liabilities incurred as a result of any act or omission of an Indemnitee unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter in question, the Indemnitee acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitee's conduct was criminal.

        (b)   Subject to its obligations and duties as Manager set forth in Section 7.1(a), the Manager may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and the Manager shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the Manager in good faith.

        (c)   To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary duties) and liabilities relating thereto to the Company or to the Members, the Manager and any other Indemnitee acting in connection with the Company's business or affairs shall not be liable to the Company or to any Member for its good faith reliance on the provisions of this Agreement.

        (d)   Any amendment, modification or repeal of this Section 7.10 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the Indemnitees under this Section 7.10 as in effect immediately prior to such amendment, modification or repeal with respect

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to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

        Section 7.11    Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties.    

        (a)   Unless otherwise expressly provided in this Agreement or any Group Member Agreement, whenever a potential conflict of interest exists or arises between the Manager or any of its Affiliates, on the one hand, and the Company, any Group Member or any Member, on the other, any resolution or course of action by the Manager or its Affiliates in respect of such conflict of interest shall be permitted and deemed approved by all Members, and shall not constitute a breach of this Agreement, of any Group Member Agreement, of any agreement contemplated herein or therein, or of any duty hereunder or existing at law, in equity or otherwise, if the resolution or course of action in respect of such conflict of interest is (i) approved by Special Approval, (ii) approved by the vote of a majority of the Common Units (excluding Common Units owned by the Manager and its Affiliates), (iii) on terms no less favorable to the Company than those generally being provided to or available from unrelated third parties or (iv) fair and reasonable to the Company, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Company). The Manager shall be authorized but not required in connection with its resolution of such conflict of interest to seek Special Approval or Unitholder approval of such resolution, and the Manager may also adopt a resolution or course of action that has not received Special Approval or Unitholder approval. If Special Approval is sought, then it shall be presumed that, in making its decision, the Conflicts Committee acted in good faith, and if Special Approval or Unitholder approval is not sought and the Board of Directors determines that the resolution or course of action taken with respect to a conflict of interest satisfies either of the standards set forth in clauses (iii) or (iv) above, then it shall be presumed that, in making its decision, the Board of Directors acted in good faith, and in any proceeding brought by any Non-Managing Member or by or on behalf of such Non-Managing Member or any other Non-Managing Member or the Company challenging such approval, the Person bringing or prosecuting such proceeding shall have the burden of overcoming such presumption. Notwithstanding anything to the contrary in this Agreement or any duty otherwise existing at law or equity, the existence of the conflicts of interest described in the Registration Statement are hereby approved by all Members and shall not constitute a breach of this Agreement or of any duty hereunder or existing at law, in equity or otherwise.

        (b)   Whenever the Manager, or any committee of the Board of Directors (including the Conflicts Committee), makes a determination or takes or declines to take any other action, or any of its Affiliates causes the Manager to do so, in its capacity as the managing member of the Company as opposed to in its individual capacity, whether under this Agreement, any Group Member Agreement or any other agreement contemplated hereby or otherwise, then, unless another express standard is provided for in this Agreement, the Manager, such committee, or such Affiliates causing the Manager to do so, shall make such determination or take or decline to take such other action in good faith and shall not be subject to any other or different standards imposed by this Agreement, any Group Member Agreement, any other agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation or at equity. In order for a determination or other action to be in "good faith" for purposes of this Agreement, the Person or Persons making such determination or taking or declining to take such other action must believe that the determination or other action is in the best interests of the Company.

        (c)   Whenever the Manager makes a determination or takes or declines to take any other action, or any of its Affiliates causes it to do so, in its individual capacity as opposed to in its capacity as the managing member of the Company, whether under this Agreement, any Group Member Agreement or any other agreement contemplated hereby or otherwise, then the Manager, or such Affiliates causing it to do so, are entitled, to the fullest extent permitted by law, to make such determination or to take or decline to take such other action free of any duty (including fiduciary duty) or obligation whatsoever to

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the Company, or any Non-Managing Member, and the Manager, or such Affiliates causing it to do so, shall not, to the fullest extent permitted by law, be required to act in good faith or pursuant to any other standard imposed by this Agreement, any Group Member Agreement, any other agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation or at equity. By way of illustration and not of limitation, whenever the phrases, "at the option of the Manager," "in its sole discretion" or some variation of those phrases, are used in this Agreement, it indicates that the Manager is acting in its individual capacity. For the avoidance of doubt, whenever the Manager votes or transfers its Membership Interests or refrains from voting or transferring its Membership Interests, it shall be acting in its individual capacity. The Manager's organizational documents may provide that determinations to take or decline to take any action in its individual, rather than representative, capacity may or shall be determined by its members, if the Manager is a limited liability company, stockholders, if the Manager is a corporation, or the members or stockholders of the Manager's general partner, if the Manager is a limited partnership.

        (d)   Notwithstanding anything to the contrary in this Agreement, the Manager and its Affiliates shall have no duty or obligation, express or implied, to (i) sell or otherwise dispose of any asset of the Company Group other than in the ordinary course of business or (ii) permit any Group Member to use any facilities or assets of the Manager and its Affiliates, except as may be provided in contracts entered into from time to time specifically dealing with such use. Any determination by the Manager or any of its Affiliates to enter into such contracts shall be in its sole discretion.

        (e)   Except as expressly set forth in this Agreement, neither the Manager nor any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to the Company or any Non-Managing Member and the provisions of this Agreement, to the extent that they restrict, eliminate or otherwise modify the duties and liabilities, including fiduciary duties, of the Manager or any other Indemnitee otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of the Manager or such other Indemnitee.

        (f)    The Unitholders hereby authorize the Manager, on behalf of the Company as a member or partner of a Group Member, to approve actions by the managing member or general partner of such Group Member similar to those actions permitted to be taken by the Manager pursuant to this Section 7.11.

        Section 7.12    Other Matters Concerning the Manager.    

        (a)   The Manager may rely upon, and shall be protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

        (b)   The Manager may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the advice or opinion (including an Opinion of Counsel) of such Persons as to matters that the Manager reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such advice or opinion.

        (c)   The Manager shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers, a duly appointed attorney or attorneys-in-fact or the duly authorized officers of the Company.

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        Section 7.13    Purchase or Sale of Membership Interests.    The Manager may cause the Company to purchase or otherwise acquire Membership Interests; provided that, except as permitted pursuant to Section 4.9, the Manager may not cause any Group Member to purchase Subordinated Units during the Subordination Period. As long as Membership Interests are held by any Group Member, such Membership Interests shall not be considered Outstanding for any purpose, except as otherwise provided herein. The Manager or any Affiliate of the Manager may also purchase or otherwise acquire and sell or otherwise dispose of Membership Interests for its own account, subject to the provisions of Articles IV and X.

        Section 7.14    Registration Rights of the Manager and its Affiliates.    

        (a)   If (i) the Manager or any Affiliate of the Manager (including for purposes of this Section 7.14, any Person that is an Affiliate of the Manager at the date hereof notwithstanding that it may later cease to be an Affiliate of the Manager) holds Membership Interests that it desires to sell and (ii) Rule 144 of the Securities Act (or any successor rule or regulation to Rule 144) or another exemption from registration is not available to enable such holder of Membership Interests (the "Holder") to dispose of the number of Membership Interests it desires to sell at the time it desires to do so without registration under the Securities Act, then at the option and upon the request of the Holder, the Company shall file with the Commission as promptly as practicable after receiving such request, and use all commercially reasonable efforts to cause to become effective and remain effective for a period of not less than six months following its effective date or such shorter period as shall terminate when all Membership Interests covered by such registration statement have been sold, a registration statement under the Securities Act registering the offering and sale of the number of Membership Interests specified by the Holder; provided, however, that the Company shall not be required to effect more than three registrations pursuant to this Section 7.14(a); and provided further, however, that if the Conflicts Committee determines that a postponement of the requested registration would be in the best interests of the Company and its Members due to a pending transaction, investigation or other event, the filing of such registration statement or the effectiveness thereof may be deferred for up to six months, but not thereafter. In connection with any registration pursuant to the immediately preceding sentence, the Company shall (i) promptly prepare and file (A) such documents as may be necessary to register or qualify the securities subject to such registration under the securities laws of such states as the Holder shall reasonably request; provided, however, that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would become subject to general service of process or to taxation or qualification to do business as a foreign corporation or partnership doing business in such jurisdiction solely as a result of such registration, and (B) such documents as may be necessary to apply for listing or to list the Membership Interests subject to such registration on such National Securities Exchange as the Holder shall reasonably request, and (ii) do any and all other acts and things that may be necessary or appropriate to enable the Holder to consummate a public sale of such Membership Interests in such states. Except as set forth in Section 7.14(c), all costs and expenses of any such registration and offering (other than the underwriting discounts and commissions) shall be paid by the Company, without reimbursement by the Holder.

        (b)   If the Company shall at any time propose to file a registration statement under the Securities Act for an offering of Membership Interests for cash (other than an offering relating solely to a benefit plan), the Company shall use all commercially reasonable efforts to include such number or amount of Membership Interests held by any Holder in such registration statement as the Holder shall request; provided, that the Company is not required to make any effort or take any action to so include the Membership Interests of the Holder once the registration statement becomes or is declared effective by the Commission, including any registration statement providing for the offering from time to time of Membership Interests pursuant to Rule 415 of the Securities Act. If the proposed offering pursuant to this Section 7.14(b) shall be an underwritten offering, then, in the event that the managing underwriter

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or managing underwriters of such offering advise the Company and the Holder in writing that in their opinion the inclusion of all or some of the Holder's Membership Interests would adversely and materially affect the timing or success of the offering, the Company shall include in such offering only that number or amount, if any, of Membership Interests held by the Holder that, in the opinion of the managing underwriter or managing underwriters, will not so adversely and materially affect the offering. Except as set forth in Section 7.14(c), all costs and expenses of any such registration and offering (other than the underwriting discounts and commissions) shall be paid by the Company, without reimbursement by the Holder.

        (c)   If underwriters are engaged in connection with any registration referred to in this Section 7.14, the Company shall provide indemnification, representations, covenants, opinions and other assurance to the underwriters in form and substance reasonably satisfactory to such underwriters. Further, in addition to and not in limitation of the Company's obligation under Section 7.9, the Company shall, to the fullest extent permitted by law, indemnify and hold harmless the Holder, its officers, directors and each Person who controls the Holder (within the meaning of the Securities Act) and any agent thereof (collectively, "Indemnified Persons") against any losses, claims, demands, actions, causes of action, assessments, damages, liabilities (joint or several), costs and expenses (including interest, penalties and reasonable attorneys' fees and disbursements), resulting to, imposed upon, or incurred by the Indemnified Persons, directly or indirectly, under the Securities Act or otherwise (hereinafter referred to in this Section 7.14(c) as a "claim" and in the plural as "claims") based upon, arising out of or resulting from any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which any Membership Interests were registered under the Securities Act or any state securities or Blue Sky laws, in any preliminary prospectus or issuer free writing prospectus as defined in Rule 433 of the Securities Act (if used prior to the effective date of such registration statement), or in any summary or final prospectus or in any amendment or supplement thereto (if used during the period the Company is required to keep the registration statement current), or arising out of, based upon or resulting from the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading; provided, however, that the Company shall not be liable to any Indemnified Person to the extent that any such claim arises out of, is based upon or results from an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, such preliminary, summary or final prospectus or free writing prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Indemnified Person specifically for use in the preparation thereof.

        (d)   The provisions of Sections 7.14(a) and 7.14(b) shall continue to be applicable with respect to the Manager (and any of the Manager's Affiliates) after it ceases to be a managing member of the Company, during a period of two years subsequent to the effective date of such cessation and for so long thereafter as is required for the Holder to sell all of the Membership Interests with respect to which it has requested during such two-year period inclusion in a registration statement otherwise filed or that a registration statement be filed; provided, however, that the Company shall not be required to file successive registration statements covering the same Membership Interests for which registration was demanded during such two-year period. The provisions of Section 7.14(c) shall continue in effect thereafter.

        (e)   The rights to cause the Company to register Membership Interests pursuant to this Section 7.14 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such Membership Interests, provided (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the Membership Interests with respect to which such registration rights are being assigned; and (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms set forth in this Section 7.14.

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        (f)    Any request to register Membership Interests pursuant to this Section 7.14 shall (i) specify the Membership Interests intended to be offered and sold by the Person making the request, (ii) express such Person's present intent to offer such Membership Interests for distribution, (iii) describe the nature or method of the proposed offer and sale of Membership Interests, and (iv) contain the undertaking of such Person to provide all such information and materials and take all action as may be required in order to permit the Company to comply with all applicable requirements in connection with the registration of such Membership Interests.

        Section 7.15    Reliance by Third Parties.    Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that the Manager and any officer of the Manager authorized by the Manager to act on behalf of and in the name of the Company has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any authorized contracts on behalf of the Company, and such Person shall be entitled to deal with the Manager or any such officer as if it were the Company's sole party in interest, both legally and beneficially. Each Non-Managing Member hereby waives, to the fullest extent permitted by law, any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the Manager or any such officer in connection with any such dealing. In no event shall any Person dealing with the Manager or any such officer or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the Manager or any such officer or its representatives. Each and every certificate, document or other instrument executed on behalf of the Company by the Manager or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Company and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.


ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS

        Section 8.1    Records and Accounting.    The Manager shall keep or cause to be kept at the principal office of the Company appropriate books and records with respect to the Company's business, including all books and records necessary to provide to the Non-Managing Members any information required to be provided pursuant to Section 3.4(a). Any books and records maintained by or on behalf of the Company in the regular course of its business, including the record of the Record Holders of Units or other Membership Interests, books of account and records of Company proceedings, may be kept on, or be in the form of, computer disks, hard drives, magnetic tape, photographs, micrographics or any other information storage device; provided, that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Company shall be maintained, for financial reporting purposes, on an accrual basis in accordance with U.S. GAAP. The Company shall not be required to keep books maintained on a cash basis and the Manager shall be permitted to calculate cash-based measures, including Operating Surplus, by making such adjustments to its accrual basis books to account non-cash items and other adjustments as the Manager determines to be necessary or appropriate.

        Section 8.2    Fiscal Year.    The fiscal year of the Company shall be a fiscal year ending March 31.

        Section 8.3    Reports.    

        (a)   As soon as practicable, but in no event later than 90 days after the close of each fiscal year of the Company, the Manager shall cause to be mailed or made available, by any reasonable means, to

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each Record Holder of a Unit as of a date selected by the Manager, an annual report containing financial statements of the Company for such fiscal year of the Company, presented in accordance with U.S. GAAP, including a balance sheet and statements of operations, Company equity and cash flows, such statements to be audited by a firm of independent public accountants selected by the Manager.

        (b)   As soon as practicable, but in no event later than 45 days after the close of each Quarter except the last Quarter of each fiscal year, the Manager shall cause to be mailed or made available, by any reasonable means, to each Record Holder of a Unit, as of a date selected by the Manager, a report containing unaudited financial statements of the Company and such other information as may be required by applicable law, regulation or rule of any National Securities Exchange on which the Units are listed or admitted to trading, or as the Manager determines to be necessary or appropriate.

        (c)   The Manager shall be deemed to have made a report available to each Record Holder as required by this Section 8.3 if it has either (i) filed such report with the Commission via its Electronic Data Gathering, Analysis and Retrieval system and such report is publicly available on such system or (ii) made such report available on any publicly available website maintained by the Company.


ARTICLE IX
TAX MATTERS

        Section 9.1    Tax Returns and Information.    The Company shall timely file all returns of the Company that are required for federal, state and local income tax purposes on the basis of the accrual method and the taxable period or years that it is required by law to adopt, from time to time, as determined by the Manager. The tax information reasonably required by Record Holders for U.S. federal and state income tax reporting purposes with respect to a taxable period shall be furnished to them within 90 days of the close of the calendar year in which the Company's taxable period ends. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for U.S. federal income tax purposes.

        Section 9.2    Tax Elections.    

        (a)   The Company shall make the election under Section 754 of the Code in accordance with applicable regulations thereunder, subject to the reservation of the right to seek to revoke any such election upon the Manager's determination that such revocation is in the best interests of the Non-Managing Members. Notwithstanding any other provision herein contained, for the purposes of computing the adjustments under Section 743(b) of the Code, the Manager shall be authorized (but not required) to adopt a convention whereby the price paid by a transferee of a Membership Interest will be deemed to be the lowest quoted closing price of the Membership Interests on any National Securities Exchange on which such Membership Interests are listed or admitted to trading during the calendar month in which such transfer is deemed to occur pursuant to Section 6.2(f) without regard to the actual price paid by such transferee.

        (b)   Except as otherwise provided herein, the Manager shall determine whether the Company should make any other elections permitted by the Code.

        Section 9.3    Tax Controversies.    Subject to the provisions hereof, the Manager is designated as the Tax Matters Partner (as defined in the Code) and is authorized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. Each Member agrees to cooperate with the Manager and to do or refrain from doing any or all things reasonably required by the Manager to conduct such proceedings.

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        Section 9.4    Withholding Tax Payments.    

        (a) The Manager may treat taxes paid by the Company on behalf of, all or less than all of the Members, either as a distribution of cash to such Members or as a general expense of the Company, as determined appropriate under the circumstances by the Manager.

        (b) Notwithstanding any other provision of this Agreement, the Manager is authorized to take any action that may be required to cause the Company and other Group Members to comply with any withholding requirements established under the Code or any other federal, state or local law including pursuant to Sections 1441, 1442, 1445 and 1446 of the Code and any applicable non-U.S. tax law. To the extent that the Company is required or elects to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income or from a distribution to any Member (including by reason of Section 1446 of the Code), the Manager may treat the amount withheld as a distribution of cash pursuant to Section 6.3 in the amount of such withholding from such Member.


ARTICLE X
ADMISSION OF MEMBERS

        Section 10.1    Admission of Non-Managing Members.    

        (a)   A Person shall be admitted as a Non-Managing Member and shall become bound by the terms of this Agreement if such Person purchases or otherwise lawfully acquires any Non-Managing Member Interest and becomes the Record Holder of such Non-Managing Member Interests in accordance with the provisions of Article IV or Article V hereof. A Person may become a Record Holder of a Non-Managing Member Interest without the consent or approval of any of the Members. A Person may not become a Non-Managing Member without acquiring a Non-Managing Member Interest and until reflected in the books and records of the Company as the Record Holder of such Non-Managing Member Interest. The rights and obligations of a Person who is an Ineligible Holder shall be determined in accordance with Section 4.8.

        (b)   The name and mailing address of each Non-Managing Member shall be listed on the books and records of the Company maintained for such purpose by the Company or the Transfer Agent. The Manager shall update the books and records of the Company from time to time as necessary to reflect accurately the information therein (or shall cause the Transfer Agent to do so, as applicable). A Non-Managing Member Interest may be represented by a Certificate, as provided in Section 4.1.

        (c)   Any transfer of a Non-Managing Member Interest shall not entitle the transferee to share in the profits and losses, to receive distributions, to receive allocations of income, gain, loss, deduction or credit or any similar item or to any other rights to which the transferor was entitled until the transferee becomes a Non-Managing Member pursuant to Section 10.1(a).

        Section 10.2    Admission of Successor Manager.    A successor Manager approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the Managing Member Interest pursuant to Section 4.6 who is proposed to be admitted as a successor Manager shall be admitted to the Company as the Manager, effective immediately prior to the withdrawal or removal of the predecessor or transferring Manager, pursuant to Section 11.1 or 11.2 or the transfer of the Managing Member Interest pursuant to Section 4.6, provided, however, that no such successor shall be admitted to the Company until compliance with the terms of Section 4.6 has occurred and such successor has executed and delivered such other documents or instruments as may be required to effect such admission. Any such successor shall, subject to the terms hereof, carry on the business of the members of the Company Group without dissolution.

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        Section 10.3    Amendment of Agreement and Certificate of Formation.    To effect the admission to the Company of any Member, the Manager shall take all steps necessary under the Delaware Act to amend the records of the Company to reflect such admission and, if necessary, to prepare as soon as practicable an amendment to this Agreement and, if required by law, the Manager shall prepare and file an amendment to the Certificate of Formation.


ARTICLE XI
WITHDRAWAL OR REMOVAL OF MEMBERS

        Section 11.1    Withdrawal of the Manager.    

        (a)   The Manager shall be deemed to have withdrawn from the Company upon the occurrence of any one of the following events (each such event herein referred to as an "Event of Withdrawal");

              (i)  The Manager voluntarily withdraws from the Company by giving written notice to the other Members;

             (ii)  The Manager transfers all of its Managing Member Interest pursuant to Section 4.6;

            (iii)  The Manager is removed pursuant to Section 11.2;

            (iv)  The Manager (A) makes a general assignment for the benefit of creditors; (B) files a voluntary bankruptcy petition for relief under Chapter 7 of the United States Bankruptcy Code; (C) files a petition or answer seeking for itself a liquidation, dissolution or similar relief (but not a reorganization) under any law; (D) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Manager in a proceeding of the type described in clauses (A) through (C) of this Section 11.1(a)(iv); or (E) seeks, consents to or acquiesces in the appointment of a trustee (but not a debtor-in-possession), receiver or liquidator of the Manager or of all or any substantial part of its properties;

             (v)  A final and non-appealable order of relief under Chapter 7 of the United States Bankruptcy Code is entered by a court with appropriate jurisdiction pursuant to a voluntary or involuntary petition by or against the Manager; or

            (vi)  (A) in the event the Manager is a corporation, a certificate of dissolution or its equivalent is filed for the Manager, or 90 days expire after the date of notice to the Manager of revocation of its charter without a reinstatement of its charter, under the laws of its state of incorporation; (B) in the event the Manager is a limited liability company or a partnership, the dissolution and commencement of winding up of the Manager; (C) in the event the Manager is acting in such capacity by virtue of being a trustee of a trust, the termination of the trust; (D) in the event the Manager is a natural person, his death or adjudication of incompetency; and (E) otherwise in the event of the termination of the Manager.

        If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B), (C) or (E) occurs, the withdrawing Manager shall give notice to the Non-Managing Members within 30 days after such occurrence. The Members hereby agree that only the Events of Withdrawal described in this Section 11.1 shall result in the withdrawal of the Manager from the Company.

        (b)   Withdrawal of the Manager from the Company upon the occurrence of an Event of Withdrawal shall not constitute a breach of this Agreement under the following circumstances: (i) at any time during the period beginning on the Closing Date and ending at 11:59 pm, prevailing Mountain Time, on March 31, 2020, the Manager voluntarily withdraws by giving at least 90 days' advance notice of its intention to withdraw to the Non-Managing Members; provided, that prior to the effective date of such withdrawal, the withdrawal is approved by Unitholders holding at least a majority of the Outstanding Common Units (excluding Common Units held by the Manager and its Affiliates) and the

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Manager delivers to the Company an Opinion of Counsel ("Withdrawal Opinion of Counsel") that such withdrawal (following the selection of the successor Manager) would not result in the loss of the limited liability under the Delaware Act of any Non-Managing Member or cause any Group Member to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed); (ii) at any time after 11:59 pm, prevailing Mountain Time, on March 31, 2020, the Manager voluntarily withdraws by giving at least 90 days' advance notice to the Unitholders, such withdrawal to take effect on the date specified in such notice; (iii) at any time that the Manager ceases to be the Manager pursuant to Section 11.1(a)(ii) or is removed pursuant to Section 11.2; or (iv) notwithstanding clause (i) of this sentence, at any time that the Manager voluntarily withdraws by giving at least 90 days' advance notice of its intention to withdraw to the Non-Managing Members, such withdrawal to take effect on the date specified in the notice, if at the time such notice is given one Person and its Affiliates (other than the Manager and its Affiliates) own beneficially or of record or control at least 50% of the Outstanding Units. The withdrawal of the Manager from the Company upon the occurrence of an Event of Withdrawal shall also constitute the withdrawal of the Manager as managing member or general partner, if any, to the extent applicable, of the other Group Members. If the Manager gives a notice of withdrawal pursuant to Section 11.1(a)(i), the holders of a Unit Majority, may, prior to the effective date of such withdrawal, elect a successor Manager. The Person so elected as successor Manager shall automatically become the successor managing member or general partner, to the extent applicable, of the other Group Members of which the Manager is a managing member or a general partner. If, prior to the effective date of the Manager's withdrawal, a successor is not selected by the Unitholders as provided herein or the Company does not receive a Withdrawal Opinion of Counsel, the Company shall be dissolved in accordance with Section 12.1 unless the business of the Company is continued pursuant to Section 12.2. Any successor Manager elected in accordance with the terms of this Section 11.1 shall be subject to the provisions of Section 10.2.

        Section 11.2    Removal of the Manager.    The Manager may be removed if such removal is approved by the Unitholders holding at least 662/3% of the Outstanding Units (including Units held by the Manager and its Affiliates) voting as a single class. Any such action by such holders for removal of the Manager must also provide for the election of a successor Manager by the Unitholders holding a majority of the outstanding Common Units voting as a class and a majority of the outstanding Subordinated Units voting as a class (including, in each case, Units held by the Manager and its Affiliates). Such removal shall be effective immediately following the admission of a successor Manager pursuant to Section 10.2. The removal of the Manager shall also automatically constitute the removal of the Manager as managing member or general partner, to the extent applicable, of the other Group Members of which the Manager is a managing member or a general partner. If a Person is elected as a successor Manager in accordance with the terms of this Section 11.2, such Person shall, upon admission pursuant to Section 10.2, automatically become a successor managing member or general partner, to the extent applicable, of the other Group Members of which the Manager is a managing member or a general partner. The right of the holders of Outstanding Units to remove the Manager shall not exist or be exercised unless the Company has received an opinion opining as to the matters covered by a Withdrawal Opinion of Counsel. Any successor Manager elected in accordance with the terms of this Section 11.2 shall be subject to the provisions of Section 10.2.

        Section 11.3    Interest of Departing Manager and Successor Manager.    

        (a)   In the event of (i) withdrawal of the Manager under circumstances where such withdrawal does not violate this Agreement or (ii) removal of the Manager by the holders of Outstanding Units under circumstances where Cause does not exist, if the successor Manager is elected in accordance with the terms of Section 11.1 or 11.2, the Departing Manager shall have the option, exercisable prior to the effective date of the withdrawal or removal of such Departing Manager, to require its successor to purchase its Managing Member Interest and its or its Affiliates' managing member interest (or

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equivalent interest), if any, in the other Group Members and all of the Incentive Distribution Rights held by it or its Affiliates (collectively, the "Combined Interest") in exchange for an amount in cash equal to the fair market value of such Combined Interest, such amount to be determined and payable as of the effective date of its withdrawal or removal. If the Manager is removed by the Unitholders under circumstances where Cause exists or if the Manager withdraws under circumstances where such withdrawal violates this Agreement, and if a successor Manager is elected in accordance with the terms of Section 11.1 or 11.2 (or if the business of the Company is continued pursuant to Section 12.2 and the successor Manager is not the former Manager), such successor shall have the option, exercisable prior to the effective date of the withdrawal or removal of such Departing Manager (or, in the event the business of the Company is continued, prior to the date the business of the Company is continued), to purchase the Combined Interest for such fair market value of such Combined Interest. In either event, the Departing Manager shall be entitled to receive all reimbursements due such Departing Manager pursuant to Section 7.6, including any employee related liabilities (including severance liabilities), incurred in connection with the termination of any employees employed by the Departing Manager or its Affiliates (other than any Group Member)for the benefit of the Company or the other Group Members.

        For purposes of this Section 11.3(a), the fair market value of the Combined Interest shall be determined by agreement between the Departing Manager and its successor or, failing agreement within 30 days after the effective date of such Departing Manager's withdrawal or removal, by an independent investment banking firm or other independent expert selected by the Departing Manager and its successor, which, in turn, may rely on other experts, and the determination of which shall be conclusive as to such matter. If such parties cannot agree upon one independent investment banking firm or other independent expert within 45 days after the effective date of such withdrawal or removal, then the Departing Manager shall designate an independent investment banking firm or other independent expert, the Departing Manager's successor shall designate an independent investment banking firm or other independent expert, and such firms or experts shall mutually select a third independent investment banking firm or independent expert, which third independent investment banking firm or other independent expert shall determine the fair market value of the Combined Interest. In making its determination, such third independent investment banking firm or other independent expert may consider the then current trading price of Units on any National Securities Exchange on which Units are then listed or admitted to trading, the value of the Company's assets, the rights and obligations of the Departing Manager and other factors it may deem relevant.

        (b)   If the Combined Interest is not purchased in the manner set forth in Section 11.3(a), the Departing Manager (or its transferee) shall become a Non-Managing Member and the Combined Interest shall be converted into Common Units pursuant to a valuation made by an investment banking firm or other independent expert selected pursuant to Section 11.3(a), without reduction in such Membership Interest (but subject to proportionate dilution by reason of the admission of its successor). Any successor Manager shall indemnify the Departing Manager (or its transferee) as to all debts and liabilities of the Company arising on or after the date on which the Departing Manager (or its transferee) becomes a Non-Managing Member. For purposes of this Agreement, conversion of the Combined Interest to Common Units will be characterized as if the Departing Manager (or its transferee) contributed the Combined Interest to the Company in exchange for the newly issued Common Units.

        (c)   If a successor Manager is elected in accordance with the terms of Section 11.1 or 11.2 (or if the business of the Company is continued pursuant to Section 12.2 and the successor Manager is not the former Manager) and the option described in Section 11.3(a) is not exercised by the party entitled to do so, the successor Manager shall, at the effective date of its admission to the Company, contribute to the Company cash in the amount equal to the product of (i) the quotient obtained by dividing (A) the Percentage Interest of the Departing Manager by (B) a percentage equal to 100% less the

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Percentage Interest of the Managing Member Interest of the Departing Manager and (ii) the Net Agreed Value of the Company's assets on such date. In such event, such successor Manager shall, subject to the following sentence, be entitled to its Percentage Interest of all Company allocations and distributions to which the Departing Manager was entitled. In addition, the successor Manager shall cause this Agreement to be amended to reflect that, from and after the date of such successor Manager's admission, the successor Manager's interest in all Company distributions and allocations shall be its Percentage Interest.

        Section 11.4    Termination of Subordination Period, Conversion of Subordinated Units and Extinguishment of Cumulative Common Unit Arrearages.    Notwithstanding any provision of this Agreement, if the Manager is removed as managing member of the Company under circumstances where Cause does not exist:

        (a)   Subordinated Units held by any Person will immediately and automatically convert into Common Units on a one-for-one basis, provided that (i) neither such Person nor any of its Affiliates voted any Units in favor of the removal and (ii) such Person is not an Affiliate of the successor Manager; and

        (b)   if all of the Subordinated Units convert into Common Units pursuant to Section 11.4(a), all Cumulative Common Unit Arrearages on the Common Units will be extinguished and the Subordination Period will end;

        (c)   provided, however, that such converted Subordinated Units shall remain subject to the provisions of Sections 5.5(c)(ii), 6.1(d)(x) and 6.7.

        Section 11.5    Withdrawal of Non-Managing Members.    No Non-Managing Member shall have any right to withdraw from the Company; provided, however, that when a transferee of a Non-Managing Member's Non-Managing Member Interest becomes a Record Holder of the Non-Managing Member Interest so transferred, such transferring Non-Managing Member shall cease to be a Non-Managing Member with respect to the Non-Managing Member Interest so transferred.


ARTICLE XII
DISSOLUTION AND LIQUIDATION

        Section 12.1    Dissolution.    The Company shall not be dissolved by the admission of additional Non-Managing Members or by the admission of a successor Manager in accordance with the terms of this Agreement. Upon the removal or withdrawal of the Manager, if a successor Manager is elected pursuant to Section 11.1, 11.2 or 12.2, the Company shall not be dissolved and such successor Manager shall continue the business of the Company. The Company shall dissolve, and (subject to Section 12.2) its affairs shall be wound up, upon:

        (a)   an Event of Withdrawal of the Manager as provided in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and such successor is admitted to the Company pursuant to this Agreement;

        (b)   an election to dissolve the Company by the Manager that is approved by the holders of a Unit Majority;

        (c)   the entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Delaware Act; or

        (d)   at any time there are no Members, unless the Company is continued without dissolution in accordance with the Delaware Act.

        Section 12.2    Continuation of the Business of the Company After Dissolution.    Upon (a) an Event of Withdrawal caused by the withdrawal or removal of the Manager as provided in Section 11.1(a)(i) or

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(iii) and the failure of the Members to select a successor to such Departing Manager pursuant to Section 11.1 or 11.2, then within 90 days thereafter, or (b) an event constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or (vi), then, to the maximum extent permitted by law, within 180 days thereafter, the holders of a Unit Majority may elect to continue the business of the Company on the same terms and conditions set forth in this Agreement by appointing as the successor Manager a Person approved by the holders of a Unit Majority. Unless such an election is made within the applicable time period as set forth above, the Company shall conduct only activities necessary to wind up its affairs. If such an election is so made, then:

              (i)  the Company shall continue without dissolution unless earlier dissolved in accordance with this Article XII;

             (ii)  if the successor Manager is not the former Manager, then the interest of the former Manager shall be treated in the manner provided in Section 11.3; and

            (iii)  the successor Manager shall be admitted to the Company as Manager, effective as of the Event of Withdrawal, by agreeing in writing to be bound by this Agreement;

            (iv)  provided, that the right of the holders of a Unit Majority to approve a successor Manager and to continue the business of the Company shall not exist and may not be exercised unless the Company has received an Opinion of Counsel that (x) the exercise of the right would not result in the loss of the limited liability under the Delaware Act of any Member and (y) neither the Company nor any Group Member would be treated as an association taxable as a corporation or otherwise be taxable as an entity for U.S. federal income tax purposes upon the exercise of such right to continue (to the extent not already so treated or taxed).

        Section 12.3    Liquidator.    Upon dissolution of the Company, unless the business of the Company is continued pursuant to Section 12.2, the Manager shall select one or more Persons to act as Liquidator. The Liquidator (if other than the Manager) shall be entitled to receive such compensation for its services as may be approved by holders of at least a majority of the Outstanding Common Units and Subordinated Units voting as a single class. The Liquidator (if other than the Manager) shall agree not to resign at any time without 15 days' prior notice and may be removed at any time, with or without cause, by notice of removal approved by holders of at least a majority of the Outstanding Common Units and Subordinated Units, voting as a single class. Upon dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by holders of at least a majority of the Outstanding Common Units and Subordinated Units voting as a single class. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article XII, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Manager under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, other than the limitation on sale set forth in Section 7.3(a)) necessary or appropriate to carry out the duties and functions of the Liquidator hereunder for and during the period of time required to complete the winding up and liquidation of the Company as provided for herein.

        Section 12.4    Liquidation.    The Liquidator shall proceed to dispose of the assets of the Company, discharge its liabilities, and otherwise wind up its affairs in such manner and over such period as determined by the Liquidator, subject to Section 17-804 of the Delaware Act and the following:

        (a)   The assets may be disposed of by public or private sale or by distribution in kind to one or more Members on such terms as the Liquidator and such Member or Members may agree. If any property is distributed in kind, the Member receiving the property shall be deemed for purposes of

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Section 12.4(c) to have received cash equal to its fair market value; and contemporaneously therewith, appropriate cash distributions must be made to the other Members. The Liquidator may defer liquidation or distribution of the Company's assets for a reasonable time if it determines that an immediate sale or distribution of all or some of the Company's assets would be impractical or would cause undue loss to the Members. The Liquidator may distribute the Company's assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Members.

        (b)   Liabilities of the Company include amounts owed to the Liquidator as compensation for serving in such capacity (subject to the terms of Section 12.3) and amounts to Members otherwise than in respect of their distribution rights under Article VI. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it thinks appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be distributed as additional liquidation proceeds.

        (c)   All property and all cash in excess of that required to discharge liabilities as provided in Section 12.4(b) shall be distributed to the Members in accordance with, and to the extent of, the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments (other than those made by reason of distributions pursuant to this Section 12.4(c)) for the taxable period of the Company during which the liquidation of the Company occurs (with such date of occurrence being determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such taxable period (or, if later, within 90 days after said date of such occurrence).

        Section 12.5    Cancellation of Certificate of Formation.    Upon the completion of the distribution of Company cash and property as provided in Section 12.4 in connection with the liquidation of the Company, the Company shall be terminated and the Certificate of Formation and all qualifications of the Company as a foreign limited liability company in jurisdictions other than the State of Delaware shall be canceled and such other actions as may be necessary to terminate the Company shall be taken.

        Section 12.6    Return of Contributions.    The Manager shall not be personally liable for, and shall have no obligation to contribute or loan any monies or property to the Company to enable it to effectuate, the return of the Capital Contributions of the Non-Managing Members or Unitholders, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.

        Section 12.7    Waiver of Partition.    To the maximum extent permitted by law, each Member hereby waives any right to partition of the Company property.

        Section 12.8    Capital Account Restoration.    No Member shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Company.


ARTICLE XIII
AMENDMENT OF OPERATING AGREEMENT; MEETINGS; RECORD DATE

        Section 13.1    Amendments to be Adopted Solely by the Manager.    Each Member agrees that the Manager, without the approval of any Member, may amend any provision of this Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect:

        (a)   a change in the name of the Company, the location of the principal place of business of the Company, the registered agent of the Company or the registered office of the Company;

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        (b)   admission, substitution, withdrawal or removal of Members in accordance with this Agreement;

        (c)   a change that the Manager determines to be necessary or appropriate to qualify or continue the qualification of the Company as a limited liability company or other entity in which the Non-Managing Members have limited liability under the laws of any state or to ensure that the Group Members will not be treated as associations taxable as corporations or otherwise taxed as entities for U.S. federal income tax purposes;

        (d)   a change that the Manager determines (i) does not adversely affect the Non-Managing Members (including any particular class of Membership Interests as compared to other classes of Membership Interests) in any material respect, (ii) to be necessary or appropriate to (A) satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute (including the Delaware Act) or (B) facilitate the trading of the Units (including the division of any class or classes of Outstanding Units into different classes to facilitate uniformity of tax consequences within such classes of Units) or comply with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are or will be listed or admitted to trading, (iii) to be necessary or appropriate in connection with action taken by the Manager pursuant to Section 5.9 or (iv) is required to effect the intent expressed in the Registration Statement or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement;

        (e)   a change in the fiscal year or taxable period of the Company and any other changes that the Manager determines to be necessary or appropriate as a result of a change in the fiscal year or taxable period of the Company including, if the Manager shall so determine, a change in the definition of "Quarter" and the dates on which distributions are to be made by the Company;

        (f)    an amendment that is necessary, in the Opinion of Counsel, to prevent the Company, or the Manager or its directors, officers, trustees or agents from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor;

        (g)   an amendment that the Manager determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of Membership Interests or any options, rights, warrants and appreciation rights relating to an equity interest in the Company pursuant to Section 5.6;

        (h)   any amendment expressly permitted in this Agreement to be made by the Manager acting alone;

        (i)    an amendment effected, necessitated or contemplated by a Merger Agreement approved in accordance with Section 14.3;

        (j)    an amendment that the Manager determines to be necessary or appropriate to reflect and account for the formation by the Company of, or investment by the Company in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the conduct by the Company of activities permitted by the terms of Section 2.4;

        (k)   a merger or conveyance pursuant to Section 14.3(d); or

        (l)    any other amendments substantially similar to the foregoing.

        Section 13.2    Amendment Procedures.    Amendments to this Agreement may be proposed only by the Manager. To the fullest extent permitted by law, the Manager shall have no duty or obligation to

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propose or approve any amendment to this Agreement and may decline to do so, to the fullest extent permitted by law, free of any duty (including any fiduciary duty) or obligation whatsoever to the Company or any Non-Managing Member and, in declining to propose or approve an amendment, to the fullest extent permitted by law shall not be required to act in good faith or pursuant to any other standard imposed by this Agreement, any Group Member Agreement, any other agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation or at equity. An amendment shall be effective upon its approval by the Manager and, except as otherwise provided by Section 13.1 or 13.3, the holders of a Unit Majority, unless a greater or different percentage is required under this Agreement or by Delaware law. Each proposed amendment that requires the approval of the holders of a specified percentage of Outstanding Units shall be set forth in a writing that contains the text of the proposed amendment. If such an amendment is proposed, the Manager shall seek the written approval of the requisite percentage of Outstanding Units or call a meeting of the Unitholders to consider and vote on such proposed amendment. The Manager shall notify all Record Holders upon final adoption of any amendments. The Manager shall be deemed to have notified all Record Holders as required by this Section 13.2 if it has either (i) filed such amendment with the Commission via its Electronic Data Gathering, Analysis and Retrieval system and such amendment is publicly available on such system or (ii) made such amendment available on any publicly available website maintained by the Company.

        Section 13.3    Amendment Requirements.    

        (a)   Notwithstanding the provisions of Sections 13.1 and 13.2, no provision of this Agreement that establishes a percentage of Outstanding Units (including Units deemed owned by the Manager) required to take any action shall be amended, altered, changed, repealed or rescinded in any respect that would have the effect of (i) in the case of any provision of this Agreement other than Section 11.2 or Section 13.4, reducing such percentage or (ii) in the case of Section 11.2 or Section 13.4, increasing such percentage, unless such amendment is approved by the written consent or the affirmative vote of holders of Outstanding Units whose aggregate Outstanding Units constitute not less than the voting requirement sought to be reduced or increased, as applicable.

        (b)   Notwithstanding the provisions of Sections 13.1 and 13.2, no amendment to this Agreement may (i) enlarge the obligations of any Non-Managing Member without its consent, unless such shall be deemed to have occurred as a result of an amendment approved pursuant to Section 13.3(c) or (ii) enlarge the obligations of, restrict, change or modify in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable to, the Manager or any of its Affiliates without its consent, which consent may be given or withheld in its sole discretion.

        (c)   Except as provided in Section 14.3 or Section 13.1, any amendment that would have a material adverse effect on the rights or preferences of any class of Membership Interests in relation to other classes of Membership Interests must be approved by the holders of not less than a majority of the Outstanding Membership Interests of the class affected. If the Manager determines an amendment does not satisfy the requirements of Section 13.1(d)(i) because it adversely affects one or more classes of Membership Interests, as compared to other classes of Membership Interests, in any material respect, such amendment shall only be required to be approved by the adversely affected class or classes.

        (d)   Notwithstanding any other provision of this Agreement, except for amendments pursuant to Section 13.1 and except as otherwise provided by Section 14.3(b), no amendments shall become effective without the approval of the holders of at least 90% of the Outstanding Units voting as a single class unless the Company obtains an Opinion of Counsel to the effect that such amendment will not affect the limited liability of any Non-Managing Member under applicable limited liability company law of the state under whose laws the Company is organized.

        (e)   Except as provided in Section 13.1, this Section 13.3 shall only be amended with the approval of the holders of at least 90% of the Outstanding Units.

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        Section 13.4    Special Meetings.    All acts of Non-Managing Members to be taken pursuant to this Agreement shall be taken in the manner provided in this Article XIII. Special meetings of the Non-Managing Members may be called by the Manager or by Non-Managing Members owning 20% or more of the Outstanding Units of the class or classes for which a meeting is proposed. Non-Managing Members shall call a special meeting by delivering to the Manager one or more requests in writing stating that the signing Non-Managing Members wish to call a special meeting and indicating the general or specific purposes for which the special meeting is to be called. Within 60 days after receipt of such a call from Non-Managing Members or within such greater time as may be reasonably necessary for the Company to comply with any statutes, rules, regulations, listing agreements or similar requirements governing the holding of a meeting or the solicitation of proxies for use at such a meeting, the Manager shall send a notice of the meeting to the Non-Managing Members either directly or indirectly through the Transfer Agent. A meeting shall be held at a time and place determined by the Manager on a date not less than 10 days nor more than 60 days after the mailing of notice of the meeting. Non-Managing Members shall not vote on matters that would cause the Non-Managing Members to be deemed to be taking part in the management and control of the business and affairs of the Company so as to jeopardize the Non-Managing Members' limited liability under the Delaware Act or the law of any other state in which the Company is qualified to do business.

        Section 13.5    Notice of a Meeting.    Notice of a meeting called pursuant to Section 13.4 shall be given to the Record Holders of the class or classes of Units for which a meeting is proposed in writing by mail or other means of written communication in accordance with Section 16.1. The notice shall be deemed to have been given at the time when deposited in the mail or sent by other means of written communication.

        Section 13.6    Record Date.    For purposes of determining the Non-Managing Members entitled to notice of or to vote at a meeting of the Non-Managing Members or to give approvals without a meeting as provided in Section 13.11 the Manager may set a Record Date, which shall not be less than 10 nor more than 60 days before (a) the date of the meeting (unless such requirement conflicts with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are listed or admitted to trading or U.S. federal securities laws, in which case the rule, regulation, guideline or requirement of such National Securities Exchange or U.S. federal securities laws shall govern) or (b) in the event that approvals are sought without a meeting, the date by which Non-Managing Members are requested in writing by the Manager to give such approvals. If the Manager does not set a Record Date, then (a) the Record Date for determining the Non-Managing Members entitled to notice of or to vote at a meeting of the Non-Managing Members shall be the close of business on the day next preceding the day on which notice is given, and (b) the Record Date for determining the Non-Managing Members entitled to give approvals without a meeting shall be the date the first written approval is deposited with the Company in care of the Manager in accordance with Section 13.11.

        Section 13.7    Adjournment.    When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting and a new Record Date need not be fixed, if the time and place thereof are announced at the meeting at which the adjournment is taken, unless such adjournment shall be for more than 45 days. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this Article XIII.

        Section 13.8    Waiver of Notice; Approval of Meeting; Approval of Minutes.    The transactions of any meeting of Non-Managing Members, however called and noticed, and whenever held, shall be as valid as if it had occurred at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy. Attendance of a Non-Managing Member at a meeting shall constitute a waiver of notice of the meeting, except (i) when the Non-Managing Member attends the meeting for the

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express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and (ii) that attendance at a meeting is not a waiver of any right to disapprove the consideration of matters required to be included in the notice of the meeting, but not so included, if the disapproval is expressly made at the meeting.

        Section 13.9    Quorum and Voting.    The holders of a majority of the Outstanding Units of the class or classes for which a meeting has been called (including Outstanding Units deemed owned by the Manager) represented in person or by proxy shall constitute a quorum at a meeting of Non-Managing Members of such class or classes unless any such action by the Non-Managing Members requires approval by holders of a greater percentage of such Units, in which case the quorum shall be such greater percentage. At any meeting of the Non-Managing Members duly called and held in accordance with this Agreement at which a quorum is present, the act of Non-Managing Members holding Outstanding Units that in the aggregate represent a majority of the Outstanding Units entitled to vote and be present in person or by proxy at such meeting shall be deemed to constitute the act of all Non-Managing Members, unless a greater or different percentage is required with respect to such action under the provisions of this Agreement, in which case the act of the Non-Managing Members holding Outstanding Units that in the aggregate represent at least such greater or different percentage shall be required. The Non-Managing Members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Non-Managing Members to leave less than a quorum, if any action taken (other than adjournment) is approved by the required percentage of Outstanding Units specified in this Agreement (including Outstanding Units deemed owned by the Manager). In the absence of a quorum any meeting of Non-Managing Members may be adjourned from time to time by the affirmative vote of holders of at least a majority of the Outstanding Units entitled to vote at such meeting (including Outstanding Units deemed owned by the Manager) represented either in person or by proxy, but no other business may be transacted, except as provided in Section 13.7.

        Section 13.10    Conduct of a Meeting.    The Manager shall have full power and authority concerning the manner of conducting any meeting of the Non-Managing Members or solicitation of approvals in writing, including the determination of Persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of Section 13.4, the conduct of voting, the validity and effect of any proxies and the determination of any controversies, votes or challenges arising in connection with or during the meeting or voting. The Manager shall designate a Person to serve as chairman of any meeting and shall further designate a Person to take the minutes of any meeting. All minutes shall be kept with the records of the Company maintained by the Manager. The Manager may make such other regulations consistent with applicable law and this Agreement as it may deem advisable concerning the conduct of any meeting of the Non-Managing Members or solicitation of approvals in writing, including regulations in regard to the appointment of proxies, the appointment and duties of inspectors of votes and approvals, the submission and examination of proxies and other evidence of the right to vote, and the revocation of approvals in writing.

        Section 13.11    Action Without a Meeting.    If authorized by the Manager, any action that may be taken at a meeting of the Non-Managing Members may be taken without a meeting, without a vote and without prior notice, if an approval in writing setting forth the action so taken is signed by Non-Managing Members owning not less than the minimum percentage of the Outstanding Units (including Units deemed owned by the Manager) that would be necessary to authorize or take such action at a meeting at which all the Non-Managing Members were present and voted (unless such provision conflicts with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are listed or admitted to trading, in which case the rule, regulation, guideline or requirement of such National Securities Exchange shall govern). Prompt notice of the taking of action without a meeting shall be given to the Non-Managing Members who have not approved in writing. The Manager may specify that any written ballot submitted to Non-Managing Members for the purpose of taking any action without a meeting shall be returned to the Company

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within the time period, which shall be not less than 20 days, specified by the Manager. If a ballot returned to the Company does not vote all of the Units held by the Non-Managing Members, the Company shall be deemed to have failed to receive a ballot for the Units that were not voted. If approval of the taking of any action by the Non-Managing Members is solicited by any Person other than by or on behalf of the Manager, the written approvals shall have no force and effect unless and until (a) they are deposited with the Company in care of the Manager, (b) approvals sufficient to take the action proposed are dated as of a date not more than 90 days prior to the date sufficient approvals are deposited with the Company and (c) an Opinion of Counsel is delivered to the Manager to the effect that the exercise of such right and the action proposed to be taken with respect to any particular matter (i) will not cause the Non-Managing Members to be deemed to be taking part in the management and control of the business and affairs of the Company so as to jeopardize the Non-Managing Members' limited liability, and (ii) is otherwise permissible under the state statutes then governing the rights, duties and liabilities of the Company and the Members. Nothing contained in this Section 13.11 shall be deemed to require the Manager to solicit all holders of Units in connection with a matter approved by the requisite percentage of Units or other holders of Outstanding Units acting by written consent without a meeting.

        Section 13.12    Right to Vote and Related Matters.    

        (a)   Only those Record Holders of the Units on the Record Date set pursuant to Section 13.6 (and also subject to the limitations contained in the definition of "Outstanding") shall be entitled to notice of, and to vote at, a meeting of Non-Managing Members or to act with respect to matters as to which the holders of the Outstanding Units have the right to vote or to act. All references in this Agreement to votes of, or other acts that may be taken by, the Outstanding Units shall be deemed to be references to the votes or acts of the Record Holders of such Outstanding Units.

        (b)   With respect to Units that are held for a Person's account by another Person (such as a broker, dealer, bank, trust company or clearing corporation, or an agent of any of the foregoing), in whose name such Units are registered, such other Person shall, in exercising the voting rights in respect of such Units on any matter, and unless the arrangement between such Persons provides otherwise, vote such Units in favor of, and at the direction of, the Person who is the beneficial owner, and the Company shall be entitled to assume it is so acting without further inquiry. The provisions of this Section 13.12(b) (as well as all other provisions of this Agreement) are subject to the provisions of Section 4.3.

        Section 13.13    Voting of Incentive Distribution Rights.    

        (a)   For so long as a majority of the Incentive Distribution Rights are held by the Manager and its Affiliates, the holders of the Incentive Distribution Rights shall not be entitled to vote such Incentive Distribution Rights on any Company matter except as may otherwise be required by law and the holders of the Incentive Distribution Rights, in their capacity as such, shall be deemed to have approved any matter approved by the Manager.

        (b)   If less than a majority of the Incentive Distribution Rights are held by the Manager and its Affiliates, the Incentive Distribution Rights will be entitled to vote on all matters submitted to a vote of Unitholders, other than amendments and other matters that the Manager determines do not adversely affect the holders of the Incentive Distribution Rights in any material respect. On any matter in which the holders of Incentive Distribution Rights are entitled to vote, such holders will vote together with the Subordinated Units, prior to the end of the Subordination Period, or together with the Common Units, thereafter, in either case as a single class except as otherwise required by Section 13.3(c). The relative voting power of the Incentive Distribution Rights and the Subordinated Units or Common Units, as applicable, will be set in the same proportion as cumulative cash distributions, if any, in respect of the Incentive Distribution Rights for the four consecutive Quarters prior to the record date for the vote bears to the cumulative cash distributions in respect of such class of Units for such four Quarters.

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        (c)   In connection with any equity financing, or anticipated equity financing, by the Company of an Expansion Capital Expenditure, the Manager may, without the approval of the holders of the Incentive Distribution Rights, temporarily or permanently reduce the amount of Incentive Distributions that would otherwise be distributed to such holders, provided that in the judgment of the Manager, such reduction will be in the long-term best interest of such holders.


ARTICLE XIV
MERGER

        Section 14.1    Authority.    The Company may merge or consolidate with or into one or more corporations, limited liability companies, business trusts or associations, real estate investment trusts, common law trusts or unincorporated businesses, including a general partnership or limited partnership, formed under the laws of the State of Delaware or any other state of the United States of America, pursuant to a written agreement of merger or consolidation ("Merger Agreement") in accordance with this Article XIV.

        Section 14.2    Procedure for Merger or Consolidation.    

        (a)   Merger or consolidation of the Company pursuant to this Article XIV requires the prior consent of the Manager, provided, however, that, to the fullest extent permitted by law, the Manager shall have no duty or obligation to consent to any merger or consolidation of the Company and may decline to do so free of any fiduciary duty or obligation whatsoever to the Company or any Non-Managing Member and, in declining to consent to a merger or consolidation, shall not be required to act in good faith or pursuant to any other standard imposed by this Agreement, any Group Member Agreement, any other agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation or at equity.

        (b)   If the Manager shall determine to consent to the merger or consolidation, the Manager shall approve the Merger Agreement, which shall set forth:

              (i)  the names and jurisdictions of formation or organization of each of the business entities proposing to merge or consolidate;

             (ii)  the name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger or consolidation (the "Surviving Business Entity");

            (iii)  the terms and conditions of the proposed merger or consolidation;

            (iv)  the manner and basis of exchanging or converting the equity interests of each constituent business entity for, or into, cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity; and (i) if any general or limited partner interests, securities or rights of any constituent business entity are not to be exchanged or converted solely for, or into, cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity, the cash, property or general or limited partner interests, rights, securities or obligations of any limited partnership, corporation, trust or other entity (other than the Surviving Business Entity) which the holders of such general or limited partner interests, securities or rights are to receive in exchange for, or upon conversion of their general or limited partner interests, securities or rights, and (ii) in the case of equity interests represented by certificates, upon the surrender of such certificates, which cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity or any general or limited partnership, corporation, trust or other entity (other than the Surviving Business Entity), or evidences thereof, are to be delivered;

             (v)  a statement of any changes in the constituent documents or the adoption of new constituent documents (the articles or certificate of incorporation, articles of trust, declaration of trust, certificate or operating agreement or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger or consolidation;

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            (vi)  the effective time of the merger, which may be the date of the filing of the certificate of merger pursuant to Section 14.4 or a later date specified in or determinable in accordance with the Merger Agreement (provided, that if the effective time of the merger is to be later than the date of the filing of the certificate of merger, the effective time shall be fixed no later than the time of the filing of the certificate of merger and stated therein); and

           (vii)  such other provisions with respect to the proposed merger or consolidation that the Manager determines to be necessary or appropriate.

        Section 14.3    Approval by Non-Managing Members of Merger or Consolidation.    

        (a)   Except as provided in Section 14.3(d) or 14.3(e), the Manager, upon its approval of the Merger Agreement, shall direct that the Merger Agreement be submitted to a vote of Non-Managing Members, whether at a special meeting or by written consent, in either case in accordance with the requirements of Article XIII. A copy or a summary of the Merger Agreement shall be included in or enclosed with the notice of a special meeting or the written consent.

        (b)   Except as provided in Section 14.3(d) or 14.3(e), the Merger Agreement shall be approved upon receiving the affirmative vote or consent of the holders of a Unit Majority unless the Merger Agreement contains any provision that, if contained in an amendment to this Agreement, the provisions of this Agreement or the Delaware Act would require for its approval the vote or consent of a greater percentage of the Outstanding Units or of any class of Non-Managing Members, in which case such greater percentage vote or consent shall be required for approval of the Merger Agreement.

        (c)   Except as provided in Section 14.3(d) and 14.3(e), after such approval by vote or consent of the Non-Managing Members, and at any time prior to the filing of the certificate of merger pursuant to Section 14.4, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement.

        (d)   Notwithstanding anything else contained in this Article XIV or in this Agreement, the Manager is permitted, without Non-Managing Member approval, to convert the Company or any Group Member into a new limited liability entity, to merge the Company or any Group Member into, or convey all of the Company's assets to, another limited liability entity that shall be newly formed and shall have no assets, liabilities or operations at the time of such conversion, merger or conveyance other than those it receives from the Company or other Group Member if (i) the Manager has received an Opinion of Counsel that the conversion, merger or conveyance, as the case may be, would not result in the loss of the limited liability of any Non-Managing Member under the Delaware Act or cause the Company or any Group Member to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already treated as such), (ii) the sole purpose of such conversion, merger or conveyance is to effect a mere change in the legal form of the Company into another limited liability entity and (iii) the governing instruments of the new entity provide the Non-Managing Members and the Manager with the same rights and obligations as are herein contained.

        (e)   Additionally, notwithstanding anything else contained in this Article XIV or in this Agreement, the Manager is permitted, without Non-Managing Member approval, to merge or consolidate the Company with or into another entity if (A) the Manager has received an Opinion of Counsel that the merger or consolidation, as the case may be, would not result in the loss of the limited liability under the Delaware Act of any Non-Managing Member or cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already treated as such), (B) the merger or consolidation would not result in an amendment to this Agreement, other than any amendments that could be adopted pursuant to Section 13.1, (C) the Company is the Surviving Business Entity in such merger or consolidation, (D) each Unit outstanding immediately prior to the effective date of the merger or consolidation is to be an identical Unit of the Company after the effective date of the merger or

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consolidation, and (E) the number of Membership Interests to be issued by the Company in such merger or consolidation does not exceed 20% of the Membership Interests (other than Incentive Distribution Rights) Outstanding immediately prior to the effective date of such merger or consolidation.

        Section 14.4    Certificate of Merger.    Upon the required approval by the Manager and the Unitholders of a Merger Agreement, a certificate of merger shall be executed and filed with the Secretary of State of the State of Delaware in conformity with the requirements of the Delaware Act.

        Section 14.5    Amendment of Company Agreement.    Pursuant to Section 17-211(g) of the Delaware Act, an agreement of merger or consolidation approved in accordance with this Article XIV may (a) effect any amendment to this Agreement or (b) effect the adoption of a new operating agreement for the Company if it is the Surviving Business Entity. Any such amendment or adoption made pursuant to this Section 14.5 shall be effective at the effective time or date of the merger or consolidation.

        Section 14.6    Effect of Merger.    

        (a)   At the effective time of the certificate of merger:

              (i)  all of the rights, privileges and powers of each of the business entities that has merged or consolidated, and all property, real, personal and mixed, and all debts due to any of those business entities and all other things and causes of action belonging to each of those business entities, shall be vested in the Surviving Business Entity and after the merger or consolidation shall be the property of the Surviving Business Entity to the extent they were of each constituent business entity;

             (ii)  the title to any real property vested by deed or otherwise in any of those constituent business entities shall not revert and is not in any way impaired because of the merger or consolidation;

            (iii)  all rights of creditors and all liens on or security interests in property of any of those constituent business entities shall be preserved unimpaired; and

            (iv)  all debts, liabilities and duties of those constituent business entities shall attach to the Surviving Business Entity and may be enforced against it to the same extent as if the debts, liabilities and duties had been incurred or contracted by it.

        (b)   A merger or consolidation effected pursuant to this Article shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another.


ARTICLE XV
RIGHT TO ACQUIRE NON-MANAGING MEMBERSHIP INTERESTS

        Section 15.1    Right to Acquire Non-Managing Member Interests.    

        (a)   Notwithstanding any other provision of this Agreement, if at any time the Manager and its Affiliates hold more than 80% of the total Non-Managing Member Interests of any class then Outstanding, the Manager shall then have the right, which right it may assign and transfer in whole or in part to the Company or any Affiliate of the Manager, exercisable in its sole discretion, to purchase all, but not less than all, of such Non-Managing Member Interests of such class then Outstanding held by Persons other than the Manager and its Affiliates, at the greater of (x) the Current Market Price as of the date three days prior to the date that the notice described in Section 15.1(b) is mailed and (y) the highest price paid by the Manager or any of its Affiliates for any such Non-Managing Member Interest of such class purchased during the 90-day period preceding the date that the notice described in Section 15.1(b) is mailed.

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        (b)   If the Manager, any Affiliate of the Manager or the Company elects to exercise the right to purchase Non-Managing Member Interests granted pursuant to Section 15.1(a), the Manager shall deliver to the Transfer Agent notice of such election to purchase (the "Notice of Election to Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of Election to Purchase to the Record Holders of Non-Managing Member Interests of such class (as of a Record Date selected by the Manager) at least 10, but not more than 60, days prior to the Purchase Date. Such Notice of Election to Purchase shall also be published for a period of at least three consecutive days in at least two daily newspapers of general circulation printed in the English language and circulated in the Borough of Manhattan, New York. The Notice of Election to Purchase shall specify the Purchase Date and the price (determined in accordance with Section 15.1(a)) at which Non-Managing Member Interests will be purchased and state that the Manager, its Affiliate or the Company, as the case may be, elects to purchase such Non-Managing Member Interests, upon surrender of Certificates representing such Non-Managing Member Interests in the case of Non-Managing Member Interests evidenced by Certificates, in exchange for payment, at such office or offices of the Transfer Agent as the Transfer Agent may specify, or as may be required by any National Securities Exchange on which such Non-Managing Member Interests are listed or admitted to trading. Any such Notice of Election to Purchase mailed to a Record Holder of Non-Managing Member Interests at his address as reflected in the records of the Transfer Agent shall be conclusively presumed to have been given regardless of whether the owner receives such notice. On or prior to the Purchase Date, the Manager, its Affiliate or the Company, as the case may be, shall deposit with the Transfer Agent cash in an amount sufficient to pay the aggregate purchase price of all of such Non-Managing Member Interests to be purchased in accordance with this Section 15.1. If the Notice of Election to Purchase shall have been duly given as aforesaid at least 10 days prior to the Purchase Date, and if on or prior to the Purchase Date the deposit described in the preceding sentence has been made for the benefit of the holders of Non-Managing Member Interests subject to purchase as provided herein, then from and after the Purchase Date, notwithstanding that any Certificate shall not have been surrendered for purchase, all rights of the holders of such Non-Managing Member Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall thereupon cease, except the right to receive the purchase price (determined in accordance with Section 15.1(a)) for Non-Managing Member Interests therefor, without interest, upon surrender to the Transfer Agent of the Certificates representing such Non-Managing Member Interests in the case of Non-Managing Member Interests evidenced by Certificates, and such Non-Managing Member Interests shall thereupon be deemed to be transferred to the Manager, its Affiliate or the Company, as the case may be, on the record books of the Transfer Agent and the Company, and the Manager or any Affiliate of the Manager, or the Company, as the case may be, shall be deemed to be the owner of all such Non-Managing Member Interests from and after the Purchase Date and shall have all rights as the owner of such Non-Managing Member Interests (including all rights as owner of such Non-Managing Member Interests pursuant to Articles IV, V, VI and XII).


ARTICLE XVI
GENERAL PROVISIONS

        Section 16.1    Addresses and Notices.    Any notice, demand, request, report or proxy materials required or permitted to be given or made to a Member under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Member at the address described below.

        Any notice, payment or report to be given or made to a Member hereunder shall be deemed conclusively to have been given or made, and the obligation to give such notice or report or to make such payment shall be deemed conclusively to have been fully satisfied, upon sending of such notice, payment or report to the Record Holder of such Membership Interests at his address as shown on the records of the Transfer Agent or as otherwise shown on the records of the Company, regardless of any

A-74



claim of any Person who may have an interest in such Membership Interests by reason of any assignment or otherwise.

        Notwithstanding the foregoing, if (i) a Member shall consent to receiving notices, demands, requests, reports or proxy materials via electronic mail or by the Internet or (ii) the rules of the Commission shall permit any report or proxy materials to be delivered electronically or made available via the Internet, any such notice, demand, request, report or proxy materials shall be deemed given or made when delivered or made available via such mode of delivery.

        An affidavit or certificate of making of any notice, payment or report in accordance with the provisions of this Section 16.1 executed by the Manager, the Transfer Agent or the mailing organization shall be prima facie evidence of the giving or making of such notice, payment or report. If any notice, payment or report given or made in accordance with the provisions of this Section 16.1 is returned marked to indicate that such notice, payment or report was unable to be delivered, such notice, payment or report and, in the case of notices, payments or reports returned by the United States Postal Service (or other physical mail delivery mail service outside the United States of America), any subsequent notices, payments and reports shall be deemed to have been duly given or made without further mailing (until such time as such Record Holder or another Person notifies the Transfer Agent or the Company of a change in his address) or other delivery if they are available for the Member at the principal office of the Company for a period of one year from the date of the giving or making of such notice, payment or report to the other Members. Any notice to the Company shall be deemed given if received by the Manager at the principal office of the Company designated pursuant to Section 2.3. The Manager may rely and shall be protected in relying on any notice or other document from a Member or other Person if believed by it to be genuine.

        The terms "in writing", "written communications," "written notice" and words of similar import shall be deemed satisfied under this Agreement by use of e-mail and other forms of electronic communication.

        Section 16.2    Further Action.    The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

        Section 16.3    Binding Effect.    This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

        Section 16.4    Integration.    This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

        Section 16.5    Creditors.    None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Company.

        Section 16.6    Waiver.    No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.

        Section 16.7    Counterparts.    This Agreement may be executed in counterparts, all of which together shall constitute an agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or, in the case of a Person acquiring a Unit, pursuant to Section 10.1(a) without execution hereof.

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        Section 16.8    Applicable Law; Forum, Venue and Jurisdiction.    

        (a)   This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.

        (b)   Each of the Members and each Person holding any beneficial interest in the Company (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise):

              (i)  irrevocably agrees that any claims, suits, actions or proceedings (A) arising out of or relating in any way to this Agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of this Agreement or the duties, obligations or liabilities among Members or of Members to the Company, or the rights or powers of, or restrictions on, the Members or the Company), (B) brought in a derivative manner on behalf of the Company, (C) asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Company or the Manager, or owed by the Manager, to the Company or the Members, (D) asserting a claim arising pursuant to any provision of the Delaware Act or (E) asserting a claim governed by the internal affairs doctrine shall be exclusively brought in the Court of Chancery of the State of Delaware, in each case regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims;

             (ii)  irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware in connection with any such claim, suit, action or proceeding; and

            (iii)  agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (A) it is not personally subject to the jurisdiction of the Court of Chancery of the State of Delaware or of any other court to which proceedings in the Court of Chancery of the State of Delaware may be appealed, (B) such claim, suit, action or proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action or proceeding is improper, (iv) expressly waives any requirement for the posting of a bond by a party bringing such claim, suit, action or proceeding, and (v) consents to process being served in any such claim, suit, action or proceeding by mailing, certified mail, return receipt requested, a copy thereof to such party at the address in effect for notices hereunder, and agrees that such services shall constitute good and sufficient service of process and notice thereof; provided, nothing in clause (v) hereof shall affect or limit any right to serve process in any other manner permitted by law.

        Section 16.9    Invalidity of Provisions.    If any provision or part of a provision of this Agreement is or becomes for any reason, invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions and part thereof contained herein shall not be affected thereby and this Agreement shall, to the fullest extent permitted by law, be reformed and construed as if such invalid, illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provision or part reformed so that it would be valid, legal and enforceable to the maximum extent possible.

        Section 16.10    Consent of Members.    Each Member hereby expressly consents and agrees that, whenever in this Agreement it is specified that an action may be taken upon the affirmative vote or consent of less than all of the Members, such action may be so taken upon the concurrence of less than all of the Members and each Member shall be bound by the results of such action.

        Section 16.11    Facsimile Signatures.    The use of facsimile signatures affixed in the name and on behalf of the transfer agent and registrar of the Company on Certificates representing Units is expressly permitted by this Agreement.

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        Section 16.12    Third Party Beneficiaries.    Each Member agrees that (a) any Indemnitee shall be entitled to assert rights and remedies hereunder as a third-party beneficiary hereto with respect to those provisions of this Agreement affording a right, benefit or privilege to such Indemnitee and (b) any Unrestricted Person shall be entitled to assert rights and remedies hereunder as a third-party beneficiary hereto with respect to those provisions of this Agreement affording a right, benefit or privilege to such Unrestricted Person.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

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        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

    MANAGING MEMBER:

 

 

Niska Gas Storage Management LLC

 

 

By:

 

  

    Name:  
    Title:    

[Signature Page to Operating Agreement]


EXHIBIT A
to the First Amended and Restated
Agreement of Non-Managing Company of
NISKA GAS STORAGE PARTNERS LLC

Certificate Evidencing Common Units
Representing Non-Managing Member Interests in
NISKA GAS STORAGE PARTNERS LLC

No.                          Common Units

        In accordance with Section 4.1 of the First Amended and Restated Agreement of Non-Managing Company of NISKA GAS STORAGE PARTNERS LLC, as amended, supplemented or restated from time to time (the "Company Agreement"), NISKA GAS STORAGE PARTNERS LLC, a Delaware limited liability company (the "Company"), hereby certifies that (the "Holder") is the registered owner of Common Units representing membership interests in the Company (the "Common Units") transferable on the books of the Company, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. The rights, preferences and limitations of the Common Units are set forth in, and this Certificate and the Common Units represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Company Agreement. Copies of the Company Agreement are on file at, and will be furnished without charge on delivery of written request to the Company at, the principal office of the Company located at 1001 Fannin Street, Suite 2500, Houston, TX 77002. Capitalized terms used herein but not defined shall have the meanings given them in the Company Agreement.

        The Holder, by accepting this Certificate, (i) shall become bound by the terms of the Company Agreement, (ii) represents that the transferee has the capacity, power and authority to enter into this Agreement and (iii) makes the consents and waivers contained in the Company Agreement.

        This Certificate shall not be valid for any purpose unless it has been countersigned and registered by the Transfer Agent and Registrar.

Dated:   NISKA GAS STORAGE PARTNERS LLC

Countersigned and Registered by: as Transfer Agent and Registrar

 

By:

 

Niska Gas Storage Management LLC,
its Manager

By:

 




 

By:

 




 

 

 

 

Name:

 




 

 

 

 

Title:

 




 

 

 

 

By:

 




Authorized Signature

 

Secretary

Exhibit A


[Reverse of Certificate]

ABBREVIATIONS

        The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as follows according to applicable laws or regulations:

TEN COM—as tenants in common   UNIF GIFT/TRANSFERS MIN ACT

TEN ENT—as tenants by the entireties

 



(Cust)                (Minor)

JT TEN—as joint tenants with right of survivorship and not as tenants in common

 

under Uniform gifts/Transfers to CDc
Minors Act (State)

Additional abbreviations, though not in the above list, may also be used.

ASSIGNMENT OF COMMON UNITS
in
NISKA GAS STORAGE PARTNERS LLC

FOR VALUE RECEIVED

 

hereby assigns, conveys, sells and transfers unto



(Please print or typewrite name and address of Assignee)

 



(Please insert Social Security or other identifying number of Assignee)

                                     Common Units representing membership interests evidenced by this Certificate, subject to the Company Agreement, and does hereby irrevocably constitute and appoint as its attorney-in-fact with full power of substitution to transfer the same on the books of NISKA GAS STORAGE PARTNERS LLC.

Date:

 

NOTE: The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE17Ad-15

 




(Signature)



(Signature)

        No transfer of the Common Units evidenced hereby will be registered on the books of the Company, unless the Certificate evidencing the Common Units to be transferred is surrendered for registration or transfer.

Exhibit A


Table of Contents


APPENDIX B

GLOSSARY OF SELECTED TERMS

Aquifers   A naturally occurring underground formation that only contains formation water and never had any accumulation of crude oil or natural gas.

AUC

 

Alberta Utilities Commission.

Basin

 

A geological province on land or offshore where hydrocarbons are generated and trapped.

Billion Cubic Feet ("Bcf")

 

The standard volume measure of gas products.

Carlyle/Riverstone

 

Carlyle/Riverstone Global Energy and Power Fund II, L.P. and Carlyle/Riverstone Global Energy Power Fund III, L.P. and each of their affiliated entities.

Contracted Capacity

 

The amount of working gas capacity reserved by third parties. Typically subject to fixed demand charges. May involve short-term contracts, typically less than one year, or long-term contracts, with terms longer than one year.

CPUC

 

California Public Utilities Commission.

Cushion Gas

 

A quantity of natural gas held within the confines of the gas storage facility and used for pressure support and to maintain a minimum facility pressure. May consist of injected cushion gas or native cushion gas.

Cycle

 

A complete withdrawal and injection of working gas.

Dekatherm ("Dth")

 

Equivalent to one million Btus or one mmBtu. One therm equals one hundred thousand Btus.

Delta Pressuring

 

Operating a gas storage reservoir at a maximum pressure greater than the discovery pressure of the reservoir for the purpose of increasing both the working gas capacity and withdrawal deliverability. While not applicable to every reservoir, generally accepted Delta Pressuring in the gas storage reservoir is up to 160% of the hydrostatic pressure gradient for those reservoirs that have the right characteristics.

Depleted Gas Reservoir

 

Geological rock formations that once contained natural gas.

Dewatering

 

Removing water from a reservoir to make more space for gas.

Effective Working Gas Capacity

 

The maximum volume of natural gas that can be cost-effectively injected into a storage reservoir and extracted during the normal operation of the storage facility. Effective working gas capacity excludes cushion gas and non-cycling working gas.

EnCana Corporation

 

EnCana Corporation includes its predecessor companies Alberta Energy Company Ltd. and PanCanadian Petroleum Ltd.

ERCB

 

Energy Resources Conservation Board.

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Table of Contents

FERC   Federal Energy Regulatory Commission.

LTF Contracts

 

Long term firm reserved storage contracts.

GAAP

 

Generally accepted accounting principles.

Gas storage capacity

 

See Effective Working Gas Capacity.

HDMC

 

High-deliverability, multi-cycle.

Holdco

 

Niska Sponsor Holdings Coöperatief U.A.

Holdings I

 

Niska GS Holdings I, L.P.

Holdings II

 

Niska GS Holdings II, L.P.

Horizontal Well

 

A class of non-vertical wells where the wellbore axis is near horizontal (within approximately ten degrees of the horizontal), or undulating (fluctuating above and below 90 degrees deviation).

ICE

 

Intercontinental Exchange, Inc.

Independent Storage

 

Gas storage facilities owned and operated independently from the pipeline and distribution facilities to which they are interconnected.

Injected Cushion Gas

 

Cushion gas which has been injected into the reservoir, cavern or aquifer unlike native cushion gas, which was originally present in the reservoir. Expected to be withdrawn when the gas storage facility is taken out of service.

Injection Capacity

 

The amount of natural gas that can be injected into a storage facility. Usually stated in MMcf per day, Bcf per day, Mcf per day, Dth per day, mmBtu per day, GJ per day, TJ per day or PJ per day. Typically stated as the peak or maximum daily amount.

Inventory

 

An amount of working gas held within the gas storage facility. It may relate to third-party customer volumes or to owner/operator volumes of working gas.

Injection Rate

 

The rate at which a customer is permitted to inject natural gas into a natural gas storage facility.

Joule

 

A unit of electrical energy equal to one watt second or the work done when a current of one ampere passes through a resistance of one ohm for one second.

Leaching

 

The process of injecting fresh or brackish water through a well into underground salt formations (and subsequent removal of the produced brine) to form underground caverns.

Liquefied Natural Gas ("LNG")

 

Natural gas that has been cooled to minus 161 degrees Celsius for transportation, typically by ship. The cooling process reduces the volume of the gas by 600 times.

Manager

 

Niska Gas Storage Management LLC. Also referred to as our manager.

Hub

 

Geographic location of a natural gas storage facility and multiple pipeline interconnections.

B-2


Table of Contents

Mcf   Thousand cubic feet of natural gas.

MMbtu

 

Million British thermal units. One British thermal unit is equivalent to the amount of heat required to raise the temperature of one pound of water by one degree. A standard measure of natural gas for pricing purposes, particularly in the U.S.

MMcf

 

Million cubic feet of natural gas.

Native Cushion Gas

 

Natural gas originally present in the reservoir and remaining after initial depletion of the reservoir. The presence of native cushion gas helps to minimize the requirement for injected cushion gas. Only applicable to reservoir storage. A portion of the native cushion gas may or may not be recoverable when the storage facility is taken out of service.

Natural Gas

 

Several hydrocarbons that occur naturally underground in a gaseous state. Natural gas is normally mostly methane, but other components also include ethane, propane, and butane.

Natural Gas Act

 

Federal law enacted in 1938 that established the Federal Energy Regulation's authority to regulate interstate pipelines.

NEB

 

National Energy Board (Canada).

NGPL

 

Natural Gas Pipeline of America Company, a subsidiary of Kinder Morgan, Inc.

NGX

 

Natural Gas Exchange Inc.

Niska Canada

 

Gas Storage Canada ULC our wholly-owned subsidiary.

Niska Holdings

 

Niska GS Holdings US, L.P. and Niska GS Canada, L.P., collectively.

Niska Predecessor

 

When used in a historical context, Niska Predecessor refers to Holdings I and Holdings II which are being contributed to Niska Gas Storage Partners LLC in connection with this offering. When used in the present tense or prospectively, Niska Predecessor refers to Niska Gas Storage Partners LLC.

Niska US

 

Niska Gas Storage U.S., LLC, our wholly-owned subsidiary.

NPC

 

National Petroleum Council.

NYMEX

 

New York Mercantile Exchange, Inc.

OCC

 

Oklahoma Corporation Commission.

Optimization

 

The purchase, storage and sale of natural gas by the storage owner for its own account in order to utilize storage capacity that is (1) not contracted to customers, (2) contracted to customers but underutilized by them or (3) available only on a short term basis.

OSHA

 

Federal Occupational Safety and Health Act.

Optimization Volume

 

The amount of capacity either in aggregate or at a particular facility that is used by the owner/operator for its own proprietary gas trading activity.

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Table of Contents

Petajoule ("PJ")   Thousand trillion joules.

Reservoir

 

A naturally occurring underground formation that originally contained crude oil or natural gas, or both.

Salt Cavern

 

A man made cavern developed in either a salt dome or salt beds by leaching or mining of the salt.

Seismic Survey

 

A technique for mapping the subsurface structure of rocks by measuring the reflections of acoustic waves at various depths. Seismic surveys are used to locate potential oil and gas-bearing structures. Seismic surveys can either be two dimensional or three dimensional.

Terajoule ("TJ")

 

Billion joules.

Trillion Cubic Feet ("TcF")

 

Trillion cubic feet of natural gas.

WCSB

 

Western Canadian Sedimentary Basin.

Wheeling

 

Transportation of natural gas from one pipeline to another pipeline through the pipeline facilities of a natural gas storage facility. The gas does not flow into or out of the actual storage but merely uses the surface facilities of the storage operation.

Withdrawal Capacity

 

The amount of gas that is or can be removed from a natural gas storage facility. Usually stated in MMcf per day, Bcf per day, Mcf per day, Dth per day, MMbtu per day, GJ per day, TJ per day or PJ per day. Typically stated as maximum or peak daily withdrawal capacity.

Withdrawal Rate

 

The rate at which a customer is permitted to withdraw gas from a natural gas storage facility.

Working Gas

 

Natural gas in a storage facility in excess cushion gas.

Working Gas Capacity

 

See Effective Working Gas Capacity.

B-4


Table of Contents

LOGO

17,500,000 Common Units

Representing limited liability company interests

Niska Gas Storage Partners LLC



P R O S P E C T U S
                        , 2010



Goldman, Sachs & Co.

Morgan Stanley

Barclays Capital

Citi

Credit Suisse

RBC Capital Markets

UBS Investment Bank



Raymond James

Wells Fargo Securities



Lazard Capital Markets

Stifel Nicolaus



        Until                        , 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common units, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.



PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

        Set forth below are the expenses (other than underwriting discounts and commissions and structuring fees) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the Financial Industry Regulatory Authority Inc. filing fee, and the NYSE filing fee, the amounts set forth below are estimates.

SEC registration fee

  $ 31,569  

FINRA filing fee

  $ 44,775  

NYSE listing fee

    250,000  

Printing expenses

    400,000  

Accounting fees and expenses

    1,500,000  

Legal fees and expenses

    3,000,000  

Transfer agent and registrar fees

    20,000  

Miscellaneous

    103,656  
       

Total

  $ 5,350,000  
       

Item 14.    Indemnification of Directors and Officers.

        The section of the prospectus entitled "The Operating Agreement—Indemnification" discloses that we will generally indemnify officers, directors and affiliates of our manager to the fullest extent permitted by the law against all losses, claims, damages or similar events and is incorporated herein by this reference. Subject to any terms, conditions or restrictions set forth in our Operating Agreement, Section 18-108 of the Delaware Limited Liability Company Act empowers a Delaware limited liability company to indemnify and hold harmless any member or other persons from and against all claims and demands whatsoever.

Item 15.    Recent Sales of Unregistered Securities.

        On March 5, 2010 Niska US and Niska Canada closed a non-public offering of 800,000 units, each unit consisting of $218.75 principal amount of 8.875% senior notes due 2018 of Niska US and $781.25 principal amount of 8.875% senior notes of Niska Canada. The units were sold in an offering exempt from registration under the Securities Act to qualified institutional investors in reliance on Rule 144A under the Securities Act and to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. The joint book-running managers of the offering were Morgan Stanley & Co. Incorporated, UBS Securities LLC, Goldman, Sachs & Co., Credit Suisse Securities (USA) LLC, and RBC Capital Markets Corporation. The aggregate offering price for the offering was $800.0 million, and the underwriting discount was $18.0 million. There have been no other sales of unregistered securities within the past three years.

II-1


Item 16.    Exhibits and Financial Statement Schedules.

(a)
Exhibits.

        See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

(b)
Financial Statement Schedules.

        All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the financial statements or notes thereto.

Item 17.    Undertakings.

        The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

    (1)
    For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

    (2)
    For the purpose of determining any liability under the Securities Act of 1933, 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.

        The registrant undertakes to send to each member at least on an annual basis a detailed statement of any transactions with our manager or any of its respective affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to our manager or its respective affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

        The registrant undertakes to provide to the members the financial statements required by Form 10-K for the first full fiscal year of operations of the company.

        For the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included

II-2



in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

        For the purpose of determining liability of the undersigned registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

    (i)
    Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 of Regulation C of the Securities Act;

    (ii)
    Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

    (iii)
    The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

    (iv)
    Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Calgary, Province of Alberta, on April 30, 2010.


 

 

NISKA GAS STORAGE PARTNERS LLC

 

 

By:

 

/s/ DAVID F. POPE  
       
David F. Pope
Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 

 

 
*

David F. Pope
  President, Chief Executive Officer and
Director (Principal Executive Officer)
  April 30, 2010

/s/ DARIN T. OLSON

Darin T. Olson

 

Chief Financial Officer (Principal
Financial and Accounting Officer)

 

April 30, 2010

*

Andrew W. Ward

 

Director

 

April 30, 2010

*

E. Bartow Jones

 

Director

 

April 30, 2010

*

George O'Brien

 

Director

 

April 30, 2010

*

William H. Shea, Jr.

 

Director

 

April 30, 2010

*By:

 

/s/ DARIN T. OLSON

Darin T. Olson, Attorney-in-Fact

 

 

 

 

II-4


EXHIBIT LIST

Exhibit Number    
  Description
  1.1 *   Form of Underwriting Agreement

 

3.1

*


 

Certificate of Formation of Niska Gas Storage Partners LLC

 

3.2

*


 

Form of First Amended and Restated Operating Agreement of Niska Gas Storage Partners LLC (incorporated by reference to Appendix A to the Prospectus contained within the Registrant's Form S-1 Registration Statement)

 

5.1

*


 

Opinion of Vinson & Elkins L.L.P., as to the legality of the securities being registered

 

8.1

*


 

Opinion of Vinson & Elkins L.L.P., relating to tax matters

 

8.2

*


 

Opinion of Bennett Jones LLP relating to tax matters

 

10.1

*†


 

Form of Niska Gas Storage Partners LLC 2010 Long-Term Incentive Plan

 

10.2

*


 

Form of Contribution, Conveyance and Assumption Agreement

 

10.3

*


 

Services Agreement dated March 5, 2010 among AECO Gas Storage Partnership, Niska GS Holdings US, L.P. and Niska GS Holdings Canada, L.P.

 

10.4

*


 

Credit Agreement dated as of March 5, 2010 among Niska Gas Storage US, LLC, as US Borrower, and AECO Gas Storage Partnership, as Canadian Borrower, Niska GS Holdings I, L.P., Niska GS Holdings II, L.P., Royal Bank of Canada, as Administrative Agent and Collateral Agent and the other lenders party thereto.

 

10.5

*


 

Indenture dated as of March 5, 2010 among Niska Gas Storage US, LLC, Niska Gas Storage US Finance Corp., Niska Gas Storage Canada ULC and Niska Gas Storage Canada Finance Corp., as issuers, each of the Guarantors party thereto, and The Bank of New York Mellon, as Trustee.

 

10.6

*


 

Registration Rights Agreement dated as of March 5, 2010 by and among Niska Gas Storage US, LLC, Niska Gas Storage US Finance Corp., Niska Gas Storage Canada ULC, Niska Gas Storage Canada Finance Corp., the Guarantors party thereto, and the representatives of the several purchasers named therein.

 

10.7

*


 

Form of Registration Rights Agreement between Niska Gas Storage Partners LLC and Niska Sponsor Holdings Coöpertief U.A.

 

10.8

*†


 

Executive Employment Agreement of David Pope dated August 20, 2006

 

10.9

*†


 

Amendment to Executive Employment Agreement of David Pope dated March 1, 2009

 

21.1

*


 

List of Subsidiaries of Niska Gas Storage Partners LLC

 

23.1

 


 

Consent of KPMG LLP—Niska Gas Storage Partners LLC

 

23.2

 


 

Consent of KPMG LLP—Niska GS Holdings I, L.P. and Niska GS Holdings II, L.P.

 

23.3

*


 

Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1)

 

23.4

*


 

Consent of Vinson & Elkins L.L.P. (contained in Exhibit 8.1)

 

23.5

*


 

Consent of Bennett Jones LLP (contained in Exhibit 8.2)

 

24.1

*


 

Powers of Attorney (contained on page II-3 to the initial S-1 Registration Statement filed on February 22, 2010)

 

24.2

*


 

New York Power of Attorney of E. Bartow Jones

 

24.3

*


 

New York Power of Attorney of Darin T. Olson

*
Previously filed.

Compensatory plan or arrangement.

II-5