Simplification Transactions

On July 11, 2016, PAGP, PAA, AAP, PAA GP, GP LLC and GP Holdings entered into a Simplification Agreement pursuant to which, upon closing, in exchange for the issuance by PAA to AAP of approximately 245.5 million common units representing limited partner interests in PAA (“PAA Common Units”) and the assumption by PAA of AAP’s outstanding debt (as of September 30, 2016, approximately $603 million but expected to be approximately $641 million as of November 15, 2016), AAP will contribute the IDRs to PAA and PAA GP’s 2% economic general partner interest in PAA will be converted into a non-economic general partner interest in PAA. Following the closing of the transactions contemplated by the Simplification Agreement (the “Simplification Transactions”), which is expected to occur on November 15, 2016, both PAGP and PAA will continue to be publicly traded.

Among other approvals, the terms of the Simplification Agreement and the Simplification Transactions were unanimously approved by a conflicts committee comprised of independent directors of the Board of Directors of GP LLC on behalf of PAA, and unanimously approved by the Board of Directors of our general partner on behalf of PAGP.

On August 11, 2016, AAP's credit agreement was amended pursuant to which, among other things, the lenders consented to (1) the assignment by AAP of all of its rights (other than the right to request revolving loans) and obligations as the borrower under its credit agreement to PAA, and PAA’s assumption thereof, following the date of the consummation of the Simplification Transactions on or before January 19, 2017 (the “Consent Effective Date”) and (2) the release and termination as of the Consent Effective Date of all liens on any property securing the obligations of AAP under its credit agreement and related documents. AAP further amended the definition of the maturity date to be the second business day following the Consent Effective Date.

In addition to the terms described above, the Simplification Agreement also provides for the following:

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Under a unified governance structure, the Board of Directors of our general partner will have oversight responsibility over both PAGP and PAA. In addition, starting in 2018, our Class A and Class B shareholders and PAA’s common and preferred unitholders will have the right to participate in the election of directors of the board of our general partner whose terms expire. Under the current structure, PAA common unitholders are not eligible to participate in the election of directors of our general partner and our Class A and Class B shareholders only participate in such elections following a reduction in ownership of the private AAP owner group to below 40%.

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In addition, similar to the current structure, for so long as each of EMG Investment, LLC (an affiliate of The Energy & Minerals Group), KAFU Holdings, L.P. (an affiliate of Kayne Anderson Investment Management Inc.) and Oxy Holding Company (Pipeline), Inc. (a subsidiary of Occidental Petroleum Corporation), together with their respective affiliates (together, the “Original Designating Parties”), own at least a 10% interest in the initial outstanding AAP units (i.e., as of the closing of the Simplification Transactions), such party will continue to be entitled to designate one director to the Board of Directors of our general partner. The calculation of such qualifying interest will include, in addition to any of our Class A shares owned by an Original Designating Party or its affiliates, any PAA common units received by such Original Designating Party of its affiliates in connection with their exercise of the Redemption Right (defined below).

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AAP will execute a reverse split to adjust the number of AAP units such that the number of outstanding AAP units (assuming the conversion of AAP Management Units into AAP units) equals the number of PAA Common Units received by AAP at the closing of the Simplification Transactions. Simultaneously, we will execute a reverse split to adjust the number of our Class A and Class B shares outstanding to equal the number of AAP units we own following AAP’s reverse unit split. As a result of these reverse splits, each Class A share will correspond, on a one-to-one basis, to an underlying PAA Common Unit held by AAP which is attributable to our ownership in AAP.

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Holders of AAP units other than us and GP LLC will continue to have the right to exchange their AAP units (together with the corresponding Class B shares and, if applicable, units of our general partner) for our Class A shares on a one-for-one basis or, alternatively, to redeem such ownership and related rights for their proportionate share of PAA Common Units held by AAP, subject to certain limitations (the “Redemption Right”). Upon any such redemption, the holders of AAP units receiving PAA Common Units will have registration rights with respect to such PAA Common Units.

Pursuant to the terms of the Simplification Agreement, AAP agreed that if (i) the closing of the Simplification Transactions does not occur prior to the record date for PAA’s distribution of available cash in respect of the third quarter of 2016 and (ii) the amount of such distribution is below a quarterly level of $0.70 per common unit, AAP will borrow funds under its existing credit agreement as necessary to make a special “true-up” distribution to AAP’s unitholders that, when added to the distributions to be paid to AAP in respect of its indirect 2% general partner interest and IDRs, equals the total distribution such unitholders would have received had the closing of the Simplification Transactions occurred prior to such third quarter record date. As the Simplification Transactions did not close prior to the PAA third quarter distribution record date of October 31, 2016 and PAA declared a quarterly distribution of $0.55 per common unit for its third quarter distribution, it is currently estimated that the incremental borrowings that will be made by AAP will be approximately $33 million.

The consummation of the matters contemplated by the Simplification Agreement is subject to customary closing conditions and may be terminated under certain conditions. On September 26, 2016, we announced November 15, 2016 as the date for the special meeting of our shareholders to consider and vote upon a proposal to approve the Simplification Transactions. Our Class A and Class B shareholders of record at the close of business on September 30, 2016 will be entitled to vote at the special meeting. We currently expect that the closing of the Simplification Transactions will take place on November 15, 2016.

These transactions are between and among consolidated subsidiaries of PAGP that are considered entities under common control. These equity transactions will not result in a change in the carrying value of the underlying assets and liabilities.