UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) September 29, 2015
Dominion Midstream Partners, LP
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 001-36684 | 46-5135781 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
120 Tredegar Street Richmond, Virginia |
23219 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, Including Area Code (804) 819-2000
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 | Entry Into a Material Definitive Agreement. |
On September 29, 2015, in connection with the consummation of the Transactions (as defined in Item 2.01 below), Dominion Midstream Partners, LP (the Partnership) entered into a Registration Rights Agreement (the NG Registration Rights Agreement) with North East Transmission Co., Inc. (NETCO) and National Grid IGTS Corp. (IGTS and, together with NETCO, NG) and a Registration Rights Agreement (the NJNR Registration Rights Agreement and, together with the NG Registration Rights Agreement, the Registration Rights Agreements) with NJNR Pipeline Company (NJNR).
Pursuant to the Registration Rights Agreements, the Partnership is required to register the common units representing limited partner interests in the Partnership (Common Units) issued to NG and NJNR in the Transactions for resale when the Partnership becomes eligible to file a registration statement on Form S-3, but the lockup periods (with limited exceptions, one year from the date the Registration Rights Agreements were executed) to which NG and NJNR are subject in connection with the Transactions remain unchanged. The Registration Rights Agreements also include provisions dealing with holdback agreements, indemnification and contribution and allocation of expenses. These registration rights are transferable to affiliates and, in certain circumstances, to third parties.
A copy of the NG Registration Rights Agreement is attached as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated in this Item 1.01 by reference.
A copy of the NJNR Registration Rights Agreement is attached as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated in this Item 1.01 by reference.
The foregoing description is qualified in its entirety by reference to the full text of the Registration Rights Agreements.
Item 2.01 | Completion of Acquisition or Disposition of Assets. |
On August 14, 2015, the Partnership and Iroquois GP Holding Company, LLC, a wholly-owned subsidiary of the Partnership (Iroquois Holding), entered into a Contribution Agreement (the NG Contribution Agreement) with NG and a Contribution Agreement (the NJNR Contribution Agreement and, together with the NG Contribution Agreement, the Contribution Agreements) with NJNR.
On September 29 2015, pursuant to the Contribution Agreements, the Partnership completed the acquisition of a significant amount of assets, other than in the ordinary of business, specifically an aggregate 25.93% partnership interest in Iroquois Gas Transmission System, L.P., a Delaware limited partnership (Iroquois), as follows:
| NG and NJNR contributed to the Partnership, and the Partnership accepted from NG and NJNR, a 20.4% partnership interest and a 5.53% partnership interest, respectively, in Iroquois; and |
| in exchange for the Iroquois partnership interests, the Partnership issued (i) 6,783,373 Common Units to NG and (ii) 1,838,932 Common Units to NJNR, |
(such contributions of Iroquois partnership interests and issuances of Common Units in exchange therefor being referred to individually as a Transaction and collectively as the Transactions). The aggregate value of the Common Units issued to NG in the Transactions is approximately $225.4 million
and the aggregate value of the Common Units issued to NJNR in the Transactions is approximately $61.1 million, with such amounts determined as provided in the Contribution Agreements.
Pursuant to the Contribution Agreements, NG and NJNR have agreed to certain transfer restrictions applicable to the Common Units issued to such parties, including, with limited exceptions, a one-year lockup period following the closing of the Transactions. In addition, pursuant to the Registration Rights Agreements, the Partnership has agreed to grant to NG and NJNR certain registration rights and piggyback registration rights with respect to future offerings of Common Units by the Partnership.
Iroquois is a Delaware limited partnership that owns and operates a 416-mile, FERC-regulated natural gas transmission pipeline that extends from the Canada-United States border near Waddington, New York through the states of New York and Connecticut to South Commack, NY on Long Island and Hunts Point, NY in the Bronx. It was formed in 1985 and commenced full operations in 1992. Dominion Gas Holdings, LLC, a wholly-owned subsidiary of Dominion Resources, Inc. and an affiliate of the Partnership, indirectly holds a 24.72% partnership interest in Iroquois.
As provided in the Contribution Agreements, the Transactions, which involved the sale of equity securities in a transaction that was not registered under the Securities Act, was undertaken in reliance upon the exemption from the registration requirements in Section 4(a)(2) of the Securities Act. No market issuance of Common Units was undertaken in connection with the Transactions.
A copy of the NG Contribution Agreement is attached as Exhibit 2.1 to this Current Report on Form 8-K and incorporated in this Item 2.01 by reference. A copy of the NJNR Contribution Agreement is attached as Exhibit 2.2 to this Current Report on Form 8-K and incorporated in this Item 2.01 by reference.
The description in Item 1.01 above of the Registration Rights Agreements entered into by the Partnership with NG and NJNR, respectively, in connection with the consummation of the Transactions is incorporated in this Item 2.01 by reference. A copy of the NG Registration Rights Agreement is attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated in this Item 2.01 by reference. A copy of the NJNR Registration Rights Agreement is attached as Exhibit 10.2 to this Current Report on Form 8-K and incorporated in this Item 2.01 by reference
The foregoing description is qualified in its entirety by reference to the full text of the Contribution Agreements and the Registration Rights Agreements.
Item 9.01 | Financial Statements and Exhibits. |
a. | Financial statements of business acquired. |
Audited financial statements of Iroquois at December 31, 2014 and 2013 and for the three years ended December 31, 2014, together with the related notes to the financial statements, a copy of which is filed as Exhibit 99.1 hereto and incorporated herein by reference.
Unaudited financial statements of Iroquois at June 30, 2015 and December 31, 2014 and for the six months ended June 30, 2015 and 2014, together with the related notes to the financial statements, a copy of which is filed as Exhibit 99.2 hereto and incorporated herein by reference.
b. | Pro forma financial information. |
Unaudited pro forma consolidated financial statements of the Partnership at June 30, 2015, for the six months ended June 30, 2015, and for the year ended December 31, 2014, together with the related notes to the financial statements, a copy of which is filed as Exhibit 99.3 hereto and incorporated herein by reference.
c. | Shell company transaction. |
Not applicable.
d. | Exhibits |
2.1 | Contribution Agreement by and among North East Transmission Co., Inc., National Grid IGTS Corp., Dominion Midstream Partners, LP and Iroquois GP Holding Company, LLC, dated as of August 14, 2015 (Exhibit 2.1, Form 8-K filed August 17, 2015, File No. 001-36684) |
2.2 | Contribution Agreement by and among NJNR Pipeline Company, Dominion Midstream Partners, LP and Iroquois GP Holding Company, LLC, dated as of August 14, 2015 (Exhibit 2.2, Form 8-K filed August 17, 2015, File No. 001-36684) |
10.1 | Registration Rights Agreement by and among Dominion Midstream Partners, LP, North East Transmission Co., Inc. and National Grid IGTS Corp., dated as of September 29, 2015 * |
10.2 | Registration Rights Agreement by and between Dominion Midstream Partners, LP and NJNR Pipeline Company, dated as of September 29, 2015 * |
23 | Consent of Blum, Shapiro & Company, P.C.* |
99.1 | Audited financial statements of Iroquois at December 31, 2014 and 2013 and for the three years ended December 31, 2014* |
99.2 | Unaudited financial statements of Iroquois at June 30, 2015 and December 31, 2014 and for the six months ended June 30, 2015 and 2014* |
99.3 | Unaudited pro forma consolidated financial statements of the Partnership at June 30, 2015, for the six months ended June 30, 2015, and for the year ended December 31, 2014* |
* Filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DOMINION MIDSTREAM PARTNERS, LP
By: Dominion Midstream GP, LLC, its general partner |
/s/ Mark O. Webb |
Name: Mark O. Webb Title: Vice President and General Counsel |
Date: September 29, 2015
Exhibit 10.1
Execution Version
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement ) is made and entered into as of September 29, 2015, by and between Dominion Midstream Partners, LP, a Delaware limited partnership (the Partnership ), and North East Transmission Co., Inc., a Delaware corporation ( NETCO ), and National Grid IGTS Corp., a New York corporation ( IGTS and, together with NETCO, the Contributor Parties ).
WHEREAS, this Agreement is made in connection with the transactions contemplated by the Contribution Agreement (the Contribution Agreement ), dated as of August 14, 2015 by and among NETCO, IGTS, the Partnership, and Iroquois GP Holding Company, LLC, a Delaware limited liability company and wholly owned subsidiary of DM ( DM Sub ); and
WHEREAS, the Partnership has agreed to provide the registration and other rights set forth in this Agreement for the benefit of the Contributor Parties pursuant to the Contribution Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions . Capitalized terms used herein without definition shall have the meanings given to them in the First Amended and Restated Agreement of Limited Partnership of the Partnership dated October 20, 2014, as amended from time to time (the Partnership Agreement ). The terms set forth below are used herein as so defined:
Affiliate means, with respect to a specified Person, any other Person that directly or indirectly controls, is controlled by, or is under direct or indirect common control with such specified Person. For the purposes of this definition, control means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.
Agreement has the meaning given to such term in the introductory paragraph.
Commission has the meaning given to such term in Section 1.02 .
Common Unit has the meaning set forth in the Partnership Agreement.
Contribution Agreement has the meaning given to such term in the recitals of this Agreement.
Contributor Parties has the meaning given to such term in the introductory paragraph.
Effectiveness Period means the period from the effective date of a Registration Statement until the earliest of (i) the first date on which there are no longer any Registrable Securities, and (ii) the End Date.
End Date has the meaning given to such term in Section 1.02 .
Exchange Act has the meaning given to such term in Section 2.08(a) .
Holder means the record holder or beneficial owner of any Registrable Securities.
IGTS has the meaning given to such term in the introductory paragraph.
Losses has the meaning given to such term in Section 2.08(a) .
Managing Underwriter(s) means, with respect to any Underwritten Offering, the book-running lead manager(s) of such Underwritten Offering.
NETCO has the meaning given to such term in the introductory paragraph.
Partnership has the meaning given to such term in the introductory paragraph.
Person means any individual, corporation, partnership, limited liability company, voluntary association, joint venture, trust, limited liability partnership, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other form of entity.
Piggyback Registration has the meaning given to such term in Section 2.04(a) .
Piggyback Registration Notice has the meaning given to such term in Section 2.04(a) .
Piggyback Registration Statement has the meaning given to such term in Section 2.04(a) .
Piggyback Shelf Registration Statement has the meaning given to such term in Section 2.04(a) .
Piggyback Shelf Takedown has the meaning given to such term in Section 2.04(a) .
Registrable Securities means the Common Units issued (or issuable) to the Contributor Parties pursuant to the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ), which Registrable Securities are subject to the rights provided herein until such rights terminate pursuant to the provisions hereof.
Registration Expenses means all expenses (other than Selling Expenses) incident to the Partnerships performance under or compliance with this Agreement to effect the registration of Registrable Securities on a Registration Statement or Piggyback Registration Statement pursuant to Section 2.01 or Section 2.04 and/or in connection with an Underwritten Offering pursuant to
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Section 2.02(a) , and the disposition of such Registrable Securities, including, without limitation, all registration, filing, securities exchange listing and securities exchange fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, fees of the Financial Industry Regulatory Authority, fees of transfer agents and registrars, all word processing, duplicating and printing expenses, any transfer taxes and the fees and disbursements of counsel and independent public accountants for the Partnership, including the expenses of any special audits or cold comfort letters required by or incident to such performance and compliance.
Registration Statement has the meaning given to such term in Section 2.01 .
Securities Act has the meaning given to such term in Section 1.02 .
Selling Expenses means all underwriting fees, discounts and selling commissions applicable to the sale of Registrable Securities.
Selling Holder means a Holder who is selling Registrable Securities pursuant to a Registration Statement or Piggyback Registration Statement.
Shelf Registration Statement has the meaning given to such term in Section 2.01 .
Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
Underwritten Offering means an offering (including an offering pursuant to a Registration Statement or Piggyback Registration Statement) in which Registrable Securities are sold to an underwriter on a firm commitment basis for reoffering to the public or an offering that is a bought deal with one or more investment banks.
Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
Section 1.02. Registrable Securities . Any Registrable Security will cease to be a Registrable Security (a) at the time a Registration Statement or Piggyback Registration Statement covering such Registrable Security has been declared effective by the Securities and Exchange Commission (the Commission ), or otherwise has become effective, and such Registrable Security has been sold or disposed of pursuant to such Registration Statement or Piggyback Registration Statement; (b) at the time such Registrable Security has been disposed of pursuant to Rule 144 (or any similar provision then in effect under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the Securities Act )); (c) if such Registrable Security is held by the Partnership or one of its subsidiaries; (d) at the time such Registrable Security has been sold in a private transaction in which the transferors rights under this Agreement are not assigned to the transferee of such securities, and (e) at the date (the End Date ) that is four (4) years following the date on which the Partnership files a Shelf Registration Statement under Section 2.01 below.
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ARTICLE II
REGISTRATION RIGHTS
Section 2.01. Shelf Registration . Subject to Section 2.03 , the Partnership shall, in no event later than the 15 th Business Day following November 1, 2015, use its commercially reasonable efforts to file with the SEC a registration statement (a Registration Statement ) on Form S-3 for an offering to be made on a continuous or delayed basis pursuant to Rule 415 under the Securities Act including, if the Partnership is then eligible, as an automatic shelf registration, covering the resale of all of the Registrable Securities (the Shelf Registration Statement ). The Shelf Registration Statement shall be in a form permitting registration of such Registrable Securities for resale or distribution by Holders in an Underwritten Offering only. The Partnership will notify the Holders when such Shelf Registration Statement has become effective. The Partnership shall not be required to maintain in effect more than one shelf registration at any one time pursuant to this Article. The Partnership shall (subject to the limitations on registration obligations of the Partnership set forth herein) use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing of the Shelf Registration Statement, or automatically if the Partnership is eligible to file an automatically effective shelf registration statement, and (subject to the limitations on registration obligations of the Partnership set forth herein) to keep the Shelf Registration Statement continuously effective under the Securities Act (including by filing a replacement Shelf Registration Statement prior to the end of the three-year period described in Rule 415(a)(5) under the Securities Act with respect to, or upon any other termination of effectiveness of, a Shelf Registration Statement filed pursuant to this Section 2.01 ) until the end of the Effectiveness Period).
Section 2.02. Underwritten Offerings .
(a) Request for Underwritten Offering . In the event that one or more Holders collectively elect to dispose of then-outstanding Registrable Securities representing at least 20% of the Common Units originally issued to the Contributor Parties under the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ) under a Shelf Registration Statement referred to in Section 2.01 pursuant to an Underwritten Offering, the Partnership shall, upon written request by such Holders, retain underwriters in order to permit such Holders to effect such sale through an Underwritten Offering. The obligation of the Partnership to retain underwriters shall include entering into an underwriting agreement in customary form with the Managing Underwriter(s), which shall include customary indemnities in favor of, and taking all reasonable actions as are requested by, the Managing Underwriter(s) to expedite or facilitate the disposition of such Registrable Securities. In the event of an Underwritten Offering, the Partnership shall, upon request of the Selling Holders, cause its management to participate, subject to and in accordance with customary and reasonable processes, in a roadshow or similar marketing effort on behalf of the Selling Holders.
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(b) Limitation on Underwritten Offerings . In no event shall the Partnership be required under Section 2.02(a) to participate in more than one Underwritten Offering in any twelve-month period.
(c) General Procedures . In connection with any Underwritten Offering under Section 2.02(a) , the Holders of a majority of the Registrable Securities being sold in such Underwritten Offering shall be entitled, subject to the Partnerships consent (which is not to be unreasonably withheld), to select the Managing Underwriter(s). In connection with any Underwritten Offering under this Agreement, each Selling Holder and the Partnership shall be obligated to enter into an underwriting agreement that contains such representations and warranties, covenants, indemnities and other rights and obligations as are customary in underwriting agreements for firm commitment offerings of securities. No Selling Holder may participate in such Underwritten Offering unless such Selling Holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. Each Selling Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Partnership to and for the benefit of such underwriters also be made to and for such Selling Holders benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to such Selling Holders obligations. If any Selling Holder disapproves of the terms of an underwriting, such Selling Holder may elect to withdraw from the Underwritten Offering by notice to the Partnership and the Managing Underwriter(s); provided, however , that such withdrawal must be made at a time prior to the time of pricing of such Underwritten Offering. No such withdrawal shall affect the Partnerships obligation to pay Registration Expenses.
(d) Notwithstanding the foregoing, the terms of Sections 2.02(a) , (b) and (c) , and the Holders rights provided for under such Sections shall not be applicable to a Piggyback Registration.
Section 2.03. Delay Rights . If the General Partner determines that the Partnerships compliance with its obligations under this Article II would be materially detrimental to the Partnership and its Partners because such registration would (a) materially interfere with a significant acquisition, reorganization, financing or other similar transaction involving the Partnership, (b) require premature disclosure of material information that the Partnership has a bona fide business purpose for preserving as confidential or (c) render the Partnership unable to comply with applicable securities laws, then the Partnership shall have the right to postpone compliance with its obligations under this Article II for a period of not more than 90 days, provided, that such right pursuant to this Section 2.03 may not be utilized more than twice in any twelve-month period.
Section 2.04. Piggyback Registration .
(a) Whenever the Partnership proposes to register the offer and sale of any Common Units under the Securities Act (other than a registration (i) pursuant to a Registration Statement on Form S-8 (or other registration solely relating to an offering or sale to employees of the
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Partnership pursuant to any employee benefit plans (as such terms are defined for purposes of Form S-8)), (ii) pursuant to a Registration Statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the Securities Act or any successor rule thereto), (iii) in connection with any dividend or distribution reinvestment or similar plan or (iv) pursuant to an at-the-market equity offering program), whether for its own account or for the account of one or more unitholders of the Partnership and the form of Registration Statement (a Piggyback Registration Statement ) to be used may be used for registration of Registrable Securities (a Piggyback Registration ), the Partnership shall give prompt written notice (in any event no later than ten days prior to the filing of such Registration Statement) to each Holder of its intention to effect such a registration (a Piggyback Registration Notice ). Subject to Section 2.04(b) , Section 2.04(c) and Section 2.12 , the Partnership shall include in such registration all Registrable Securities with respect to which the Partnership has received written requests for inclusion from Holders of Registrable Securities within five days after the Piggyback Registration Notice has been given to each Holder. Subject to Section 2.04(b) , Section 2.04(c) and Section 2.12 , if any Piggyback Registration Statement that includes Registrable Securities is a Shelf Registration Statement (a Piggyback Shelf Registration Statement ), the Holder(s) of such Registrable Securities shall be notified by the Partnership of, and shall have the right but not the obligation to participate in, any offering under such Piggyback Shelf Registration Statement (a Piggyback Shelf Takedown ).
(b) If a Piggyback Registration or Piggyback Shelf Takedown is initiated as a primary Underwritten Offering on behalf of the Partnership and the Managing Underwriter(s) advises the Partnership in writing that in its reasonable and good faith opinion, the inclusion of any Common Units in such registration or takedown other than Common Units being issued by the Partnership would exceed the number of Common Units that can be sold in such offering or would materially adversely affect the price per Common Unit to be sold in such offering, or would materially adversely affect the timing of such registration or takedown, then the Piggyback Registration Notice shall so state and the Holders shall have no right to participate in such offering or takedown. In addition, if a Piggyback Registration or Piggyback Shelf Takedown is initiated as a primary Underwritten Offering on behalf of the Partnership and the Managing Underwriter(s) advises the Partnership and the Holders (if any Holders have elected to include Registrable Securities in such Piggyback Registration or Piggyback Shelf Takedown) in writing prior to the launch of such offering that in its reasonable and good faith opinion the number of Common Units proposed to be included in such registration or takedown, including all Registrable Securities and all other Common Units proposed to be included in such underwritten offering, exceeds the number of Common Units that can be sold in such offering and/or that the number of Common Units proposed to be included in any such registration or takedown would adversely affect the price per Common Unit to be sold in such offering, the Partnership shall include in such registration or takedown (i) first, the Common Units that the Partnership proposes to sell; and (ii) second, the Common Units requested to be included therein by Holders and by holders of Common Units other than Holders of Registrable Securities having registration rights with respect to such registration or takedown, allocated pro rata among all such holders on the basis of the number of Common Units owned by each such holder as to which the Partnership has received written requests for inclusion in such registration or takedown.
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(c) If a Piggyback Registration or Piggyback Shelf Takedown is initiated as an Underwritten Offering on behalf of a holder of Common Units other than Registrable Securities, and the Managing Underwriter(s) advises the Partnership in writing that in its reasonable and good faith opinion, the inclusion of any Common Units in such registration or takedown other than the Common Units of such holder, would exceed the number of Common Units that can be sold in such offering or would materially adversely affect the price per Common Unit to be sold in such offering, or would materially adversely affect the timing of such registration or takedown, then the Piggyback Registration Notice shall so state and the Holders shall have no right to participate in such registration or takedown. In addition, if a Piggyback Registration or Piggyback Shelf Takedown is initiated as an Underwritten Offering on behalf of a holder of Common Units other than Registrable Securities, and the Managing Underwriter(s) advises the Partnership in writing prior to the launch of such offering that in its reasonable and good faith opinion, the number of Common Units proposed to be included in such registration or takedown, including all Registrable Securities and all other Common Units proposed to be included in such underwritten offering, exceeds the number of Common Units that can be sold in such offering and/or that the number of Common Units proposed to be included in any such registration or takedown would adversely affect the price per Common Unit to be sold in such offering, the Partnership shall include in such registration or takedown (i) first, the Common Units requested to be included therein by the holder(s) requesting such registration or takedown and; and (ii) second, the Common Units requested to be included therein by holders (including Holders) of Common Units having registration rights with respect to such registration or takedown other than the holder(s) requesting such registration or takedown, allocated pro rata among all such holders on the basis of the number of Common Units owned by each such holder or in such manner as they may otherwise agree.
(d) If any Piggyback Registration or Piggyback Shelf Takedown is initiated as a primary Underwritten Offering on behalf of the Partnership, the Partnership shall select the Managing Underwriter(s) in connection with such offering.
(e) The Partnership may postpone or withdraw the filing or the effectiveness of a Piggyback Registration at any time in its sole discretion.
Section 2.05. Sale Procedures . In connection with its obligations under this Article II , the Partnership will, as expeditiously as possible (subject to Section 2.04(e) in the case of a Piggyback Registration):
(a) cause each Registration Statement or Piggyback Registration Statement (and the documents incorporated therein by reference), at the time such registration statement or any part thereof becomes effective, (i) to comply as to form in all material respects with all applicable requirements of the Securities Act and (ii) not to contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading provided, however , that the obligations of the Partnership under this Section 2.05(a)(ii) will not be applicable with respect to information furnished by a Selling Holder, its directors, officers, employees and agents or controlling Persons described in Section 2.08(a) in writing specifically for use in a Registration Statement or a Piggyback Registration Statement.
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(b) prepare and file with the Commission such amendments and supplements to each Registration Statement or Piggyback Registration Statement and the prospectus used in connection therewith as may be necessary to keep each Registration Statement or Piggyback Registration Statement effective for the Effectiveness Period, in the case of a Registration Statement, and as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement or Piggyback Registration Statement;
(c) if a prospectus supplement will be used in connection with the marketing of an Underwritten Offering and the Managing Underwriter(s) notifies the Partnership in writing that, in the sole judgment of such Managing Underwriter(s), inclusion of detailed information in such prospectus supplement is of material importance to the success of the Underwritten Offering of such Registrable Securities, use its commercially reasonable efforts to include such information in such prospectus supplement;
(d) furnish to each Selling Holder (i) as far in advance as reasonably practicable before filing a Registration Statement or Piggyback Registration Statement or any supplement or amendment thereto, upon request, copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits and each document incorporated by reference therein to the extent then required by the rules and regulations of the Commission), and provide each such Selling Holder the opportunity to object to any information pertaining to such Selling Holder and its plan of distribution that is contained therein and make the corrections reasonably requested by such Selling Holder with respect to such information prior to filing a Registration Statement or Piggyback Registration Statement or supplement or amendment thereto, and (ii) such number of copies of such Registration Statement or Piggyback Registration Statement and the prospectus included therein and any supplements and amendments thereto as such Persons may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Registration Statement or Piggyback Registration Statement;
(e) if applicable, use its commercially reasonable efforts to register or qualify the Registrable Securities covered by a Registration Statement or Piggyback Registration Statement under the securities or blue sky laws of such jurisdictions as the Selling Holders or, in the case of an Underwritten Offering, the Managing Underwriter(s), shall reasonably request; provided, however, that the Partnership will not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any action that would subject it to general service of process in any jurisdiction where it is not then so subject;
(f) promptly notify each Selling Holder and each underwriter, at any time when a prospectus is required to be delivered under the Securities Act, of (i) the filing of a Registration Statement or Piggyback Registration Statement or any prospectus or prospectus supplement to be used in connection therewith, or any amendment or supplement thereto, and, with respect to such Registration Statement or Piggyback Registration Statement or any post-effective amendment thereto, when the same has become effective; and (ii) any written comments from the Commission with respect to any filing referred to in clause (i) and any written request by the Commission for amendments or supplements to a Registration Statement or Piggyback Registration Statement or any prospectus or prospectus supplement thereto;
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(g) immediately notify each Selling Holder and each underwriter, at any time when a prospectus is required to be delivered under the Securities Act, of (i) the happening of any event as a result of which the prospectus or prospectus supplement contained in a Registration Statement or Piggyback Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (in the case of the prospectus contained therein, in the light of the circumstances under which a statement is made); (ii) the issuance or threat of issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or Piggyback Registration Statement, or the initiation of any proceedings for that purpose; or (iii) the receipt by the Partnership of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction. Following the provision of such notice, the Partnership agrees to, as promptly as practicable, amend or supplement the prospectus or prospectus supplement or take other appropriate action so that the prospectus or prospectus supplement does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading in the light of the circumstances then existing and to take such other commercially reasonable action as is necessary to remove a stop order, suspension, threat thereof or proceedings related thereto;
(h) upon request and subject to appropriate confidentiality obligations, furnish to each Selling Holder copies of any and all transmittal letters or other correspondence with the Commission or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to any offering of Registrable Securities;
(i) in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel for the Partnership dated the date of the closing under the underwriting agreement and (ii) a cold comfort letter, dated the pricing date of such Underwritten Offering (to the extent available) and a letter of like kind dated the date of the closing under the underwriting agreement, in each case, signed by the independent public accountants who have certified the Partnerships financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the cold comfort letter shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus and any prospectus supplement included therein) as have been customarily covered in opinions of issuers counsel and in accountants letters delivered to the underwriters in Underwritten Offerings of securities by the Partnership and such other matters as such underwriters and Selling Holders may reasonably request;
(j) otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
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(k) make available to the appropriate representatives of the Managing Underwriter(s) and Selling Holders access to such information and Partnership personnel as is reasonable and customary to enable such parties to establish a due diligence defense under the Securities Act;
(l) cause all Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Partnership are then listed;
(m) use its commercially reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Partnership to enable the Selling Holders to consummate the disposition of the Registrable Securities;
(n) provide a transfer agent and registrar for all Registrable Securities covered by a Registration Statement or Piggyback Registration Statement not later than the effective date of such registration statement; and
(o) enter into customary agreements and take such other actions as are reasonably requested by the Selling Holders or the underwriters, if any, in order to expedite or facilitate the disposition of the Registrable Securities.
Each Selling Holder, upon receipt of notice from the Partnership of the happening of any event of the kind described in subsection (g) of this Section 2.05 shall forthwith discontinue disposition of the Registrable Securities by means of a prospectus or prospectus supplement until such Selling Holders receipt of the copies of the supplemented or amended prospectus contemplated by subsection (g) of this Section 2.05 or until it is advised in writing by the Partnership that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings incorporated by reference in the prospectus.
Section 2.06. Cooperation by Holders . The Partnership shall have no obligation to include in a Registration Statement or Piggyback Registration Statement, or in an Underwritten Offering pursuant to Sections 2.01 or 2.02 , Registrable Securities of a Selling Holder who has failed to timely furnish such information that the Partnership determines, after consultation with counsel, is reasonably required in order for the Registration Statement or Piggyback Registration Statement or prospectus supplement, as applicable, to comply with the Securities Act.
Section 2.07. Expenses . The Partnership will pay all reasonable Registration Expenses, including in the case of an Underwritten Offering, regardless of whether any sale is made in such Underwritten Offering. Each Selling Holder shall pay all Selling Expenses in connection with any sale of its Registrable Securities hereunder. In addition, except as otherwise provided in Section 2.08 , the Partnership shall not be responsible for legal fees incurred by Holders in connection with the exercise of such Holders rights hereunder.
Section 2.08. Indemnification .
(a) By the Partnership . In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Partnership will indemnify and hold
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harmless each Selling Holder participating therein, its directors, officers, employees and agents, and each Person, if any, who controls such Selling Holder within the meaning of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the Exchange Act ), and its directors, officers, employees or agents, against any losses, claims, damages, expenses or liabilities (including reasonable attorneys fees and expenses) (collectively, Losses ), joint or several, to which such Selling Holder, director, officer, employee, agent or controlling Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact (in the case of any prospectus or any Written Testing-the-Waters Communication, in the light of the circumstances under which such statement is made) contained in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement, any preliminary prospectus or prospectus supplement, free writing prospectus or final prospectus or prospectus supplement contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus or any Written Testing-the-Waters Communication, in the light of the circumstances under which they were made) not misleading, and will reimburse each such Selling Holder, its directors, officers, employee and agents, and each such controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or actions or proceedings as such expenses are incurred; provided , however , that the Partnership will not be liable in any such case if and to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Selling Holder, its directors, officers, employees and agents or such controlling Person in writing specifically for use in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement or prospectus or any amendment or supplement thereto, as applicable. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Selling Holder or any such directors, officers, employees agents or controlling Person, and shall survive the transfer of such securities by such Selling Holder.
(b) By Each Selling Holder . Each Selling Holder agrees severally and not jointly to indemnify and hold harmless the Partnership, its directors, officers, employees and agents and each Person, if any, who controls the Partnership within the meaning of the Securities Act or of the Exchange Act, and its directors, officers, employees and agents, to the same extent as the foregoing indemnity from the Partnership to the Selling Holders, but only with respect to information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for inclusion in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement, any preliminary prospectus or prospectus supplement, free writing prospectus or final prospectus or prospectus supplement contained therein, or any amendment or supplement thereof; provided, however , that the liability of each Selling Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification.
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(c) Notice . Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party other than under this Section 2.08 . In any action brought against any indemnified party, the indemnified party shall notify the indemnifying party of the commencement thereof. The indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.08 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however , that, (i) if the indemnifying party has failed to assume the defense or employ counsel reasonably acceptable to the indemnified party or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and counsel to the indemnified party shall have concluded that there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding any other provision of this Agreement, no indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. In addition, notwithstanding any other provisions of this Agreement, an indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent (such consent not to be unreasonably withheld), but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment.
(d) Contribution . If the indemnification provided for in this Section 2.08 is held by a court or government agency of competent jurisdiction to be unavailable to any indemnified party or is insufficient to hold them harmless in respect of any Losses, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of such indemnified party on the other in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations; provided, however , that in no event shall the Selling Holder be required to contribute an aggregate amount in excess of the dollar amount of proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable Securities
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giving rise to such indemnification. The relative fault of the indemnifying party on the one hand and the indemnified party on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact has been made by, or relates to, information supplied by such party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. The amount paid by an indemnified party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such indemnified party in connection with investigating or defending any Loss that is the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of fraudulent misrepresentation.
(e) Other Indemnification . The provisions of this Section 2.08 shall be in addition to any other rights to indemnification or contribution that an indemnified party may have pursuant to law, equity, contract or otherwise.
Section 2.09. Rule 144 Reporting . With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Registrable Securities to the public without registration, the Partnership agrees to use its commercially reasonable efforts to:
(a) make and keep public information regarding the Partnership available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after the date hereof;
(b) file with the Commission in a timely manner all reports and other documents required of the Partnership under the Exchange Act at all times from and after the date hereof; and
(c) so long as a Holder owns any Registrable Securities, unless otherwise available via EDGAR or on the Partnerships website, furnish to such Holder promptly upon request a copy of the most recent annual or quarterly report of the Partnership, and such other reports and documents so filed as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration.
Section 2.10. Transfer or Assignment of Registration Rights . The rights to cause the Partnership to register Registrable Securities granted to a Holder by the Partnership under this Article II may be transferred or assigned by such Holder to one or more transferee(s) or assignee(s) of such Registrable Securities; provided, however , that (a) unless such transferee or assignee is an Affiliate of a Contributor Party, such transferee or assignee holds Registrable Securities representing at least five percent (5%) of the then-outstanding Registrable Securities, (b) the Partnership is given written notice prior to any said transfer or assignment, stating the
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name and address of each such transferee or assignee and identifying the Registrable Securities with respect to which such registration rights are being transferred or assigned, and (c) each such transferee or assignee agrees to be bound by this Agreement, including the provisions hereof imposing limitations on the rights of Holders to cause the registration of Registrable Securities or the terms and conditions of such registration.
Section 2.11. Restrictions on Public Sale by Holders of Registrable Securities . Each Contributor Party and any other Holder(s) who, along with its Affiliates, holds at least five percent (5%) of the then-outstanding Registrable Securities (subject to adjustment pursuant to Section 3.04 ), agrees to enter into a customary letter agreement with underwriters providing that such Holder will not effect any public sale or distribution of the Registrable Securities during the 90 calendar day period beginning on the date of a prospectus or prospectus supplement filed with the Commission with respect to the pricing of an Underwritten Offering, provided that (i) the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the underwriters on the Partnership or the officers, directors or any other unitholder of the Partnership on whom a restriction is imposed in connection with the Underwritten Offering, and such restrictions shall not otherwise be more restrictive than such restrictions so generally imposed by the underwriters, and (ii) the restrictions set forth in this Section 2.11 shall not apply to any Registrable Securities that are included in such Underwritten Offering by such Holder.
Section 2.12. Additional Restrictions . The rights granted under this Agreement to the Contributor Parties and to any other Holders of Registrable Securities shall be subject in all respect to the restrictions provided for in Section 5.8 of the Contribution Agreement. For avoidance of doubt, although all of the Registrable Securities may be registered pursuant to Section 2.01 during the Lock-up Period, the Selling Holders rights to sell, transfer or otherwise dispose of the Registrable Securities pursuant to a Registration Statement shall continue to be subject to the restrictions contained in Section 5.8 of the Contribution Agreement.
Section 2.13. No Inconsistent Agreements . The Partnership will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Partnerships securities under any agreement in effect on the date hereof.
ARTICLE III
MISCELLANEOUS
Section 3.01. Communications . All notices and other communications provided for or permitted hereunder shall be made in writing by facsimile, electronic mail, courier service or personal delivery:
(a) if to a Contributor Party:
Macdara J. Nash
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Vice President, Business Development/Transactions
National Grid
40 Sylvan Drive
Waltham MA 02451
Tel: 781-907-1710
Macdara.Nash@nationalgrid.com
with a copy to:
Timothy E. McAllister
Assistant General Counsel and Director, US Corporate and M&A
National Grid
40 Sylvan Road
Waltham, MA 02451
Tel: 781.907.1880
timothy.mcallister@nationalgrid.com
(b) if to a transferee of a Contributor Party, to such Holder at the address provided pursuant to Section 2.10 ; and
(c) if to the Partnership:
Dominion Midstream Partners, LP
c/o Dominion Midstream GP, LLC
120 Tredegar Street
Richmond, Virginia 23219
Attention: General Counsel
Facsimile: 804-819-2202
Electronic Mail: mark.webb@dom.com
All such notices and communications shall be deemed to have been received at the time delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile or sent via electronic mail; and when actually received, if sent by courier service or any other means.
Section 3.02. Successor and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including subsequent Holders of Registrable Securities to the extent permitted herein.
Section 3.03. Assignment of Rights . All or any portion of the rights and obligations of the Holders under this Agreement may be transferred or assigned by the Holders in accordance with Section 2.10 hereof.
Section 3.04. Recapitalization, Exchanges, Etc. Affecting the Registrable Securities . The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all securities of the Partnership or any successor or assign of the Partnership (whether by
15
merger, consolidation, sale of assets or otherwise) that may be issued in respect of, in exchange for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for combinations, splits, recapitalizations, pro rata distributions and the like occurring after the date of this Agreement.
Section 3.05. Specific Performance . Damages in the event of breach of this Agreement by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed that each party in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each of the parties hereto hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such party from pursuing any other rights and remedies at law or in equity that such party may have.
Section 3.06. Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.
Section 3.07. Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 3.08. Governing Law . The laws of the State of Delaware shall govern this Agreement. Each of the parties hereto agrees (a) that this Agreement involves at least $100,000.00, and (b) that this Agreement has been entered into by the parties hereto in express reliance upon 6 Del. C. § 2708. Each of the parties hereto hereby irrevocably and unconditionally agrees (i) that it is and shall continue to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware, and (ii)(A) to the extent that such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such partys agent for acceptance of legal process and notify the other parties hereto of the name and address of such agent, and (B) to the fullest extent permitted by law, that service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the U.S. Postal Service constituting evidence of valid service, and that, to the fullest extent permitted by applicable law, service made pursuant to (ii)(A) or (B) above shall have the same legal force and effect as if served upon such party personally within the State of Delaware. This Agreement may be executed in several counterparts, each of which shall be considered an original but which together shall be deemed one and the same instrument. An executed copy of this Agreement delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original executed copy of this Agreement.
Section 3.09. Severability of Provisions . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions
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hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction.
Section 3.10. Scope of Agreement . The rights granted pursuant to this Agreement are intended to supplement and not to reduce or replace any rights any Holders may have under the Partnership Agreement with respect to the Registrable Securities. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. Except as provided in the Partnership Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the rights granted by the Partnership set forth herein. Except as provided in the Partnership Agreement, this Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
Section 3.11. Amendment . This Agreement may be amended only by means of a written amendment signed by the Partnership and the Holders of a majority of the then outstanding Registrable Securities; provided , however , that no such amendment shall materially and adversely affect the rights of any Holder hereunder without the consent of such Holder.
Section 3.12. No Presumption . If any claim is made by a party relating to any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.
Section 3.13. Aggregation of Registrable Securities . All Registrable Securities held or acquired by Persons who are Affiliates of one another shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
Section 3.14. Obligations Limited to Parties to Agreement . Each of the parties hereto covenants, agrees and acknowledges that no Person other than the Partnership and the Holders shall have any obligation hereunder and that, notwithstanding that one or more of the Holders may be a corporation, partnership or limited liability company, no recourse under this Agreement or under any documents or instruments delivered in connection herewith or therewith shall be had against any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the Holders or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the Holders or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, as such, for any obligations of the Holders under this Agreement or any documents or instruments delivered in connection herewith or therewith or for any claim based on, in respect of or by reason of such obligation or its creation, except in each case for any assignee of the Holders hereunder.
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Section 3.15. Interpretation . All references to Articles and Sections shall be deemed to be references to Articles and Sections of this Agreement, unless otherwise specified. All references to instruments, documents, contracts and agreements are references to such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word including shall mean including but not limited to. Whenever any determination, consent or approval is to be made or given by the Holders under this Agreement, such action shall be in the Holders sole discretion unless otherwise specified.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first above written.
NORTH EAST TRANSMISSION CO., INC. | ||
By: |
/s/ Macdara Nash | |
Name: |
Macdara Nash | |
Title: |
Vice President | |
NATIONAL GRID IGTS CORP. | ||
By: |
/s/ Macdara Nash | |
Name: |
Macdara Nash | |
Title: |
Vice President |
S IGNATURE P AGE
TO
R EGISTRATION R IGHTS A GREEMENT
DOMINION MIDSTREAM PARTNERS, LP
By: Dominion Midstream GP, LLC Its: General Partner |
||
By: |
/s/ Mark O. Webb | |
Name: |
Mark O. Webb | |
Title: |
Vice President and General Counsel |
S IGNATURE P AGE
TO
R EGISTRATION R IGHTS A GREEMENT
Exhibit 10.2
Execution Version
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement ) is made and entered into as of September 29, 2015, by and between Dominion Midstream Partners, LP, a Delaware limited partnership (the Partnership ), and NJNR Pipeline Company, a New Jersey corporation ( NJNR ).
WHEREAS, this Agreement is made in connection with the transactions contemplated by the Contribution Agreement (the Contribution Agreement ), dated as of August 14, 2015 by and among NJNR, the Partnership, and Iroquois GP Holding Company, LLC, a Delaware limited liability company and wholly owned subsidiary of DM ( DM Sub ); and
WHEREAS, the Partnership has agreed to provide the registration and other rights set forth in this Agreement for the benefit of NJNR pursuant to the Contribution Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions . Capitalized terms used herein without definition shall have the meanings given to them in the First Amended and Restated Agreement of Limited Partnership of the Partnership dated October 20, 2014, as amended from time to time (the Partnership Agreement ). The terms set forth below are used herein as so defined:
Affiliate means, with respect to a specified Person, any other Person that directly or indirectly controls, is controlled by, or is under direct or indirect common control with such specified Person. For the purposes of this definition, control means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.
Agreement has the meaning given to such term in the introductory paragraph.
Commission has the meaning given to such term in Section 1.02 .
Common Unit has the meaning set forth in the Partnership Agreement.
Contribution Agreement has the meaning given to such term in the recitals of this Agreement.
Effectiveness Period means the period from the effective date of a Registration Statement until the earliest of (i) the first date on which there are no longer any Registrable Securities, and (ii) the End Date.
End Date has the meaning given to such term in Section 1.02 .
Exchange Act has the meaning given to such term in Section 2.09(a) .
Holder means the record holder or beneficial owner of any Registrable Securities.
Losses has the meaning given to such term in Section 2.09(a) .
Managing Underwriter(s) means, with respect to any Underwritten Offering, the book-running lead manager(s) of such Underwritten Offering.
NJNR has the meaning given to such term in the introductory paragraph.
Notice has the meaning given to such term in Section 2.02(a) .
Option Notice has the meaning given to such term in Section 2.02(b) .
Partnership has the meaning given to such term in the introductory paragraph.
Person means any individual, corporation, partnership, limited liability company, voluntary association, joint venture, trust, limited liability partnership, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other form of entity.
Piggyback Registration has the meaning given to such term in Section 2.05(a) .
Piggyback Registration Notice has the meaning given to such term in Section 2.05(a) .
Piggyback Registration Statement has the meaning given to such term in Section 2.05(a) .
Piggyback Shelf Registration Statement has the meaning given to such term in Section 2.05(a) .
Piggyback Shelf Takedown has the meaning given to such term in Section 2.05(a) .
Registrable Securities means the Common Units issued (or issuable) to NJNR pursuant to the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ), which Registrable Securities are subject to the rights provided herein until such rights terminate pursuant to the provisions hereof.
Registration Expenses means all expenses (other than Selling Expenses) incident to the Partnerships performance under or compliance with this Agreement to effect the registration of Registrable Securities on a Registration Statement or Piggyback Registration Statement pursuant to Section 2.01 , Section 2.02 or Section 2.05 and/or in connection with an Underwritten Offering pursuant to Section 2.03(a) , and the disposition of such Registrable Securities, including, without limitation, all registration, filing, securities exchange listing and securities exchange fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, fees of the Financial Industry Regulatory Authority, fees of transfer agents and
2
registrars, all word processing, duplicating and printing expenses, any transfer taxes and the fees and disbursements of counsel and independent public accountants for the Partnership, including the expenses of any special audits or cold comfort letters required by or incident to such performance and compliance.
Registration Statement has the meaning given to such term in Section 2.01 .
Securities Act has the meaning given to such term in Section 1.02 .
Selling Expenses means all underwriting fees, discounts and selling commissions applicable to the sale of Registrable Securities.
Selling Holder means a Holder who is selling Registrable Securities pursuant to a Registration Statement or Piggyback Registration Statement.
Shelf Registration Statement has the meaning given to such term in Section 2.01 .
Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
Underwritten Offering means an offering (including an offering pursuant to a Registration Statement or Piggyback Registration Statement) in which Registrable Securities are sold to an underwriter on a firm commitment basis for reoffering to the public or an offering that is a bought deal with one or more investment banks.
Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
Section 1.02. Registrable Securities . Any Registrable Security will cease to be a Registrable Security (a) at the time a Registration Statement or Piggyback Registration Statement covering such Registrable Security has been declared effective by the Securities and Exchange Commission (the Commission ), or otherwise has become effective, and such Registrable Security has been sold or disposed of pursuant to such Registration Statement or Piggyback Registration Statement; (b) at the time such Registrable Security has been disposed of pursuant to Rule 144 (or any similar provision then in effect under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the Securities Act )); (c) if such Registrable Security is held by the Partnership or one of its subsidiaries; (d) at the time such Registrable Security has been sold in a private transaction in which the transferors rights under this Agreement are not assigned to the transferee of such securities, and (e) at the date (the End Date ) that is four (4) years following the date on which the Partnership files a Shelf Registration Statement under Section 2.01 below.
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ARTICLE II
REGISTRATION RIGHTS
Section 2.01. Shelf Registration . Subject to Section 2.04 , the Partnership shall, no later than the 15 th Business Day following November 1, 2015, use its commercially reasonable efforts to file with the SEC a registration statement (a Registration Statement ) on Form S-3 for an offering to be made on a continuous or delayed basis pursuant to Rule 415 under the Securities Act including, if the Partnership is then eligible, as an automatic shelf registration, covering the resale of all of the Registrable Securities (the Shelf Registration Statement ). The Shelf Registration Statement shall be in a form permitting registration of such Registrable Securities for resale or distribution by Holders in an Underwritten Offering only. The Partnership will notify the Holders when such Shelf Registration Statement has become effective. The Partnership shall not be required to maintain in effect more than one shelf registration at any one time pursuant to this Article. The Partnership shall (subject to the limitations on registration obligations of the Partnership set forth herein) use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing of the Shelf Registration Statement, or automatically if the Partnership is eligible to file an automatically effective shelf registration statement, and (subject to the limitations on registration obligations of the Partnership set forth herein) to keep the Shelf Registration Statement continuously effective under the Securities Act (including by filing a replacement Shelf Registration Statement upon expiration of a Shelf Registration Statement filed pursuant to this Section 2.01 ) until the end of the Effectiveness Period).
Section 2.02. Additional Shelf Registration Rights; Purchase Option.
(a) After the Partnership files a Shelf Registration pursuant to Section 2.01 , upon the written request (a Notice ) by any Holder(s) owning collectively at least one-third of the Common Units originally issued to NJNR under the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ) sent to the Partnership on or before the first (1 st ) anniversary of the Closing Date, the Partnership shall file with the Commission, as soon as reasonably practicable, but, subject to the delay rights of the Partnership under Section 2.04 , in no event more than 90 days following the receipt of the Notice, an amended Shelf Registration Statement filed under Section 2.01 or a new Registration Statement under the Securities Act providing for the resale of the Registrable Securities (which may, at the option of the Holders giving such Notice, be a Shelf Registration Statement), which shall in either case provide for the resale pursuant to any method or combination of methods legally available to, and requested by, the Holders of any and all Registrable Securities covered by such Registration Statement. Such Registration Statement shall cover at the time of filing at least one-third of the Common Units issued to NJNR under the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ). The Partnership shall use its commercially reasonable efforts to cause such Registration Statement to be declared effective by the Commission as soon as reasonably practicable after the initial filing of the Registration Statement. The Partnership shall use its commercially reasonable efforts to cause any Registration Statement filed pursuant to this Section 2.02(a) to be continuously effective, supplemented and amended to the extent necessary to ensure that it is available for the resale of all Registrable Securities by the Holders until the end of the Effectiveness Period. Each Registration Statement when effective (and the documents incorporated therein by reference) shall comply as to form in all material respects with all
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applicable requirements of the Securities Act and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(b) If NJNR files a Notice pursuant to Section 2.02(a) , then the Partnership shall have the right, but not the obligation, to purchase from NJNR or from any other Holder(s) owning Common Units originally issued to NJNR under the Contribution Agreement, Common Units representing ten percent (10%) of the Common Units originally issued to NJNR under the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ). The Partnership shall exercise such purchase option by providing notice (the Option Notice ) to NJNR (or, if applicable, all other Holders owning Common Units originally issued to NJNR under the Contribution Agreement) within fifteen (15) Business Days after receipt of the Notice from NJNR pursuant to Section 2.02(a) . The purchase price for such Common Units shall be the volume-weighted average trading price of a DM Unit on the New York Stock Exchange for the 5-trading day period ending on the trading day immediately preceding the date of the Option Notice. The closing of such purchase shall occur within seven (7) Business Days after NJNRs receipt of the Option Notice, at which time the Partnership shall pay the purchase price for Common Units purchased by the Partnership pursuant to this Section 2.02(b) by wire transfer to the account designated by NJNR and NJNR shall transfer to the Partnership, by appropriate means of transfer designated by the Partnership, the purchased Common Units. If NJNR is the Holder of ten percent (10%) or more of the Common Units originally issued to NJNR under the Contribution Agreement at the time an Option Notice is given hereunder, the Partnership shall not be obligated to provide an Option Notice to any other Holders (other than NJNR) of such originally issued Common Units and NJNR shall sell and transfer to Partnership all Common Units purchased by Partnership pursuant to the rights granted in this Section 2.02(b) . Upon the Partnerships exercise and consummation of its purchase rights under this Section 2.02(b) , NJNRs rights (and the rights of any Holder of Common Units originally issued to NJNR under the Contribution Agreement) under Section 2.02(a) hereof shall automatically terminate and be of no further force or effect.
Section 2.03. Underwritten Offerings .
(a) Request for Underwritten Offering . In the event that one or more Holders collectively elect to dispose of then-outstanding Registrable Securities representing at least one-third of the Common Units originally issued to NJNR under the Contribution Agreement (subject to adjustment pursuant to Section 3.04 ) under a Shelf Registration Statement referred to in Sections 2.01 or 2.02 pursuant to an Underwritten Offering, the Partnership shall, upon written request by such Holders, retain underwriters in order to permit such Holders to effect such sale through an Underwritten Offering. The obligation of the Partnership to retain underwriters shall include entering into an underwriting agreement in customary form with the Managing Underwriter(s), which shall include customary indemnities in favor of, and taking all reasonable actions as are requested by, the Managing Underwriter(s) to expedite or facilitate the disposition of such Registrable Securities. In the event of an Underwritten Offering, the Partnership shall, upon request of the Selling Holders, cause its management to participate, subject to and in accordance with customary and reasonable processes, in a roadshow or similar marketing effort on behalf of the Selling Holders.
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(b) Limitation on Underwritten Offerings . In no event shall the Partnership be required under Section 2.03(a) to participate in more than one Underwritten Offering in any twelve-month period.
(c) General Procedures . In connection with any Underwritten Offering under Section 2.03(a) , the Holders of a majority of the Registrable Securities being sold in such Underwritten Offering shall be entitled, subject to the Partnerships consent (which is not to be unreasonably withheld), to select the Managing Underwriter(s). In connection with any Underwritten Offering under this Agreement, each Selling Holder and the Partnership shall be obligated to enter into an underwriting agreement that contains such representations and warranties, covenants, indemnities and other rights and obligations as are customary in underwriting agreements for firm commitment offerings of securities. No Selling Holder may participate in such Underwritten Offering unless such Selling Holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. Each Selling Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Partnership to and for the benefit of such underwriters also be made to and for such Selling Holders benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to such Selling Holders obligations. If any Selling Holder disapproves of the terms of an underwriting, such Selling Holder may elect to withdraw from the Underwritten Offering by notice to the Partnership and the Managing Underwriter(s); provided, however , that such withdrawal must be made at a time prior to the time of pricing of such Underwritten Offering. No such withdrawal shall affect the Partnerships obligation to pay Registration Expenses.
(d) Notwithstanding the foregoing, the terms of Sections 2.03(a) , (b) and (c) , and the Holders rights provided for under such Sections shall not be applicable to a Piggyback Registration.
Section 2.04. Delay Rights . If the General Partner determines that the Partnerships compliance with its obligations under this Article II would be materially detrimental to the Partnership and its Partners because such registration would (a) materially interfere with a significant acquisition, reorganization, financing or other similar transaction involving the Partnership, (b) require premature disclosure of material information that the Partnership has a bona fide business purpose for preserving as confidential or (c) render the Partnership unable to comply with applicable securities laws, then the Partnership shall have the right to postpone compliance with its obligations under this Article II for a period of not more than 90 days, provided, that such right pursuant to this Section 2.04 may not be utilized more than twice in any twelve-month period.
Section 2.05. Piggyback Registration
(a) Whenever the Partnership proposes to register the offer and sale of any Common Units under the Securities Act (other than a registration (i) pursuant to a Registration Statement on Form S-8 (or other registration solely relating to an offering or sale to employees of the Partnership pursuant to any employee benefit plans (as such terms are defined for purposes of
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Form S-8)), (ii) pursuant to a Registration Statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the Securities Act or any successor rule thereto), (iii) in connection with any dividend or distribution reinvestment or similar plan, or (iv) or pursuant to an at-the-market equity offering program), whether for its own account or for the account of one or more unitholders of the Partnership and the form of Registration Statement (a Piggyback Registration Statement ) to be used may be used for registration of Registrable Securities (a Piggyback Registration ), the Partnership shall give prompt written notice (in any event no later than ten days prior to the filing of such Registration Statement) to each Holder of its intention to effect such a registration (a Piggyback Registration Notice ). Subject to Section 2.05(b) , Section 2.05(c) and Section 2.13 , the Partnership shall include in such registration all Registrable Securities with respect to which the Partnership has received written requests for inclusion from Holders of Registrable Securities within five days after the Piggyback Registration Notice has been given to each Holder. Subject to Section 2.05(b) , Section 2.05 (c) and Section 2.13 , if any Piggyback Registration Statement that includes Registrable Securities is a Shelf Registration Statement (a Piggyback Shelf Registration Statement ), the Holder(s) of such Registrable Securities shall be notified of by the Partnership, and shall have the right, but not the obligation to participate in, any offering under such Piggyback Shelf Registration Statement (a Piggyback Shelf Takedown ).
(b) If a Piggyback Registration or Piggyback Shelf Takedown is initiated as a primary Underwritten Offering on behalf of the Partnership and the Managing Underwriter(s) advises the Partnership in writing that in its reasonable and good faith opinion, the inclusion of any Common Units in such registration or takedown other than Common Units being issued by the Partnership would exceed the number of Common Units that can be sold in such offering or would materially adversely affect the price per Common Unit to be sold in such offering, or would materially adversely affect the timing of such registration or takedown, then the Piggyback Registration Notice shall so state and the Holders shall have no right to participate in such offering or takedown. In addition, if a Piggyback Registration or Piggyback Shelf Takedown is initiated as a primary Underwritten Offering on behalf of the Partnership and the Managing Underwriter(s) advises the Partnership and the Holders (if any Holders have elected to include Registrable Securities in such Piggyback Registration or Piggyback Shelf Takedown) in writing prior to the launch of such offering that in its reasonable and good faith opinion the number of Common Units proposed to be included in such registration or takedown, including all Registrable Securities and all other Common Units proposed to be included in such underwritten offering, exceeds the number of Common Units that can be sold in such offering and/or that the number of Common Units proposed to be included in any such registration or takedown would adversely affect the price per Common Unit to be sold in such offering, the Partnership shall include in such registration or takedown (i) first, the Common Units that the Partnership proposes to sell; and (ii) second, the Common Units requested to be included therein by Holders and by holders of Common Units other than Holders of Registrable Securities having registration rights with respect to such registration or takedown, allocated pro rata among all such holders on the basis of the number of Common Units owned by each such holder as to which the Partnership has received written requests for inclusion in such registration or takedown.
(c) If a Piggyback Registration or Piggyback Shelf Takedown is initiated as an Underwritten Offering on behalf of a holder of Common Units other than Registrable Securities, and the Managing Underwriter(s) advises the Partnership in writing that in its reasonable and
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good faith opinion, the inclusion of any Common Units in such registration or takedown other than the Common Units of such holder, would exceed the number of Common Units that can be sold in such offering or would materially adversely affect the price per Common Unit to be sold in such offering, or would materially adversely affect the timing of such registration or takedown, then the Piggyback Registration Notice shall so state and the Holders shall have no right to participate in such registration or takedown. In addition, if a Piggyback Registration or Piggyback Shelf Takedown is initiated as an Underwritten Offering on behalf of a holder of Common Units other than Registrable Securities, and the Managing Underwriter(s) advises the Partnership in writing prior to the launch of such offering that in its reasonable and good faith opinion, the number of Common Units proposed to be included in such registration or takedown, including all Registrable Securities and all other Common Units proposed to be included in such underwritten offering, exceeds the number of Common Units that can be sold in such offering and/or that the number of Common Units proposed to be included in any such registration or takedown would adversely affect the price per Common Unit to be sold in such offering, the Partnership shall include in such registration or takedown (i) first, the Common Units requested to be included therein by the holder(s) requesting such registration or takedown and; and (ii) second, the Common Units requested to be included therein by holders (including Holders) of Common Units having registration rights with respect to such registration or takedown other than the holder(s) requesting such registration or takedown, allocated pro rata among all such holders on the basis of the number of Common Units owned by each such holder or in such manner as they may otherwise agree.
(d) If any Piggyback Registration or Piggyback Shelf Takedown is initiated as a primary Underwritten Offering on behalf of the Partnership, the Partnership shall select the Managing Underwriter(s) in connection with such offering.
(e) The Partnership may postpone or withdraw the filing or the effectiveness of a Piggyback Registration at any time in its sole discretion.
Section 2.06. Sale Procedures . In connection with its obligations under this Article II , the Partnership will, as expeditiously as possible (subject to Section 2.05(e) in the case of a Piggyback Registration):
(a) cause each Registration Statement or Piggyback Registration Statement (and the documents incorporated therein by reference), at the time such registration statement or any part thereof becomes effective, (i) to comply as to form in all material respects with all applicable requirements of the Securities Act and (ii) not to contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading provided, however , that the obligations of the Partnership under this Section 2.06(a)(ii) will not be applicable with respect to information furnished by a Selling Holder, its directors, officers, employees and agents or such controlling Person in writing specifically for use in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement or prospectus or any amendment or supplement thereto, as applicable.
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(b) prepare and file with the Commission such amendments and supplements to each Registration Statement or Piggyback Registration Statement and the prospectus used in connection therewith as may be necessary to keep each Registration Statement or Piggyback Registration Statement effective for the Effectiveness Period, in the case of a Registration Statement, and as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement or Piggyback Registration Statement;
(c) if a prospectus supplement will be used in connection with the marketing of an Underwritten Offering and the Managing Underwriter(s) notifies the Partnership in writing that, in the sole judgment of such Managing Underwriter(s), inclusion of detailed information in such prospectus supplement is of material importance to the success of the Underwritten Offering of such Registrable Securities, use its commercially reasonable efforts to include such information in such prospectus supplement;
(d) furnish to each Selling Holder (i) as far in advance as reasonably practicable before filing a Registration Statement or Piggyback Registration Statement or any supplement or amendment thereto, upon request, copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits and each document incorporated by reference therein to the extent then required by the rules and regulations of the Commission), and provide each such Selling Holder the opportunity to object to any information pertaining to such Selling Holder and its plan of distribution that is contained therein and make the corrections reasonably requested by such Selling Holder with respect to such information prior to filing a Registration Statement or Piggyback Registration Statement or supplement or amendment thereto, and (ii) such number of copies of such Registration Statement or Piggyback Registration Statement and the prospectus included therein and any supplements and amendments thereto as such Persons may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Registration Statement or Piggyback Registration Statement;
(e) if applicable, use its commercially reasonable efforts to register or qualify the Registrable Securities covered by a Registration Statement or Piggyback Registration Statement under the securities or blue sky laws of such jurisdictions as the Selling Holders or, in the case of an Underwritten Offering, the Managing Underwriter(s), shall reasonably request; provided , however , that the Partnership will not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any action that would subject it to general service of process in any jurisdiction where it is not then so subject;
(f) promptly notify each Selling Holder and each underwriter, at any time when a prospectus is required to be delivered under the Securities Act, of (i) the filing of a Registration Statement or Piggyback Registration Statement or any prospectus or prospectus supplement to be used in connection therewith, or any amendment or supplement thereto, and, with respect to such Registration Statement or Piggyback Registration Statement or any post-effective amendment thereto, when the same has become effective; and (ii) any written comments from the Commission with respect to any filing referred to in clause (i) and any written request by the Commission for amendments or supplements to a Registration Statement or Piggyback Registration Statement or any prospectus or prospectus supplement thereto;
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(g) immediately notify each Selling Holder and each underwriter, at any time when a prospectus is required to be delivered under the Securities Act, of (i) the happening of any event as a result of which the prospectus or prospectus supplement contained in a Registration Statement or Piggyback Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (in the case of the prospectus contained therein, in the light of the circumstances under which a statement is made); (ii) the issuance or threat of issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or Piggyback Registration Statement, or the initiation of any proceedings for that purpose; or (iii) the receipt by the Partnership of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction. Following the provision of such notice, the Partnership agrees to, as promptly as practicable, amend or supplement the prospectus or prospectus supplement or take other appropriate action so that the prospectus or prospectus supplement does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading in the light of the circumstances then existing and to take such other commercially reasonable action as is necessary to remove a stop order, suspension, threat thereof or proceedings related thereto;
(h) upon request and subject to appropriate confidentiality obligations, furnish to each Selling Holder copies of any and all transmittal letters or other correspondence with the Commission or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to any offering of Registrable Securities;
(i) in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel for the Partnership dated the date of the closing under the underwriting agreement and (ii) a cold comfort letter, dated the pricing date of such Underwritten Offering (to the extent available) and a letter of like kind dated the date of the closing under the underwriting agreement, in each case, signed by the independent public accountants who have certified the Partnerships financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the cold comfort letter shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus and any prospectus supplement included therein) as have been customarily covered in opinions of issuers counsel and in accountants letters delivered to the underwriters in Underwritten Offerings of securities by the Partnership and such other matters as such underwriters and Selling Holders may reasonably request;
(j) otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
(k) make available to the appropriate representatives of the Managing Underwriter(s) and Selling Holders access to such information and Partnership personnel as is reasonable and customary to enable such parties to establish a due diligence defense under the Securities Act;
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(l) cause all Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Partnership are then listed;
(m) use its commercially reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Partnership to enable the Selling Holders to consummate the disposition of the Registrable Securities;
(n) provide a transfer agent and registrar for all Registrable Securities covered by a Registration Statement or Piggyback Registration Statement not later than the effective date of such registration statement; and
(o) enter into customary agreements and take such other actions as are reasonably requested by the Selling Holders or the underwriters, if any, in order to expedite or facilitate the disposition of the Registrable Securities.
Each Selling Holder, upon receipt of notice from the Partnership of the happening of any event of the kind described in subsection (g) of this Section 2.06 shall forthwith discontinue disposition of the Registrable Securities by means of a prospectus or prospectus supplement until such Selling Holders receipt of the copies of the supplemented or amended prospectus contemplated by subsection (g) of this Section 2.06 or until it is advised in writing by the Partnership that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings incorporated by reference in the prospectus.
Section 2.07. Cooperation by Holders . The Partnership shall have no obligation to include in a Registration Statement or Piggyback Registration Statement, or in an Underwritten Offering pursuant to Sections 2.01 , 2.02 or 2.03 , Registrable Securities of a Selling Holder who has failed to timely furnish such information that the Partnership determines, after consultation with counsel, is reasonably required in order for the Registration Statement or Piggyback Registration Statement or prospectus supplement, as applicable, to comply with the Securities Act.
Section 2.08. Expenses . The Partnership will pay all reasonable Registration Expenses, including in the case of an Underwritten Offering, regardless of whether any sale is made in such Underwritten Offering. Each Selling Holder shall pay all Selling Expenses in connection with any sale of its Registrable Securities hereunder. In addition, except as otherwise provided in Section 2.09 , the Partnership shall not be responsible for legal fees incurred by Holders in connection with the exercise of such Holders rights hereunder.
Section 2.09. Indemnification .
(a) By the Partnership . In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Partnership will indemnify and hold harmless each Selling Holder participating therein, its directors, officers, employees and agents, and each Person, if any, who controls such Selling Holder within the meaning of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the Exchange Act ), and its directors, officers, employees or agents,
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against any losses, claims, damages, expenses or liabilities (including reasonable attorneys fees and expenses) (collectively, Losses ), joint or several, to which such Selling Holder, director, officer, employee, agent or controlling Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact (in the case of any prospectus or any Written Testing-the-Waters Communication, in the light of the circumstances under which such statement is made) contained in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement, any preliminary prospectus or prospectus supplement, free writing prospectus or final prospectus or prospectus supplement contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus or any Written Testing-the-Waters Communication, in the light of the circumstances under which they were made) not misleading, and will reimburse each such Selling Holder, its directors, officers, employee and agents, and each such controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or actions or proceedings as such expenses are incurred; provided , however , that the Partnership will not be liable in any such case if and to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Selling Holder, its directors, officers, employees and agents or such controlling Person in writing specifically for use in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement or prospectus or any amendment or supplement thereto, as applicable. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Selling Holder or any such directors, officers, employees agents or controlling Person, and shall survive the transfer of such securities by such Selling Holder.
(b) By Each Selling Holder . Each Selling Holder agrees severally and not jointly to indemnify and hold harmless the Partnership, its directors, officers, employees and agents and each Person, if any, who controls the Partnership within the meaning of the Securities Act or of the Exchange Act, and its directors, officers, employees and agents, to the same extent as the foregoing indemnity from the Partnership to the Selling Holders, but only with respect to information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for inclusion in any Written Testing-the-Waters Communication, a Registration Statement, a Piggyback Registration Statement, any preliminary prospectus or prospectus supplement, free writing prospectus or final prospectus or prospectus supplement contained therein, or any amendment or supplement thereof; provided, however , that the liability of each Selling Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification.
(c) Notice . Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party other than under this Section 2.09 .
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In any action brought against any indemnified party, the indemnified party shall notify the indemnifying party of the commencement thereof. The indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.09 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however , that, (i) if the indemnifying party has failed to assume the defense or employ counsel reasonably acceptable to the indemnified party or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and counsel to the indemnified party shall have concluded that there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding any other provision of this Agreement, (i) no indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (A) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (B) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party, and (ii) no indemnified party shall settle any action brought against it with respect to which it is entitled to indemnification hereunder without the consent of the indemnifying party unless the settlement thereof imposes no liability or obligation on, and includes a complete and unconditional release from all liability of, the indemnifying party.
(d) Contribution . If the indemnification provided for in this Section 2.09 is held by a court or government agency of competent jurisdiction to be unavailable to any indemnified party or is insufficient to hold them harmless in respect of any Losses, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of such indemnified party on the other in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations; provided, however , that in no event shall the Selling Holder be required to contribute an aggregate amount in excess of the dollar amount of proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable Securities giving rise to such indemnification. The relative fault of the indemnifying party on the one hand and the indemnified party on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact has been made by, or relates to, information supplied by such party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata
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allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. The amount paid by an indemnified party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such indemnified party in connection with investigating or defending any Loss that is the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of fraudulent misrepresentation.
(e) Other Indemnification . The provisions of this Section 2.09 shall be in addition to any other rights to indemnification or contribution that an indemnified party may have pursuant to law, equity, contract or otherwise.
Section 2.10. Rule 144 Reporting . With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Registrable Securities to the public without registration, the Partnership agrees to use its commercially reasonable efforts to:
(a) make and keep public information regarding the Partnership available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after the date hereof;
(b) file with the Commission in a timely manner all reports and other documents required of the Partnership under the Exchange Act at all times from and after the date hereof; and
(c) so long as a Holder owns any Registrable Securities, unless otherwise available via EDGAR or on the Partnerships website, furnish to such Holder promptly upon request a copy of the most recent annual or quarterly report of the Partnership, and such other reports and documents so filed as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration.
Section 2.11. Transfer or Assignment of Registration Rights . The rights to cause the Partnership to register Registrable Securities granted to a Holder by the Partnership under this Article II may be transferred or assigned by such Holder to one or more transferee(s) or assignee(s) of such Registrable Securities; provided, however , that (a) unless such transferee or assignee is an Affiliate of NJNR, such transferee or assignee holds Registrable Securities representing at least five percent (5%) of the then-outstanding Registrable Securities, (b) the Partnership is given written notice prior to any said transfer or assignment, stating the name and address of each such transferee or assignee and identifying the Registrable Securities with respect to which such registration rights are being transferred or assigned, and (c) each such transferee or assignee agrees to be bound by this Agreement, including the provisions hereof imposing limitations on the rights of Holders to cause the registration of Registrable Securities or the terms and conditions of such registration.
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Section 2.12. Restrictions on Public Sale by Holders of Registrable Securities . NJNR and any other Holder(s) who, along with its Affiliates, holds at least five percent (5%) of the then-outstanding Registrable Securities (subject to adjustment pursuant to Section 3.04 ), agrees to enter into a customary letter agreement with underwriters providing that such Holder will not effect any public sale or distribution of the Registrable Securities during the 90 calendar day period beginning on the date of a prospectus or prospectus supplement filed with the Commission with respect to the pricing of an Underwritten Offering, provided that (i) the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the underwriters on the Partnership or the officers, directors or any other unitholder of the Partnership on whom a restriction is imposed in connection with the Underwritten Offering, and such restrictions shall not otherwise be more restrictive than such restrictions so generally imposed by the underwriters, and (ii) the restrictions set forth in this Section 2.12 shall not apply to any Registrable Securities that are included in such Underwritten Offering by such Holder.
Section 2.13. Additional Restrictions . The rights granted under this Agreement to NJNR and to any other Holders of Registrable Securities shall be subject in all respect to the restrictions provided for in Section 5.8 of the Contribution Agreement. For avoidance of doubt, although all of the Registrable Securities may be registered pursuant to Section 2.01 during the Lock-up Period, the Selling Holders rights to sell, transfer or otherwise dispose of the Registrable Securities pursuant to a Registration Statement shall continue to be subject to the restrictions contained in Section 5.8 of the Contribution Agreement.
Section 2.14. No Inconsistent Agreements . The Partnership will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Partnerships securities under any agreement in effect on the date hereof.
ARTICLE III
MISCELLANEOUS
Section 3.01. Communications . All notices and other communications provided for or permitted hereunder shall be made in writing by facsimile, electronic mail, courier service or personal delivery:
(a) if to NJNR:
NJNR Pipeline Company
1415 Wyckoff Road
Wall, New Jersey 07719
Attn: Richard R. Gardner
Facsimile: (732) 919-8188
E-mail: rrgardner@njresources.com
15
with a copy to:
NJR Service Corporation
1415 Wyckoff Road
Wall, New Jersey 07719
Attn: Legal Department
Facsimile: (732) 938-1226
E-mail: wscharfenberg@njresources.com
(b) if to a transferee of NJNR, to such Holder at the address provided pursuant to Section 2.11 ; and
(c) if to the Partnership:
Dominion Midstream Partners, LP
c/o Dominion Midstream GP, LLC
120 Tredegar Street
Richmond, Virginia 23219
Attention: General Counsel
Facsimile: 804-819-2202
Electronic Mail: mark.webb@dom.com
All such notices and communications shall be deemed to have been received at the time delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile or sent via electronic mail; and when actually received, if sent by courier service or any other means.
Section 3.02. Successor and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including subsequent Holders of Registrable Securities to the extent permitted herein.
Section 3.03. Assignment of Rights . All or any portion of the rights and obligations of the Holders under this Agreement may be transferred or assigned by the Holders in accordance with Section 2.10 hereof.
Section 3.04. Recapitalization, Exchanges, Etc. Affecting the Registrable Securities . The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all securities of the Partnership or any successor or assign of the Partnership (whether by merger, consolidation, sale of assets or otherwise) that may be issued in respect of, in exchange for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for combinations, splits, recapitalizations, pro rata distributions and the like occurring after the date of this Agreement.
Section 3.05. Specific Performance . Damages in the event of breach of this Agreement by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed that each party in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction,
16
enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each of the parties hereto hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such party from pursuing any other rights and remedies at law or in equity that such party may have.
Section 3.06. Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.
Section 3.07. Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 3.08. Governing Law . The laws of the State of Delaware shall govern this Agreement. Each of the parties hereto agrees (a) that this Agreement involves at least $100,000.00, and (b) that this Agreement has been entered into by the parties hereto in express reliance upon 6 Del. C. § 2708. Each of the parties hereto hereby irrevocably and unconditionally agrees (i) that it is and shall continue to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware, and (ii)(A) to the extent that such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such partys agent for acceptance of legal process and notify the other parties hereto of the name and address of such agent, and (B) to the fullest extent permitted by law, that service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the U.S. Postal Service constituting evidence of valid service, and that, to the fullest extent permitted by applicable law, service made pursuant to (ii)(A) or (B) above shall have the same legal force and effect as if served upon such party personally within the State of Delaware. This Agreement may be executed in several counterparts, each of which shall be considered an original but which together shall be deemed one and the same instrument. An executed copy of this Agreement delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original executed copy of this Agreement.
Section 3.09. Severability of Provisions . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction.
Section 3.10. Scope of Agreement . The rights granted pursuant to this Agreement are intended to supplement and not to reduce or replace any rights any Holders may have under the Partnership Agreement with respect to the Registrable Securities. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. Except as provided in the Partnership Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the rights granted by the Partnership set forth herein. Except as provided in the
17
Partnership Agreement, this Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
Section 3.11. Amendment . This Agreement may be amended only by means of a written amendment signed by the Partnership and the Holders of a majority of the then outstanding Registrable Securities; provided , however , that no such amendment shall materially and adversely affect the rights of any Holder hereunder without the consent of such Holder.
Section 3.12. No Presumption . If any claim is made by a party relating to any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.
Section 3.13. Aggregation of Registrable Securities . All Registrable Securities held or acquired by Persons who are Affiliates of one another shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
Section 3.14. Obligations Limited to Parties to Agreement . Each of the parties hereto covenants, agrees and acknowledges that no Person other than the Partnership and the Holders shall have any obligation hereunder and that, notwithstanding that one or more of the Holders may be a corporation, partnership or limited liability company, no recourse under this Agreement or under any documents or instruments delivered in connection herewith or therewith shall be had against any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the Holders or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the Holders or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, as such, for any obligations of the Holders under this Agreement or any documents or instruments delivered in connection herewith or therewith or for any claim based on, in respect of or by reason of such obligation or its creation, except in each case for any assignee of the Holders hereunder.
Section 3.15. Interpretation . All references to Articles and Sections shall be deemed to be references to Articles and Sections of this Agreement, unless otherwise specified. All references to instruments, documents, contracts and agreements are references to such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word including shall mean including but not limited to. Whenever any determination, consent or approval is to be made or given by the Holders under this Agreement, such action shall be in the Holders sole discretion unless otherwise specified.
[Signature page follows]
18
IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first above written.
NJNR PIPELINE COMPANY | ||
By: |
/s/ Richard R. Gardner | |
Name: |
Richard R. Gardner | |
Title: |
Vice President |
S IGNATURE P AGE
TO
R EGISTRATION R IGHTS A GREEMENT
DOMINION MIDSTREAM PARTNERS, LP
By: Dominion Midstream GP, LLC Its: General Partner |
||
By: |
/s/ Mark O. Webb |
|
Name: |
Mark O. Webb |
|
Title: |
Vice President and General Counsel |
S IGNATURE P AGE
TO
R EGISTRATION R IGHTS A GREEMENT
Exhibit 23
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in Registration Statement No. 333-199501 on Form S-8 of our report dated February 24, 2015, relating to the financial statements of Iroquois Gas Transmission System, L.P. as of December 31, 2014 and 2013 and for the three years ended December 31, 2014, appearing in this Current Report on Form 8-K of Dominion Midstream Partners, LP.
/s/ Blum, Shapiro & Company, P.C.
West Hartford, Connecticut
September 29, 2015
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
|
|
Page
Number
|
|
|
Audited Financial Statements |
||||
Report of Independent Auditors |
2 | |||
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012 |
3 | |||
Consolidated Balance Sheets at December 31, 2014 and 2013 |
4 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 |
6 | |||
Consolidated Statements of Changes in Partners Equity for the Years Ended December 31, 2014, 2013 and 2012 |
7 | |||
Notes to Consolidated Financial Statements |
8 |
REPORT OF INDEPENDENT AUDITORS
To the Partners of Iroquois Gas Transmission System, L.P.:
We have audited the accompanying consolidated financial statements of Iroquois Gas Transmission System, L.P. and its subsidiaries (the Partnership), which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, changes in partners equity and cash flows for the years ended December 31, 2014, 2013 and 2012, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Iroquois Gas Transmission System, L.P. and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years ended December 31, 2014, 2013 and 2012 in accordance with accounting principles generally accepted in the United States of America.
/s/ Blum, Shapiro & Company, P.C.
West Hartford, Connecticut
February 24, 2015
2
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Statements of Comprehensive Income
Year Ended December 31, | 2014 | 2013 | 2012 | |||||||||
(thousands of dollars) | ||||||||||||
Operating Revenues (Note 9) (1) |
$ | 199,900 | $ | 199,694 | $ | 207,717 | ||||||
Operating Expenses |
||||||||||||
Operations and maintenance |
28,058 | 27,343 | 30,496 | |||||||||
Depreciation and amortization |
37,669 | 37,340 | 37,262 | |||||||||
Taxes other than income taxes |
27,766 | 26,805 | 24,635 | |||||||||
Total operating expenses |
93,493 | 91,488 | 92,393 | |||||||||
Operating Income |
106,407 | 108,206 | 115,324 | |||||||||
Other Income / (Expenses) |
||||||||||||
Interest income |
199 | 215 | 129 | |||||||||
Allowance for equity funds used during construction |
1,336 | 154 | | |||||||||
Other, net |
138 | (6 | ) | (1,794 | ) | |||||||
1,673 | 363 | (1,665 | ) | |||||||||
Interest Expense |
||||||||||||
Interest expense |
20,993 | 21,619 | 22,348 | |||||||||
Allowance for borrowed funds used during construction |
(573 | ) | (69 | ) | | |||||||
20,420 | 21,550 | 22,348 | ||||||||||
Net Income |
87,660 | 87,019 | 91,311 | |||||||||
Other comprehensive income/(loss) - effects of retirement benefit plans |
(745 | ) | 2,606 | 661 | ||||||||
Comprehensive Income |
$ | 86,915 | $ | 89,625 | $ | 91,972 |
(1) | See Note 8 for amounts attributable to affiliated parties. |
The accompanying notes are an integral part of these Financial Statements.
3
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Balance Sheets
At December 31, | 2014 | 2013 | ||||||
(thousands of dollars) | ||||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and temporary cash investments |
$ | 80,194 | $ | 72,223 | ||||
Accounts receivable - trade |
13,971 | 11,963 | ||||||
Accounts receivable - affiliates (1) |
3,169 | 6,975 | ||||||
Prepaid property taxes |
10,766 | 10,693 | ||||||
Other current assets |
7,647 | 4,743 | ||||||
Total current assets |
115,747 | 106,597 | ||||||
Natural Gas Transmission Plant |
||||||||
Natural gas plant in service |
1,274,535 | 1,267,355 | ||||||
Construction work in progress |
29,969 | 14,338 | ||||||
1,304,504 | 1,281,693 | |||||||
Accumulated depreciation and amortization |
(659,619 | ) | (628,002 | ) | ||||
Net natural gas transmission plant (Note 3) |
644,885 | 653,691 | ||||||
Other Assets and Deferred Charges |
||||||||
Other assets and deferred charges |
10,874 | 9,751 | ||||||
Total other assets and deferred charges |
10,874 | 9,751 | ||||||
Total assets |
$ | 771,506 | $ | 770,039 |
(1) | See Note 8 for amounts attributable to affiliated parties. |
The accompanying notes are an integral part of these Financial Statements.
4
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Balance Sheets
At December 31, | 2014 | 2013 | ||||||
(thousands of dollars) | ||||||||
LIABILITIES AND PARTNERS EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable (1) |
$ | 2,392 | $ | 3,902 | ||||
Accrued interest |
2,205 | 2,297 | ||||||
Current portion of long-term debt (Note 4) |
9,500 | 9,000 | ||||||
Customer deposits |
7,974 | 7,181 | ||||||
Other current liabilities |
6,628 | 3,371 | ||||||
Total current liabilities |
28,699 | 25,751 | ||||||
Long-Term Debt (Note 4) |
340,000 | 349,500 | ||||||
Other Non-Current Liabilities |
||||||||
Other non-current liabilities |
5,124 | 4,020 | ||||||
Other non-current liabilities |
5,124 | 4,020 | ||||||
Commitments and Contingencies (Note 7) |
||||||||
Total liabilities |
373,823 | 379,271 | ||||||
Partners Equity |
397,683 | 390,768 | ||||||
Total liabilities and partners equity |
$ | 771,506 | $ | 770,039 |
(1) | See Note 8 for amounts attributable to affiliated parties. |
The accompanying notes are an integral part of these Financial Statements.
5
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Statements of Cash Flows
Year Ended December 31, | 2014 | 2013 | 2012 | |||||||||
(thousands of dollars) | ||||||||||||
Cash Flows from Operating Activities |
||||||||||||
Net Income |
$ | 87,660 | $ | 87,019 | $ | 91,311 | ||||||
Adjusted for the following: |
||||||||||||
Depreciation and amortization |
37,669 | 37,340 | 37,262 | |||||||||
Allowance for equity funds used during construction |
(1,336 | ) | (154 | ) | | |||||||
Other assets and deferred charges |
390 | (1,260 | ) | (318 | ) | |||||||
Other non-current liabilities |
(1,154 | ) | 2,879 | 352 | ||||||||
Changes in working capital: |
||||||||||||
Accounts receivable |
1,798 | 2,989 | (1,358 | ) | ||||||||
Prepaid property taxes |
(73 | ) | (918 | ) | (887 | ) | ||||||
Other current assets |
788 | (116 | ) | 1,191 | ||||||||
Accounts payable |
(664 | ) | (1,808 | ) | 38 | |||||||
Customer deposits |
793 | (72 | ) | 1,917 | ||||||||
Accrued interest |
(92 | ) | (102 | ) | (122 | ) | ||||||
Other current liabilities |
(435 | ) | (2,174 | ) | 1,485 | |||||||
Net cash provided by operating activities |
125,344 | 123,623 | 130,871 | |||||||||
Cash Flows from Investing Activities |
||||||||||||
Capital expenditures |
(28,373 | ) | (19,257 | ) | (6,167 | ) | ||||||
Net cash used for investing activities |
(28,373 | ) | (19,257 | ) | (6,167 | ) | ||||||
Cash Flows from Financing Activities |
||||||||||||
Partner distributions |
(80,000 | ) | (80,000 | ) | (100,000 | ) | ||||||
Repayments of long-term debt |
(9,000 | ) | (10,000 | ) | (12,000 | ) | ||||||
Net cash used for financing activities |
(89,000 | ) | (90,000 | ) | (112,000 | ) | ||||||
Net increase in cash and temporary cash investments |
7,971 | 14,366 | 12,704 | |||||||||
Cash and temporary cash investments at beginning of year |
72,223 | 57,857 | 45,153 | |||||||||
Cash and temporary cash investments at end of year |
$ | 80,194 | $ | 72,223 | $ | 57,857 | ||||||
Supplemental Disclosure of Cash Flow Information |
||||||||||||
Cash paid for interest |
$ | 20,599 | $ | 21,193 | $ | 21,910 | ||||||
Accounts payable accruals for capital expenditures |
1,589 | 2,435 | 895 |
The accompanying notes are an integral part of these Financial Statements.
6
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Statements of Changes in Partners Equity
(thousands of dollars) | Net Income |
Distribution to
Partners |
Contributions
by Partners |
Accumulated
Other Comprehensive Income/(Loss) |
Total Partners
Equity |
|||||||||||||||
December 31, 2011 |
||||||||||||||||||||
Balance |
$ | 1,060,520 | $ | (946,544) | $ | 279,381 | $ | (4,186 | ) | $ | 389,171 | |||||||||
Net income |
91,311 | | | | 91,311 | |||||||||||||||
Equity distributions to partners |
| (100,000) | | | (100,000 | ) | ||||||||||||||
Other comprehensive income |
| | | 661 | 661 | |||||||||||||||
December 31, 2012 |
||||||||||||||||||||
Balance |
$ | 1,151,831 | $ | (1,046,544) | $ | 279,381 | $ | (3,525 | ) | $ | 381,143 | |||||||||
Net income |
87,019 | | | | 87,019 | |||||||||||||||
Equity distributions to partners |
| (80,000) | | | (80,000 | ) | ||||||||||||||
Other comprehensive income |
| | | 2,606 | 2,606 | |||||||||||||||
December 31, 2013 |
||||||||||||||||||||
Balance |
$ | 1,238,850 | $ | (1,126,544) | $ | 279,381 | $ | (919 | ) | $ | 390,768 | |||||||||
Net income |
87,660 | | | | 87,660 | |||||||||||||||
Equity distributions to partners |
| (80,000) | | | (80,000 | ) | ||||||||||||||
Other comprehensive loss |
| | | (745 | ) | (745 | ) | |||||||||||||
December 31, 2014 |
||||||||||||||||||||
Balance |
$ | 1,326,510 | $ | (1,206,544) | $ | 279,381 | $ | (1,664 | ) | $ | 397,683 |
The accompanying notes are an integral part of these financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Partnership
Iroquois Gas Transmission System, L.P., (the Partnership or Iroquois) is a Delaware limited partnership that operates as an interstate pipeline providing service to local gas distribution companies, electric utilities and electric power generators, as well as marketers and other end users, through interconnecting pipelines and exchanges. Iroquois pipeline extends from the U.S.-Canadian border at Waddington, New York through the state of Connecticut to South Commack, Long Island, New York and continuing on from Northport, Long Island, New York through the Long Island Sound to Hunts Point, Bronx, New York. In accordance with the limited partnership agreement, the Partnership shall continue in existence until October 31, 2089, and from year to year thereafter, until the partners elect to dissolve the Partnership and terminate the limited partnership agreement.
As of December 31, 2014, the partners consist of TransCanada Iroquois Ltd. (29.0%), North East Transmission Company (National Grid) (19.4%), Dominion Iroquois, Inc. (24.72%), TCPL Northeast Ltd. (TransCanada) (15.48%), TEN Transmission Company (Iberdrola USA) (4.87%), NJNR Pipeline Company (5.53%) and National Grid IGTS Corp. (1.0%). Iroquois Pipeline Operating Company, a wholly-owned subsidiary, is the administrative operator of the pipeline. IGTS, Inc. of Connecticut is an additional wholly-owned subsidiary formed to hold title to certain Connecticut property interests.
Income and expenses are allocated to the partners and credited to their respective equity accounts in accordance with the partnership agreements and their respective percentage interests. Distributions to partners are made concurrently to all partners in proportion to their respective partnership interests. The Partnership made cash distributions to partners of $80.0 million in 2014 and in 2013 and $100.0 million in 2012.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of the Partnership are prepared in accordance with accounting principles generally accepted in The United States of America (GAAP) and with accounting for regulated public utilities prescribed by the Federal Energy Regulatory Commission (FERC). Generally accepted accounting principles for regulated entities allow the Partnership to give accounting recognition to the actions of regulatory authorities. In accordance with GAAP, the Partnership has deferred recognition of costs (a regulatory asset) or has recognized obligations (a regulatory liability) if it is probable that such costs will be recovered or an obligation relieved in the future through the rate-making process.
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership, Iroquois Pipeline Operating Company and IGTS, Inc. of Connecticut. Intercompany transactions have been eliminated in consolidation.
Cash and Temporary Cash Investments
The Partnership considers all highly liquid temporary cash investments purchased with an original maturity date of three months or less to be cash equivalents.
Natural Gas Plant In Service
Natural gas plant in service is carried at original cost. The majority of the natural gas plant in service is categorized as natural gas transmission plant and is currently depreciated on a straight-line basis over 36 years. General plant, which includes primarily vehicles, leasehold improvements and computer equipment, is depreciated on a straight-line basis over five years.
Construction Work in Progress
At December 31, 2014 and December 31, 2013, construction work in progress primarily included preliminary construction costs relating to the Wright Interconnect (WIP) Project. The Partnership also had commitments of $7.8 million relating to the WIP Project at December 31, 2014.
Allowance for Funds Used During Construction
The allowance for funds used during construction (AFUDC) represents the cost of funds used to finance natural gas transmission plant under construction. The AFUDC rate includes a component for borrowed funds as well as equity. The AFUDC is capitalized as an element of natural gas plant in service.
8
Income Taxes
No income taxes are provided for in the accompanying financial statements since the income or loss of the Partnership is reportable in the respective income tax returns of the partners.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The key estimates include determining the economic useful lives of the Partnerships assets, the fair values used to determine possible asset impairment charges, exposures under contractual indemnifications, calculations of pension expense and various other recorded or disclosed amounts. The Partnership believes that its estimates for these items are reasonable, but cannot assure that actual amounts will not vary from estimated amounts.
Asset Retirement Obligations
The Partnership accounts for asset retirement obligations in accordance with GAAP, which requires entities to record the fair value of a liability for an asset retirement obligation during the period in which the liability is incurred, if a reasonable estimate of fair value can be made. The Partnership has determined that asset retirement obligations exist for certain of our transmission assets; however, the fair value of the obligations cannot be determined because the end of the transmission system life is not determinable with the degree of accuracy necessary to establish a liability for the obligations.
Restructuring
In August 2012, the Partnership completed a restructuring that reduced costs and increased future operating efficiencies. Other, net included a one-time charge of $1.9 million for the associated restructuring costs. Those costs consisted primarily of compensation and benefit costs associated with a reduction in workforce.
Subsequent Events
The Partnership has evaluated all subsequent events through February 24, 2015, which is the date on which the financial statements were available to be issued.
Note 3. Natural Gas Transmission Plant
At December 31, | 2014 | 2013 | ||||||
(thousands of dollars) | ||||||||
Classification |
||||||||
Transmission plant |
$ | 1,259,039 | $ | 1,252,570 | ||||
General plant |
15,496 | 14,785 | ||||||
1,274,535 | 1,267,355 | |||||||
Less accumulated depreciation |
(659,619 | ) | (628,002 | ) | ||||
Construction work in progress |
29,969 | 14,338 | ||||||
Net natural gas transmission plant |
$ | 644,885 | $ | 653,691 |
Depreciation and amortization expense was $37.7 million for the year ended December 31, 2014 and $37.3 million for each of the years ended December 31, 2013 and 2012.
Note 4. Long-Term Debt
Detailed information on long-term debt is as follows (thousands of dollars):
At December 31, | 2014 | 2013 | ||||||
Senior notes - 6.10% due in 2027 |
$ | 59,500 | $ | 68,500 | ||||
Senior notes - 6.63% due in 2019 |
140,000 | 140,000 | ||||||
Senior notes - 4.84% due in 2020 |
150,000 | 150,000 | ||||||
Total senior notes |
349,500 | 358,500 | ||||||
Less current maturities of long-term debt |
(9,500 | ) | (9,000 | ) | ||||
Total long-term debt |
$ | 340,000 | $ | 349,500 |
9
The combined schedule of repayments at December 31, 2014 is as follows (millions of dollars):
Year |
Scheduled
Repayment |
|||
2015 | $ | 9.5 | ||
2016 | 5.5 | |||
2017 | 5.5 | |||
2018 | 4.0 | |||
2019 | 146.0 | |||
Thereafter | 179.0 |
The above loans and facilities require the Partnership to maintain compliance with certain restrictive covenants (including the payment of distributions) relating to, among other things, certain ratios of indebtedness to total capitalization, and debt service coverage, as defined in the credit agreements and bond indentures. The Partnership is in compliance with these covenants as of and for the years ended December 31, 2014, December 31, 2013 and December 31, 2012.
On June 19, 2014, the $10.0 million revolving credit facility was renewed for 364 days. As of December 31, 2014, there are no amounts outstanding under the revolving credit facility.
Note 5. Concentrations of Credit Risk
The Partnerships cash and temporary cash investments and trade accounts receivable represent concentrations of credit risk. Management believes that the credit risk associated with cash and temporary cash investments is mitigated by its practice of limiting its investments primarily to commercial paper rated P-1 or higher by Moodys Investors Services and A-1 or higher by Standard and Poors, and its cash deposits to large, highly-rated financial institutions. Management also believes that the credit risk associated with trade accounts receivable is mitigated by the restrictive terms of the FERC gas tariff that require customers to pay for service within 20 days after the end of the month of service delivery. Also, the Partnerships FERC-approved tariff provides that, subject to certain exceptions, the Partnership has the right to require that shippers have an investment grade rating or obtain a written shipper guarantee from a third party with an investment grade rating, or provide other financial assurances before service can be provided.
Note 6. Fair Value of Financial Instruments
The fair value amounts disclosed below have been reported to meet the disclosure requirements of GAAP, and are not necessarily indicative of the amounts that the Partnership could realize in a current market exchange.
As of December 31, 2014 and December 31, 2013, the carrying amounts of cash and temporary cash investments, accounts receivable, accounts payable and accrued expenses approximate fair value.
The fair value of long-term debt is estimated by the Partnerships underwriter based on treasury rates and comparable spreads at fiscal year-end. As of December 31, 2014 and December 31, 2013, the carrying amounts and estimated fair values of the Partnerships long-term debt including current maturities were as follows (in thousands of dollars):
Year | Carrying Amount | Fair Value | ||||||
2014 |
$ | 349,500 | $ | 392,984 | ||||
2013 |
358,000 | 415,867 |
Note 7. Commitments and Contingencies
REGULATORY PROCEEDINGS
Mainline Rate Case Settlement
On October 24, 2003, the FERC approved a settlement, which approved new Settlement Rates for the Partnerships existing mainline customers and, with limited exception, provided that no change to the mainline Settlement Rates could be placed in effect on the Partnerships mainline system until January 1, 2008. The settlement provides that mainline rates will remain at the 2007 level unless and until new rates are approved by the FERC at the request of the Partnership or its customers. Currently there have been no changes to these rates. The settlement did not establish any rates, terms or conditions for the Eastchester Extension.
10
Eastchester Rate Case Settlement
On October 13, 2004 the FERC approved a settlement, limited to rates for service on the Eastchester Extension Project as certificated by FERC. The settlement agreement provides for recourse rates through December 31, 2011. A moratorium on rate changes for service on the Eastchester Project facilities, as spelled out more fully in the settlement agreement, was also in effect through December 31, 2011. The settlement provides that Eastchester rates will remain at the January 2008 level until new rates are approved by FERC at the request of the Partnership or its customers. Currently there have been no changes to these rates.
Brookfield, Connecticut Site Clean Up
On June 27, 2003, the Partnership purchased real property in Brookfield, Connecticut upon which it constructed its Brookfield compressor station (Brookfield Site or Site). On November 3, 2004, the Connecticut Department of Energy and Environmental Protection (DEEP) approved the Sites remediation plan and scope of work schedule. Major clean-up work at the Brookfield Site (including re-grading and seeding) has been completed. Iroquois received a Letter of No Audit from the DEEP dated November 13, 2014 concerning the Brookfield Clean-up. This letter states that the DEEP agrees with our Licensed Environmental Professional (LEP) that the site is now clean and closes the Environmental Condition Assessment Form (ECAF) for the Brookfield voluntary remediation. For the part of the site that has buried tires, Iroquois has entered into the state Stewardship Program that requires monitoring of the tire area and remediation of any erosion, subsidence, or tires that have worked their way to the surface. It is not anticipated that the ongoing monitoring of this site will have a material adverse effect on the Partnerships financial conditions or results of operations.
Eastchester Y-50 Matter
Between 2002 and 2004 the Partnership constructed the Eastchester Extension Project. As part of this project the Partnership constructed 36 miles of subsea pipeline and associated facilities from Northport, Long Island to the Bronx, New York. In traversing Long Island Sound, the new pipeline facilities crossed certain underwater electric transmission cable systems, including two cables owned by Consolidated Edison Company of New York, Inc. (Con Ed) that comprise its Y-50 facility. Prior to commencing construction, the Partnership, Con Ed and the Long Island Lighting Company (LILCO, a primary user of the Y-50 cable system) entered a Crossing Agreement with respect to this crossing. The project was completed and the pipeline placed in service in February 2004. Issues have since arisen over the installation and location of certain components of the crossing. Analysis undertaken by and on behalf of the Partnership since 2004 indicates that no remedial measures are presently recommended or required.
The Partnership has engaged in on-going discussions with Con Ed and LILCO regarding this matter, but no final conclusion has been reached as to what, if any, additional actions should be taken at the Y-50 crossing with respect to this issue. The possibility of an unfavorable outcome in this matter or the range of any possible costs that might be sustained therefore cannot be determined at this time.
Wright Interconnect Project
In December of 2012, the Partnership entered into a Precedent Agreement (PA) with Constitution Pipeline (Constitution). The PA requires the Partnership to expand its current compression station located in Wright, New York. The expansion, which consists of adding two new compressor units in addition to new metering facilities, will enable the Partnership to accept up to 650,000 Dth/d of gas from the proposed Constitution pipeline and deliver this gas into either the Partnerships currently existing mainline or into the Tennessee Gas Pipeline. Pursuant to the PA, Constitution and the Partnership will enter into a capacity lease agreement in which Constitution leases the transmission capacity made available on the new compressor units. This lease agreement is for a period of fifteen years with an option for Constitution to extend the lease an additional five years. This project will require FERC and other regulatory approvals. On June 13, 2013, the Partnership and Constitution filed for FERC approval of the project. On December 2, 2014, the Partnership received its 7C Certificate Order from FERC granting approval for the project, but the approval was conditioned on the Partnership obtaining all outstanding permits. The Partnership continues to work with State and Local authorities to obtain all required permits. The new facilities are scheduled to be in-service by 2016. As of December 31, 2014 the Partnership has incurred approximately $28.2 million in construction related expenditures and has made approximately $7.8 million in commitments primarily relating to the purchase of materials.
LITIGATION PROCEEDINGS
The Partnership is a party to various legal matters incidental to its business. However, the Partnership believes that the outcome to these proceedings will not have a material adverse effect on the Partnerships financial condition or results of operations.
No liabilities have been recorded by the Partnership in conjunction with any legal matters.
11
LEASES
The Partnership leases its office space under operating lease arrangements. The leases expire at various dates through 2021 and are renewable at the Partnerships option. The Partnership also leases a right-of-way easement on Long Island, NY, which requires annual payments escalating 5% per year over the 39-year term of the lease, which expires in 2030. In addition, the Partnership leases various equipment under non-cancelable operating leases.
During the years ended December 31, 2014, 2013 and 2012, the Partnership made payments of $1.2 million per year under operating leases which were recorded as rental expense. Future minimum rental payments under operating lease arrangements are as follows:
(millions of dollars) | ||||
Year |
Scheduled Rental
Payments |
|||
2015 |
$ | 1.1 | ||
2016 |
1.1 | |||
2017 |
1.0 | |||
2018 |
1.0 | |||
2019 |
1.0 | |||
Thereafter |
4.0 |
Note 8. Affiliated Party Transactions
The following tables summarize the Partnerships affiliated party transactions (thousands of dollars):
2014 |
Payments to Affiliated Parties |
Due to Related Parties |
Due from Affiliated Parties |
Revenue from Affiliated Parties |
Equity Distributions to Affiliated Parties |
|||||||||||||||
TransCanada Iroquois Ltd. |
$ | | $ | 11 | $ | | $ | 995 | $ | 35,584 | ||||||||||
Dominion Iroquois, Inc. |
| | 1 | 1,913 | 19,776 | |||||||||||||||
NorthEast Transmission Company |
198 | 1 | 1,647 | 46,762 | 16,320 | |||||||||||||||
TEN Transmission Company |
33 | 3 | 1,041 | 12,873 | 3,896 | |||||||||||||||
NJNR Pipeline Company |
92 | | 480 | 5,352 | 4,424 | |||||||||||||||
Total |
$ | 323 | $ | 15 | $ | 3,169 | $ | 67,895 | $ | 80,000 | ||||||||||
2013 |
Payments to
Affiliated Parties |
Due to Related
Parties |
Due from
Affiliated Parties |
Revenue from
Affiliated Parties |
Equity
Distributions to Affiliated Parties |
|||||||||||||||
TransCanada Iroquois Ltd. |
$ | 12 | $ | | $ | 463 | $ | 6,278 | $ | 35,584 | ||||||||||
Dominion Iroquois, Inc. |
| | 581 | 4,607 | 19,776 | |||||||||||||||
NorthEast Transmission Company |
199 | 3 | 4,389 | 50,398 | 16,320 | |||||||||||||||
TEN Transmission Company |
28 | | 1,089 | 12,947 | 3,896 | |||||||||||||||
NJNR Pipeline Company |
365 | | 453 | 5,016 | 4,424 | |||||||||||||||
Total |
$ | 604 | $ | 3 | $ | 6,975 | $ | 79,246 | $ | 80,000 |
12
2012 |
Payments to
Affiliated Parties |
Due to Related Parties |
Due from Affiliated Parties |
Revenue from Affiliated Parties |
Equity Distributions to Affiliated Parties |
|||||||||||||||
TransCanada Iroquois Ltd. |
$ | 7 | $ | | $ | 1,160 | $ | 13,927 | $ | 44,480 | ||||||||||
Dominion Iroquois, Inc. |
| | 743 | 4,940 | 24,720 | |||||||||||||||
NorthEast Transmission Company |
267 | 7 | 4,349 | 59,959 | 20,400 | |||||||||||||||
TEN Transmission Company |
76 | 10 | 943 | 12,989 | 4,870 | |||||||||||||||
NJNR Pipeline Company |
438 | 146 | 403 | 4,571 | 5,530 | |||||||||||||||
Total |
$ | 788 | $ | 163 | $ | 7,598 | $ | 96,386 | $ | 100,000 |
Revenues from affiliated parties and amounts due from affiliated parties were primarily for gas transportation services. Payments to affiliated parties in 2014, 2013 and 2012 primarily consisted of miscellaneous service fees, lease payments, refunds due to transportation capacity release and utility bills.
Note 9. Major Customers
For the years ended December 31, 2014, 2013 and 2012, one customer who is an affiliated party provided significant operating revenues totaling $46.8 million, $50.4 million and $60.0 million, respectively.
Note 10. Retirement Benefit Plans
The Partnership has established a noncontributory cash balance retirement plan (the Plan) covering substantially all employees. Pension benefits are based on years of credited service and employees career earnings, as defined in the Plan. The Partnerships funding policy is to contribute, annually, an amount at least equal to that which will satisfy the minimum funding requirements of the Employee Retirement Income Security Act (ERISA) plus such additional amounts, if any, as the Partnership may determine to be appropriate from time to time.
The Partnership also has adopted an excess benefit plan (EBP) that provides retirement benefits to executive officers. The EBP recognizes total compensation and service that would otherwise be disregarded due to Internal Revenue Code limitations on compensation in determining benefits under the regular retirement plan. The EBP is not considered to be funded for ERISA purposes and benefits are paid when due from general corporate assets. A Rabbi Trust, which is included in other assets and deferred charges on the Partnerships balance sheets, has been established to partially cover this obligation. The Rabbi Trust is an irrevocable trust which can be used to satisfy creditors.
The consolidated net cost for pension benefit plans included in the consolidated statements of income for the years ending December 31 (which is the measurement date for each year), includes the following components (thousands of dollars):
Year Ended December 31, | 2014 | 2013 | 2012 | |||||||||
Service cost |
$ | 1,338 | $ | 1,385 | $ | 1,544 | ||||||
Interest cost |
652 | 501 | 583 | |||||||||
Expected return on plan assets |
(1,296) | (1,103 | ) | (1,125 | ) | |||||||
Recognition of net actuarial loss |
148 | 312 | 367 | |||||||||
Recognition of settlement |
| 190 | 110 | |||||||||
Net periodic benefit cost |
$ | 842 | $ | 1,285 | $ | 1,479 |
The following tables represent the Plans combined funded status reconciled to amounts included in the consolidated balance sheets as of December 31, 2014 and 2013 (thousands of dollars):
13
At December 31, | 2014 | 2013 | ||||||
Change in benefit obligation |
||||||||
Benefit obligation at beginning of year |
$ 16,019 | $ | 16,996 | |||||
Service cost |
1,338 | 1,385 | ||||||
Interest cost |
652 | 501 | ||||||
Actuarial (gain)/loss |
777 | (827 | ) | |||||
Settlements |
| | ||||||
Benefits paid |
(228) | (2,036 | ) | |||||
Benefit obligation at end of year |
18,558 | 16,019 | ||||||
Change in plan assets |
||||||||
Fair value of plan assets at beginning of year |
19,086 | 16,974 | ||||||
Actual return on plan assets |
1,202 | 2,364 | ||||||
Employer contribution |
1,085 | 1,784 | ||||||
Settlements |
| | ||||||
Benefits paid |
(228) | (2,036 | ) | |||||
Fair value of plan assets at end of year |
21,145 | 19,086 | ||||||
Funded Status |
$ | 2,587 | $ | 3,067 | ||||
Amount recognized in Consolidated Balance Sheets |
||||||||
Non-current asset |
$ | 3,194 | $ | 3,600 | ||||
Current liability |
(28) | (26 | ) | |||||
Non-current liability |
(579) | (507 | ) | |||||
Net amount recognized |
$ | 2,587 | $ | 3,067 |
Plan Assets | Benefit Obligations | |||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Plans in overfunded status |
$ | 21,145 | $ | 19,086 | $ | 17,951 | $ | 15,486 | ||||||||
Plans in underfunded status |
| | 607 | 533 |
The accumulated benefit obligation for the Partnerships retirement benefit plans was $18.6 million and $16.0 million at December 31, 2014 and 2013, respectively.
Amounts recognized in accumulated other comprehensive income at December 31 (thousands of dollars):
Year Ended December 31, | 2014 | 2013 | 2012 | |||||||||
Transition obligation |
$ | | $ | | $ | | ||||||
Prior service cost |
| | | |||||||||
Net loss |
1,685 | 962 | 3,552 | |||||||||
Total recognized in other comprehensive income |
$ | 1,685 | $ | 962 | $ | 3,552 |
Estimated net periodic benefit cost amortizations for the periods January 1 - December 31 (thousands of dollars):
At December 31, | 2015 | 2014 | ||||||
Amortization of transition obligation |
$ | | $ | | ||||
Amortization of prior service cost |
| | ||||||
Amortization of net loss |
188 | 149 | ||||||
Total estimated net periodic benefit cost amortizations |
$ | 188 | $ | 149 |
The following table summarizes the weighted average assumptions used to determine benefit obligations as of December 31 (rates shown are rates at end of measurement period):
14
Cash Balance Retirement Plan | Excess Benefit Plans | |||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Discount rate |
3.50% | 4.20% | 3.50% | 4.40% | ||||||||||||
Rate of compensation increase |
4.00% | 4.00% | 4.00% | 4.00% |
The following table summarizes the weighted average assumptions used to determine the net periodic benefit cost for years ended December 31 (rates shown are rates at beginning of measurement period):
Cash Balance Retirement Plan | Excess Benefit Plans | |||||||||||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
Discount rate |
4.20% | 3.40% | 3.85% | 4.10% | 3.50% | 4.30% | ||||||||||||||||||
Rate of compensation increase |
4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | ||||||||||||||||||
Expected long-term rate of return on plan assets |
7.50% | 7.50% | 7.75% |
The expected long-term rate of return assumption was developed using a variety of factors including long-term historical return information, the current level of expected returns and general industry expectations. Adjustments are made to the expected long-term rate of return assumption when deemed necessary based upon revised expectations of future investment performance of the overall capital markets. The building block methodology was used to generate the capital market assumptions, to the extent that the expected return has not shifted the long term expected rate will not be adjusted.
The discount rate was selected to reflect the rates of return currently available on high quality fixed income securities whose cash flows match the timing and amount of future benefit payments of the plan. In particular, the discount rate takes into consideration the population of our pension plan and the anticipated payment stream as compared to the Citigroup Discount Yield Curve Index.
The following table summarizes the expected future benefit payments over the next five years and aggregate five years thereafter (thousands of dollars):
Year | Benefit Payment | |||
2015 |
$ | 1,735 | ||
2016 |
776 | |||
2017 |
1,295 | |||
2018 |
1,424 | |||
2019 |
1,191 | |||
2020-2024 |
12,049 |
Plan Assets
The following table sets forth the Partnerships pension plans weighted average asset allocations and target asset allocations, and fair value of the plan assets at December 31, 2014 and December 31, 2013.
15
Weighted Average Asset
Allocation |
Plan Target Asset Allocation |
Fair Value of Plan Assets (thousands of dollars) |
||||||||||||||||||||||
At December 31, | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||
Mutual Funds |
||||||||||||||||||||||||
U.S. Equities |
40% | 40% | 40% | 40% | $ | 8,469 | $ | 7,694 | ||||||||||||||||
International Equities |
13% | 13% | 13% | 13% | 2,757 | 2,513 | ||||||||||||||||||
Real Estate |
3% | 3% | 3% | 3% | 640 | 578 | ||||||||||||||||||
U.S. Fixed Income |
43% | 43% | 43% | 43% | 9,208 | 8,130 | ||||||||||||||||||
Other |
1% | 1% | 1% | 1% | 71 | 171 | ||||||||||||||||||
Total |
$ | 21,145 | $ | 19,086 |
The Partnerships investment goal is to obtain a competitive risk adjusted return on the pension plan assets commensurate with prudent investment practices and the plans responsibility to provide retirement benefits for its participants, retirees and their beneficiaries. The Plans asset allocation targets are strategic and long term in nature and are designed to take advantage of the risk reducing impacts of asset class diversification.
Plan assets are periodically rebalanced to their asset class targets to reduce risk and to retain the portfolios strategic risk/return profile. Investments within each asset category are further diversified with regard to investment style and concentration of holdings.
The Plans investments are diversified to minimize the risk of a large loss. The Plan is constructed and maintained to provide prudent diversification among the asset classes in accordance with the asset allocation objectives. Within each asset class, there is prudent diversification with regard to investment styles and concentration of holdings.
Under the plans investment guidelines the portfolio may contain mutual funds which are managed in accordance with the diversification and industry concentration restrictions set forth in the Investment Company Act of 1940, as amended (the 1940 Act). Pursuant to the provisions of the 1940 Act, a mutual fund may not, with respect to 75% of its assets, (i) purchase securities of any issuer (except securities issued or guaranteed by the United States Government, its agencies or instrumentalities) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer; or (ii) acquire more than 10% of the outstanding voting securities of any one issuer.
In addition, no mutual fund may purchase any securities which would cause more than 25% of its total assets to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in securities issued or guaranteed by the United States Government, its agencies or instrumentalities.
All the assets within Iroquois Pension Plan are valued using Level 1 inputs in accordance with GAAP. Level 1 inputs are defined as the quoted market process for identical assets on an active market to which an entity has access at the measurement date.
Contributions
Iroquois expects to contribute approximately $1.2 million to its pension plan in 2015.
16
Exhibit 99.2
INDEX TO FINANCIAL STATEMENTS
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. |
Page Number |
|||
Unaudited Financial Statements |
||||
Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2015 and 2014 |
2 | |||
Consolidated Balance Sheets at June 30, 2015 and December 31, 2014 |
3 | |||
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 |
5 | |||
Consolidated Statements of Changes in Partners Equity for the Six Months Ended June 30, 2015 |
6 | |||
Notes to Consolidated Financial Statements |
7 |
1
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Statements of Comprehensive Income
(Unaudited)
Six Months Ended June 30, | 2015 | 2014 | ||||||
(thousands of dollars) | ||||||||
Operating Revenues |
$ | 106,774 | $ | 106,609 | ||||
Operating Expenses |
||||||||
Operations and maintenance |
14,339 | 13,784 | ||||||
Depreciation and amortization |
18,900 | 18,756 | ||||||
Taxes other than income taxes |
13,946 | 13,982 | ||||||
Total operating expenses |
47,185 | 46,522 | ||||||
Operating Income |
59,589 | 60,087 | ||||||
Other Income |
||||||||
Interest income |
85 | 106 | ||||||
Allowance for equity funds used during construction |
876 | 522 | ||||||
Other, net |
| 26 | ||||||
961 | 654 | |||||||
Interest Expense |
||||||||
Interest expense |
10,268 | 10,565 | ||||||
Allowance for borrowed funds used during construction |
(358 | ) | (224 | ) | ||||
9,910 | 10,341 | |||||||
Net Income |
50,640 | 50,400 | ||||||
Other comprehensive income - effects of retirement benefit plans |
| 7 | ||||||
Comprehensive Income |
$ | 50,640 | $ | 50,407 |
The accompanying notes are an integral part of these Financial Statements.
2
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Balance Sheets
(Unaudited)
June 30, 2015 | December 31, 2014 | |||||||
(thousands of dollars) | ||||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and temporary cash investments |
$ | 98,676 | $ | 80,194 | ||||
Accounts receivable - trade |
11,420 | 13,971 | ||||||
Accounts receivable - affiliates |
3,492 | 3,169 | ||||||
Prepaid property taxes |
7,123 | 10,766 | ||||||
Other current assets |
4,333 | 7,647 | ||||||
Total current assets |
125,044 | 115,747 | ||||||
Natural Gas Transmission Plant |
||||||||
Natural gas plant in service |
1,277,125 | 1,274,535 | ||||||
Construction work in progress |
32,149 | 29,969 | ||||||
1,309,274 | 1,304,504 | |||||||
Accumulated depreciation and amortization |
(678,407 | ) | (659,619 | ) | ||||
Net natural gas transmission plant |
630,867 | 644,885 | ||||||
Other Assets and Deferred Charges |
||||||||
Other assets and deferred charges |
10,712 | 10,874 | ||||||
Total other assets and deferred charges |
10,712 | 10,874 | ||||||
Total assets |
$ | 766,623 | $ | 771,506 |
The accompanying notes are an integral part of these Financial Statements.
3
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Balance Sheets
(Unaudited)
June 30, 2015 | December 31, 2014 | |||||||
(thousands of dollars) | ||||||||
LIABILITIES AND PARTNERS EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 1,764 | $ | 2,392 | ||||
Accrued interest |
2,153 | 2,205 | ||||||
Current portion of long-term debt |
7,500 | 9,500 | ||||||
Customer deposits |
10,858 | 7,974 | ||||||
Other current liabilities |
2,762 | 6,628 | ||||||
Total current liabilities |
25,037 | 28,699 | ||||||
Long-Term Debt |
337,250 | 340,000 | ||||||
Other Non-Current Liabilities |
||||||||
Other non-current liabilities |
6,013 | 5,124 | ||||||
Other non-current liabilities |
6,013 | 5,124 | ||||||
Commitments and Contingencies (Note 2) |
||||||||
Total liabilities |
368,300 | 373,823 | ||||||
Partners Equity |
398,323 | 397,683 | ||||||
Total liabilities and partners equity |
$ | 766,623 | $ | 771,506 |
The accompanying notes are an integral part of these Financial Statements.
4
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, | 2015 | 2014 | ||||||
(thousands of dollars) | ||||||||
Cash Flows from Operating Activities |
||||||||
Net Income |
$ | 50,640 | $ | 50,400 | ||||
Adjusted for the following: |
||||||||
Depreciation and amortization |
18,900 | 18,756 | ||||||
Allowance for equity funds used during construction |
(876 | ) | (522 | ) | ||||
Other assets and deferred charges |
737 | 179 | ||||||
Other non-current liabilities |
314 | (860 | ) | |||||
Changes in working capital: |
||||||||
Accounts receivable |
2,228 | 4,490 | ||||||
Prepaid property taxes |
3,643 | 3,241 | ||||||
Other current assets |
4,400 | 1,507 | ||||||
Accounts payable |
513 | (682 | ) | |||||
Accrued interest |
(52 | ) | (46 | ) | ||||
Customer deposits |
2,884 | 322 | ||||||
Other current liabilities |
(4,952 | ) | (2,031 | ) | ||||
Net cash provided by operating activities |
78,379 | 74,754 | ||||||
Cash Flows from Investing Activities |
||||||||
Capital expenditures |
(5,147 | ) | (13,756 | ) | ||||
Net cash used for investing activities |
(5,147 | ) | (13,756 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Partner distributions |
(50,000 | ) | (20,000 | ) | ||||
Repayments of long-term debt |
(4,750 | ) | (4,500 | ) | ||||
Net cash used for financing activities |
(54,750 | ) | (24,500 | ) | ||||
Net increase in cash and temporary cash investments |
18,482 | 36,498 | ||||||
Cash and temporary cash investments at beginning of year |
80,194 | 72,223 | ||||||
Cash and temporary cash investments at end of year |
$ | 98,676 | $ | 108,721 | ||||
Supplemental Disclosure of Cash Flow Information |
||||||||
Cash paid for interest |
$ | 10,096 | $ | 10,368 | ||||
Accounts payable accruals for capital expenditures |
448 | 3,958 |
The accompanying notes are an integral part of these Financial Statements.
5
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Statements of Changes in Partners Equity
(Unaudited)
(thousands of dollars) | Net Income |
Distribution to
Partners |
Contributions
by Partners |
Accumulated
Other Comprehensive Income/(Loss) |
Total Partners
Equity |
|||||||||||||||
December 31, 2014 |
||||||||||||||||||||
Balance |
$ | 1,326,510 | $ | (1,206,544 | ) | $ | 279,381 | $ | (1,664 | ) | $ | 397,683 | ||||||||
Net income |
50,640 | | | | 50,640 | |||||||||||||||
Equity distributions to partners |
| (50,000 | ) | | | (50,000 | ) | |||||||||||||
Other comprehensive income |
| | | | | |||||||||||||||
June 30, 2015 |
||||||||||||||||||||
Balance |
$ | 1,377,150 | $ | (1,256,544 | ) | $ | 279,381 | $ | (1,664 | ) | $ | 398,323 |
The accompanying notes are an integral part of these financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Partnership
Iroquois Gas Transmission System, L.P., (the Partnership or Iroquois) is a Delaware limited partnership that operates as an interstate pipeline providing service to local gas distribution companies, electric utilities and electric power generators, as well as marketers and other end users, through interconnecting pipelines and exchanges. Iroquois pipeline extends from the U.S.-Canadian border at Waddington, New York through the state of Connecticut to South Commack, Long Island, New York and continuing on from Northport, Long Island, New York through the Long Island Sound to Hunts Point, Bronx, New York.
In accordance with the limited partnership agreement, the Partnership shall continue in existence until October 31, 2089, and from year to year thereafter, until the partners elect to dissolve the Partnership and terminate the limited partnership agreement.
As of June 30, 2015, the partners consist of TransCanada Iroquois Ltd. (29.0%), North East Transmission Company (National Grid) (19.4%), Dominion Iroquois, Inc. (24.72%), TCPL Northeast Ltd. (15.48%), TEN Transmission Company (Iberdrola, USA) (4.87%), NJNR Pipeline Company (5.53%) and National Grid IGTS Corp. (National Grid) (1.0%). Iroquois Pipeline Operating Company, a wholly-owned subsidiary, is the administrative operator of the pipeline. IGTS, Inc. of Connecticut is an additional wholly-owned subsidiary formed to hold title to certain Connecticut property interests.
Income and expenses are allocated to the partners and credited to their respective equity accounts in accordance with the partnership agreements and their respective percentage interests. Distributions to partners are made concurrently to all partners in proportion to their respective partnership interests. The Partnership made cash distributions to the partners of $50.0 million and $20.0 million during the six months ended June 30, 2015 and 2014, respectively.
Subsequent Events
A partner distribution in the amount of $50.0 million was approved July 28, 2015 and paid on August 4, 2015.
The Partnership has evaluated all subsequent events through August 11, 2015, which represents the date the financial statements were available to be issued.
Note 2. Commitments and Contingencies
REGULATORY PROCEEDINGS
Wright Interconnect Project
In December of 2012, the Partnership entered into a Precedent Agreement (PA) with Constitution Pipeline (Constitution). The PA requires the Partnership to expand its current compression station located in Wright, New York. The expansion, which consists of adding two new compressor units in addition to new metering facilities, will enable the Partnership to accept up to 650,000 Dth/d of gas from the proposed Constitution pipeline and deliver this gas into either the Partnerships currently existing mainline or into the Tennessee Gas Pipeline. Pursuant to the PA, Constitution and the Partnership will enter into a capacity lease agreement in which Constitution leases the transmission capacity made available on the new compressor units. This lease agreement is for a period of fifteen years with an option for Constitution to extend the lease an additional five years. This project will require FERC and other regulatory approvals. On June 13, 2013, the Partnership and Constitution filed for FERC approval of the project. On December 2, 2014, the Partnership received its 7C Certificate Order from FERC granting approval for the project, but the approval was conditioned on the Partnership obtaining all outstanding permits. The Partnership continues to work with State and Local authorities to obtain all required permits. The new facilities are scheduled to be in-service at the end of 2016. As of June 30, 2015 the Partnership has incurred approximately $30.8 million of engineering and permitting related capital expenditures and has made approximately $7.3 million in commitments primarily relating to the purchase of materials. Due to agreements in place it is not anticipated that the Partnership will be at risk for these commitments should the project fail to be placed into service due to the denial of permit applications by governmental agencies.
A description of the Partnerships other regulatory proceedings is contained in Note 7 of the Partnerships 2014 Consolidated Financial Statements, included in Exhibit 99.1 to this Current Report on Form 8-K. Those descriptions remain materially accurate.
LITIGATION PROCEEDINGS
The Partnership is a party to various legal matters incidental to its business. However, the Partnership believes that the outcome to these proceedings will not have a material adverse effect on the Partnerships financial condition or results of operations.
7
No liabilities have been recorded by the Partnership in conjunction with any legal matters.
LEASES
There have been no significant changes regarding the lease commitments disclosed in Note 7 of the Partnerships 2014 Consolidated Financial Statements, included in Exhibit 99.1 to this Current Report on Form 8-K.
8
Exhibit 99.3
GLOSSARY OF TERMS
The following abbreviations or acronyms used in these pro forma financial statements are defined below:
Abbreviation or Acronym | Definition | |
CPCN | Certification of Public Convenience and Necessity | |
DCG |
Dominion Carolina Gas Transmission, LLC (successor by statutory conversion to and formerly known as Carolina Gas Transmission Corporation) |
|
Dominion |
The legal entity, Dominion Resources, Inc., one or more of its consolidated subsidiaries (other than Dominion Midstream GP, LLC and its subsidiaries) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries, including Dominion MLP Holding Company II, Inc. |
|
Dominion Midstream |
The legal entity, Dominion Midstream Partners, LP, one or more of its consolidated subsidiaries, Cove Point GP Holding Company, LLC, Iroquois GP Holding Company, LLC and DCG (beginning April 1, 2015), or the entirety of Dominion Midstream Partners, LP, and its consolidated subsidiaries |
|
IDR |
Incentive distribution right |
|
Iroquois |
Iroquois Gas Transmission System, L.P. |
|
NG |
Collectively North East Transmission Co., Inc. and National Grid IGTS Corp. |
|
NJNR |
NJNR Pipeline Company |
|
SCANA |
SCANA Corporation |
|
U.S. |
United States of America |
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Page Number |
||||
DOMINION MIDSTREAM PARTNERS, LP |
||||
Unaudited Pro Forma Consolidated Financial Statements |
||||
Introduction |
2 | |||
Unaudited Pro Forma Consolidated Balance Sheet at June 30, 2015 |
4 | |||
Unaudited Pro Forma Consolidated Statements of Income for the Six Month Period Ended June 30, 2015 and for the Year Ended December 31, 2014 |
6 | |||
Notes to Unaudited Pro Forma Consolidated Financial Statements |
8 |
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma Consolidated Financial Statements of Dominion Midstream consist of a Consolidated Balance Sheet at June 30, 2015 and Consolidated Statements of Income for the six-month period ended June 30, 2015 and for the year ended December 31, 2014, which reflect Dominion Midstreams acquisition of a 25.93% interest in Iroquois from NG and NJNR on September 29, 2015, and Dominion Midstreams acquisition of DCG from Dominion on April 1, 2015. Dominion acquired DCG on January 31, 2015. The unaudited pro forma Consolidated Financial Statements included herein have been derived from the following historical financial statements:
| the audited financial statements of Dominion Midstream included in its Annual Report on Form 10-K for the year ended December 31, 2014, as filed; |
| the unaudited interim financial statements of Dominion Midstream included in its Quarterly Report on Form 10-Q for the six months ended June 30, 2015, as filed; |
| the audited financial statements of DCG set forth in Exhibit 99.1 to Dominion Midstreams Current Report on Form 8-K/A dated June 5, 2015; |
| the audited financial statements of Iroquois set forth in Exhibit 99.1; and |
| the unaudited interim financial statements of Iroquois set forth in Exhibit 99.2. |
On August 14, 2015, Dominion Midstream signed Contribution Agreements with NG and NJNR pursuant to which NGs 20.4% interest in Iroquois and NJNRs 5.53% interest in Iroquois would be contributed to Dominion Midstream for consideration comprised solely of common units representing limited partnership interests in Dominion Midstream. In the aggregate, the consideration consists of 8,622,305 common units valued at approximately $286.5 million, in accordance with the terms of the Contribution Agreements, of which $225.4 million (6,783,373 common units) were transferred to NG and the remaining $61.1 million (1,838,932 common units) were transferred to NJNR at the closings of the Contribution Agreements on September 29, 2015. As a result of the transaction, Dominion Midstream owns 25.93% of the membership interests in Iroquois and will treat its ownership as an equity method investment.
On April 1, 2015, Dominion Midstream entered into a Purchase, Sale and Contribution Agreement with Dominion pursuant to which Dominion Midstream purchased from Dominion all of the issued and outstanding membership interests of DCG in exchange for a senior unsecured promissory note in the amount of $300.8 million, as adjusted for working capital, payable to Dominion and 5,112,139 common units, valued at $200.0 million, representing limited partner interests in Dominion Midstream issued to Dominion. As a result of the transaction, Dominion Midstream owns 100% of the membership interests in DCG and will therefore consolidate DCG. Because the contribution of DCG by Dominion to Dominion Midstream is considered to be a reorganization of entities under common control, DCGs assets and liabilities are recorded in Dominion Midstreams consolidated financial statements at Dominions historical cost. Common control began on January 31, 2015, concurrent with Dominions acquisition of DCG from SCANA, which is accounted for using the acquisition method of accounting. Accordingly, the consolidated financial statements of Dominion Midstream reflect DCGs financial results beginning January 31, 2015.
The pro forma adjustments have been prepared as if the acquisitions of DCG and Dominion Midstreams equity method investment in Iroquois occurred on June 30, 2015 in the case of the unaudited pro forma Consolidated Balance Sheet and on January 1, 2014 in the case of the unaudited pro forma Consolidated Statements of Income.
The unaudited pro forma Consolidated Financial Statements should be read in conjunction with the related notes, which are included herein, the financial statements and notes included in Dominion Midstreams Annual Report on Form 10-K for the year ended December 31, 2014, as filed, the financial statements and notes included in Dominion Midstreams Quarterly Report on Form 10-Q for the six months ended June 30, 2015, as filed, the audited financial statements and related notes of DCG included in Exhibit 99.1 to Dominion Midstreams Current Report on Form 8-K/A dated June 5, 2015, the audited financial statements and related notes of Iroquois included in Exhibit 99.1 to this Dominion Midstream Current Report on Form 8-K and the unaudited interim financial statements and related notes of Iroquois included in Exhibit 99.2 to such Form 8-K.
The unaudited pro forma Consolidated Financial Statements do not necessarily reflect what Dominion Midstreams financial position and results of operations would have been if it had owned either DCG or its interest in Iroquois during the periods presented. In addition, they are not necessarily indicative of its future results of operations or financial condition. The assumptions and adjustments give pro forma effect to events, described below, that are (i) directly attributable to Dominion Midstreams acquisition of a 25.93% interest in Iroquois from NG and NJNR and its acquisition of DCG from Dominion which reflects Dominions acquisition adjustments to arrive at its historical cost, (ii) factually supportable, and (iii) with respect to the pro forma Consolidated Statement of Income, expected to have a continuing impact on Dominion Midstream. The actual adjustments may differ from the pro forma adjustments.
The unaudited pro forma Consolidated Financial Statements give effect to the following transactions:
|
The acquisition of DCG from Dominion for total consideration of $500.8 million, consisting of the issuance of a two-year $300.8 million senior unsecured promissory note, as adjusted for working capital, payable to Dominion and |
2
5,112,139 unregistered common units of Dominion Midstream to Dominion. The number of units was based on the volume-weighted average trading price of Dominion Midstreams common units for the 10 trading days prior to April 1, 2015, or $39.12 per unit, totaling $200.0 million; |
| The estimated interest expense that would have been paid had the note payable to Dominion been outstanding during 2014; and |
| The acquisition of a 25.93% interest in Iroquois from NG and NJNR for total consideration of $286.5 million, consisting of the issuance of 8,622,305 unregistered common units of Dominion Midstream. The number of units was based on the volume-weighted average trading price of Dominion Midstreams common units for the five trading days prior to August 14, 2015, or $33.23 per unit. |
3
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
At June 30, 2015 | ||||||||||||||||||||
Dominion
Midstream Partners, LP |
Iroquois Gas
Transmission System, L.P. |
Pro Forma
Adjustments |
Dominion Midstream
Partners, LP Pro Forma |
|||||||||||||||||
(As Filed) | (a) | |||||||||||||||||||
(millions) | ||||||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 77.3 | $ | | $ | | $ | 77.3 | ||||||||||||
Customer and other receivables |
28.7 | | | 28.7 | ||||||||||||||||
Affiliated receivables |
6.1 | | | 6.1 | ||||||||||||||||
Prepayments |
1.0 | | | 1.0 | ||||||||||||||||
Materials and supplies |
11.3 | | | 11.3 | ||||||||||||||||
Regulatory assets |
2.6 | | | 2.6 | ||||||||||||||||
Other |
5.2 | | | 5.2 | ||||||||||||||||
Total current assets |
132.2 | | 132.2 | |||||||||||||||||
Property, Plant and Equipment |
||||||||||||||||||||
Property, plant and equipment |
3,152.8 | | | 3,152.8 | ||||||||||||||||
Accumulated depreciation and amortization |
(335.1 | ) | | | (335.1 | ) | ||||||||||||||
Total property, plant and equipment, net |
2,817.7 | | 2,817.7 | |||||||||||||||||
Deferred Charges and Other Assets |
||||||||||||||||||||
Investment |
| 103.3 | 183.6 | (b | )(c) | 286.9 | ||||||||||||||
Goodwill |
295.5 | | | 295.5 | ||||||||||||||||
Intangible assets, net |
16.3 | | | 16.3 | ||||||||||||||||
Regulatory assets |
2.6 | | | 2.6 | ||||||||||||||||
Other |
0.1 | | | 0.1 | ||||||||||||||||
Total deferred charges and other assets |
314.5 | 103.3 | 183.6 | 601.4 | ||||||||||||||||
Total assets |
$ | 3,264.4 | $ | 103.3 | $ | 183.6 | $ | 3,551.3 |
4
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
At June 30, 2015 | ||||||||||||||||||
Dominion
Midstream Partners, LP |
Iroquois Gas
Transmission System, L.P. |
Pro Forma
Adjustments |
Dominion Midstream
Partners, LP Pro Forma |
|||||||||||||||
(As Filed) | (a) | |||||||||||||||||
(millions) |
||||||||||||||||||
LIABILITIES AND EQUITY AND PARTNERS CAPITAL |
||||||||||||||||||
Current Liabilities |
||||||||||||||||||
Accounts payable |
$ | 109.7 | $ | | $ | 0.5 | (b) | $ | 110.2 | |||||||||
Payables to affiliates |
5.3 | | | 5.3 | ||||||||||||||
Accrued payroll and taxes |
3.6 | | | 3.6 | ||||||||||||||
Regulatory liabilities |
7.2 | | | 7.2 | ||||||||||||||
Dominion credit facility borrowings |
5.9 | | | 5.9 | ||||||||||||||
Deferred revenue |
0.3 | | | 0.3 | ||||||||||||||
Natural gas imbalances |
3.5 | | | 3.5 | ||||||||||||||
CPCN obligation |
7.9 | | | 7.9 | ||||||||||||||
Other |
22.7 | | | 22.7 | ||||||||||||||
Total current liabilities |
166.1 | | 0.5 | 166.6 | ||||||||||||||
Affiliated Long-Term Debt |
300.8 | | | 300.8 | ||||||||||||||
Deferred Credits and Other Liabilities |
||||||||||||||||||
Pension and other postretirement benefit liabilities |
4.7 | | | 4.7 | ||||||||||||||
Regulatory liabilities |
71.0 | | | 71.0 | ||||||||||||||
CPCN obligation |
28.9 | | | 28.9 | ||||||||||||||
Asset retirement obligation |
12.7 | | | 12.7 | ||||||||||||||
Other |
2.7 | | | 2.7 | ||||||||||||||
Total deferred credits and other liabilities |
120.0 | | | 120.0 | ||||||||||||||
Total liabilities |
586.9 | | 0.5 | 587.4 | ||||||||||||||
Equity and Partners Capital |
||||||||||||||||||
Predecessor net equity |
| 103.3 | (103.3 | ) | (d) | | ||||||||||||
Common unitholders - public |
398.0 | | 286.5 | (e) | 684.5 | |||||||||||||
Common unitholder - Dominion |
416.5 | | (0.1 | ) | (b) | 416.4 | ||||||||||||
Subordinated unitholder - Dominion |
470.0 | | | 470.0 | ||||||||||||||
General Partner interest - Dominion |
(12.6 | ) | | | (12.6 | ) | ||||||||||||
Total Dominion Midstream Partners, LP partners equity and capital |
1,271.9 | 103.3 | 183.1 | 1,558.3 | ||||||||||||||
Noncontrolling interest |
1,405.6 | | | 1,405.6 | ||||||||||||||
Total equity and partners capital |
2,677.5 | 103.3 | 183.1 | 2,963.9 | ||||||||||||||
Total liabilities and equity and partners capital |
$ | 3,264.4 | $ | 103.3 | $ | 183.6 | $ | 3,551.3 |
5
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31, 2014 | ||||||||||||||||||||||
Dominion
Midstream Partners, LP |
Dominion
Carolina Gas Transmission, LLC |
Iroquois Gas
Transmission System, L.P. |
Pro Forma
Adjustments |
Dominion
Midstream Partners, LP Pro Forma |
||||||||||||||||||
(As Filed) | (g) | |||||||||||||||||||||
(millions, except unit and per unit data) | ||||||||||||||||||||||
Operating Revenue |
$ | 313.3 | $ | 64.9 | $ | | $ | | $ | 378.2 | ||||||||||||
Operating Expenses |
||||||||||||||||||||||
Purchased gas |
59.6 | | | | 59.6 | |||||||||||||||||
Other operations and maintenance: |
||||||||||||||||||||||
Affiliated suppliers |
9.4 | 8.5 | | (2.1 | ) | (m) | 15.8 | |||||||||||||||
Other |
25.5 | 15.4 | | 2.6 | (m)(n) | 43.5 | ||||||||||||||||
Depreciation and amortization |
37.7 | 8.5 | | | 46.2 | |||||||||||||||||
Other taxes |
22.4 | 5.4 | | (0.5 | ) | (n) | 27.3 | |||||||||||||||
Total operating expenses |
154.6 | 37.8 | | | 192.4 | |||||||||||||||||
Income from operations |
158.7 | 27.1 | | | 185.8 | |||||||||||||||||
Earnings in equity method investee |
| | 22.7 | | 22.7 | |||||||||||||||||
Other income |
| 0.7 | | | 0.7 | |||||||||||||||||
Interest and related charges |
| 4.2 | | (2.7 | ) | (h)(i) | 1.5 | |||||||||||||||
Income from operations including noncontrolling interest before income taxes |
158.7 | 23.6 | 22.7 | 2.7 | 207.7 | |||||||||||||||||
Income tax expense |
51.8 | 8.9 | | (8.9 | ) | (j) | 51.8 | |||||||||||||||
Net income including noncontrolling interest |
106.9 | 14.7 | 22.7 | 11.6 | 155.9 | |||||||||||||||||
Less: Predecessor income prior to initial public offering on October 20, 2014 |
80.6 | | | | 80.6 | |||||||||||||||||
Net income including noncontrolling interest subsequent to initial public offering |
26.3 | 14.7 | 22.7 | 11.6 | 75.3 | |||||||||||||||||
Less: Net income attributable to noncontrolling interest subsequent to initial public offering |
16.8 | | | | 16.8 | |||||||||||||||||
Net income attributable to limited partners subsequent to initial public offering |
$ | 9.5 | $ | 14.7 | $ | 22.7 | $ | 11.6 | $ | 58.5 | ||||||||||||
Net income attributable to partners ownership interest subsequent to initial public offering |
||||||||||||||||||||||
Common unitholders interest in net income |
$ | 4.8 | $ | 34.4 | ||||||||||||||||||
Subordinated unitholders interest in net income |
4.7 | 24.1 | ||||||||||||||||||||
Net income subsequent to initial public offering per limited partner unit (basic and diluted) |
||||||||||||||||||||||
Common units |
$ | 0.15 | $ | 0.75 | ||||||||||||||||||
Subordinated units |
$ | 0.15 | $ | 0.75 | ||||||||||||||||||
Average Limited Partner Units outstanding - basic and diluted |
||||||||||||||||||||||
Common units |
31,975,079 | | | 13,734,444 | (k) | 45,709,523 | ||||||||||||||||
Subordinated units |
31,972,789 | | | | 31,972,789 |
6
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the Six Months Ended June 30, 2015 | ||||||||||||||||||||||
Dominion
Midstream Partners, LP |
Dominion
Carolina Gas Transmission, LLC |
Iroquois Gas
Transmission System, L.P. |
Pro Forma
Adjustments |
Dominion
Midstream Partners, LP Pro Forma |
||||||||||||||||||
(As Filed) | (f) | (g) | ||||||||||||||||||||
(millions, except unit and per unit data) | ||||||||||||||||||||||
Operating Revenue |
$ | 183.8 | $ | 5.7 | $ | | $ | | $ | 189.5 | ||||||||||||
Operating Expenses |
||||||||||||||||||||||
Purchased gas |
29.4 | | | | 29.4 | |||||||||||||||||
Other operations and maintenance: |
||||||||||||||||||||||
Affiliated suppliers |
11.2 | 0.3 | | (0.1 | ) | (l)(o) | 11.4 | |||||||||||||||
Other |
18.1 | 1.6 | | (1.8 | ) | (l)(n)(o) | 17.9 | |||||||||||||||
Depreciation and amortization |
20.5 | 0.7 | | | 21.2 | |||||||||||||||||
Other taxes |
12.7 | 0.5 | | (0.1 | ) | (n) | 13.1 | |||||||||||||||
Total operating expenses |
91.9 | 3.1 | | (2.0 | ) | 93.0 | ||||||||||||||||
Income from operations |
91.9 | 2.6 | | 2.0 | 96.5 | |||||||||||||||||
Earnings in equity method investee |
| | 13.1 | | 13.1 | |||||||||||||||||
Other income |
0.4 | 0.1 | | | 0.5 | |||||||||||||||||
Interest and related charges |
0.2 | 0.4 | | 0.1 | (h)(i) | 0.7 | ||||||||||||||||
Income from operations including noncontrolling interest before income taxes |
92.1 | 2.3 | 13.1 | 1.9 | 109.4 | |||||||||||||||||
Income tax expense |
2.1 | 0.9 | | (3.0 | ) | (j) | | |||||||||||||||
Net income including noncontrolling interest and DCG Predecessor |
90.0 | 1.4 | 13.1 | 4.9 | 109.4 | |||||||||||||||||
Less: Net income attributable to DCG Predecessor |
2.3 | | | | 2.3 | |||||||||||||||||
Net income including noncontrolling interest |
87.7 | 1.4 | 13.1 | 4.9 | 107.1 | |||||||||||||||||
Less: Net income attributable to noncontrolling interest |
58.3 | | | | 58.3 | |||||||||||||||||
Net income attributable to partners |
$ | 29.4 | $ | 1.4 | $ | 13.1 | $ | 4.9 | $ | 48.8 | ||||||||||||
Net income attributable to partners ownership interest |
||||||||||||||||||||||
General partners interest in net income |
$ | (0.7 | ) | $ | | |||||||||||||||||
Common unitholders interest in net income |
16.2 | 28.7 | ||||||||||||||||||||
Subordinated unitholders interest in net income |
13.9 | 20.1 | ||||||||||||||||||||
Net income per limited partner unit (basic and diluted) |
||||||||||||||||||||||
Common units |
$ | 0.47 | $ | 0.63 | ||||||||||||||||||
Subordinated units |
$ | 0.44 | $ | 0.63 | ||||||||||||||||||
Average Limited Partner Units outstanding - basic and diluted |
||||||||||||||||||||||
Common units |
34,550,329 | | | 11,164,281 | (k) | 45,714,610 | ||||||||||||||||
Subordinated units |
31,972,789 | | | | 31,972,789 |
7
DOMINION MIDSTREAM PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
N OTE 1. B ASIS O F P RESENTATION
The unaudited pro forma Consolidated Financial Statements of Dominion Midstream have been derived from the following historical financial statements:
| the audited financial statements of Dominion Midstream included in its Annual Report on Form 10-K for the year ended December 31, 2014, as filed; |
| the unaudited interim financial statements of Dominion Midstream included in its Quarterly Report on Form 10-Q for the six months ended June 30, 2015, as filed; |
| the audited financial statements of DCG set forth in Exhibit 99.1 to Dominion Midstreams Current Report on Form 8-K/A dated June 5, 2015; |
| the audited financial statements of Iroquois set forth in Exhibit 99.1 to this Dominion Midstream Current Report on Form 8-K; and |
| the unaudited interim financial statements of Iroquois set forth in Exhibit 99.2 to this Dominion Midstream Current Report on Form 8-K. |
Iroquois financial statements are comprised of the operations and related assets of Iroquois, which operates as an interstate pipeline providing service to local gas distribution companies, electric utilities and electric power generators, as well as marketers and other end users, through interconnecting pipelines and exchanges. Iroquois pipeline extends from the U.S.-Canadian border at Waddington, New York through the state of Connecticut to South Commack, Long Island, New York and continuing on from Northport, Long Island, New York through the Long Island Sound to Hunts Point, Bronx, New York.
On August 14, 2015, Dominion Midstream signed Contribution Agreements with NG and NJNR pursuant to which NGs 20.4% interest in Iroquois and NJNRs 5.53% interest in Iroquois would be contributed to Dominion Midstream for consideration comprised solely of common units representing limited partnership interests in Dominion Midstream. In the aggregate, the consideration consists of 8,622,305 common units valued at approximately $286.5 million, in accordance with the terms of the Contribution Agreements, of which $225.4 million (6,783,373 common units) were transferred to NG and the remaining $61.1 million (1,838,932 common units) were transferred to NJNR at the closings of the Contribution Agreements on September 29, 2015. As a result of the transaction, Dominion Midstream owns 25.93% of the membership interests in Iroquois and will treat its ownership as an equity method investment.
DCGs financial statements are comprised of the operations and related assets of DCG, which operates as an open access, transportation-only interstate pipeline company in South Carolina and southeastern Georgia. As of December 31, 2014, DCGs natural gas system consisted of nearly 1,500 miles of transmission pipeline of up to 24 inches in diameter. DCGs system transports gas to its customers from the transmission systems of Southern Natural Gas Company at Port Wentworth, Georgia and Aiken County, South Carolina; Southern LNG, Inc. at Elba Island, near Savannah, Georgia; and Transcontinental Gas Pipeline Corporation in Cherokee and Spartanburg counties in South Carolina.
On April 1, 2015, Dominion Midstream entered into a Purchase, Sale and Contribution Agreement with Dominion pursuant to which Dominion Midstream purchased from Dominion all of the issued and outstanding membership interests of DCG in exchange for a senior unsecured promissory note in the amount of $300.8 million, as adjusted for working capital, payable to Dominion and 5,112,139 common units, valued at $200.0 million, representing limited partner interests in Dominion Midstream issued to Dominion. As a result of the transaction, Dominion Midstream owns 100% of the membership interests in DCG and will therefore consolidate DCG. Because the contribution of DCG by Dominion to Dominion Midstream is considered to be a reorganization of entities under common control, DCGs assets and liabilities are recorded in Dominion Midstreams consolidated financial statements at Dominions historical cost. Common control began on January 31, 2015, concurrent with Dominions acquisition of DCG from SCANA, which is accounted for using the acquisition method of accounting. Accordingly, the consolidated financial statements of Dominion Midstream will reflect DCGs financial results beginning January 31, 2015.
The pro forma adjustments have been prepared as if the acquisitions of DCG and Dominion Midstreams equity method investment in Iroquois occurred on June 30, 2015 in the case of the unaudited pro forma Consolidated Balance Sheet and on January 1, 2014 in the case of the unaudited pro forma Consolidated Statements of Income. The adjustments are based on currently available information and certain estimates and assumptions, and therefore the actual effects of these transactions will differ from the pro forma adjustments. However, management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the transaction, and that the pro forma adjustments in the unaudited pro forma Consolidated Financial Statements give appropriate effect to the assumptions. The effects on the unaudited pro forma Consolidated Financial Statements of the transactions described above are more fully described in Note 3.
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N OTE 2. S UMMARY O F S IGNIFICANT A CCOUNTING P OLICIES
The accounting policies followed in preparing the unaudited pro forma Consolidated Financial Statements are those used by Dominion Midstream as set forth in the audited historical financial statements and notes of Dominion Midstream included in its Annual Report on Form 10-K for the year ended December 31, 2014, as filed, and in the unaudited interim financial statements and notes of Dominion Midstream included in its Quarterly Report on Form 10-Q for the six months ended June 30, 2015, as filed.
N OTE 3. P RO F ORMA A DJUSTMENTS A ND A SSUMPTIONS
The following transactions are directly attributable to Dominion Midstreams acquisition of DCG from Dominion, a reorganization of entities under common control whereby Dominion Midstream records the assets and liabilities of DCG at Dominions historical cost, and Dominion Midstreams acquisition of a 25.93% interest in Iroquois, which is accounted for as an equity method investment. The following adjustments include those necessary to (1) reflect the acquisition of a 25.93% interest in Iroquois during the period and (2) arrive at an approximation of Dominions historical cost of acquiring DCG from SCANA on January 31, 2015.
(a) | Reflects Dominion Midstreams 25.93% interest in the historical equity of Iroquois, to be accounted for under the equity method. |
(b) | Reflects the accrual of approximately $0.5 million in transaction costs associated with the acquisition of Dominion Midstreams equity method investment in Iroquois. Of this amount, $0.4 million are external costs and are therefore capitalized to Dominion Midstreams equity method investment in Iroquois. |
(c) | Reflects an adjustment to record Dominion Midstreams equity method investment in Iroquois attributable to the difference between consideration provided and the historical carrying value of the net assets acquired. |
(d) | Reflects the elimination of the historical equity balance at Iroquois. |
(e) | Reflects the issuance of 8,622,305 common units representing limited partnership interests in Dominion Midstream, valued at approximately $286.5 million, to NG and NJNR as consideration for the acquisition of a total 25.93% interest in Iroquois. The number of units was based on the volume-weighted average trading price of Dominion Midstreams common units for the five trading days prior to August 14, 2015, or $33.23 per unit. |
(f) | Represents results of DCG for the period prior to January 31, 2015. |
(g) | Reflects Dominion Midstreams 25.93% interest in Iroquois earnings for the period, accounted for under the equity method. |
(h) | For the year ended December 31, 2014, amount reflects the estimated interest expense of $1.8 million associated with the issuance of the 2-year $300.8 million note payable to Dominion at an annual interest rate of 0.6%. For the six-month period ended June 30, 2015, this amount includes three months of estimated interest expense of $0.5 million associated with the issuance of this note payable. |
(i) | Reflects the elimination of $4.5 million and $0.4 million for the year ended December 31, 2014 and the six-month period ended June 30, 2015, respectively, of interest expense incurred on DCGs note payable to SCANA, which was settled prior to the transaction between Dominion and SCANA through an equity contribution from SCANA. These amounts will not be incurred going forward and are therefore excluded from the pro forma Consolidated Income Statements. |
(j) | Reflects the elimination of federal and state income taxes of approximately $8.9 million for the year ended December 31, 2014 and $3.0 million for the six-month period ended June 30, 2015 as Dominion Midstream is a pass-through entity, generally not subject to income taxes. |
(k) | Reflects the issuance of 5,112,139 common units of Dominion Midstream to Dominion as part of the total consideration for the acquisition of DCG from Dominion. The number of units was based on the volume-weighted average trading price of Dominion Midstreams common units for the 10 trading days prior to April 1, 2015, or $39.12 per unit totaling $200.0 million. In addition, includes an adjustment of 2,570,163 weighted average common units outstanding for the six months ended June 30, 2015, as the units issued in connection with the acquisition of DCG from Dominion are included in historical results beginning April 1, 2015. Also reflects the issuance of 8,622,305 common units representing limited partnership interests in Dominion Midstream, valued at approximately $286.5 million, to NG and NJNR as consideration for the acquisition of a total 25.93% interest in Iroquois. The number of units was based on the volume-weighted average trading price of Dominion Midstreams common units for the five trading days prior to August 14, 2015, or $33.23 per unit. |
(l) | Reflects the elimination of $2.0 million of transaction costs related to DCG, of which $1.2 million was recorded in Other operations and maintenance expense - affiliated suppliers and $0.8 million was recorded in Other operations and maintenance expense - other. |
Subsequent to the acquisition of DCG by Dominion, SCANA is no longer an affiliate of DCG, DCG employees became employees of Dominion subsidiaries, and DCG entered into agreements with these subsidiaries to provide administrative, management, operations and human resources services. Accordingly, the following adjustments are reflected in the pro forma financial statements.
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(m) | Reflects the reclassification of $2.1 million for the year ended December 31, 2014, from Other operations and maintenance expense - affiliated suppliers to Other operations and maintenance expense - other. |
(n) | Reflects the reclassification of $0.5 million and $0.1 million for the year ended December 31, 2014 and the six-month period ended June 30, 2015, respectively, of payroll taxes from other taxes to Other operations and maintenance expense - other. |
(o) | Reflects the reclassification of $1.1 million for the six-month period ended June 30, 2015, from Other operations and maintenance expense - other to Other operations and maintenance expense - affiliated suppliers. |
N OTE 4. P RO F ORMA N ET I NCOME P ER U NIT
Net income per unit applicable to common units and to subordinated units is computed by dividing the respective limited partners interest in net income attributable to Dominion Midstream, after deducting any incentive distributions, by the weighted average number of common and subordinated units outstanding. Because Dominion Midstream has more than one class of participating securities, the two-class method is used when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, and IDRs.
Dominion Midstreams net income is allocated to the limited partners in accordance with their respective partnership percentages, after giving effect to priority income allocations for incentive distributions, if any, to Dominion, the holder of the IDRs, pursuant to the partnership agreement. The distributions are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to Dominion Midstreams unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of earnings per limited partner unit. Basic and diluted net income per unit are the same because Dominion Midstream does not have any potentially dilutive common or subordinated units outstanding for the periods presented.
Pro forma net income per limited partner unit is determined by dividing the pro forma net income available to the limited partners by the weighted average number of common and subordinated units outstanding. Because all newly issued common units associated with the acquisition were assumed to have been outstanding for the entire period presented, the pro forma basic and diluted average number of common and subordinated units outstanding equals the average number of common and subordinated units outstanding as of December 31, 2014, plus the number of newly issued common units at the closing of the acquisition.
At December 31, 2014, the average number of common and subordinated units outstanding was 31,975,079 and 31,972,789, respectively. In connection with the acquisition of DCG, 5,112,139 common units were issued to Dominion. Additionally, 8,622,305 common units were issued in conjunction with Dominion Midstreams acquisition of its equity interest in Iroquois. The pro forma net income per limited partner unit calculations assume that no incentive distributions were made to the general partner.
At June 30, 2015, the average number of common and subordinated units outstanding was 34,550,329 and 31,972,789, respectively. In connection with the acquisition of DCG, 5,122,139 common units were issued to Dominion. Additionally, 8,622,305 common units were issued to NG and NJNR in conjunction with Dominion Midstreams acquisition of its equity interest in Iroquois. An adjustment of 2,570,163 common units is required as the units issued in connection with the acquisition of DCG from Dominion are included in the historical results beginning on April 1, 2015. The pro forma net income per limited partner unit calculations assume that no incentive distributions were made to the general partner.
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