As filed with the Securities and Exchange Commission on December 22, 2016
Registration No. 333-215138
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1 to
Form S-3
REGISTRATION STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
CONE MIDSTREAM PARTNERS LP
CONE MIDSTREAM FINANCE CORP.
CONE MIDSTREAM OPERATING COMPANY LLC*
(Exact name of registrant as specified in its charter)
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Delaware
Delaware
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47-1054194
32-0512988
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Delaware
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61-1742627
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
David M.
Khani
Chief Financial Officer
CONE Midstream Partners LP
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Kirk A. Moore
General Counsel and Secretary
CONE Midstream Partners LP
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
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G. Michael O’Leary
George Vlahakos
Andrews
Kurth Kenyon LLP
600 Travis, Suite 4200
Houston, Texas 77002
(713) 220-4200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this
registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest
reinvestment plans, please check the following box. ☐
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective on filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following
box. ☐
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D.
filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated filer
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☐
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Accelerated filer
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☒
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Non-accelerated filer
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☐ (Do not check if a smaller reporting company)
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Smaller reporting company
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☐
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The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
The following are additional registrants that may guarantee the debt securities registered hereby:
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Exact Name of Registrant Guarantor as Specified in its
Charter(1)
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State or Other Jurisdiction
of Incorporation or
Organization
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I.R.S. Employer
Identification Number
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CONE Midstream DevCo I GP LLC
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Delaware
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47-1582063
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CONE Midstream DevCo II GP LLC
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Delaware
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47-1592699
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CONE Midstream DevCo III GP LLC
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Delaware
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47-1602994
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CONE Midstream DevCo I LP
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Delaware
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47-1614818
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CONE Midstream DevCo II LP
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Delaware
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47-1627116
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CONE Midstream DevCo III LP
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Delaware
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47-1639731
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(1)
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The address, including zip code, and telephone number, including area code, of each of the additional registrant guarantor’s principal executive offices is c/o CONE Midstream Partners LP, 1000 CONSOL Energy Drive,
Canonsburg, Pennsylvania 15317, (724) 485-4000. The primary standard industrial classification code number of each of the additional registrant guarantors is 4610. The name, address, including zip code, and telephone number, including area
code, of the agent for service for each of the additional registrant guarantors is David M. Khani, Chief Financial Officer, CONE Midstream GP LLC, the general partner of CONE Midstream Partners LP, 1000 CONSOL Energy Drive, Canonsburg, Pennsylvania
15317, (724) 485-4000.
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The information in this prospectus is not complete and may be changed. These securities may
not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale
is not permitted.
Subject to
Completion, dated December 22, 2016
PROSPECTUS
CONE Midstream Partners LP
CONE Midstream Finance Corp.
CONE Midstream Operating Company LLC
$750,000,000
Common
Units Representing Limited Partner Interests
Preferred Units Representing Limited Partner Interests
Debt Securities
CONE Midstream
Partners LP may offer and sell up to $750,000,000 in the aggregate of the securities identified above from time to time in one or more offerings. The debt securities may be issued by us, co-issued by us and CONE Midstream Finance Corp., issued by
CONE Midstream Operating Company LLC or co-issued by CONE Midstream Operating Company LLC and CONE Midstream Finance Corp., and may be guaranteed by us or one or more of our subsidiaries.
This prospectus provides you with a general description of the securities. Each time we offer and sell securities, we will provide a
supplement to this prospectus that contains specific information about the offering and the amounts, prices and terms of the securities. The supplement may also add, update or change information contained in this prospectus with respect to that
offering. You should carefully read this prospectus and the applicable prospectus supplement before you invest in any of our securities.
We may offer and sell the securities described in this prospectus and any prospectus supplement to or through one or more underwriters,
dealers and agents, or directly to purchasers, or through a combination of these methods. If any underwriters, dealers or agents are involved in the sale of any of the securities, their names and any applicable purchase price, fee, commission or
discount arrangement between or among them will be set forth, or will be calculable from the information set forth, in the applicable prospectus supplement. See the sections of this prospectus entitled “About this Prospectus” and
“Plan of Distribution” for more information. No securities may be sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering of such securities.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE THE “
RISK FACTORS
” ON PAGE 6 OF THIS PROSPECTUS
AND ANY SIMILAR SECTION CONTAINED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE AND IN THE APPLICABLE PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our common units are listed on the New York Stock Exchange under the symbol “CNNX”. On December 22, 2016, the last
reported sale price of our common units on the New York Stock Exchange was $23.47 per unit.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2016.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission, which we refer to as the
“SEC,” using a “shelf” registration process. By using a shelf registration statement, we may sell securities from time to time and in one or more offerings up to a total dollar amount of $750,000,000 as described in this
prospectus. Each time that we offer and sell securities, we will provide a prospectus supplement to this prospectus that contains specific information about the securities being offered and sold and the specific terms of that offering. The
prospectus supplement may also add, update or change information contained in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement, you
should rely on the prospectus supplement. Before purchasing any securities, you should carefully read both this prospectus and the applicable prospectus supplement, together with the additional information described under the heading “Where You
Can Find More Information; Incorporation by Reference.”
We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. We will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the
information appearing in this prospectus and the applicable prospectus supplement to this prospectus is accurate only as of the date on its respective cover, and that any information incorporated by reference is accurate only as of the date of the
document incorporated by reference, unless we indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.
When we refer to “our partnership,” “we,” “our,” “us” or like terms in this prospectus, we mean CONE
Midstream Partners LP and its consolidated subsidiaries, including CONE Midstream Operating Company LLC, unless otherwise specified. References in the prospectus to “Finance Corp.” refer to CONE Midstream Finance Corp., a wholly owned
subsidiary of the Partnership that may act as issuer or co-issuer of any debt securities offered in this prospectus. References in this prospectus to “CONE Operating” refer to CONE Midstream Operating Company LLC, a wholly owned subsidiary
of the Partnership that may act as co-issuer of any debt securities offered in this prospectus. References in this prospectus to “our general partner” refer to CONE Midstream GP LLC, our general partner. References in this prospectus to
“CONSOL” refer to CONSOL Energy Inc. References in this prospectus to “Noble” or “Noble Energy” refer to Noble Energy, Inc. References in this prospectus to our “Sponsors” refer to both CONSOL and Noble.
References in this prospectus to “CONE” refer to CONE Gathering LLC, the sole owner of our general partner, in which each of CONSOL and Noble owns a 50% membership interest. When we refer to “you,” we mean the holders of the
applicable series of securities.
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WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
Available Information
We file
annual, quarterly and other reports and information with the SEC. Information filed with the SEC by us can be inspected and copied at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
also obtain copies of this information by mail from the Public Reference Room of the SEC at prescribed rates. Further information on the operation of the SEC’s Public Reference Room in Washington, D.C. can be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site that contains reports and other information about issuers, such as us, who file electronically with the SEC. The address of that website is
http://www.sec.gov
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Our web site address is
http://www.conemidstream.com
. The information on our web site, however, is not, and should not be deemed to be,
a part of this prospectus.
This prospectus and any prospectus supplement are part of a registration statement that we filed with the SEC
and do not contain all of the information in the registration statement. The full registration statement may be obtained from the SEC or us, as provided below. Other documents establishing the terms of the offered securities are or may be filed as
exhibits to the registration statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You should refer
to the actual documents for a more complete description of the relevant matters. You may inspect a copy of the registration statement at the SEC’s Public Reference Room in Washington, D.C. or through the SEC’s website, as provided above.
Incorporation by Reference
The
SEC’s rules allow us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus, and subsequent information that we file with the SEC will automatically update and supersede that information. Any statement contained in a previously filed document
incorporated by reference will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus modifies or replaces that statement.
We incorporate by reference our documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act” in this prospectus, between the date of this prospectus and the termination of the offering of the securities described in this prospectus. We are
not, however, incorporating by reference any documents or portions thereof, whether specifically listed below or filed in the future, that are not deemed “filed” with the SEC, or any information furnished pursuant to Items 2.02 or 7.01 of
Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K.
This prospectus and any accompanying prospectus supplement
incorporates by reference the documents set forth below that have previously been filed with the SEC:
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Our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 18, 2016, and our Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2015, filed with
the SEC on September 9, 2016.
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Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, filed with the SEC on May 5, 2016, June 30, 2016, filed with the SEC on August 4, 2016 and September 30, 2016, filed with the SEC on November 4,
2016 and our Amendment No. 1 to our Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2016 and June 30, 2016, filed with the SEC on September 9, 2016.
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Our Current Reports on Form 8-K filed with the SEC on November 16, 2016 and December 7, 2016 (in each case, to the extent filed and not furnished).
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The description of our common units contained in our Registration Statement on Form 8-A filed with the SEC on September 19, 2014 and any amendment or report filed with the SEC for the purpose of updating the
description.
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All reports and other documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the termination of an offering, including all such documents we may file with the SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement, but excluding any information furnished
to, rather than filed with, the SEC, will also be incorporated by reference into this prospectus and deemed to be part of this prospectus from the date of the filing of such reports and documents.
You may request a free copy of any of the documents incorporated by reference in this prospectus (other than exhibits, unless they are
specifically incorporated by reference in the documents) by writing or telephoning us at the following address:
CONE Midstream Partners LP
Investor Relations
1000
CONSOL Energy Drive
Canonsburg, Pennyslvania 15317
(724) 485-4000
Exhibits to the
filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus and any accompanying prospectus supplement.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or
conditions or that include the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate
to historical matters identify forward-looking statements. Our forward-looking statements include statements about our business strategy, our industry, our future profitability, our expected capital expenditures and the impact of such expenditures
on our performance, the costs of being a publicly traded partnership and our capital programs.
A forward-looking statement may include a
statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. You are cautioned not to place undue reliance on any
forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could
cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
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the effects of changes in market prices of natural gas, natural gas liquids and crude oil on our Sponsors’ drilling and development plans on our dedicated acreage and the volumes of natural gas and condensate that
are produced on our dedicated acreage;
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changes in our Sponsors’ drilling and development plans in the Marcellus Shale;
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our Sponsors’ ability to meet their drilling and development plans in the Marcellus Shale;
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the demand for natural gas and condensate gathering services;
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changes in general economic conditions;
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competitive conditions in our industry;
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actions taken by third-party operators, gatherers, processors and transporters;
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our ability to successfully implement our business plan;
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our ability to complete internal growth projects on time and on budget;
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the price and availability of debt and equity financing;
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the availability and price of oil and natural gas to the consumer compared to the price of alternative and competing fuels;
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competition from the same and alternative energy sources;
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energy efficiency and technology trends;
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operating hazards and other risks incidental to our midstream services;
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natural disasters, weather-related delays, casualty losses and other matters beyond our control;
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defaults by our Sponsors under our gathering agreements;
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changes in availability and cost of capital;
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changes in our tax status;
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the effect of existing and future laws and government regulations;
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the effects of future litigation; and
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certain factors discussed elsewhere in this prospectus.
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You should not place undue reliance on our forward-looking statements. Although forward-looking
statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described under “Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2015, and any similar disclosures in any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, for additional factors which may cause our actual results, performance or achievements to
differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new
information, future events, changed circumstances or otherwise, unless required by law.
You should rely only on the information
contained in this prospectus, in the accompanying prospectus supplement and in material we file with the SEC that is incorporated by reference in this prospectus or the accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different.
We are offering to sell, and seeking offers to buy, the securities described in this
prospectus only where offers and sales are permitted. Since information that we file with the SEC in the future will automatically update and supersede information contained in this prospectus or any accompanying prospectus supplement, you should
not assume that the information contained in this prospectus or in any prospectus supplement is accurate as of any date other than the date on the front of the document
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ABOUT CONE MIDSTREAM PARTNERS LP
CONE Midstream Partners LP (the “Partnership”, “we”, “our”, or “us”) is a master limited partnership
formed in May 2014 by CONSOL Energy Inc. (NYSE: CNX) (“CONSOL”) and Noble Energy, Inc. (NYSE: NBL) (“Noble” or “Noble Energy”), whom we refer to collectively as our Sponsors, primarily to own, operate, develop and
acquire natural gas gathering and other midstream energy assets to service our Sponsors’ production in the Marcellus Shale in Pennsylvania and West Virginia. The Partnership conducts its operations through CONE Operating, its wholly-owned
subsidiary. Our assets include natural gas gathering pipelines and compression and dehydration facilities, as well as condensate gathering, collection, separation and stabilization facilities. We currently generate all of our revenues under
long-term, fixed-fee gathering agreements that we have entered into with each of our Sponsors that are intended to mitigate our direct commodity price exposure and enhance the stability of our cash flows. Our gathering agreements with the Sponsors
also include substantial acreage dedications currently totaling approximately 515,000 net acres in the Marcellus Shale. In the future, we may seek to supplement our growth by performing gathering services for unrelated third parties. In addition, we
will also consider accretive acquisitions, including drop downs of additional interests in our existing consolidated assets, as well as other unaffiliated opportunities.
We directly own 100% of Finance Corp., which was incorporated under the laws of the State of Delaware in December 2016 for the purpose of
co-issuing our debt securities and has no material assets or liabilities other than as co-issuer of our debt securities. Finance Corp.’s activities will be limited to co-issuing our debt securities and engaging in activities related thereto.
Our principal executive offices are located at 1000 CONSOL Energy Drive, Canonsburg, Pennsylvania, 15317, and our telephone number is
(724) 485-4000.
RISK FACTORS
Investment in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. Additionally,
limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in similar business. You should
carefully consider the risk factors incorporated by reference into our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K we file after the date of this prospectus, and all other
information contained or incorporated by reference into this prospectus, as updated by our subsequent filings under the Exchange Act, and the risk factors and other information contained in the applicable prospectus supplement before acquiring any
of such securities. The occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities. Please also see “Forward-Looking Statements.”
USE OF PROCEEDS
Unless otherwise indicated to the contrary in an applicable prospectus supplement, we will use the net proceeds from the sale of the
securities covered by this prospectus for general partnership purposes, which may include funding debt repayment, future acquisitions, capital expenditures and additions to working capital.
Any allocation of the net proceeds of an offering of securities to a specific purpose will be determined at the time of the offering and will
be described in the applicable prospectus supplement.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed charges for the periods indicated on a consolidated historical
basis. For purposes of computing the ratio of earnings to fixed charges, “earnings” are defined as income before taxes plus fixed charges less capitalized interest. “Fixed charges” consist of interest expensed and
capitalized and an estimate of interest within rent expense.
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Nine Months
Ended September
30, 2016
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Year Ended December 31,
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2015
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2014
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2013
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2012
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Ratio of earnings (loss) to fixed charges
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24.6x
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19.3x
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26.6x
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35.0x
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31.0x
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For the periods indicated above, neither we nor our predecessor had any outstanding shares of preferred units
with required distributions. Therefore, the ratios of earnings to combined fixed charges and preferred unit distributions are identical to the ratios presented in the tables above.
DESCRIPTION OF OUR COMMON UNITS
The following description of our common units is not complete and may not contain all the information you should consider before investing in
our common units. This description is summarized from, and qualified in its entirety by reference to, our partnership agreement, which has been publicly filed with the SEC. See “Where You Can Find More Information; Incorporation by
Reference.”
The Units
Our
common units represent limited partner interests in us. The holders of common units, along with the holders of subordinated units, are entitled to participate in partnership distributions and to exercise the rights and privileges provided to limited
partners under our partnership agreement. Please read “Cash Distribution Policy and Restrictions on Distributions” and “Provisions of Our Partnership Agreement Relating to Cash Distributions.” For a description of the rights
and privileges of limited partners under our partnership agreement, including voting rights, please read “Our Partnership Agreement.”
Our common units are listed on the New York Stock Exchange, or NYSE, under the symbol “CNNX”.
Transfer Agent and Registrar
Duties
Wells Fargo
Shareowner Services serves as the transfer agent and registrar for our common units. We pay all fees charged by the transfer agent for transfers of common units, except for the following that must be paid by our unitholders:
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surety bond premiums to replace lost or stolen certificates, or to cover taxes and other governmental charges in connection therewith;
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special charges for services requested by a holder of a common unit; and
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other similar fees or charges.
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Unless our general partner determines otherwise in respect of
some or all of any classes of our partnership interests, our partnership interests are evidenced by book entry notation on our partnership register and not by physical certificates.
There is no charge to our unitholders for disbursements of our cash distributions. We indemnify the transfer agent, its agents and each of
their respective stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional
misconduct of the indemnified person or entity.
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Resignation or Removal
The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective
upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If a successor has not been appointed or has not accepted its appointment within 30 days after notice of the resignation or removal, our general
partner may act as the transfer agent and registrar until a successor is appointed.
Transfer of Common Units
By transfer of common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited
partner with respect to the common units transferred when such transfer and admission are reflected in our books and records. Each transferee:
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represents that the transferee has the capacity, power and authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and
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gives the consents and approvals contained in our partnership agreement.
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A transferee will
become a substituted limited partner of our partnership for the transferred common units automatically upon the recording of the transfer on our books and records. Our general partner will cause any transfers to be recorded on our books and records
from time to time as necessary to accurately reflect the transfers but no less frequently than quarterly.
We may, at our discretion,
treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holder’s rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the
nominee holder.
Common units are securities and transferable according to the laws governing the transfer of securities. In addition to
other rights acquired upon transfer, the transferor gives the transferee the right to become a substituted limited partner in our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the common unit as the
absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.
DESCRIPTION OF PREFERRED UNITS
Our partnership agreement authorizes us to issue an unlimited number of additional limited partner interests and other equity securities on
the terms and conditions established by our general partner without the approval of any of our limited partners. In accordance with Delaware law and the provisions of our partnership agreement, we may issue additional partnership interests that have
special voting rights to which our common units are not entitled. As of the date of this prospectus, we have no preferred units outstanding.
If we offer preferred units under this prospectus, a prospectus supplement relating to the particular series of preferred units offered will
include the specific terms of those preferred units, including, among other things, the following:
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the designation, stated value, and liquidation preference of the preferred units and the number of preferred units offered;
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the initial public offering price at which the preferred units will be issued;
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any conversion or exchange provisions of the preferred units;
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any redemption or sinking fund provisions of the preferred units;
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the distribution rights of the preferred units, if any;
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a discussion of any additional material federal income tax considerations regarding the preferred units; and
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any additional rights, preferences, privileges, limitations, and restrictions of the preferred units.
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DESCRIPTION OF DEBT SECURITIES OF CONE MIDSTREAM PARTNERS LP
Any debt securities that we offer under a prospectus supplement will be direct, unsecured general obligations. The debt securities will be
either senior debt securities or subordinated debt securities. The debt securities will be issued under one or more separate indentures between us and Wells Fargo Bank, National Association, as trustee. Senior debt securities will be issued under a
senior indenture and subordinated debt securities will be issued under a subordinated indenture. Together, the senior indenture and the subordinated indenture are called “indentures.” The indentures will be supplemented by
supplemental indentures, the material provisions of which will be described in a prospectus supplement.
As used in this description, the
words “we,” “us” and “our” refer to CONE Midstream Partners LP and not to any of its subsidiaries or affiliates, including, but not limited to, CONE Midstream Operating Company LLC.
Under each of the indentures, we may issue debt securities in one or more series. Our 100% owned subsidiary, CONE Midstream Finance Corp.,
which we refer to below as “Finance Corp.”, may be a co-issuer of the debt securities of any such series. Finance Corp. has nominal assets and does not and will not conduct any operations or have any employees. It was formed in December
2016 for the sole purpose of acting as a co-issuer for our debt securities and its activities will be limited to co-issuing our debt securities and engaging in other activities incidental thereto.
We have summarized some of the material provisions of the indentures below. This summary does not restate those agreements in their entirety.
A form of senior indenture and a form of subordinated indenture have been filed as exhibits to the registration statement of which this prospectus is a part. We urge you to read each of the indentures because each one, and not this description,
defines the rights of holders of debt securities.
Capitalized terms defined in the indentures have the same meanings when used in this
prospectus.
General
The debt
securities issued under the indentures will be our direct, unsecured general obligations. The senior debt securities will rank equally with all of our other senior and unsubordinated debt. The subordinated debt securities will have a junior position
to all of our senior debt.
The following description sets forth the general terms and provisions that could apply to debt securities that
we may offer to sell. A prospectus supplement relating to any series of debt securities being offered will include specific terms relating to the offering. These terms will include some or all of the following, among others:
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the title and type of the debt securities;
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whether Finance Corp. will be a co-issuer of the debt securities;
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the total principal amount of the debt securities;
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the percentage of the principal amount at which the debt securities will be issued and any payments due if the maturity of the debt securities is accelerated;
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the dates on which the principal of the debt securities will be payable;
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the interest rate which the debt securities will bear and the interest payment dates for the debt securities;
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any conversion or exchange features;
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any optional redemption periods;
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any sinking fund or other provisions that would obligate us to repurchase or otherwise redeem some or all of the debt securities;
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any provisions granting special rights to holders when a specified event occurs;
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any changes to or additional events of default or covenants;
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any special tax implications of the debt securities, including provisions for original issue discount securities, if offered; and
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any other terms of the debt securities.
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Neither of the indentures will limit the amount of
debt securities that may be issued. Each indenture will allow debt securities to be issued up to the principal amount that may be authorized by us and may be in any currency or currency unit designated by us.
Debt securities of a series may be issued in registered or global form.
Subsidiary Guarantees
If the applicable
prospectus supplement relating to a series of our senior debt securities provides that those senior debt securities will have the benefit of a guarantee by any or all of our subsidiaries, payment of the principal, premium, if any, and interest on
those senior debt securities will be unconditionally guaranteed on an unsecured, unsubordinated basis by such subsidiary or subsidiaries. The guarantee of senior debt securities will rank equally in right of payment with all of the unsecured and
unsubordinated indebtedness of such subsidiary or subsidiaries.
If the applicable prospectus supplement relating to a series of our
subordinated debt securities provides that those subordinated debt securities will have the benefit of a guarantee by any or all of our subsidiaries, payment of the principal, premium, if any, and interest on those subordinated debt securities will
be unconditionally guaranteed on an unsecured, subordinated basis by such subsidiary or subsidiaries. The guarantee of the subordinated debt securities will be subordinated in right of payment to all of such subsidiary’s or subsidiaries’
existing and future senior indebtedness (as defined in the related prospectus supplement), including any guarantee of the senior debt securities, to the same extent and in the same manner as the subordinated debt securities are subordinated to our
senior indebtedness (as defined in the related prospectus supplement). See “—Subordination” below.
The obligations of
our subsidiaries under any such guarantee will be limited as necessary to prevent the guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law.
Covenants
Under the indentures, we:
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will pay the principal of, and interest and any premium on, the debt securities when due;
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will maintain a place of payment;
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will deliver a certificate to the trustee each fiscal year reviewing our compliance with our obligations under the indentures;
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will preserve our corporate existence; and
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will segregate or deposit with any paying agent sufficient funds for the payment of any principal, interest or premium on or before the due date of such payment.
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Mergers and Sale of Assets
Each of the
indentures will provide that we may not convert into, or consolidate, amalgamate or merge with or into any other Person or sell, convey, transfer or lease all or substantially all of our properties and assets (on a consolidated basis) to another
Person, unless:
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either: (a) we are the surviving Person; or (b) the Person formed by or surviving any such consolidation, amalgamation or merger or resulting from such conversion (if other than us) or to which such sale,
assignment, transfer, conveyance or other disposition has been made is a corporation, limited liability company or limited partnership organized or existing under the laws of the United States, any State thereof or the District of Columbia;
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the Person formed by or surviving any such conversion, consolidation, amalgamation or merger (if other than us) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made
assumes all of our obligations under such indenture and the debt securities governed thereby pursuant to agreements reasonably satisfactory to the trustee, which may include a supplemental indenture;
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we or the successor will not immediately be in default under such indenture; and
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we deliver an officer’s certificate and opinion of counsel to the trustee stating that such consolidation, amalgamation, merger, conveyance, sale, transfer or lease and any supplemental indenture comply with such
indenture and that all conditions precedent set forth in such indenture have been complied with.
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Upon the assumption of our
obligations under each indenture by a successor, we will be discharged from all obligations under such indenture.
As used in the
indentures and in this description, the word “
Person
” means any individual, corporation, company, limited liability company, partnership, limited partnership, joint venture, association, joint-stock company, trust, other entity,
unincorporated organization or government or any agency or political subdivision thereof.
Events of Default
“
Event of default
,” when used in the indentures with respect to debt securities of any series, will mean any of the following:
(1) default in the payment of any interest upon any debt security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days;
(2) default in the payment of the principal of (or premium, if any,
on) any debt security of that series at its maturity;
(3) default in the performance, or breach, of any covenant set forth
in Article Ten of the applicable indenture (other than a covenant a default in the performance of which or the breach of which is elsewhere specifically dealt with as an event of default or which has expressly been included in such indenture solely
for the benefit of one or more series of debt securities other than that series), and continuance of such
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default or breach for a period of 90 days after there has been given, by registered or certified mail, to us by the trustee or to us and the trustee by the holders of at least 25% in principal
amount of the then-outstanding debt securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” thereunder;
(4) default in the performance, or breach, of any covenant in the applicable indenture (other than a covenant set forth in
Article Ten of such indenture or any other covenant a default in the performance of which or the breach of which is elsewhere specifically dealt with as an event of default or which has expressly been included in such indenture solely for the
benefit of one or more series of debt securities other than that series), and continuance of such default or breach for a period of 180 days after there has been given, by registered or certified mail, to us by the trustee or to us and the trustee
by the holders of at least 25% in principal amount of the then-outstanding debt securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of
Default” thereunder;
(5) we, pursuant to or within the meaning of any bankruptcy law, (i) commence a voluntary case,
(ii) consent to the entry of any order for relief against us in an involuntary case, (iii) consent to the appointment of a custodian of us or for all or substantially all of our property, or (iv) make a general assignment for the benefit of our
creditors;
(6) a court of competent jurisdiction enters an order or decree under any bankruptcy law that (i) is for relief
against us in an involuntary case, (ii) appoints a custodian of us or for all or substantially all of our property, or (iii) orders the liquidation of us, and the order or decree remains unstayed and in effect for 60 consecutive days;
(7) default in the deposit of any sinking fund payment when due; or
(8) any other event of default provided with respect to debt securities of that series in accordance with provisions of the
indenture related to the issuance of such debt securities.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt securities issued under an indenture. The trustee may withhold notice to the holders of debt securities of any default (except in the payment of principal, interest or any
premium) if it considers the withholding of notice to be in the interests of the holders.
If an event of default for any series of debt
securities occurs and continues, the trustee or the holders of 25% in aggregate principal amount of the debt securities of the series may declare the entire principal of all of the debt securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the aggregate principal amount of the debt securities of that series can void the declaration.
Other than its duties in case of a default, a trustee is not obligated to exercise any of its rights or powers under any indenture at the
request, order or direction of any holders, unless the holders offer the trustee indemnity satisfactory to the trustee. If they provide this satisfactory indemnification, the holders of a majority in principal amount outstanding of any series of
debt securities may direct the time, method and place of conducting any proceeding or any remedy available to the trustee, or exercising any power conferred upon the trustee, for any series of debt securities.
Amendments and Waivers
Subject to
certain exceptions, the indentures, the debt securities issued thereunder or the subsidiary guarantees may be amended or supplemented with the consent of the holders of a majority in aggregate principal amount of the then-outstanding debt securities
of each series affected by such amendment or supplemental indenture, with each such series voting as a separate class (including, without limitation, consents obtained in
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connection with a purchase of, or tender offer or exchange offer for, debt securities) and, subject to certain exceptions, any past default or compliance with any provisions may be waived with
respect to each series of debt securities with the consent of the holders of a majority in principal amount of the then-outstanding debt securities of such series voting as a separate class (including consents obtained in connection with a purchase
of, or tender offer or exchange offer for, debt securities).
Without the consent of each holder of the outstanding debt securities
affected, an amendment, supplement or waiver may not, among other things:
(1) change the stated maturity of the principal
of, or any installment of principal of or interest on, any debt security, reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, reduce the amount of the principal of an original issue
discount security that would be due and payable upon a declaration of acceleration of the maturity thereof pursuant to the applicable indenture, change the coin or currency in which any debt security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such payment on or after the stated maturity thereof (or, in the case of redemption, on or after the redemption date therefor);
(2) reduce the percentage in principal amount of the then-outstanding debt securities of any series, the consent of the holders
of which is required for any such amendment or supplemental indenture, or the consent of the holders of which is required for any waiver of compliance with certain provisions of the applicable indenture or certain defaults thereunder and their
consequences provided for in the applicable indenture;
(3) modify any of the provisions set forth in (i) the provisions of
the applicable indenture related to the holder’s unconditional right to receive principal, premium, if any, and interest on the debt securities or (ii) the provisions of the applicable indenture related to the waiver of past defaults under such
indenture;
(4) waive a redemption payment with respect to any debt security; provided, however, that any purchase or
repurchase of debt securities shall not be deemed a redemption of the debt securities;
(5) release any guarantor from any
of its obligations under its guarantee or the applicable indenture, except in accordance with the terms of such indenture (as amended or supplemented); or
(6) make any change in the foregoing amendment and waiver provisions, except to increase any percentage provided for therein or
to provide that certain other provisions of the applicable indenture cannot be modified or waived without the consent of the holder of each then-outstanding debt security affected thereby.
Notwithstanding the foregoing, without the consent of any holder of debt securities, we, the guarantors and the trustee may amend each of the
indentures or the debt securities issued thereunder to:
(1) cure any ambiguity or defect or to correct or supplement any
provision therein that may be inconsistent with any other provision therein;
(2) evidence the succession of another Person
to us and the assumption by any such successor of our covenants therein and, to the extent applicable, of the debt securities;
(3) provide for uncertificated debt securities in addition to or in place of certificated debt securities; provided that the
uncertificated debt securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), or in the manner such that the uncertificated debt securities are
described in Section 163(f)(2)(B) of the Internal Revenue Code;
(4) add a guarantee and cause any Person to become a
guarantor, and/or to evidence the succession of another Person to a guarantor and the assumption by any such successor of the guarantee of such guarantor therein and, to the extent applicable, endorsed upon any debt securities of any series, and/or
to cause any of our corporate subsidiaries to become a co-issuer of the debt securities of any series;
(5) secure the debt
securities of any series;
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(6) add to the covenants such further covenants, restrictions, conditions or
provisions as we shall consider to be appropriate for the benefit of the holders of all or any series of debt securities (and if such covenants, restrictions, conditions or provisions are to be for the benefit of less than all series of debt
securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon us, and to make the occurrence, or the occurrence and continuance, of a default in
any such additional covenants, restrictions, conditions or provisions an event of default permitting the enforcement of all or any of the several remedies provided in the applicable indenture as set forth therein;
provided
, that in respect of
any such additional covenant, restriction, condition or provision, such amendment or supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement upon such an event of default or may limit the remedies available to the trustee upon such an event of default or may limit the right of the holders of a majority in aggregate principal amount of
the debt securities of such series to waive such an event of default;
(7) make any change to any provision of the
applicable indenture that does not adversely affect the rights or interests of any holder of debt securities issued thereunder in any material respect;
(8) provide for the issuance of additional debt securities in accordance with the provisions set forth in the applicable
indenture;
(9) add any additional defaults or events of default in respect of all or any series of debt securities;
(10) add to, change or eliminate any of the provisions of the applicable indenture to such extent as shall be necessary to
permit or facilitate the issuance of debt securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons;
(11) change or eliminate any of the provisions of the applicable indenture; provided that any such change or elimination shall
become effective only when there is no debt security outstanding of any series created prior to the execution of such amendment or supplemental indenture that is entitled to the benefit of such provision;
(12) establish the form or terms of debt securities of any series as permitted thereunder, including to reopen any series of
any debt securities as permitted thereunder;
(13) evidence and provide for the acceptance of appointment thereunder by a
successor trustee with respect to the debt securities of one or more series and to add to or change any of the provisions of the applicable indenture as shall be necessary to provide for or facilitate the administration of the trusts thereunder by
more than one trustee, pursuant to the requirements of such indenture;
(14) conform the text of the applicable indenture
(and/or any supplemental indenture) or any debt securities issued thereunder to any provision of a description of such debt securities appearing in a prospectus or prospectus supplement or an offering memorandum or offering circular to the extent
that such provision appears on its face to have been intended to be a verbatim recitation of a provision of such indenture (and/or any supplemental indenture) or any debt securities or securities guarantee issued thereunder as described in an
officer’s certificate delivered by us to the trustee; or
(15) modify, eliminate or add to the provisions of the
applicable indenture to such extent as shall be necessary to effect the qualification of such indenture under the Trust Indenture Act of 1939, as amended (the “
Trust Indenture Act
”), or under any similar federal statute subsequently
enacted, and to add to such indenture such other provisions as may be expressly required under the Trust Indenture Act.
The consent of
the holders is not necessary under either indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment with the consent of the holders under
an indenture becomes effective, we are required to mail to the holders of debt securities thereunder a notice briefly describing such amendment. However, the failure to give such notice to all such holders, or any defect therein, will not impair or
affect the validity of the amendment.
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Legal Defeasance and Covenant Defeasance
Each indenture provides that we may, at our option and at any time, elect to have all of our obligations discharged with respect to the debt
securities outstanding thereunder and all obligations of any guarantors of such debt securities discharged with respect to their guarantees (“
Legal Defeasance
”), except for:
(1) the rights of holders of outstanding debt securities to receive payments in respect of the principal of, or interest or
premium, if any, on, such debt securities when such payments are due from the trust referred to below;
(2) our obligations
with respect to the debt securities concerning temporary debt securities, registration of debt securities, mutilated, destroyed, lost or stolen debt securities, the maintenance of an office or agency for payment and money for security payments held
in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and our and each guarantor’s
obligations in connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance (as defined below) provisions of
the applicable indenture.
In addition, we may, at our option and at any time, elect to have our obligations released with respect to
certain provisions of each indenture, including certain provisions described in any prospectus supplement (such release and termination being referred to as “
Covenant Defeasance
”), and thereafter any failure to comply with such
obligations or provisions will not constitute a default or event of default. In addition, in the event Covenant Defeasance occurs in accordance with the applicable indenture, any defeasible event of default will no longer constitute an event of
default.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the debt securities, cash in U.S.
dollars, non-callable U.S. government securities, or a combination of cash in U.S. dollars and non-callable U.S. government securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, in the opinion of a
nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, and interest and premium, if any, on, the outstanding debt securities on the stated date for payment thereof or on the
applicable redemption date, as the case may be, and we must specify whether the debt securities are being defeased to such stated date for payment or to a particular redemption date;
(2) in the case of Legal Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the issue date of the debt securities, there has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding debt securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the same time as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding debt securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no
default or event of default shall have occurred and be continuing on the date of such deposit (other than a default or event of default resulting from the borrowing of funds to be applied to such deposit);
(5) the deposit must not result in a breach or violation of, or constitute a default under, any other instrument to which we
are, or any guarantor is, a party or by which we are, or any guarantor is, bound;
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(6) such Legal Defeasance or Covenant Defeasance must not result in a breach or
violation of, or constitute a default under, any material agreement or instrument (other than the applicable indenture) to which we are, or any of our subsidiaries is, a party or by which we are, or any of our subsidiaries is, bound;
(7) we must deliver to the trustee an officer’s certificate stating that the deposit was not made by us with the intent of
preferring the holders of debt securities over our other creditors with the intent of defeating, hindering, delaying or defrauding our creditors or the creditors of others;
(8) we must deliver to the trustee an officer’s certificate stating that all conditions precedent set forth in clauses (1)
through (6) of this paragraph have been complied with; and
(9) we must deliver to the trustee an opinion of counsel (which
opinion of counsel may be subject to customary assumptions, qualifications, and exclusions) stating that all conditions precedent set forth in clauses (2), (3) and (6) of this paragraph have been complied with.
Satisfaction and Discharge
Each of the
indentures will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of debt securities and certain rights of the trustee, as expressly provided for in such indenture) as to all
outstanding debt securities issued thereunder and the guarantees issued thereunder when:
(1) either (a) all of the
debt securities theretofore authenticated and delivered under such indenture (except lost, stolen or destroyed debt securities that have been replaced or paid and debt securities for the payment of which money has theretofore been deposited in trust
or segregated and held in trust by us and thereafter repaid to us or discharged from such trust) have been delivered to the trustee for cancellation or (b) all debt securities not theretofore delivered to the trustee for cancellation have
become due and payable, will become due and payable at their stated maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in
the name, and at the expense, of us, and we have irrevocably deposited or caused to be deposited with the trustee funds, in an amount sufficient to pay and discharge the entire indebtedness on the debt securities not theretofore delivered to the
trustee for cancellation, for principal of and premium, if any, and interest on the debt securities to the date of deposit (in the case of debt securities that have become due and payable) or to the stated maturity or redemption date, as the case
may be, together with instructions from us irrevocably directing the trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;
(2) we have paid all other sums then due and payable under such indenture by us; and
(3) we have delivered to the trustee an officer’s certificate and an opinion of counsel, which, taken together, state that
all conditions precedent under such indenture relating to the satisfaction and discharge of such indenture have been complied with.
No Personal
Liability of Directors, Managers, Officers, Employees, Partners, Members, Stockholders, Unitholders and Incorporators
No director,
manager, officer, employee, partner, member, stockholder, unitholder or incorporator of us, Finance Corp., or any guarantor, as such, shall have any liability for any of our obligations or those of the guarantors under the debt securities, the
indentures, the guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of debt securities, upon our issuance of the debt securities and execution of the indentures, waives and releases
all such liability. The waiver and release are part of the consideration for issuance of the debt securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
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Denominations
Unless stated otherwise in the prospectus supplement for each issuance of debt securities, the debt securities will be issued in minimum
denominations of $1,000 each or integral multiples of $1,000.
Paying Agent and Registrar
The trustee will initially act as paying agent and registrar for the debt securities. We may change the paying agent or registrar without prior
notice to the holders of the debt securities, and we may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange debt securities in accordance with the applicable indenture. The registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer documents, and we may require a holder to pay any taxes and fees required by law or permitted by the applicable indenture. We are not required to transfer or exchange any
debt security selected for redemption. In addition, we are not required to transfer or exchange any debt security for a period of 15 days before a selection of debt securities to be redeemed.
Subordination
The payment of the
principal of and premium, if any, and interest on subordinated debt securities and any of our other payment obligations in respect of subordinated debt securities (including any obligation to repurchase subordinated debt securities) is subordinated
in certain circumstances in right of payment, as set forth in the subordinated indenture, to the prior payment in full in cash of all senior debt.
We also may not make any payment, whether by redemption, purchase, retirement, defeasance or otherwise, upon or in respect of subordinated
debt securities, except from a trust described under “—Legal Defeasance and Covenant Defeasance,” if
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a default in the payment of all or any portion of the obligations on any designated senior debt (“
payment default
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any other default occurs and is continuing with respect to designated senior debt pursuant to which the maturity thereof may be accelerated (“
non-payment default
”) and, solely with respect to this
clause, the trustee for the subordinated debt securities receives a notice of the default (a “
payment blockage notice
”) from the trustee or other representative for the holders of such designated senior debt.
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Cash payments on subordinated debt securities will be resumed (a) in the case of a payment default, upon the date on which such default is
cured or waived, and (b) in case of a nonpayment default, the earliest of the date on which such nonpayment default is cured or waived, the termination of the payment blockage period by written notice to the trustee for the subordinated debt
securities from the trustee or other representative for the holders of such designated senior debt, the payment in full of such designated senior debt or 179 days after the date on which the applicable payment blockage notice is received. No new
payment blockage period may be commenced unless and until 360 days have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior payment blockage notice. No nonpayment default in respect of
designated senior debt that existed or was continuing on the date of delivery of any payment blockage notice to the trustee for the subordinated debt securities will be, or be made, the basis for a subsequent payment blockage notice unless such
default shall have been cured or waived for a period of no less than 90 consecutive days.
Upon any payment or distribution of our assets
or securities (other than with the money, securities or proceeds held under any defeasance trust established in accordance with the subordinated indenture) in
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connection with any dissolution or winding up or total or partial liquidation or reorganization of us, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
proceedings or other marshalling of assets for the benefit of creditors, all amounts due or to become due upon all senior debt shall first be paid in full, in cash or cash equivalents, before the holders of the subordinated debt securities or the
trustee on their behalf shall be entitled to receive any payment by or on behalf of us on account of the subordinated debt securities, or any payment to acquire any of the subordinated debt securities for cash, property or securities, or any
distribution with respect to the subordinated debt securities of any cash, property or securities. Before any payment may be made by, or on behalf of, us on any subordinated debt security (other than with the money, securities or proceeds held under
any defeasance trust established in accordance with the subordinated indenture) in connection with any such dissolution, winding up, liquidation or reorganization, any payment or distribution of our assets or securities, to which the holders of
subordinated debt securities or the trustee on their behalf would be entitled, shall be made by us or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person making such payment or distribution, or by the holders
or the trustee if received by them or it, directly to the holders of senior debt or their representatives or to any trustee or trustees under any indenture pursuant to which any such senior debt may have been issued, as their respective interests
appear, to the extent necessary to pay all such senior debt in full, in cash or cash equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such senior debt.
As a result of these subordination provisions, in the event of our liquidation, bankruptcy, reorganization, insolvency, receivership or
similar proceeding or an assignment for the benefit of our creditors or a marshalling of our assets or liabilities, holders of subordinated debt securities may receive ratably less than other creditors.
Payment and Transfer
Principal, interest
and any premium on fully registered debt securities will be paid at designated places. Payment will be made by check mailed to the persons in whose names the debt securities are registered on days specified in the indentures or any prospectus
supplement. Debt securities payments in other forms will be paid at a place designated by us and specified in a prospectus supplement.
Fully registered debt securities may be transferred or exchanged at the office of the trustee or at any other office or agency maintained by
us for such purposes, without the payment of any service charge except for any tax or governmental charge.
Global Securities
The debt securities of a series may be issued in whole or in part in the form of one or more global certificates that we will deposit with a
depositary identified in the applicable prospectus supplement. Unless and until it is exchanged in whole or in part for the individual debt securities that it represents, a global security may not be transferred except as a whole:
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by the applicable depositary to a nominee of the depositary;
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by any nominee to the depositary itself or another nominee; or
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by the depositary or any nominee to a successor depositary or any nominee of the successor.
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We will describe the specific terms of the depositary arrangement with respect to a series of debt securities in the applicable prospectus
supplement. We anticipate that the following provisions will generally apply to depositary arrangements.
When we issue a global security
in registered form, the depositary for the global security or its nominee will credit, on its book-entry registration and transfer system, the respective principal amounts of the individual debt securities represented by that global security to the
accounts of persons that have accounts with the depositary
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(“
participants
”). Those accounts will be designated by the dealers, underwriters or agents with respect to the underlying debt securities or by us if those debt securities
are offered and sold directly by us. Ownership of beneficial interests in a global security will be limited to participants or persons that may hold interests through participants. For interests of participants, ownership of beneficial interests in
the global security will be shown on records maintained by the applicable depositary or its nominee. For interests of persons other than participants, that ownership information will be shown on the records of participants. Transfer of that
ownership will be effected only through those records. The laws of some states require that certain purchasers of securities take physical delivery of securities in definitive form. These limits and laws may impair our ability to transfer beneficial
interests in a global security.
As long as the depositary for a global security, or its nominee, is the registered owner of that global
security, the depositary or nominee will be considered the sole owner or holder of the debt securities represented by the global security for all purposes under the applicable indenture. Except as provided below, owners of beneficial interests in a
global security:
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will not be entitled to have any of the underlying debt securities registered in their names;
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will not receive or be entitled to receive physical delivery of any of the underlying debt securities in definitive form; and
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will not be considered the owners or holders under the indenture relating to those debt securities.
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Payments of the principal of, any premium on and any interest on individual debt securities represented by a global security registered in the
name of a depositary or its nominee will be made to the depositary or its nominee as the registered owner of the global security representing such debt securities. Neither we, the trustee for the debt securities, any paying agent nor the registrar
for the debt securities will be responsible for any aspect of the records relating to or payments made by the depositary or any participants on account of beneficial interests in the global security.
We expect that the depositary or its nominee, upon receipt of any payment of principal, any premium or interest relating to a global security
representing any series of debt securities, immediately will credit participants’ accounts with the payments. Those payments will be credited in amounts proportional to the respective beneficial interests of the participants in the principal
amount of the global security as shown on the records of the depositary or its nominee. We also expect that payments by participants to owners of beneficial interests in the global security held through those participants will be governed by
standing instructions and customary practices. This is now the case with securities held for the accounts of customers registered in “street name.” Those payments will be the sole responsibility of those participants.
If the depositary for a series of debt securities is at any time unwilling, unable or ineligible to continue as depositary and we do not
appoint a successor depositary within 90 days, we will issue individual debt securities of that series in exchange for the global security or securities representing that series. In addition, we may at any time in our sole discretion determine not
to have any debt securities of a series represented by one or more global securities. In that event, we will issue individual debt securities of that series in exchange for the global security or securities. Furthermore, if we specify, an owner of a
beneficial interest in a global security may, on terms acceptable to us, the trustee and the applicable depositary, receive individual debt securities of that series in exchange for those beneficial interests. The foregoing is subject to any
limitations described in the applicable prospectus supplement. In any such instance, the owner of the beneficial interest will be entitled to physical delivery of individual debt securities equal in principal amount to the beneficial interest and to
have the debt securities registered in its name. Those individual debt securities will be issued in any authorized denominations.
Governing Law
Each indenture and the debt securities will be governed by and construed in accordance with the laws of the State of New York.
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Information Concerning the Trustee
Wells Fargo Bank, National Association, will be the trustee under the indentures. A successor trustee may be appointed in accordance with the
terms of the indentures.
The indentures and the provisions of the Trust Indenture Act incorporated by reference therein will contain
certain limitations on the rights of the trustee, should it become a creditor of us, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be
permitted to engage in other transactions; however, if it acquires any conflicting interest (within the meaning of the Trust Indenture Act), it must eliminate such conflicting interest or resign.
A single banking or financial institution may act as trustee with respect to both the subordinated indenture and the senior indenture. If this
occurs, and should a default occur with respect to either the subordinated debt securities or the senior debt securities, such banking or financial institution would be required to resign as trustee under one of the indentures within 90 days of such
default, pursuant to the Trust Indenture Act, unless such default were cured, duly waived or otherwise eliminated.
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DESCRIPTION OF DEBT SECURITIES OF CONE MIDSTREAM OPERATING COMPANY
LLC
Any debt securities that we offer under a prospectus supplement will be direct, unsecured general obligations. The debt
securities will be either senior debt securities or subordinated debt securities. The debt securities will be issued under one or more separate indentures between us and Wells Fargo Bank, National Association, as trustee. Senior debt securities will
be issued under a senior indenture and subordinated debt securities will be issued under a subordinated indenture. Together, the senior indenture and the subordinated indenture are called “indentures.” The indentures will be
supplemented by supplemental indentures, the material provisions of which will be described in a prospectus supplement.
As used in this
description, the words “we,” “us” and “our” refer to CONE Midstream Operating Company LLC and not to any of its subsidiaries or affiliates, including, but not limited to, its parent company, CONE Midstream Partners LP.
Under each of the indentures, we may issue debt securities in one or more series. Finance Corp. may be a co-issuer of the debt securities
of any such series.
We have summarized some of the material provisions of the indentures below. This summary does not restate those
agreements in their entirety. A form of senior indenture and a form of subordinated indenture have been filed as exhibits to the registration statement of which this prospectus is a part. We urge you to read each of the indentures because each one,
and not this description, defines the rights of holders of debt securities.
Capitalized terms defined in the indentures have the same
meanings when used in this prospectus.
General
The debt securities issued under the indentures will be our direct, unsecured general obligations. The senior debt securities will rank equally
with all of our other senior and unsubordinated debt. The subordinated debt securities will have a junior position to all of our senior debt.
The following description sets forth the general terms and provisions that could apply to debt securities that we may offer to sell. A
prospectus supplement relating to any series of debt securities being offered will include specific terms relating to the offering. These terms will include some or all of the following, among others:
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the title and type of the debt securities;
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whether Finance Corp. will be a co-issuer of the debt securities;
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the total principal amount of the debt securities;
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the percentage of the principal amount at which the debt securities will be issued and any payments due if the maturity of the debt securities is accelerated;
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the dates on which the principal of the debt securities will be payable;
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the interest rate which the debt securities will bear and the interest payment dates for the debt securities;
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any conversion or exchange features;
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any optional redemption periods;
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any sinking fund or other provisions that would obligate us to repurchase or otherwise redeem some or all of the debt securities;
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any provisions granting special rights to holders when a specified event occurs;
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any changes to or additional events of default or covenants;
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any special tax implications of the debt securities, including provisions for original issue discount securities, if offered; and
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any other terms of the debt securities.
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Neither of the indentures will limit the amount of
debt securities that may be issued. Each indenture will allow debt securities to be issued up to the principal amount that may be authorized by us and may be in any currency or currency unit designated by us.
Debt securities of a series may be issued in registered or global form.
Guarantees
Our senior debt securities
will have the benefit of a full and unconditional guarantee of our obligations under such debt securities by the Partnership. If the applicable prospectus supplement relating to a series of our senior debt securities provides that those senior debt
securities will have the benefit of a guarantee by any or all of our subsidiaries or affiliates, including, but not limited to, the Partnership, payment of the principal, premium, if any, and interest on those senior debt securities will be
unconditionally guaranteed on an unsecured, unsubordinated basis by such subsidiary or subsidiaries or affiliate or affiliates. The guarantee of senior debt securities will rank equally in right of payment with all of the unsecured and
unsubordinated indebtedness of such subsidiary or subsidiaries or affiliate or affiliates.
Our subordinated debt securities will have the
benefit of a full and unconditional guarantee of our obligations under such debt securities by the Partnership. If the applicable prospectus supplement relating to a series of our subordinated debt securities provides that those subordinated debt
securities will have the benefit of a guarantee by any or all of our subsidiaries or affiliates, including, but not limited to, the Partnership, payment of the principal, premium, if any, and interest on those subordinated debt securities will be
unconditionally guaranteed on an unsecured, subordinated basis by such subsidiary or subsidiaries or affiliate or affiliates. The guarantee of the subordinated debt securities will be subordinated in right of payment to all of such subsidiary’s
or subsidiaries’ or affiliate’s or affiliates’ existing and future senior indebtedness (as defined in the related prospectus supplement), including any guarantee of the senior debt securities, to the same extent and in the same manner
as the subordinated debt securities are subordinated to our senior indebtedness (as defined in the related prospectus supplement). See “—Subordination” below.
The obligations of any guarantor under any such guarantee will be limited as necessary to prevent the guarantee from constituting a fraudulent
conveyance or fraudulent transfer under applicable law.
Covenants
Under the indentures, we:
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will pay the principal of, and interest and any premium on, the debt securities when due;
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will maintain a place of payment;
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will deliver a certificate to the trustee each fiscal year reviewing our compliance with our obligations under the indentures;
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will preserve our corporate existence; and
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will segregate or deposit with any paying agent sufficient funds for the payment of any principal, interest or premium on or before the due date of such payment.
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Mergers and Sale of Assets
Each of the indentures will provide that we may not convert into, or consolidate, amalgamate or merge with or into any other Person or sell,
convey, transfer or lease all or substantially all of our properties and assets (on a consolidated basis) to another Person, unless:
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either: (a) we are the surviving Person; or (b) the Person formed by or surviving any such consolidation, amalgamation or merger or resulting from such conversion (if other than us) or to which such sale,
assignment, transfer, conveyance or other disposition has been made is a corporation, limited liability company or limited partnership organized or existing under the laws of the United States, any State thereof or the District of Columbia;
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the Person formed by or surviving any such conversion, consolidation, amalgamation or merger (if other than us) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made
assumes all of our obligations under such indenture and the debt securities governed thereby pursuant to agreements reasonably satisfactory to the trustee, which may include a supplemental indenture;
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we or the successor will not immediately be in default under such indenture; and
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we deliver an officer’s certificate and opinion of counsel to the trustee stating that such consolidation, amalgamation, merger, conveyance, sale, transfer or lease and any supplemental indenture comply with such
indenture and that all conditions precedent set forth in such indenture have been complied with.
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Upon the assumption of our
obligations under each indenture by a successor, we will be discharged from all obligations under such indenture.
As used in the
indentures and in this description, the word “
Person
” means any individual, corporation, company, limited liability company, partnership, limited partnership, joint venture, association, joint-stock company, trust, other entity,
unincorporated organization or government or any agency or political subdivision thereof.
Events of Default
“
Event of default
,” when used in the indentures with respect to debt securities of any series, will mean any of the following:
(1) default in the payment of any interest upon any debt security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days;
(2) default in the payment of the principal of (or premium, if any,
on) any debt security of that series at its maturity;
(3) default in the performance, or breach, of any covenant set forth
in Article Ten of the applicable indenture (other than a covenant a default in the performance of which or the breach of which is elsewhere specifically dealt with as an event of default or which has expressly been included in such indenture solely
for the benefit of one or more series of debt securities other than that series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to us by the trustee or to us and the
trustee by the holders of at least 25% in principal amount of the then-outstanding debt securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of
Default” thereunder;
(4) default in the performance, or breach, of any covenant in the applicable indenture (other
than a covenant set forth in Article Ten of such indenture or any other covenant a default in the performance of which or the breach of which is elsewhere specifically dealt with as an event of default or which has expressly been included in such
indenture solely for the benefit of one or more series of debt securities other
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than that series), and continuance of such default or breach for a period of 180 days after there has been given, by registered or certified mail, to us by the trustee or to us and the trustee by
the holders of at least 25% in principal amount of the then-outstanding debt securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default”
thereunder;
(5) we, pursuant to or within the meaning of any bankruptcy law, (i) commence a voluntary case,
(ii) consent to the entry of any order for relief against us in an involuntary case, (iii) consent to the appointment of a custodian of us or for all or substantially all of our property, or (iv) make a general assignment for the benefit of our
creditors;
(6) a court of competent jurisdiction enters an order or decree under any bankruptcy law that (i) is for relief
against us in an involuntary case, (ii) appoints a custodian of us or for all or substantially all of our property, or (iii) orders the liquidation of us, and the order or decree remains unstayed and in effect for 60 consecutive days;
(7) default in the deposit of any sinking fund payment when due; or
(8) any other event of default provided with respect to debt securities of that series in accordance with provisions of the
indenture related to the issuance of such debt securities.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt securities issued under an indenture. The trustee may withhold notice to the holders of debt securities of any default (except in the payment of principal, interest or any
premium) if it considers the withholding of notice to be in the interests of the holders.
If an event of default for any series of debt
securities occurs and continues, the trustee or the holders of 25% in aggregate principal amount of the debt securities of the series may declare the entire principal of all of the debt securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the aggregate principal amount of the debt securities of that series can void the declaration.
Other than its duties in case of a default, a trustee is not obligated to exercise any of its rights or powers under any indenture at the
request, order or direction of any holders, unless the holders offer the trustee indemnity satisfactory to the trustee. If they provide this satisfactory indemnification, the holders of a majority in principal amount outstanding of any series of
debt securities may direct the time, method and place of conducting any proceeding or any remedy available to the trustee, or exercising any power conferred upon the trustee, for any series of debt securities.
Amendments and Waivers
Subject to
certain exceptions, the indentures, the debt securities issued thereunder or the subsidiary guarantees may be amended or supplemented with the consent of the holders of a majority in aggregate principal amount of the then-outstanding debt securities
of each series affected by such amendment or supplemental indenture, with each such series voting as a separate class (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, debt
securities) and, subject to certain exceptions, any past default or compliance with any provisions may be waived with respect to each series of debt securities with the consent of the holders of a majority in principal amount of the then-outstanding
debt securities of such series voting as a separate class (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, debt securities).
Without the consent of each holder of the outstanding debt securities affected, an amendment, supplement or waiver may not, among other
things:
(1) change the stated maturity of the principal of, or any installment of principal of or interest on, any debt
security, reduce the principal amount thereof or the rate of interest thereon or any premium payable
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upon the redemption thereof, reduce the amount of the principal of an original issue discount security that would be due and payable upon a declaration of acceleration of the maturity thereof
pursuant to the applicable indenture, change the coin or currency in which any debt security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the stated
maturity thereof (or, in the case of redemption, on or after the redemption date therefor);
(2) reduce the percentage in
principal amount of the then-outstanding debt securities of any series, the consent of the holders of which is required for any such amendment or supplemental indenture, or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the applicable indenture or certain defaults thereunder and their consequences provided for in the applicable indenture;
(3) modify any of the provisions set forth in (i) the provisions of the applicable indenture related to the holder’s
unconditional right to receive principal, premium, if any, and interest on the debt securities or (ii) the provisions of the applicable indenture related to the waiver of past defaults under such indenture;
(4) waive a redemption payment with respect to any debt security; provided, however, that any purchase or repurchase of debt
securities shall not be deemed a redemption of the debt securities;
(5) release any guarantor from any of its obligations
under its guarantee or the applicable indenture, except in accordance with the terms of such indenture (as amended or supplemented); or
(6) make any change in the foregoing amendment and waiver provisions, except to increase any percentage provided for therein or
to provide that certain other provisions of the applicable indenture cannot be modified or waived without the consent of the holder of each then-outstanding debt security affected thereby.
Notwithstanding the foregoing, without the consent of any holder of debt securities, we, the guarantors and the trustee may amend each of the
indentures or the debt securities issued thereunder to:
(1) cure any ambiguity or defect or to correct or supplement any
provision therein that may be inconsistent with any other provision therein;
(2) evidence the succession of another Person
to us and the assumption by any such successor of our covenants therein and, to the extent applicable, of the debt securities;
(3) provide for uncertificated debt securities in addition to or in place of certificated debt securities; provided that
the uncertificated debt securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), or in the manner such that the uncertificated debt securities
are described in Section 163(f)(2)(B) of the Internal Revenue Code;
(4) add a guarantee and cause any Person to become a
guarantor, and/or to evidence the succession of another Person to a guarantor and the assumption by any such successor of the guarantee of such guarantor therein and, to the extent applicable, endorsed upon any debt securities of any series, and/or
to cause any of our corporate subsidiaries to become a co-issuer of the debt securities of any series;
(5) secure the debt
securities of any series;
(6) add to the covenants such further covenants, restrictions, conditions or provisions as we
shall consider to be appropriate for the benefit of the holders of all or any series of debt securities (and if such covenants, restrictions, conditions or provisions are to be for the benefit of less than all series of debt securities, stating that
such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon us, and to make the occurrence, or the occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an event of default permitting the enforcement of all or any of the several remedies provided in the applicable indenture as set forth therein;
provided
, that in respect of any such additional
covenant, restriction, condition or
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provision, such amendment or supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement upon such an event of default or may limit the remedies available to the trustee upon such an event of default or may limit the right of the holders of a majority in aggregate principal amount of
the debt securities of such series to waive such an event of default;
(7) make any change to any provision of the
applicable indenture that does not adversely affect the rights or interests of any holder of debt securities issued thereunder in any material respect;
(8) provide for the issuance of additional debt securities in accordance with the provisions set forth in the applicable
indenture;
(9) add any additional defaults or events of default in respect of all or any series of debt securities;
(10) add to, change or eliminate any of the provisions of the applicable indenture to such extent as shall be necessary to
permit or facilitate the issuance of debt securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons;
(11) change or eliminate any of the provisions of the applicable indenture; provided that any such change or elimination shall
become effective only when there is no debt security outstanding of any series created prior to the execution of such amendment or supplemental indenture that is entitled to the benefit of such provision;
(12) establish the form or terms of debt securities of any series as permitted thereunder, including to reopen any series of
any debt securities as permitted thereunder;
(13) evidence and provide for the acceptance of appointment thereunder by a
successor trustee with respect to the debt securities of one or more series and to add to or change any of the provisions of the applicable indenture as shall be necessary to provide for or facilitate the administration of the trusts thereunder by
more than one trustee, pursuant to the requirements of such indenture;
(14) conform the text of the applicable indenture
(and/or any supplemental indenture) or any debt securities issued thereunder to any provision of a description of such debt securities appearing in a prospectus or prospectus supplement or an offering memorandum or offering circular to the extent
that such provision appears on its face to have been intended to be a verbatim recitation of a provision of such indenture (and/or any supplemental indenture) or any debt securities or securities guarantee issued thereunder as described in an
officer’s certificate delivered by us to the trustee; or
(15) modify, eliminate or add to the provisions of the
applicable indenture to such extent as shall be necessary to effect the qualification of such indenture under the Trust Indenture Act of 1939, as amended (the “
Trust Indenture Act
”), or under any similar federal statute subsequently
enacted, and to add to such indenture such other provisions as may be expressly required under the Trust Indenture Act.
The consent of
the holders is not necessary under either indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment with the consent of the holders under
an indenture becomes effective, we are required to mail to the holders of debt securities thereunder a notice briefly describing such amendment. However, the failure to give such notice to all such holders, or any defect therein, will not impair or
affect the validity of the amendment.
Legal Defeasance and Covenant Defeasance
Each indenture provides that we may, at our option and at any time, elect to have all of our obligations discharged with respect to the debt
securities outstanding thereunder and all obligations of any guarantors of such debt securities discharged with respect to their guarantees (“
Legal Defeasance
”), except for:
(1) the rights of holders of outstanding debt securities to receive payments in respect of the principal of, or interest or
premium, if any, on, such debt securities when such payments are due from the trust referred to below;
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(2) our obligations with respect to the debt securities concerning temporary debt
securities, registration of debt securities, mutilated, destroyed, lost or stolen debt securities, the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and our and each guarantor’s obligations in
connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance (as defined below) provisions of the applicable
indenture.
In addition, we may, at our option and at any time, elect to have our obligations released with respect to certain provisions
of each indenture, including certain provisions described in any prospectus supplement (such release and termination being referred to as “
Covenant Defeasance
”), and thereafter any failure to comply with such obligations or
provisions will not constitute a default or event of default. In addition, in the event Covenant Defeasance occurs in accordance with the applicable indenture, any defeasible event of default will no longer constitute an event of default.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the debt securities, cash in U.S.
dollars, non-callable U.S. government securities, or a combination of cash in U.S. dollars and non-callable U.S. government securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, in the opinion of a
nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, and interest and premium, if any, on, the outstanding debt securities on the stated date for payment thereof or on the
applicable redemption date, as the case may be, and we must specify whether the debt securities are being defeased to such stated date for payment or to a particular redemption date;
(2) in the case of Legal Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the issue date of the debt securities, there has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding debt securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the same time as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding debt securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no
default or event of default shall have occurred and be continuing on the date of such deposit (other than a default or event of default resulting from the borrowing of funds to be applied to such deposit);
(5) the deposit must not result in a breach or violation of, or constitute a default under, any other instrument to which we
are, or any guarantor is, a party or by which we are, or any guarantor is, bound;
(6) such Legal Defeasance or Covenant
Defeasance must not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the applicable indenture) to which we are, or any of our subsidiaries is, a party or by which we are, or any of
our subsidiaries is, bound;
(7) we must deliver to the trustee an officer’s certificate stating that the deposit was
not made by us with the intent of preferring the holders of debt securities over our other creditors with the intent of defeating, hindering, delaying or defrauding our creditors or the creditors of others;
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(8) we must deliver to the trustee an officer’s certificate stating that all
conditions precedent set forth in clauses (1) through (6) of this paragraph have been complied with; and
(9) we must
deliver to the trustee an opinion of counsel (which opinion of counsel may be subject to customary assumptions, qualifications, and exclusions) stating that all conditions precedent set forth in clauses (2), (3) and (6) of this paragraph have been
complied with.
Satisfaction and Discharge
Each of the indentures will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or
exchange of debt securities and certain rights of the trustee, as expressly provided for in such indenture) as to all outstanding debt securities issued thereunder and the guarantees issued thereunder when:
(1) either (a) all of the debt securities theretofore authenticated and delivered under such indenture (except lost,
stolen or destroyed debt securities that have been replaced or paid and debt securities for the payment of which money has theretofore been deposited in trust or segregated and held in trust by us and thereafter repaid to us or discharged from such
trust) have been delivered to the trustee for cancellation or (b) all debt securities not theretofore delivered to the trustee for cancellation have become due and payable, will become due and payable at their stated maturity within one year,
or are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in the name, and at the expense, of us, and we have irrevocably deposited or caused to be
deposited with the trustee funds, in an amount sufficient to pay and discharge the entire indebtedness on the debt securities not theretofore delivered to the trustee for cancellation, for principal of and premium, if any, and interest on the debt
securities to the date of deposit (in the case of debt securities that have become due and payable) or to the stated maturity or redemption date, as the case may be, together with instructions from us irrevocably directing the trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(2) we have paid all other sums then due and
payable under such indenture by us; and
(3) we have delivered to the trustee an officer’s certificate and an opinion
of counsel, which, taken together, state that all conditions precedent under such indenture relating to the satisfaction and discharge of such indenture have been complied with.
No Personal Liability of Directors, Managers, Officers, Employees, Partners, Members, Stockholders, Unitholders and Incorporators
No director, manager, officer, employee, partner, member, stockholder, unitholder or incorporator of us, Finance Corp., or any guarantor, as
such, shall have any liability for any of our obligations or those of the guarantors under the debt securities, the indentures, the guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder
of debt securities, upon our issuance of the debt securities and execution of the indentures, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
Denominations
Unless stated otherwise in
the prospectus supplement for each issuance of debt securities, the debt securities will be issued in minimum denominations of $1,000 each or integral multiples of $1,000.
Paying Agent and Registrar
The trustee
will initially act as paying agent and registrar for the debt securities. We may change the paying agent or registrar without prior notice to the holders of the debt securities, and we may act as paying agent or registrar.
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Transfer and Exchange
A holder may transfer or exchange debt securities in accordance with the applicable indenture. The registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer documents, and we may require a holder to pay any taxes and fees required by law or permitted by the applicable indenture. We are not required to transfer or exchange any
debt security selected for redemption. In addition, we are not required to transfer or exchange any debt security for a period of 15 days before a selection of debt securities to be redeemed.
Subordination
The payment of the
principal of and premium, if any, and interest on subordinated debt securities and any of our other payment obligations in respect of subordinated debt securities (including any obligation to repurchase subordinated debt securities) is subordinated
in certain circumstances in right of payment, as set forth in the subordinated indenture, to the prior payment in full in cash of all senior debt.
We also may not make any payment, whether by redemption, purchase, retirement, defeasance or otherwise, upon or in respect of subordinated
debt securities, except from a trust described under “—Legal Defeasance and Covenant Defeasance,” if
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a default in the payment of all or any portion of the obligations on any designated senior debt (“
payment default
”) occurs that has not been cured or waived, or
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any other default occurs and is continuing with respect to designated senior debt pursuant to which the maturity thereof may be accelerated (“
non-payment default
”) and, solely with respect to this
clause, the trustee for the subordinated debt securities receives a notice of the default (a “
payment blockage notice
”) from the trustee or other representative for the holders of such designated senior debt.
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Cash payments on subordinated debt securities will be resumed (a) in the case of a payment default, upon the date on which such default is
cured or waived, and (b) in case of a nonpayment default, the earliest of the date on which such nonpayment default is cured or waived, the termination of the payment blockage period by written notice to the trustee for the subordinated debt
securities from the trustee or other representative for the holders of such designated senior debt, the payment in full of such designated senior debt or 179 days after the date on which the applicable payment blockage notice is received. No new
payment blockage period may be commenced unless and until 360 days have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior payment blockage notice. No nonpayment default in respect of
designated senior debt that existed or was continuing on the date of delivery of any payment blockage notice to the trustee for the subordinated debt securities will be, or be made, the basis for a subsequent payment blockage notice unless such
default shall have been cured or waived for a period of no less than 90 consecutive days.
Upon any payment or distribution of our assets
or securities (other than with the money, securities or proceeds held under any defeasance trust established in accordance with the subordinated indenture) in connection with any dissolution or winding up or total or partial liquidation or
reorganization of us, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings or other marshalling of assets for the benefit of creditors, all amounts due or to become due upon all senior debt shall first be
paid in full, in cash or cash equivalents, before the holders of the subordinated debt securities or the trustee on their behalf shall be entitled to receive any payment by or on behalf of us on account of the subordinated debt securities, or any
payment to acquire any of the subordinated debt securities for cash, property or securities, or any distribution with respect to the subordinated debt securities of any cash, property or securities. Before any payment may be made by, or on behalf
of, us on any subordinated debt security (other than with the money, securities or proceeds held under any defeasance trust established in accordance with the subordinated indenture) in connection with any such dissolution, winding up, liquidation
or reorganization, any payment or distribution of our assets or securities, to which the holders of subordinated debt securities or the trustee on their behalf would be entitled,
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shall be made by us or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person making such payment or distribution, or by the holders or the trustee if received
by them or it, directly to the holders of senior debt or their representatives or to any trustee or trustees under any indenture pursuant to which any such senior debt may have been issued, as their respective interests appear, to the extent
necessary to pay all such senior debt in full, in cash or cash equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such senior debt.
As a result of these subordination provisions, in the event of our liquidation, bankruptcy, reorganization, insolvency, receivership or
similar proceeding or an assignment for the benefit of our creditors or a marshalling of our assets or liabilities, holders of subordinated debt securities may receive ratably less than other creditors.
Payment and Transfer
Principal, interest
and any premium on fully registered debt securities will be paid at designated places. Payment will be made by check mailed to the persons in whose names the debt securities are registered on days specified in the indentures or any prospectus
supplement. Debt securities payments in other forms will be paid at a place designated by us and specified in a prospectus supplement.
Fully registered debt securities may be transferred or exchanged at the office of the trustee or at any other office or agency maintained by
us for such purposes, without the payment of any service charge except for any tax or governmental charge.
Global Securities
The debt securities of a series may be issued in whole or in part in the form of one or more global certificates that we will deposit with a
depositary identified in the applicable prospectus supplement. Unless and until it is exchanged in whole or in part for the individual debt securities that it represents, a global security may not be transferred except as a whole:
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by the applicable depositary to a nominee of the depositary;
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by any nominee to the depositary itself or another nominee; or
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by the depositary or any nominee to a successor depositary or any nominee of the successor.
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We will describe the specific terms of the depositary arrangement with respect to a series of debt securities in the applicable prospectus
supplement. We anticipate that the following provisions will generally apply to depositary arrangements.
When we issue a global security
in registered form, the depositary for the global security or its nominee will credit, on its book-entry registration and transfer system, the respective principal amounts of the individual debt securities represented by that global security to the
accounts of persons that have accounts with the depositary (“
participants
”). Those accounts will be designated by the dealers, underwriters or agents with respect to the underlying debt securities or by us if those debt
securities are offered and sold directly by us. Ownership of beneficial interests in a global security will be limited to participants or persons that may hold interests through participants. For interests of participants, ownership of beneficial
interests in the global security will be shown on records maintained by the applicable depositary or its nominee. For interests of persons other than participants, that ownership information will be shown on the records of participants. Transfer of
that ownership will be effected only through those records. The laws of some states require that certain purchasers of securities take physical delivery of securities in definitive form. These limits and laws may impair our ability to transfer
beneficial interests in a global security.
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As long as the depositary for a global security, or its nominee, is the registered owner of that
global security, the depositary or nominee will be considered the sole owner or holder of the debt securities represented by the global security for all purposes under the applicable indenture. Except as provided below, owners of beneficial
interests in a global security:
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will not be entitled to have any of the underlying debt securities registered in their names;
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will not receive or be entitled to receive physical delivery of any of the underlying debt securities in definitive form; and
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will not be considered the owners or holders under the indenture relating to those debt securities.
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Payments of the principal of, any premium on and any interest on individual debt securities represented by a global security registered in the
name of a depositary or its nominee will be made to the depositary or its nominee as the registered owner of the global security representing such debt securities. Neither we, the trustee for the debt securities, any paying agent nor the registrar
for the debt securities will be responsible for any aspect of the records relating to or payments made by the depositary or any participants on account of beneficial interests in the global security.
We expect that the depositary or its nominee, upon receipt of any payment of principal, any premium or interest relating to a global security
representing any series of debt securities, immediately will credit participants’ accounts with the payments. Those payments will be credited in amounts proportional to the respective beneficial interests of the participants in the principal
amount of the global security as shown on the records of the depositary or its nominee. We also expect that payments by participants to owners of beneficial interests in the global security held through those participants will be governed by
standing instructions and customary practices. This is now the case with securities held for the accounts of customers registered in “street name.” Those payments will be the sole responsibility of those participants.
If the depositary for a series of debt securities is at any time unwilling, unable or ineligible to continue as depositary and we do not
appoint a successor depositary within 90 days, we will issue individual debt securities of that series in exchange for the global security or securities representing that series. In addition, we may at any time in our sole discretion determine not
to have any debt securities of a series represented by one or more global securities. In that event, we will issue individual debt securities of that series in exchange for the global security or securities. Furthermore, if we specify, an owner of a
beneficial interest in a global security may, on terms acceptable to us, the trustee and the applicable depositary, receive individual debt securities of that series in exchange for those beneficial interests. The foregoing is subject to any
limitations described in the applicable prospectus supplement. In any such instance, the owner of the beneficial interest will be entitled to physical delivery of individual debt securities equal in principal amount to the beneficial interest and to
have the debt securities registered in its name. Those individual debt securities will be issued in any authorized denominations.
Governing Law
Each indenture and the debt securities will be governed by and construed in accordance with the laws of the State of New York.
Information Concerning the Trustee
Wells
Fargo Bank, National Association, will be the trustee under the indentures. A successor trustee may be appointed in accordance with the terms of the indentures.
The indentures and the provisions of the Trust Indenture Act incorporated by reference therein will contain certain limitations on the rights
of the trustee, should it become a creditor of us, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (within the meaning of the Trust Indenture Act), it must eliminate such conflicting interest or resign.
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A single banking or financial institution may act as trustee with respect to both the
subordinated indenture and the senior indenture. If this occurs, and should a default occur with respect to either the subordinated debt securities or the senior debt securities, such banking or financial institution would be required to resign as
trustee under one of the indentures within 90 days of such default, pursuant to the Trust Indenture Act, unless such default were cured, duly waived or otherwise eliminated.
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DESCRIPTION OF GUARANTEES OF DEBT SECURITIES
CONE Midstream Partners LP or any of its subsidiaries may issue unconditional guarantees on an unsecured, unsubordinated basis with respect to
senior debt securities offered in any prospectus supplement and CONE Midstream Partners LP or any of its subsidiaries may issue unconditional guarantees on an unsecured, subordinated basis with respect to subordinated debt securities offered in any
prospectus supplement. The guarantee of senior debt securities will rank equally in right of payment with all of the unsecured and unsubordinated indebtedness of such subsidiary or subsidiaries. The guarantee of the subordinated debt securities will
be subordinated in right of payment to all such subsidiary’s or subsidiaries’ existing and future senior indebtedness (as defined in the related prospectus supplement), including any guarantee of senior debt securities, to the same extent
and in the same manner as the subordinated debt securities are subordinated to our senior indebtedness (as defined in the related prospectus supplement). Each guarantee will be issued under a supplement to an indenture. The prospectus supplement
relating to a particular issue of guarantees will describe the terms of those guarantees, including the following:
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the series of debt securities to which the guarantees apply;
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whether the guarantees are secured or unsecured;
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whether the guarantees are senior or subordinate to other guarantees or debt;
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the terms under which the guarantees may be amended, modified, waived, released or otherwise terminated, if different from the provisions applicable to the guaranteed debt securities; and
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any additional terms of the guarantees.
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The obligations of each guarantor under any such
guarantee will be limited as necessary to prevent the guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law.
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CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
Rationale for Our Cash Distribution Policy
Our partnership agreement requires that we distribute all of our available cash quarterly. This requirement forms the basis of our cash
distribution policy and reflects a basic judgment that our unitholders will be better served by distributing our available cash rather than retaining it because, among other reasons, we believe we will generally finance any expansion capital
expenditures from external financing sources. Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $0.2125 per unit, or $0.85 per unit
on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner. However, other than the requirement in
our partnership agreement to distribute all of our available cash each quarter, we have no legal obligation to make quarterly cash distributions in this or any other amount, and the board of directors of our general partner has considerable
discretion to determine the amount of our available cash each quarter. In addition, the board of directors of our general partner may change our cash distribution policy at any time, subject to the requirement in our partnership agreement to
distribute all of our available cash quarterly. Generally, our available cash is the sum of (i) all cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and (ii) if the board of
directors of our general partner so determines, all or any portion of additional cash on hand resulting from working capital borrowings made after the end of the quarter. Because we are not subject to an entity-level federal income tax, we expect to
have more cash to distribute than would be the case if we were subject to federal income tax. If we do not generate sufficient available cash from our operations, we may, but are under no obligation to, borrow funds to pay the minimum quarterly
distribution to our unitholders.
Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
Although our partnership agreement requires that we distribute all of our available cash quarterly, there is no guarantee that we will make
quarterly cash distributions to our unitholders at our minimum quarterly distribution rate or at any other rate, and we have no legal obligation to do so. Our current cash distribution policy is subject to certain restrictions, as well as the
considerable discretion of the board of directors of our general partner in determining the amount of our available cash each quarter. The following factors will affect our ability to make cash distributions, as well as the amount of any cash
distributions we make:
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Our cash distribution policy will be subject to restrictions on cash distributions under the agreement governing our revolving credit facility. The credit facility contains affirmative and negative covenants that, among
other things, limit or restrict our ability and the ability of our restricted subsidiaries to incur or guarantee debt, incur liens, make investments, make restricted payments, engage in business activities, engage in mergers, consolidations and
other organizational changes, sell, transfer or otherwise dispose of assets or enter into burdensome agreements or enter into transactions with affiliates on terms that are not arm’s length, in each case, subject to certain exceptions.
Additionally, we are required to maintain certain financial ratios, each tested on a quarterly basis for the immediately preceding four quarter period then ended (or such shorter period as shall apply, on an annualized basis). The revolving
credit facility generally prohibits us from making cash distributions (subject to certain exceptions) except so long as no default exists or would be caused thereby, we may make cash distributions to unitholders up to the amount of our available
cash (as defined in our partnership agreement).
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The amount of cash that we distribute and the decision to make any distribution is determined by the board of
directors of our general partner, taking into consideration the terms of our partnership agreement. Specifically, the board of directors of our general partner has the authority to establish cash reserves for the proper conduct of our business,
comply with applicable law or any agreement to which we are a party or by which we are bound or our assets are subject and provide funds for future cash distributions to our unitholders, and the establishment of or increase in those reserves could
result in a
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reduction in cash distributions from levels we currently anticipate pursuant to our stated cash distribution policy. Any decision to establish cash reserves made by the board of directors of our
general partner in good faith will be binding on our unitholders.
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While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions, may be amended. During the subordination
period, our partnership agreement may not be amended without the approval of our public common unitholders, except in a limited number of circumstances when our general partner can amend our partnership agreement without any unitholder approval.
Please read “Our Partnership Agreement—Amendment of Our Partnership Agreement—No Unitholder Approval.” However, after the subordination period has ended, our partnership agreement may be amended with the consent of our general
partner and the approval of a majority of the outstanding common units, including common units owned by our general partner and its affiliates.
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Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.
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We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating or general and
administrative expenses, principal and interest payments on our debt, tax expenses, working capital requirements and anticipated cash needs. Our available cash is directly impacted by the cash expenses necessary to run our business and will be
reduced dollar-for-dollar to the extent such uses of cash increase. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions of Available Cash.”
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Our ability to make cash distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us.
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If and to the extent our available cash materially declines from quarter to quarter, we may elect to change our current cash distribution policy and reduce the amount of our quarterly distributions in order to service
or repay our debt or fund expansion capital expenditures.
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To the extent that our general partner determines not to
distribute the full minimum quarterly distribution on our common units with respect to any quarter during the subordination period, the common units will accrue an arrearage equal to the difference between the minimum quarterly distribution and the
amount of the distribution actually paid on the common units with respect to that quarter. The aggregate amount of any such arrearages must be paid on the common units before any distributions of available cash from operating surplus may be made on
the subordinated units and before any subordinated units may convert into common units. The subordinated units will not accrue any arrearages. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated
Units and Subordination Period.”
Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital
We expect that we will rely primarily upon external financing sources, including borrowings under our revolving credit facility and the
issuance of debt and equity securities, to fund future acquisitions and other expansion capital expenditures. To the extent we are unable to finance growth with external sources of capital, the requirement in our partnership agreement to distribute
all of our available cash and our current cash distribution policy will significantly impair our ability to grow. In addition, because we intend to distribute all of our available cash, our growth may not be as fast as businesses that reinvest all
of their available cash to expand ongoing operations. Our revolving credit facility restricts our ability to incur additional debt, including through the issuance of debt securities. To the extent we issue additional units, the payment of
distributions on those additional units may increase the risk that we will be unable to maintain or increase our cash distributions per unit. There are no limitations in our partnership agreement on our ability to issue additional units, including
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ranking senior to our common units, and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such additional units. If we
incur additional debt (under our revolving credit facility or otherwise) to finance our growth strategy, we will have increased interest expense, which in turn will reduce the available cash that we have to distribute to our unitholders.
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PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH
DISTRIBUTIONS
Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash
distributions.
Distributions of Available Cash
General
Our
partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date.
Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and
subordinated units of $0.2125 per unit, or $0.85 per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to
our general partner. However, there is no guarantee that we will pay the minimum quarterly distribution on our units in any quarter. The amount of distributions paid under our cash distribution policy and the decision to make any distribution will
be determined by our general partner, taking into consideration the terms of our partnership agreement.
Definition of Available
Cash
Available cash generally means, for any quarter, all cash on hand at the end of that quarter:
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less
, the amount of cash reserves established by our general partner to:
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provide for the proper conduct of our business (including reserves for our future capital expenditures, future acquisitions and anticipated future debt service requirements);
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comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which we or any of our subsidiaries is a party or by which we or such subsidiary is
bound or we or such subsidiary’s assets are subject; or
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provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for distributions pursuant
to this bullet point if the effect of such reserves will prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter);
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plus
, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the
end of such quarter.
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The purpose and effect of the last bullet point above is to allow our general partner, if it so
decides, to use cash from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders. Under our partnership agreement, working
capital borrowings are generally borrowings incurred under a credit facility, commercial paper facility or similar financing arrangement that are used solely for working capital purposes or to pay distributions to our partners and with the intent of
the borrower to repay such borrowings within twelve months with funds other than from additional working capital borrowings.
General Partner Interest and Incentive Distribution Rights
Our general partner is entitled to approximately 2% of all quarterly distributions that we make prior to our liquidation. Our general partner
has the right, but not the obligation, to contribute a proportionate amount of
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capital to us to maintain its current general partner interest. The general partner’s approximate 2% interest in these distributions will be reduced if we issue additional units in the
future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2% general partner interest.
Our general partner also currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of
48%, of the cash we distribute from operating surplus (as defined below) in excess of $0.24438 per unit per quarter. The maximum distribution of 48% does not include any distributions that our general partner or its affiliates may receive on common
units, subordinated units or general partner units that they own. Please read “—General Partner Interest and Incentive Distribution Rights” below for additional information.
Operating Surplus and Capital Surplus
General
All cash
distributed to unitholders will be characterized as either being paid from “operating surplus” or “capital surplus.” We treat distributions of available cash from operating surplus differently than distributions of available cash
from capital surplus.
Operating Surplus
We define operating surplus as:
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$50.0 million (as described below);
plus
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all of our cash receipts after the closing of our initial public offering (“IPO”), excluding cash from interim capital transactions (as defined below),
provided
that cash receipts from the termination
of a commodity hedge or interest rate hedge prior to its scheduled settlement or termination date shall be included in operating surplus in equal quarterly installments over the remaining scheduled life of such commodity hedge or interest rate
hedge;
plus
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working capital borrowings made after the end of a quarter but on or before the date of determination of operating surplus for that quarter;
plus
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cash distributions (including incremental distributions on incentive distribution rights) paid in respect of equity issued, other than equity issued in our IPO, to finance all or a portion of expansion capital
expenditures in respect of the period from the date that we enter into a binding obligation to commence the construction, development, replacement, improvement or expansion of a capital asset and ending on the earlier to occur of the date the
capital asset commences commercial service and the date that it is abandoned or disposed of;
less
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all of our operating expenditures (as defined below) after the closing of our IPO;
less
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the amount of cash reserves established by our general partner to provide funds for future operating expenditures;
less
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all working capital borrowings not repaid within twelve months after having been incurred, or repaid within such twelve-month period with the proceeds of additional working capital borrowings.
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As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not
limited to cash generated by our operations. For example, it includes a provision that enables us, if we choose, to distribute as operating surplus up to $50.0 million of cash we receive in the future from non-operating sources such as asset sales,
issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity interests in operating surplus will be to
increase operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.
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The proceeds of working capital borrowings increase operating surplus and repayments of working
capital borrowings are generally operating expenditures (as described below) and thus reduce operating surplus when repayments are made. However, if working capital borrowings, which increase operating surplus, are not repaid during the twelve-month
period following the borrowing, they will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowings are in fact repaid, they will not be treated as a further reduction in
operating surplus because operating surplus will have been previously reduced by the deemed repayment.
We define operating expenditures
as all of our cash expenditures, including, but not limited to, taxes, reimbursements of expenses of our general partner and its affiliates, officer, director and employee compensation, debt service payments, payments made in the ordinary course of
business under interest rate hedge contracts and commodity hedge contracts (provided that payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to its scheduled settlement or
termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract and amounts paid in connection with the initial purchase
of an interest rate hedge contract or a commodity hedge contract will be amortized over the life of such interest rate hedge contract or commodity hedge contract), maintenance capital expenditures (as discussed in further detail below), and
repayment of working capital borrowings; provided, however, that operating expenditures will not include:
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•
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repayments of working capital borrowings where such borrowings have previously been deemed to have been repaid (as described above);
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•
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payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than working capital borrowings;
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•
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expansion capital expenditures;
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•
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payment of transaction expenses (including taxes) relating to interim capital transactions;
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•
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distributions to our partners; or
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•
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repurchases of partnership interests (excluding repurchases we make to satisfy obligations under employee benefit plans).
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Capital Surplus
Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus.
Accordingly, except as described above, capital surplus would generally be generated by:
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•
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borrowings other than working capital borrowings;
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•
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sales of our equity and debt securities;
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•
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sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of ordinary course retirement or replacement of assets; and
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•
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capital contribution received.
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Characterization of Cash Distributions
All available cash distributed by us on any date from any source will be treated as distributed from operating surplus until the sum of all
available cash distributed by us since the closing of our IPO equals the operating surplus from the closing of our IPO through the end of the quarter immediately preceding that distribution. We anticipate that distributions from operating surplus
generally will not represent a return of capital. However, operating surplus, as defined in our partnership agreement, includes certain components, including a $50.0
39
million cash basket, that represent non-operating sources of cash. Consequently, it is possible that all or a portion of specific distributions from operating surplus may represent a return of
capital. Any available cash distributed by us in excess of our cumulative operating surplus will be deemed to be capital surplus under our partnership agreement. Our partnership agreement treats a distribution of capital surplus as the repayment of
the initial unit price from our IPO and as a return of capital. We do not anticipate that we will make any distributions from capital surplus.
Capital
Expenditures
Maintenance capital expenditures are cash expenditures (including expenditures for the construction or development of new
capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long term, our operating capacity, operating income or revenue. Examples of maintenance capital expenditures are expenditures to
repair, refurbish and replace pipelines, to maintain equipment reliability, integrity and safety and to comply with environmental laws and regulations. In addition, we designate a portion of our capital expenditures to connect new wells to maintain
gathering throughput as maintenance capital to the extent such capital expenditures are necessary to maintain, over the long term, our operating capacity, operating income or revenue.
Expansion capital expenditures are cash expenditures to construct new midstream infrastructure and those expenditures incurred in order to
extend the useful lives of our assets, reduce costs, increase revenues or increase system throughput or capacity from current levels, including well connections that increase existing system throughput. Examples of expansion capital expenditures
include the construction, development or acquisition of additional gathering pipelines and compressor stations, in each case to the extent such capital expenditures are expected to expand our operating capacity, operating income or revenue. In the
future, if we make acquisitions that increase system throughput or capacity, the associated capital expenditures may also be considered expansion capital expenditures.
Capital expenditures that are made in part for maintenance capital purposes and in part for expansion capital purposes will be allocated as
maintenance capital expenditures or expansion capital expenditures by our general partner.
Subordinated Units and Subordination Period
General
Our
partnership agreement provides that, during the subordination period (which we define below), the common units will have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $0.2125 per unit,
which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash
from operating surplus may be made on the subordinated units. Subordinated units are deemed “subordinated” because for a period of time, referred to as the “subordination period,” the subordinated units will not be entitled to
receive any distributions until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters. Furthermore, no arrearages will
accrue or be payable on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that, during the subordination period, there will be available cash to be distributed on the common units.
Subordination Period
Except as described below, the subordination period began on the closing date of our IPO and extends until the first business day following the
distribution of available cash in respect of any quarter beginning after September 30, 2017, that each of the following tests are met:
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distributions of available cash from operating surplus on each of the outstanding common units and subordinated
units and the corresponding distributions on the 2% general partner interest equaled or
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40
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exceeded $0.85 (the annualized minimum quarterly distribution), for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
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•
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the adjusted operating surplus (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of $0.85 (the annualized
minimum quarterly distribution) on all of the outstanding common units and subordinated units and the corresponding distributions on the 2% general partner interest during those periods on a fully diluted basis; and
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•
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there are no arrearages in payment of the minimum quarterly distribution on the common units.
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Early Termination of the Subordination Period
Notwithstanding the foregoing, the subordination period will automatically terminate on the first business day following the distribution of
available cash in respect of any quarter that each of the following tests are met:
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•
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distributions of available cash from operating surplus on each of the outstanding common units and subordinated units and the corresponding distributions on the 2% general partner interest equaled or exceeded $1.275
(150% of the annualized minimum quarterly distribution), plus the related distributions on the incentive distribution rights, for the four-quarter period immediately preceding that date;
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•
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the adjusted operating surplus (as defined below) generated during the four-quarter period immediately preceding that date equaled or exceeded the sum of (i) $1.275 (150% of the annualized minimum quarterly
distribution) on all of the outstanding common units and subordinated units and the corresponding distributions on the 2% general partner interest during that period on a fully diluted basis and (ii) the corresponding distributions on the incentive
distribution rights;
and
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•
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there are no arrearages in payment of the minimum quarterly distribution on the common units.
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Expiration of the Subordination Period
When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will thereafter participate pro
rata with the other common units in distributions of available cash.
Adjusted Operating Surplus
Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net
drawdowns of reserves of cash established in prior periods. Adjusted operating surplus for a period consists of:
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•
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operating surplus generated with respect to that period (excluding any amounts attributable to the item described in the first bullet under the caption “—Operating Surplus and Capital Surplus—Operating
Surplus” above);
less
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•
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any net increase in working capital borrowings with respect to that period;
less
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•
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any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period;
plus
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•
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any net decrease in working capital borrowings with respect to that period;
plus
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•
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any net decrease made in subsequent periods to cash reserves for operating expenditures initially established with respect to that period to the extent such decrease results in a reduction in adjusted operating surplus
in subsequent periods;
plus
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•
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any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
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41
Distributions of Available Cash from Operating Surplus During the Subordination Period
We will make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:
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•
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first
, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
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•
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second
, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly
distribution on the common units for any prior quarters during the subordination period;
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•
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third
, 98% to the subordinated unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding subordinated unit an amount equal to the minimum quarterly distribution for that
quarter; and
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•
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thereafter
, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.
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The preceding discussion is based on the assumptions that our general partner maintains its 2% general partner interest and that we do not
issue additional classes of equity securities.
Distributions of Available Cash from Operating Surplus After the Subordination Period
We will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:
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•
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first
, 98% to all common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and
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•
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thereafter
, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.
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The preceding discussion is based on the assumptions that our general partner maintains its 2% general partner interest and that we do not
issue additional classes of equity securities.
General Partner Interest and Incentive Distribution Rights
Our partnership agreement provides that our general partner initially will be entitled to 2% of all distributions that we make prior to our
liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us in order to maintain its 2% general partner interest if we issue additional units. Our general partner’s
2% general partner interest, and the percentage of our cash distributions to which it is entitled from such 2% general partner interest, will be proportionately reduced if we issue additional units in the future (other than the issuance of
common units upon conversion of outstanding subordinated units or the issuance of common units upon a reset of the incentive distribution rights) and our general partner does not contribute a proportionate amount of capital to us in order to
maintain its 2% general partner interest. Our partnership agreement does not require that our general partner fund its capital contribution with cash. Our general partner may instead fund its capital contribution by the contribution to us of common
units or other property.
Incentive distribution rights represent the right to receive an increasing percentage (13%, 23% and 48%) of
quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer
these rights separately from its general partner interest at any time.
42
The following discussion assumes that our general partner maintains its 2% general partner
interest and that our general partner continues to own the incentive distribution rights.
If for any quarter:
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we have distributed available cash from operating surplus to the common unitholders and subordinated unitholders in an amount equal to the minimum quarterly distribution; and
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•
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we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;
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then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and our general partner in the following
manner:
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•
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first
, 98% to all unitholders, pro rata, and 2% to our general partner, until each unitholder receives a total of $0.24438 per unit for that quarter (the “first target distribution”);
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•
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second
, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives a total of $0.26563 per unit for that quarter (the “second target distribution”);
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•
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third
, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives a total of $0.31875 per unit for that quarter (the “third target distribution”); and
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•
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thereafter
, 50% to all unitholders, pro rata, and 50% to our general partner.
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Percentage
Allocations from Operating Surplus
The following table illustrates the percentage allocations of available cash from operating surplus
between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our general partner and the
unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit Target Amount.” The percentage interests shown for our unitholders and
our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our general partner include its 2%
general partner interest and assume that our general partner has contributed any additional capital necessary to maintain its 2% general partner interest, that our general partner has not transferred its incentive distribution rights and that there
are no arrearages on common units.
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Total Quarterly Distribution
per Unit Target Amount
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Marginal Percentage
Interest in Distributions
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Unitholders
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General Partner
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Minimum Quarterly Distribution
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$
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0.2125
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98
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%
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2
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%
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First Target Distribution
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above
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$
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0.2125
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up to
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$
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0.24438
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98
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%
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2
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%
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Second Target Distribution
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above
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$
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0.24438
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up to
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$
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0.26563
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85
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%
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15
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%
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Third Target Distribution
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above
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$
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0.26563
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up to
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$
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0.31875
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75
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%
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25
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%
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Thereafter
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above
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$
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0.31875
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50
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%
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50
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%
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General Partner’s Right to Reset Incentive Distribution Levels
Our general partner, as the initial holder of our incentive distribution rights, has the right under our partnership agreement, subject to
certain conditions, to elect to relinquish the right to receive incentive distribution payments based on the initial target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and target distribution levels
upon which the incentive distribution payments to our general partner would be set. If our general partner transfers all or a portion of the incentive distribution rights in the future, then the holder or holders of a majority of our incentive
distribution rights will be entitled to exercise
43
this right. The following discussion assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. Our general partner’s right to
reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the conflicts committee, at
any time when there are no subordinated units outstanding, we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distributions for each of the four consecutive fiscal quarters
immediately preceding such time and the amount of each such distribution did not exceed adjusted operating surplus for such quarter. If our general partner and its affiliates are not the holders of a majority of the incentive distribution rights at
the time an election is made to reset the minimum quarterly distribution amount and the target distribution levels, then the proposed reset will be subject to the prior written concurrence of the general partner that the conditions described above
have been satisfied. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that the holder of the
incentive distribution rights will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would
exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution
payments being made to our general partner.
In connection with the resetting of the minimum quarterly distribution amount and the target
distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common
units based on a predetermined formula described below that takes into account the “cash parity” value of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters
immediately preceding the reset event as compared to the average cash distributions per common unit during that two-quarter period. In addition, our general partner will be issued a general partner interest necessary to maintain our general
partner’s interest in us immediately prior to the reset election.
The number of common units that our general partner (or the
then-holder of the incentive distribution rights, if other than our general partner) would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect
would be equal to the quotient determined by dividing (x) the average aggregate amount of cash distributions received by our general partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately
prior to the date of such reset election by (y) the average of the aggregate amount of cash distributed per common unit during each of these two quarters.
Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount
per common unit for the two fiscal quarters immediately preceding the reset election (which amount we refer to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to be correspondingly higher
such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:
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first
, 98% to all unitholders, pro rata, and 2% to our general partner, until each unitholder receives an amount equal to 115% of the reset minimum quarterly distribution for that quarter;
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•
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second
, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives an amount per unit equal to 125% of the reset minimum quarterly distribution for the quarter;
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•
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third
, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives an amount per unit equal to 150% of the reset minimum quarterly distribution for the quarter; and
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•
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thereafter
, 50% to all unitholders, pro rata, and 50% to our general partner.
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The
following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner at various cash distribution levels (1) pursuant to the cash distribution
44
provisions of our partnership agreement, as well as (2) following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the
average quarterly cash distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $0.40.
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Marginal Percentage Interest
in Distributions
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Quarterly Distribution Per Unit Prior
to Reset
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Common
Unitholders
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General
Partner
Interest
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Incentive
Distribution
Rights
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Quarterly Distribution
Per Unit Following
Hypothetical Reset
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Minimum Quarterly Distribution
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$
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0.2125
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98
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%
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2
|
%
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$
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0.40
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|
First Target Distribution
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above
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|
$
|
0.2125
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|
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|
up to
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$
|
0.24438
|
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98
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%
|
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2
|
%
|
|
|
|
|
|
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above
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|
$
|
0.40
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|
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|
up to
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$
|
0.46
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(a)
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|
Second Target Distribution
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above
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|
$
|
0.24438
|
|
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up to
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$
|
0.26563
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85
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%
|
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2
|
%
|
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13
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%
|
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above
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|
$
|
0.46
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|
|
|
up to
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$
|
0.50
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(b)
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|
Third Target Distribution
|
|
|
above
|
|
|
$
|
0.26563
|
|
|
|
up to
|
|
|
$
|
0.31875
|
|
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|
75
|
%
|
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|
2
|
%
|
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|
23
|
%
|
|
|
above
|
|
|
$
|
0.50
|
|
|
|
up to
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|
$
|
0.60
|
(c)
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|
Thereafter
|
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|
|
|
|
|
|
|
|
|
above
|
|
|
$
|
0.31875
|
|
|
|
50
|
%
|
|
|
2
|
%
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
above
|
|
|
$
|
0.60
|
(c)
|
|
(a)
|
This amount is 115% of the hypothetical reset minimum quarterly distribution.
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(b)
|
This amount is 125% of the hypothetical reset minimum quarterly distribution.
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(c)
|
This amount is 150% of the hypothetical reset minimum quarterly distribution.
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Our general
partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive
distributions for the immediately preceding four consecutive fiscal quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.
Distributions from Capital Surplus
How Distributions from Capital Surplus will be Made
We will make distributions of available cash from capital surplus, if any, in the following manner:
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•
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|
first
, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit that was issued in our IPO, an amount of available cash from capital surplus equal to the initial
public offering price in our IPO;
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|
•
|
|
second
, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the
minimum quarterly distribution on the outstanding common units; and
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|
•
|
|
thereafter
, as if they were from operating surplus.
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The preceding discussion is based
on the assumptions that our general partner maintains its 2% general partner interest and that we do not issue additional classes of equity securities.
Effect of a Distribution from Capital Surplus
Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from our IPO, which is a return
of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the “unrecovered initial unit price.” Each time a distribution of capital surplus is made, the minimum quarterly
distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. Because distributions of capital surplus will reduce the minimum quarterly distribution
after any of these distributions are made, the effects of distributions of capital surplus may make it easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any
distribution of capital surplus before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.
Once we distribute capital surplus on a unit issued in our IPO in an amount equal to the initial unit price, we will reduce the minimum
quarterly distribution and the target distribution levels to zero. Then, after distributing an amount
45
of capital surplus for each common unit equal to any unpaid arrearages of the minimum quarterly distributions on outstanding common units, we will then make all future distributions from
operating surplus, with 50% being paid to the unitholders, pro rata, and 2% to our general partner and 48% to the holder of our incentive distribution rights.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we
combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
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•
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the minimum quarterly distribution;
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•
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target distribution levels;
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•
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|
the unrecovered initial unit price; and
|
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|
•
|
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the arrearages per common unit in payment of the minimum quarterly distribution on the common units.
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For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and
the unrecovered initial unit price would each be reduced to 50% of its initial level and each subordinated unit would be split into two units. We will not make any adjustment by reason of the issuance of additional units for cash or property
(including additional common units issued under any compensation or benefit plans).
In addition, if legislation is enacted or if the
official interpretation of existing law is modified by a governmental authority, so that we become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement
specifies that the minimum quarterly distribution and the target distribution levels for each quarter may be reduced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter (reduced by the
amount of the estimated tax liability for such quarter payable by reason of such legislation or interpretation) and the denominator of which is the sum of available cash for that quarter (reduced by the amount of the estimated tax liability for such
quarter payable by reason of such legislation or interpretation) plus our general partner’s estimate of our aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that
the actual tax liability differs from the estimated tax liability for any quarter, the difference may be accounted for in subsequent quarters.
Distributions of Cash Upon Liquidation
General
If we
dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining
proceeds to the unitholders and our general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.
The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of outstanding common units to
a preference over the holders of outstanding subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during
which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of
these amounts,
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even though there may be cash available for distribution to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into
account the incentive distribution rights of our general partner.
Manner of Adjustments for Gain
The manner of the adjustment for gain is set forth in our partnership agreement. If our liquidation occurs before the end of the subordination
period, we will allocate any gain to our partners in the following manner:
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first
, to our general partner to the extent of any negative balance in its capital account
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second
, 98% to the common unitholders, pro rata, and 2% to our general partner, until the capital account for each common unit is equal to the sum of:
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(1)
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the unrecovered initial unit price;
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(2)
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the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and
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(3)
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any unpaid arrearages in payment of the minimum quarterly distribution;
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third
, 98% to the subordinated unitholders, pro rata, and 2% to our general partner, until the capital account for each subordinated unit is equal to the sum of:
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(1)
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the unrecovered initial unit price; and
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(2)
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the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;
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fourth
, 98% to all unitholders, pro rata, and 2% to our general partner, until we allocate under this paragraph an amount per unit equal to:
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(1)
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the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence;
less
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(2)
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the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98% to the unitholders, pro rata, and 2% to our
general partner, for each quarter of our existence;
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fifth
, 85% to all unitholders, pro rata, and 15% to our general partner, until we allocate under this paragraph an amount per unit equal to:
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(1)
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the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less
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(2)
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the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85% to the unitholders, pro rata, and 15% to our
general partner for each quarter of our existence;
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sixth
, 75% to all unitholders, pro rata, and 25% to our general partner, until we allocate under this paragraph an amount per unit equal to:
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(1)
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he sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence;
less
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(2)
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the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75% to the unitholders, pro rata, and 25% to our
general partner for each quarter of our existence; and
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thereafter
, 50% to all unitholders, pro rata, and 50% to our general partner.
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The percentages set forth above are based on the assumption that our general partner maintains
its 2% general partner interest and has not transferred its incentive distribution rights and that we do not issue additional classes of equity securities.
If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will
disappear, so that clause (3) of the second bullet point above and all of the fourth bullet point above will no longer be applicable.
Manner of Adjustments for Losses
If our liquidation occurs before the end of the subordination period, after making allocations of loss to the general partner and the
unitholders in a manner intended to offset in reverse order the allocations of gains that have previously been allocated, we will generally allocate any loss to our general partner and unitholders in the following manner:
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first
, 98% to the holders of subordinated units in proportion to the positive balances in their capital accounts and 2% to our general partner, until the capital accounts of the subordinated unitholders have been
reduced to zero;
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second
, 98% to the holders of common units in proportion to the positive balances in their capital accounts and 2% to our general partner, until the capital accounts of the common unitholders have been reduced to
zero; and
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thereafter
, 100% to our general partner.
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The percentages set forth above are based on
the assumption that our general partner maintains its 2% general partner interest and has not transferred its incentive distribution rights and that we do not issue additional classes of equity securities
If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will
disappear, so that all of the first bullet point above will no longer be applicable.
Adjustments to Capital Accounts
Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our
partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain upon liquidation. In the event
that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we generally allocate any later negative adjustments to the capital accounts resulting from the issuance of
additional units or upon our liquidation in a manner that results, to the extent possible, in the partners’ capital account balances equaling the amount that they would have been if no earlier positive adjustments to the capital accounts had
been made. In contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the
unitholders and our general partner based on their respective percentage ownership of us. In this manner, prior to the end of the subordination period, we generally will allocate any such loss equally with respect to our common units and
subordinated units. If we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units will be allocated in a manner designed to reverse the prior negative
adjustments, and special allocations will be made upon liquidation in a manner that results, to the extent possible, in our unitholders’ capital account balances equaling the amounts they would have been if no earlier adjustments for loss had
been made.
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OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. We will provide prospective investors with a copy of our
partnership agreement upon request at no charge.
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We summarize the following provisions of our partnership agreement elsewhere in this prospectus:
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with regard to distributions, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions”; with regard to the transfer of common units, please read “Description of Our Common
Units—Transfer of Common Units”; and
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with regard to allocations of taxable income and taxable loss, please read “Material Federal Income Tax Consequences.”
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Organization and Duration
Our
partnership was organized on May 30, 2014 and will have a perpetual existence unless terminated pursuant to the terms of our partnership agreement.
Purpose
Under our partnership agreement,
the purpose and nature of the business to be conducted by us shall be to engage directly or indirectly in any business activity that is approved by our general partner, in its sole discretion, and that lawfully may be conducted by a limited
partnership organized pursuant to the Delaware Act; provided, however, that our general partner shall not cause us to engage, directly or indirectly, in any business activity that our general partner determines would be reasonably likely to cause us
to be treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes.
Although
our general partner has the ability to cause us and our subsidiaries to engage in activities other than those related to the midstream energy business, our general partner currently has no plans to do so and may decline to do so free of any duty or
obligation whatsoever to us or the limited partners, including any duty to act in the best interests of us or our limited partners, other than the implied contractual covenant of good faith and fair dealing. In general, our general partner is
authorized to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business.
Capital
Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under
“—Limited Liability.” For a discussion of our general partner’s right to contribute capital to maintain its 2% general partner interest if we issue additional partnership interests, please read “—Issuance of Additional
Partnership Interests.”
Voting Rights
The following is a summary of the unitholder vote required for the matters specified below. Matters that require the approval of a “unit
majority” require:
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during the subordination period, the approval of a majority of the outstanding common units, excluding those common units held by our general partner and its affiliates, and a majority of the outstanding subordinated
units, voting as separate classes; and
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after the subordination period, the approval of a majority of the outstanding common units.
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In voting their common units and subordinated units, our general partner and its affiliates will
have no duty or obligation whatsoever to us or the limited partners, including any duty to act in the best interests of us or the limited partners, other than the implied contractual covenant of good faith and fair dealing.
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Issuance of additional units
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No approval right.
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Amendment of our partnership agreement
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Certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read “—Amendment of Our Partnership
Agreement.”
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Merger of our partnership or the sale of
all or substantially all of our assets
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Unit majority. Please read “—Merger, Consolidation, Conversion, Sale or Other Disposition of Assets.”
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Dissolution of our partnership
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Unit majority. Please read “—Termination and Dissolution.”
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Continuation of our business upon dissolution
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Unit majority. Please read “—Termination and Dissolution.”
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Withdrawal of the general partner
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Under most circumstances, the approval of unitholders holding at least a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, is required for the withdrawal of the general
partner prior to September 30, 2024, in a manner which would cause a dissolution of our partnership. Please read “—Withdrawal or Removal of Our General Partner.”
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Removal of the general partner
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Not less than 66 2/3% of the outstanding units, voting as a single class, including units held by our general partner and its affiliates, for cause. Please read “—Withdrawal or Removal of Our General
Partner.”
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Transfer of the general partner interest
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Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or
sale of all or substantially all of its assets to, such person. The approval of a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, is required in other circumstances for a transfer of
the general partner interest to a third party prior to September 30, 2024. Please read “—Transfer of General Partner Interest.”
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Transfer of incentive distribution rights
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Our general partner may transfer any or all of its incentive distribution rights to an affiliate or another person without a vote of our unitholders. Please read “—Transfer of Incentive Distribution Rights.”
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Reset of incentive distribution levels
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No approval right.
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Transfer of ownership interests in our general partner
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No approval right. Please read “—Transfer of Ownership Interests in Our General Partner.”
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Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that it
otherwise acts in conformity with the provisions of our partnership agreement, its liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital it is obligated to contribute to us for its common units
plus its share of any undistributed profits and assets. If it were determined, however, that the right, or exercise of the right of, by the limited partners as a group to:
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remove or replace our general partner for cause;
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approve some amendments to our partnership agreement; or
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take other action under our partnership agreement;
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constituted “participation in the control” of
our business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of Delaware, to the same extent as our general partner. This liability would extend to persons who
transact business with us who reasonably believe that a limited partner is a general partner. Neither our partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner were to
lose limited liability through any fault of our general partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.
Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the
limited partnership, other than liabilities to partners on account of their limited partner interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets
of the limited partnership, except that the fair value of property that is subject to a liability for which the recourse of creditors is limited is included in the assets of the limited partnership only to the extent that the fair value of that
property exceeds that liability. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors is limited shall be
included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the
distribution that the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the distribution for three years. Under the Delaware Act, a substituted limited partner of a limited partnership is
liable for the obligations of its assignor to make contributions to the partnership, except that such person is not obligated for liabilities unknown to it at the time it became a limited partner and that could not be ascertained from the
partnership agreement.
Our operating subsidiaries conduct business in Pennsylvania and West Virginia. We may have subsidiaries that
conduct business in other states in the future. Maintenance of our limited liability as a partner or member of our subsidiaries may require compliance with legal requirements in the jurisdictions in which such subsidiaries conduct business,
including qualifying such entities to do business there.
Limitations on the liability of members or limited partners for the obligations
of a limited liability company or limited partnership have not been clearly established in many jurisdictions. If, by virtue of our ownership interests in our operating subsidiaries or otherwise, it were determined that we were conducting business
in any state without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace our general partner for cause, to
approve some amendments to our partnership agreement, or to take other action under our partnership agreement constituted “participation in the control” of our business for purposes of the statutes of any relevant jurisdiction, then the
limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our general partner under the circumstances. We will operate in a manner that our general partner considers reasonable and
necessary or appropriate to preserve the limited liability of the limited partners.
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Issuance of Additional Partnership Interests
Our partnership agreement authorizes us to issue an unlimited number of additional partnership interests and options, rights, warrants and
appreciation rights relating to the partnership interests for any partnership purpose at any time and from time to time to such persons for such consideration and on such terms and conditions as our general partner shall determine in its sole
discretion, all without the approval of any partners.
It is possible that we will fund acquisitions through the issuance of additional
common units, subordinated units or other partnership interests. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available cash. In addition,
the issuance of additional common units or other partnership interests may dilute the value of the interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership interests that, as
determined by our general partner, may have special voting rights to which the common units are not entitled. In addition, our partnership agreement does not prohibit the issuance by our subsidiaries of equity interests, which may effectively rank
senior to the common units.
Upon issuance of additional limited partner interests (other than the issuance of common units upon any
exercise by the underwriters of their option to purchase additional common units, the issuance of common units in connection with a reset of the incentive distribution target levels or the issuance of common units upon conversion of outstanding
partnership interests), our general partner will be entitled, but not required, to make additional capital contributions to the extent necessary to maintain its 2% general partner interest in us. Our general partner’s 2% general partner
interest in us will be reduced if we issue additional partnership interests in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2% general partner interest. Moreover, our general partner
will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units, subordinated units or other partnership interests whenever, and on the same terms that, we issue those interests to
persons other than our general partner and its affiliates, to the extent necessary to maintain the percentage interest of the general partner and its affiliates represented by common units, subordinated units and other partnership interests that
existed immediately prior to each issuance. The other holders of common units will not have preemptive rights to acquire additional common units or other partnership interests.
Amendment of Our Partnership Agreement
General
Amendments
to our partnership agreement may be proposed only by our general partner. However, our general partner will have no duty or obligation to propose any amendment and may decline to do so free of any duty or obligation whatsoever to us or our limited
partners, including any duty to act in the best interests of us or the limited partners, other than the implied contractual covenant of good faith and fair dealing. In order to adopt a proposed amendment, other than the amendments discussed below,
our general partner is required to seek written approval of the holders of the number of units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below,
an amendment must be approved by a unit majority.
Prohibited Amendments
No amendment may be made that would, among other actions:
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enlarge the obligations of any limited partner without its consent, unless such is deemed to have occurred as a result of an amendment approved by at least a majority of the type or class of limited partner interests so
affected; or
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enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to our general partner or any of its affiliates without
its consent, which consent may be given or withheld at its option.
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The provisions of our partnership agreement preventing
the amendments having the effects described in any of the clauses above can be amended upon the approval of the holders of at least 90% of the outstanding units voting together as a single class (including units owned by our general partner and its
affiliates). As of the date of this prospectus, our Sponsors own an aggregate of 14,221,275 common units and 29,163,121 subordinated units, representing an aggregate 66.9% limited partner interest.
No Unitholder Approval
Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner to reflect:
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a change in our name, the location of our principal office, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under
the laws of any state or to ensure that neither we nor any of our subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;
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an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents or trustees, from in any manner, being subjected to the provisions of the Investment
Company Act of 1940, the Investment Advisers Act of 1940, or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974 (“ERISA”), each as amended, whether or not substantially similar to plan
asset regulations currently applied or proposed by the U.S. Department of Labor;
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an amendment that (i) sets forth the designations, preferences, rights, powers and duties of any class or series of partnership interests or (ii) our general partner determines to be necessary, appropriate or advisable
in connection with the authorization or issuance of additional partnership interests;
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any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger agreement or plan of conversion that has been approved under the terms of our partnership agreement;
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any amendment that our general partner determines to be necessary or appropriate to reflect and account for the formation by us of, or our investment in, any corporation, partnership or other entity, in connection with
our conduct of activities permitted by our partnership agreement;
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a change in our fiscal year or taxable year and any other changes that our general partner determines to be necessary or appropriate as a result of such change;
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mergers with, conveyances to or conversions into another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the merger, conveyance or conversion other than those it
receives by way of the merger, conveyance or conversion; or
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any other amendments substantially similar to any of the matters described in the clauses above.
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In addition, our general partner may make amendments to our partnership agreement, without the
approval of any limited partner, if our general partner determines that those amendments:
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do not adversely affect in any material respect the limited partners considered as a whole or any particular class of partnership interests as compared to other classes of partnership interests;
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are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in
any federal or state statute;
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are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are
or will be listed or admitted to trading;
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are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of our partnership agreement; or
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are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement.
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Opinion of Counsel and Unitholder Approval
For amendments that do not require unitholder approval, our general partner will not be required to obtain an opinion of counsel to the effect
that an amendment will not affect the limited liability of any limited partner under Delaware law. No other amendments to our partnership agreement will become effective without the approval of holders of at least 90% of the outstanding units voting
as a single class unless we first obtain such an opinion of counsel.
In addition to the above restrictions, any amendment that would have
a material adverse effect on the rights or preferences of any type or class of partnership interests in relation to other classes of partnership interests will require the approval of at least a majority of the type or class of partnership interests
so affected. Any amendment that would reduce the percentage of units required to take any action, other than to remove our general partner for cause or call a meeting of unitholders, must be approved by the written consent or the affirmative vote of
limited partners whose aggregate outstanding units constitute not less than the percentage sought to be reduced. Any amendment that would increase the percentage of units required to remove our general partner for cause must be approved by the
written consent or the affirmative vote of limited partners whose aggregate outstanding units constitute not less than 90% of outstanding units. Any amendment that would increase the percentage of units required to call a meeting of unitholders must
be approved by the written consent or the affirmative vote of limited partners whose aggregate outstanding units constitute at least a majority of the outstanding units.
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets
A merger, consolidation or conversion of our partnership requires the prior consent of our general partner. However, our general partner will
have no duty or obligation to consent to any merger, consolidation or conversion and may decline to do so free of any duty or obligation whatsoever to us or the limited partners, including any duty to act in the best interest of us or the limited
partners, other than the implied contractual covenant of good faith and fair dealing.
In addition, our partnership agreement generally
prohibits our general partner, without the prior approval of the holders of a unit majority, from causing us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of
related transactions. Our general partner may, however, mortgage, pledge, hypothecate, or grant a security interest in all or substantially all of our assets without that approval. Our general partner may also sell any or all of our assets under a
foreclosure or other realization upon those encumbrances without that approval. Finally, our general partner may consummate any
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merger with another limited liability entity without the prior approval of our unitholders if we are the surviving entity in the transaction, our general partner has received an opinion of
counsel regarding limited liability and tax matters, the transaction would not result in an amendment to our partnership agreement requiring unitholder approval, each of our units will be an identical unit of our partnership following the
transaction and the partnership interests to be issued by us in such merger do not exceed 20% of our outstanding partnership interests immediately prior to the transaction.
If the conditions specified in our partnership agreement are satisfied, our general partner may convert us or any of our subsidiaries into a
new limited liability entity or merge us or any of our subsidiaries into, or convey all of our assets to, a newly formed entity if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into another
limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax matters, and our general partner determines that the governing instruments of the new entity provide the limited partners and our
general partner with the same rights and obligations as contained in our partnership agreement. The unitholders are not entitled to dissenters’ rights of appraisal under our partnership agreement or applicable Delaware law in the event of a
conversion, merger or consolidation, a sale of substantially all of our assets or any other similar transaction or event.
Termination and Dissolution
We will continue as a limited partnership until dissolved under our partnership agreement. We will dissolve upon:
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the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than by reason of a transfer of its general partner interest in accordance with our
partnership agreement or withdrawal or removal followed by approval and admission of a successor;
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the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
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the entry of a decree of judicial dissolution of our partnership; or
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there being no limited partners, unless we are continued without dissolution in accordance with the Delaware Act.
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Upon a dissolution under the first clause above, the holders of a unit majority may also elect, within specific time limitations, to continue
our business on the same terms and conditions described in our partnership agreement by appointing as a successor general partner an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion of
counsel to the effect that:
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the action would not result in the loss of limited liability of any limited partner; and
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neither our partnership nor any of our subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to
continue (to the extent not already so treated or taxed).
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Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited partnership, the liquidator authorized to wind up our affairs will, acting with
all of the powers of our general partner that are necessary or appropriate to, liquidate our assets and apply the proceeds of the liquidation as described in “Provisions of Our Partnership Agreement Relating to Cash
Distributions—Distributions of Cash Upon Liquidation.” The liquidator may defer liquidation or distribution of our assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be
impractical or would cause undue loss to our partners.
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Withdrawal or Removal of Our General Partner
Except as described below, our general partner has agreed not to withdraw voluntarily as our general partner prior to September 30, 2024,
without obtaining the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, and by giving 90 days’ written notice and furnishing an opinion of
counsel regarding limited liability and tax matters. On or after September 30, 2024, our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days’ written notice, and that withdrawal
will not constitute a violation of our partnership agreement. Notwithstanding the information above, our general partner may withdraw without unitholder approval upon 90 days’ written notice to the limited partners if at least 50% of the
outstanding units are held or controlled by one person and its affiliates other than our general partner and its affiliates. In addition, our partnership agreement permits our general partner in some instances to sell or otherwise transfer all of
its general partner interest in us without the approval of the unitholders. Please read “—Transfer of General Partner Interest” and “—Transfer of Incentive Distribution Rights.”
Upon voluntary withdrawal of our general partner by giving notice to the other partners, the holders of a unit majority may select a successor
to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, we will be dissolved, wound up and liquidated, unless within a specified
period after that withdrawal, the holders of a unit majority agree to continue our business by appointing a successor general partner. Please read “—Termination and Dissolution.”
Our general partner may not be removed unless that removal is both (i) for cause and (ii) approved by the vote of the holders of not less than
66 2/3% of our outstanding units, voting together as a single class, including units held by our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of our general partner
is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units, voting as a separate class, and subordinated units, voting as a separate class. “Cause” is narrowly
defined under our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the general partner liable to our partnership or any limited partner for actual fraud or willful misconduct
in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business. The ownership of more than 33 1/3% of the outstanding units by our general partner and its affiliates would give them the
practical ability to prevent our general partner’s removal. As of the date of this prospectus, our Sponsors own an aggregate of 14,221,275 common units and 29,163,121 subordinated units, representing an aggregate 66.9% limited partner interest.
In the event of removal of our general partner or withdrawal of our general partner where that withdrawal violates our partnership
agreement, a successor general partner will have the option to purchase the general partner interest and incentive distribution rights of the departing general partner for a cash payment equal to the fair market value of those interests. Under all
other circumstances where our general partner withdraws, the departing general partner will have the option to require the successor general partner to purchase the general partner interest of the departing general partner and its incentive
distribution rights for fair market value. In each case, this fair market value will be determined by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent investment banking
firm or other independent expert selected by the departing general partner and the successor general partner will determine the fair market value. Or, if the departing general partner and the successor general partner cannot agree upon an expert,
then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.
If the option described
above is not exercised by either the departing general partner or the successor general partner, the departing general partner will become a limited partner and its general partner interest and its incentive distribution rights will automatically
convert into common units pursuant to a valuation of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.
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In addition, we will be required to reimburse the departing general partner for all amounts due
the departing general partner, including, without limitation, all employee-related liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing general partner or its affiliates for our
benefit.
Transfer of General Partner Interest
Except for transfer by our general partner of all, but not less than all, of its general partner interest to (1) an affiliate of our
general partner (other than an individual), or (2) another entity as part of the merger or consolidation of our general partner with or into such entity or the transfer by our general partner of all or substantially all of its assets to such
entity, our general partner may not transfer all or any part of its general partner interest to another person prior to September 30, 2024, without the approval of the holders of at least a majority of the outstanding common units, excluding common
units held by our general partner and its affiliates. As a condition of this transfer, the transferee must assume, among other things, the rights and duties of our general partner, agree to be bound by the provisions of our partnership agreement,
and furnish an opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may at any time
transfer units to one or more persons, without unitholder approval, except that they may not transfer subordinated units to us.
Transfer of Ownership
Interests in Our General Partner
At any time, CONE and its affiliates may sell or transfer all or part of their membership interest in
our general partner, to an affiliate or third party without the approval of our unitholders.
Transfer of Incentive Distribution Rights
At any time, our general partner may sell or transfer its incentive distribution rights to an affiliate or third party without the approval of
the unitholders.
Change of Management Provisions
Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove CONE
Midstream GP LLC as our general partner or otherwise change our management. If any person or group other than our general partner and its affiliates acquires beneficial ownership of 20% or more of any class of units, that person or group loses
voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires the units from our general partner or its affiliates and any transferees of that person or group who are notified by our general
partner that they will not lose their voting rights or to any person or group who acquires the units with the prior approval of the board of directors of our general partner. Please read “—Withdrawal or Removal of Our General
Partner.”
Limited Call Right
If at any time our general partner and its affiliates own more than 80% of the then-issued and outstanding limited partner interests of any
class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the limited partner interests of such class held by unaffiliated persons as of a
record date to be selected by our general partner, on at least 10, but not more than 60, days’ written notice.
The purchase price in
the event of this purchase is the greater of:
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the highest cash price paid by either our general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days preceding the date on which our general partner first mails
notice of its election to purchase those limited partner interests; and
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the current market price calculated in accordance with our partnership agreement as of the date three business days before the date the notice is mailed.
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As a result of our general partner’s right to purchase outstanding limited partner interests, a holder of limited partner interests may
have his limited partner interests purchased at a price that may be lower than market prices at various times prior to such purchase or lower than a unitholder may anticipate the market price to be in the future. The tax consequences to a unitholder
of the exercise of this limited call right are the same as a sale by that unitholder of his common units in the market. Please read “Material Federal Income Tax Consequences—Disposition of Common Units.”
Possible Redemption of Ineligible Holders
If at any time our general partner determines, with the advice of counsel, that:
(i) the U.S. federal income tax status (or lack of proof of the U.S. federal income tax status) of one or more limited partners or their owners
has or is reasonably likely to have a material adverse effect on the rates that can be charged to customers by us or our subsidiaries with respect to assets that are subject to regulation by the Federal Energy Regulatory Commission or similar
regulatory body (a “rate eligibility trigger”), or
(ii) we or our subsidiaries are subject to any federal, state or local law or
regulation that would create a substantial risk of cancellation or forfeiture of any property in which we have an interest based on the nationality, citizenship or other related status of one or more limited partners or their owners (a
“citizenship eligibility trigger”),
then our general partner may adopt such amendments to our partnership agreement as it
determines to be necessary or appropriate to:
(a) in the case of a rate eligibility trigger, obtain such proof of the U.S. federal income
tax status of such limited partners and, to the extent relevant, their owners, as our general partner determines to be necessary or appropriate to reduce the risk of occurrence of a material adverse effect on the rates that can be charged to
customers by us or our subsidiaries, or
(b) in the case of a citizenship eligibility trigger, obtain such proof of the nationality,
citizenship or other related status of such limited partners and, to the extent relevant, their owners, as our general partner determines to be necessary or appropriate to eliminate or mitigate the risk of cancellation or forfeiture of any
properties or interests therein.
Amendments adopted by our general partner may include provisions requiring all limited partners to
certify as to their (and their owners’) status as eligible holders upon demand and on a regular basis, as determined by our general partner, and may require transferees of units to so certify prior to being admitted to our partnership as
limited partners.
“Eligible holders” are limited partners whose (or whose owners’) (i) U.S. federal income tax status or
lack of proof of U.S. federal income tax status does not have and is not reasonably likely to have, as determined by our general partner, a material adverse effect on the rates that can be charged to customers by us or our subsidiaries with respect
to assets that are subject to regulation by the Federal Energy Regulatory Commission or similar regulatory body and (ii) nationality, citizenship or other related status does not create and is not reasonably likely to create, as determined by our
general partner, a substantial risk of cancellation or forfeiture of any property in which we have an interest.
Amendments adopted by our
general partner may provide that (i) any limited partner who fails to furnish, within a reasonable period, requested proof of its (and its owners’) status as an eligible holder or (ii) if upon receipt of such eligibility certificate or other
requested information our general partner determines that a limited
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partner (or its owner) is not an eligible holder, the limited partner interests owned by such limited partner will be subject to redemption. In addition, our general partner will be substituted
and treated as the owner of all limited partner interests owned by an ineligible holder.
The aggregate redemption price for redeemable
interests will be an amount equal to the current market price (the date of determination of which will be the date fixed for redemption) of limited partner interests of the class to be so redeemed multiplied by the number of limited partner
interests of each such class included among the redeemable interests. For these purposes, the “current market price” means, as of any date for any class of limited partner interests, the average of the daily closing prices per limited
partner interest of such class for the 20 consecutive trading days immediately prior to such date. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner. Any such promissory note will
bear interest at the rate of 5% annually and be payable in three equal annual installments of principal and accrued interest, commencing one year after the redemption date. Further, the units will not be entitled to any allocations of income or
loss, distributions or voting rights while held by such unitholder.
Meetings; Voting
Except as described below regarding a person or group owning 20% or more of any class of units then outstanding, record holders of units on the
record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited.
Our general partner does not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required
or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or, if authorized by our general partner, without a meeting if consents in writing describing the action so taken are signed by holders of the number of
units that would be necessary to authorize or take that action at a meeting where all limited partners were present and voted. Meetings of the unitholders may be called by our general partner or by unitholders owning at least 20% of the outstanding
units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority in voting power of the outstanding units of the class or classes for which a meeting has been called,
represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage. For all matters presented to
the limited partners at a meeting at which a quorum is present for which no minimum or other vote of the limited partners is specifically required pursuant to our partnership agreement, the rules and regulations of any national securities exchange
on which the common units are admitted to trading, or applicable law or pursuant to any regulation applicable to us or our partnership interests, a majority of the votes cast by the limited partners holding outstanding units will be deemed to
constitute the act of all limited partners (with abstentions and broker non-votes being deemed to not have been cast with respect to such matter). On any matter where a minimum or other vote of limited partners is provided by any provision of our
partnership agreement or required by the rules or regulations of any national securities exchange on which the common units are admitted to trading, or applicable law or pursuant to any regulation applicable to us or our partners interests, such
minimum or other vote will be the vote of the limited partners required to approve such matter (with the effect of abstentions and broker non-votes to be determined based on the vote of the limited partners required to approve such matter, provided
that if the effect of abstentions and broker non-votes is not specified by the applicable rule, regulation or law, and there is no prevailing interpretation of such effect, then abstentions and broker non-votes will be deemed not to have been cast
with respect to such matter). The general partner interest does not entitle our general partner to any vote other than its rights as general partner under our partnership agreement, will not be entitled to vote on any action required or permitted to
be taken by the unitholders and will not count toward or be considered outstanding when calculating required votes, determining the presence of a quorum, or for similar purposes.
Each record holder of a unit has a vote according to its percentage interest in us, although additional limited partner interests having
special voting rights could be issued. Please read “—Issuance of Additional Partnership
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Interests.” However, if at any time any person or group, other than our general partner and its affiliates, a direct transferee of our general partner and its affiliates or a transferee of
such direct transferee, who is notified by our general partner that it will not lose its voting rights, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting
rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum, or for other
similar purposes. Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and its nominee
provides otherwise. Except as our partnership agreement otherwise provides, subordinated units will vote together with common units as a single class. Any notice, demand, request, report or proxy material required or permitted to be given or made to
record holders of common units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.
Status as
Limited Partner
By transfer of common units in accordance with our partnership agreement, each transferee of common units shall be
admitted as a limited partner with respect to the common units transferred when such transfer and admission is reflected in our register. Except as described under “—Limited Liability,” the common units will be fully paid, and
unitholders will not be required to make additional contributions.
Indemnification
Under our partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from
and against all losses, claims, damages or similar events:
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any departing general partner;
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any person who is or was an affiliate of our general partner or any departing general partner;
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any person who is or was a director, officer, managing member, manager, general partner, fiduciary or trustee of us or our subsidiaries, an affiliate of us or our subsidiaries or any entity set forth in the preceding
three bullet points;
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any person who is or was serving as director, officer, managing member, manager, general partner, fiduciary or trustee of another person owing a fiduciary duty to us or any of our subsidiaries at the request of our
general partner or any departing general partner or any of their affiliates, excluding any such person providing, on a fee-for-service basis, trustee, fiduciary of custodial services; and
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any person designated by our general partner because such person’s status, service or relationship expose such person to potential claims or suits relating to our or our subsidiaries’ business and affairs.
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Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our general partner
will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We will purchase insurance against liabilities asserted against and expenses incurred by persons for
our activities, regardless of whether we would have the power to indemnify the person against such liabilities under our partnership agreement.
Reimbursement of Expenses
Our
partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses
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allocated to our general partner by its affiliates. Our general partner is entitled to determine in good faith the expenses that are allocable to us. The expenses for which we are required to
reimburse our general partner are not subject to any caps or other limits.
Books and Reports
Our general partner is required to keep appropriate books of our business at our principal offices. The books will be maintained for financial
reporting purposes on an accrual basis. For fiscal and tax reporting purposes, our fiscal year is the calendar year.
We will mail or make
available to record holders of common units, within 90 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by our independent public accountants. Except for
our fourth quarter, we will also mail or make available summary financial information within 45 days after the close of each quarter (or such shorter period as required by the SEC).
We will furnish each record holder of a unit with information reasonably required for tax reporting purposes within 90 days after the close of
each calendar year. This information is expected to be furnished in summary form so that some complex calculations normally required of partners can be avoided. Our ability to furnish this summary information to unitholders will depend on the
cooperation of unitholders in supplying us with specific information. Every unitholder will receive information to assist such unitholder in determining its federal and state tax liability and filing its federal and state income tax returns,
regardless of whether such unitholder supplies us with information.
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can, for a purpose reasonably related to its interest as a limited partner, upon
reasonable written demand stating the purpose of such demand and at its own expense, have furnished to such limited partner:
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a current list of the name and last known address of each record holder;
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copies of our partnership agreement and our certificate of limited partnership and all amendments thereto; and
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certain information regarding the status of our business and financial condition.
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Our general
partner may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure of which our general partner determines is not in our best interests or that we are required by law or by agreements with
third parties to keep confidential. Our partnership agreement limits the right to information that a limited partner would otherwise have under Delaware law.
Registration Rights
Under our
partnership agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any common units, subordinated units or other partnership interests proposed to be sold by our general partner or any of its
affiliates, other than individuals, or their assignees if an exemption from the registration requirements is not otherwise available. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and
commissions.
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GLOBAL SECURITIES
Book-Entry, Delivery and Form
Unless we
indicate differently in a prospectus supplement, the securities initially will be issued in book-entry form and represented by one or more global notes or global securities, or, collectively, global securities. The global securities will be
deposited with, or on behalf of, The Depository Trust Company, New York, New York, as depositary, or DTC, and registered in the name of Cede & Co., the nominee of DTC. Unless and until it is exchanged for individual certificates evidencing
securities under the limited circumstances described below, a global security may not be transferred except as a whole by the depositary to its nominee or by the nominee to the depositary, or by the depositary or its nominee to a successor
depositary or to a nominee of the successor depositary.
DTC has advised us that it is:
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a limited-purpose trust company organized under the New York Banking Law;
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a “banking organization” within the meaning of the New York Banking Law;
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a member of the Federal Reserve System;
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a “clearing corporation” within the meaning of the New York Uniform Commercial Code; and
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a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act.
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DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among its participants of securities
transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants’ accounts, thereby eliminating the need for physical movement of securities certificates. “Direct
participants” in DTC include securities brokers and dealers, including underwriters, banks, trust companies, clearing corporations and other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation, or
DTCC. DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the
DTC system is also available to others, which we sometimes refer to as indirect participants, that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of securities under the DTC system must be made by or through direct participants, which
will receive a credit for the securities on DTC’s records. The ownership interest of the actual purchaser of a security, which we sometimes refer to as a beneficial owner, is in turn recorded on the direct and indirect participants’
records. Beneficial owners of securities will not receive written confirmation from DTC of their purchases. However, beneficial owners are expected to receive written confirmations providing details of their transactions, as well as periodic
statements of their holdings, from the direct or indirect participants through which they purchased securities. Transfers of ownership interests in global securities are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the global securities, except under the limited circumstances described below.
To facilitate subsequent transfers, all global securities deposited by direct participants with DTC will be registered in the name of
DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of securities with DTC and their registration in the name of Cede & Co. or such other nominee will
not change the beneficial ownership of the securities. DTC has no knowledge of the actual beneficial owners of the securities. DTC’s records reflect only the identity of the direct participants to whose accounts the securities are credited,
which may or may not be the beneficial owners. The participants are responsible for keeping account of their holdings on behalf of their customers.
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So long as the securities are in book-entry form, you will receive payments and may transfer
securities only through the facilities of the depositary and its direct and indirect participants. We will maintain an office or agency in the location specified in the prospectus supplement for the applicable securities, where notices and demands
in respect of the securities and the indenture may be delivered to us and where certificated securities may be surrendered for payment, registration of transfer or exchange.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any legal requirements in effect from time to time.
Redemption notices will be sent to DTC. If less than all of the securities of a particular series are being redeemed, DTC’s practice
is to determine by lot the amount of the interest of each direct participant in the securities of such series to be redeemed.
Neither DTC
nor Cede & Co. (or such other DTC nominee) will consent or vote with respect to the securities. Under its usual procedures, DTC will mail an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns the consenting
or voting rights of Cede & Co. to those direct participants to whose accounts the securities of such series are credited on the record date, identified in a listing attached to the omnibus proxy.
So long as securities are in book-entry form, we will make payments on those securities to the depositary or its nominee, as the registered
owner of such securities, by wire transfer of immediately available funds. If securities are issued in definitive certificated form under the limited circumstances described below, we will have the option of making payments by check mailed to the
addresses of the persons entitled to payment or by wire transfer to bank accounts in the United States designated in writing to the applicable trustee or other designated party at least 15 days before the applicable payment date by the persons
entitled to payment, unless a shorter period is satisfactory to the applicable trustee or other designated party.
Redemption proceeds,
distributions and dividend payments on the securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit direct participants’ accounts upon
DTC’s receipt of funds and corresponding detail information from us on the payment date in accordance with their respective holdings shown on DTC records. Payments by participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the account of customers in bearer form or registered in “street name.” Those payments will be the responsibility of participants and not of DTC or us, subject to any
statutory or regulatory requirements in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, is our
responsibility, disbursement of payments to direct participants is the responsibility of DTC, and disbursement of payments to the beneficial owners is the responsibility of direct and indirect participants.
Except under the limited circumstances described below, purchasers of securities will not be entitled to have securities registered in their
names and will not receive physical delivery of securities. Accordingly, each beneficial owner must rely on the procedures of DTC and its participants to exercise any rights under the securities and the indenture.
The laws of some jurisdictions may require that some purchasers of securities take physical delivery of securities in definitive form. Those
laws may impair the ability to transfer or pledge beneficial interests in securities.
DTC may discontinue providing its services as
securities depositary with respect to the securities at any time by giving reasonable notice to us. Under such circumstances, in the event that a successor depositary is not obtained, securities certificates are required to be printed and delivered.
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As noted above, beneficial owners of a particular series of securities generally will not receive
certificates representing their ownership interests in those securities. However, if:
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Exchange Act at a time when it is required to be registered and a successor depositary is not appointed within 90 days of the notification to us or of our becoming aware of DTC’s ceasing to be so registered, as the case may be;
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and deliver certificates for such securities in exchange for beneficial interests in the global securities. Any beneficial interest in a global security that is exchangeable under the circumstances described in the preceding sentence will be
exchangeable for securities in definitive certificated form registered in the names that the depositary directs. It is expected that these directions will be based upon directions received by the depositary from its participants with respect to
ownership of beneficial interests in the global securities.
We have obtained the information in this section and elsewhere in this
prospectus concerning DTC and DTC’s book-entry system from sources that are believed to be reliable, but we take no responsibility for the accuracy of this information.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material tax considerations that may be relevant to prospective unitholders who are individual citizens or
residents of the U.S. and, unless otherwise noted in the following discussion, is the opinion of Andrews Kurth Kenyon LLP (“Andrews Kurth”), counsel to our general partner and us, insofar as it relates to legal conclusions with respect to
matters of U.S. federal income tax law. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), existing and proposed Treasury regulations promulgated under the Internal
Revenue Code (the “Treasury Regulations”) and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise requires, references in this section to “us” or “we” are references to CONE Midstream Partners LP and our operating subsidiaries.
The following discussion does not comment on all federal income tax matters affecting us or our unitholders and does not describe the
application of the alternative minimum tax that may be applicable to certain unitholders. Moreover, the discussion focuses on unitholders who are individual citizens or residents of the U.S. and has only limited application to corporations, estates,
entities treated as partnerships for U.S. federal income tax purposes, trusts, nonresident aliens, U.S. expatriates and former citizens or long-term residents of the United States or other unitholders subject to specialized tax treatment, such as
banks, insurance companies and other financial institutions, tax-exempt institutions, foreign persons (including, without limitation, controlled foreign corporations, passive foreign investment companies and non-U.S. persons eligible for the
benefits of an applicable income tax treaty with the United States), individual retirement accounts (IRAs), real estate investment trusts (REITs) or mutual funds, dealers in securities or currencies, traders in securities, U.S. persons whose
“functional currency” is not the U.S. dollar, persons holding their units as part of a “straddle,” “hedge,” “conversion transaction” or other risk reduction transaction, and persons deemed to sell their units
under the constructive sale provisions of the Internal Revenue Code. In addition, the discussion only comments to a limited extent on state, local and foreign tax consequences. Accordingly, we encourage each prospective unitholder to consult his own
tax advisor in analyzing the state, local and foreign tax consequences particular to him of the ownership or disposition of common units and potential changes in applicable tax laws.
No ruling has been requested from the Internal Revenue Service (the “IRS”) regarding our characterization as a partnership for tax
purposes. Instead, we will rely on opinions of Andrews Kurth. Unlike a ruling, an opinion of counsel represents only that counsel’s best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made
herein may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for the common units and the prices at which common units trade. In addition, the costs of any
contest with the IRS, principally legal, accounting and related fees, will result in a reduction in cash available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general
partner. Furthermore, the tax treatment of us, or of an investment in us, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.
All statements as to matters of federal income tax law and legal conclusions with respect thereto, but not as to factual matters, contained in
this section, unless otherwise noted, are the opinion of Andrews Kurth and are based on the accuracy of the representations made by us.
For the reasons described below, Andrews Kurth has not rendered an opinion with respect to the following specific federal income tax issues:
(i) the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read “—Tax Consequences of Unit Ownership—Treatment of Short Sales”); (ii) whether our monthly
convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read “—Disposition of Common Units—Allocations Between Transferors and Transferees”) and (iii) whether our method for
taking into account Section 743 adjustments is sustainable in certain cases (please read “—Tax Consequences of Unit Ownership—Section 754 Election” and “—Uniformity of Units”).
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Partnership Status
A partnership is not a taxable entity and incurs no federal income tax liability. Instead, each partner of a partnership is required to take
into account his share of items of income, gain, loss and deduction of the partnership in computing his federal income tax liability, regardless of whether cash distributions are made to him by the partnership. Distributions by a partnership to a
partner are generally not taxable to the partnership or the partner unless the amount of cash distributed to him is in excess of the partner’s adjusted basis in his partnership interest. Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the “Qualifying Income Exception,” exists with respect to publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of “qualifying income.” Qualifying income includes income and gains derived from the transportation, processing, storage and marketing of crude oil, natural gas and products thereof. Other types of
qualifying income include interest (other than from a financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes
qualifying income. We estimate that less than 2% of our current gross income is not qualifying income; however, this estimate could change from time to time. Based upon and subject to this estimate, the factual representations made by us and our
general partner and a review of the applicable legal authorities, Andrews Kurth is of the opinion that at least 90% of our current gross income constitutes qualifying income. The portion of our income that is qualifying income may change from time
to time.
The IRS has made no determination as to our status or the status of our operating subsidiaries for federal income tax purposes
or whether our operations generate “qualifying income” under Section 7704 of the Internal Revenue Code. Instead, we will rely on the opinion of Andrews Kurth on such matters. It is the opinion of Andrews Kurth that, based upon the Internal
Revenue Code, its regulations, published revenue rulings and court decisions and the representations described below that:
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We will be classified as a partnership for federal income tax purposes; and
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Each of our operating subsidiaries will be treated as a partnership or will be disregarded as an entity separate from us for federal income tax purposes.
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In rendering its opinion, Andrews Kurth has relied on factual representations made by us and our general partner. The representations made by
us and our general partner upon which Andrews Kurth has relied include:
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Neither we nor any of the operating subsidiaries has elected or will elect to be treated as a corporation; and
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For each taxable year, more than 90% of our gross income has been and will be income of the type that Andrews Kurth has opined or will opine is “qualifying income” within the meaning of Section 7704(d) of the
Internal Revenue Code.
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We believe that these representations have been true in the past and expect that these
representations will continue to be true in the future.
If we fail to meet the Qualifying Income Exception, other than a failure that is
determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts), we will be treated as if we had
transferred all of our assets, subject to liabilities, to a newly formed corporation, on the first day of the year in which we fail to meet the Qualifying Income Exception, in return for stock in that corporation, and then distributed that stock to
the unitholders in liquidation of their interests in us. This deemed contribution and liquidation should be tax-free to unitholders and us so long as we, at that time, do not have liabilities in excess of the tax basis of our assets. Thereafter, we
would be treated as a corporation for federal income tax purposes.
The present federal income tax treatment of publicly traded
partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations
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at any time. For example, from time to time, the President and members of the U.S. Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly
traded partnerships. Additionally, the Department of the Treasury and the IRS have issued proposed regulations interpreting the scope of the qualifying income requirements by providing industry-specific guidance with respect to activities that will
generate qualifying income. The proposed regulations, once issued in final form, may change interpretations of the current law relating to the characterization of income as qualifying income and could modify the amount of our gross income that we
are able to treat as qualifying income for purposes of the Qualifying Income Exception. We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us and may be applied
retroactively. Any such changes could negatively impact the value of an investment in our common units.
If we were treated as an
association taxable as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected only on our tax return rather than being
passed through to our unitholders, and our net income would be taxed to us at corporate rates. In addition, any distribution made to a unitholder would be treated as taxable dividend income, to the extent of our current and accumulated earnings and
profits, or, in the absence of earnings and profits, a nontaxable return of capital, to the extent of the unitholder’s tax basis in his common units, or taxable capital gain, after the unitholder’s tax basis in his common units is reduced
to zero. Accordingly, taxation as a corporation would result in a material reduction in a unitholder’s cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.
The discussion below is based on Andrews Kurth’s opinion that we will be classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders of CONE Midstream Partners LP will be treated as partners of CONE Midstream Partners LP for federal income tax purposes. Also,
unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units will be treated as partners of CONE
Midstream Partners LP for federal income tax purposes.
A beneficial owner of common units whose units have been transferred to a short
seller to complete a short sale would appear to lose his status as a partner with respect to those units for federal income tax purposes. Please read “—Tax Consequences of Unit Ownership—Treatment of Short Sales.”
Income, gains, losses or deductions would not appear to be reportable by a unitholder who is not a partner for federal income tax purposes,
and any cash distributions received by a unitholder who is not a partner for federal income tax purposes would therefore appear to be fully taxable as ordinary income. These holders are urged to consult their tax advisors with respect to the tax
consequences to them of holding common units in CONE Midstream Partners LP. The references to “unitholders” in the discussion that follows are to persons who are treated as partners in CONE Midstream Partners LP for federal income tax
purposes.
Tax Consequences of Unit Ownership
Flow-Through of Taxable Income
Subject to the discussion below under “—Entity-Level Collections” and “—Administrative Matters—Information
Returns and Audit Procedures,” we will not pay any federal income tax. Instead, each unitholder will be required to report on his income tax return his share of our income, gains, losses and deductions without regard to whether we make cash
distributions to him. Consequently, we may allocate income to a unitholder even if he has not received a cash distribution. Each unitholder will be required to include in income his allocable share of our income, gains, losses and deductions for our
taxable year ending with or within his taxable year. Our taxable year ends on December 31.
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Treatment of Distributions
Distributions by us to a unitholder generally will not be taxable to the unitholder for federal income tax purposes, except to the extent the
amount of any such cash distribution exceeds his tax basis in his common units immediately before the distribution. Our cash distributions in excess of a unitholder’s tax basis generally will be considered to be gain from the sale or exchange
of the common units, taxable in accordance with the rules described under “—Disposition of Common Units.” Any reduction in a unitholder’s share of our liabilities for which no partner, including the general partner, bears the
economic risk of loss, known as “nonrecourse liabilities,” will be treated as a distribution by us of cash to that unitholder. To the extent our distributions cause a unitholder’s “at-risk” amount to be less than zero at the
end of any taxable year, he must recapture any losses deducted in previous years. Please read “—Tax Consequences of Unit Ownership—Limitations on Deductibility of Losses.”
A decrease in a unitholder’s percentage interest in us because of our issuance of additional common units will decrease his share of our
nonrecourse liabilities, and thus will result in a corresponding deemed distribution of cash. This deemed distribution may constitute a non-pro rata distribution. A non-pro rata distribution of money or property may result in ordinary income to a
unitholder, regardless of his tax basis in his common units, if the distribution reduces the unitholder’s share of our “unrealized receivables,” including depreciation recapture and/or substantially appreciated “inventory
items,” each as defined in the Internal Revenue Code, and collectively, “Section 751 Assets.” To that extent, the unitholder will be treated as having been distributed his proportionate share of the Section 751 Assets and then having
exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to him. This latter deemed exchange will generally result in the unitholder’s realization of ordinary income, which will equal the excess of
(1) the non-pro rata portion of that distribution over (2) the unitholder’s tax basis (often zero) for the share of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units
A
unitholder’s initial tax basis for his common units will be the amount he paid for the common units plus his share of our nonrecourse liabilities. That basis will be increased by his share of our income and by any increases in his share of our
nonrecourse liabilities. That basis will be decreased, but not below zero, by distributions from us, by the unitholder’s share of our losses, by any decreases in his share of our nonrecourse liabilities and by his share of our expenditures that
are not deductible in computing taxable income and are not required to be capitalized. A unitholder will have no share of our debt that is recourse to our general partner to the extent of the general partner’s “net value” as defined
in Treasury Regulations under Section 752 of the Internal Revenue Code, but will have a share, generally based on his share of profits, of our nonrecourse liabilities. Please read “—Disposition of Common Units—Recognition of Gain or
Loss.”
Limitations on Deductibility of Losses
The deduction by a unitholder of his share of our losses will be limited to the tax basis in his units and, in the case of an individual
unitholder, estate, trust, or corporate unitholder (if more than 50% of the value of the corporate unitholder’s stock is owned directly or indirectly by or for five or fewer individuals or some tax-exempt organizations) to the amount for which
the unitholder is considered to be “at risk” with respect to our activities, if that is less than his tax basis. A unitholder subject to these limitations must recapture losses deducted in previous years to the extent that distributions
cause his at-risk amount to be less than zero at the end of any taxable year. Losses disallowed to a unitholder or recaptured as a result of these limitations will carry forward and will be allowable as a deduction to the extent that his at-risk
amount is subsequently increased, provided such losses do not exceed such unitholder’s tax basis in his common units. Upon the taxable disposition of a unit, any gain recognized by a unitholder can be offset by losses that were previously
suspended by the at-risk limitation but may not be offset by losses suspended by the basis limitation. Any loss previously suspended by the at-risk limitation in excess of that gain would no longer be utilizable.
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In general, a unitholder will be at risk to the extent of the tax basis of his units, excluding
any portion of that basis attributable to his share of our nonrecourse liabilities, reduced by (i) any portion of that basis representing amounts otherwise protected against loss because of a guarantee, stop loss agreement or other similar
arrangement and (ii) any amount of money he borrows to acquire or hold his units, if the lender of those borrowed funds owns an interest in us, is related to the unitholder or can look only to the units for repayment. A unitholder’s at-risk
amount will increase or decrease as the tax basis of the unitholder’s units increases or decreases, other than tax basis increases or decreases attributable to increases or decreases in his share of our nonrecourse liabilities.
In addition to the basis and at-risk limitations on the deductibility of losses, the passive loss limitations generally provide that
individuals, estates, trusts and some closely-held corporations and personal service corporations can deduct losses from passive activities, which are generally trade or business activities in which the taxpayer does not materially participate, only
to the extent of the taxpayer’s income from those passive activities. The passive loss limitations are applied separately with respect to each publicly traded partnership. Consequently, any passive losses we generate will only be available to
offset our passive income generated in the future and will not be available to offset income from other passive activities or investments, including our investments or a unitholder’s investments in other publicly traded partnerships, or the
unitholder’s salary, active business or other income. Passive losses that are not deductible because they exceed a unitholder’s share of income we generate may be deducted in full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss limitations are applied after other applicable limitations on deductions, including the at-risk rules and the basis limitation.
A unitholder’s share of our net income may be offset by any of our suspended passive losses, but it may not be offset by any other
current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships.
Limitations on
Interest Deductions
The deductibility of a non-corporate taxpayer’s “investment interest expense” is generally
limited to the amount of that taxpayer’s “net investment income.” Investment interest expense includes:
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interest on indebtedness properly allocable to property held for investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.
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The computation of a unitholder’s investment interest expense will take into account interest on any margin account borrowing or other
loan incurred to purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment or (if applicable) qualified dividend income. The IRS has indicated that the net passive income
earned by a publicly traded partnership will be treated as investment income to its unitholders. In addition, the unitholder’s share of our portfolio income will be treated as investment income.
Entity-Level Collections
If we
are required or elect under applicable law to pay any federal, state, local or foreign income tax on behalf of any unitholder or our general partner or any former unitholder, we are authorized to pay those taxes from our funds. That payment, if
made, will be treated as a distribution of cash to the unitholder on whose behalf the payment was made. If the payment is made on behalf of a person whose identity cannot be determined, we
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are authorized to treat the payment as a distribution to all current unitholders. We are authorized to amend our partnership agreement in the manner necessary to maintain uniformity of intrinsic
tax characteristics of units and to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under our partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction
In general, if we have a net profit, our items of income, gain, loss and deduction will be allocated among our general partner and the
unitholders in accordance with their percentage interests in us. At any time that distributions are made to the common units in excess of distributions to the subordinated units, or incentive distributions are made to our general partner, gross
income will be allocated to the recipients to the extent of these distributions. If we have a net loss, that loss will be allocated first to our general partner and the unitholders in accordance with their percentage interests in us to the extent of
their positive capital accounts, as adjusted to take into account the unitholders’ share of nonrecourse debt, and, second, to our general partner.
Specified items of our income, gain, loss and deduction will be allocated to account for (i) any difference between the tax basis and fair
market value of our assets at the time of an offering and (ii) any difference between the tax basis and fair market value of any property contributed to us by the general partner and its affiliates (or by a third party) that exists at the time of
such contribution, together referred to in this discussion as the “Contributed Property.” The effect of these allocations, referred to as “Section 704(c) Allocations,” to a unitholder purchasing common units from us in an
offering will be essentially the same as if the tax bases of our assets were equal to their fair market values at the time of such offering. In the event we issue additional common units or engage in certain other transactions in the future,
“reverse Section 704(c) Allocations,” similar to the Section 704(c) Allocations described above, will be made to the general partner and all of our unitholders immediately prior to such issuance or other transactions to account for the
difference between the “book” basis for purposes of maintaining capital accounts and the fair market value of all property held by us at the time of such issuance or future transaction. In addition, items of recapture income will be
allocated to the extent possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize the recognition of ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of our income and gain will be allocated in an amount and manner sufficient to eliminate the negative
balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction, other than an allocation required by the
Internal Revenue Code to eliminate the difference between a partner’s “book” capital account, credited with the fair market value of Contributed Property, and “tax” capital account, credited with the tax basis of Contributed
Property, referred to in this discussion as the “Book-Tax Disparity,” will generally be given effect for federal income tax purposes in determining a partner’s share of an item of income, gain, loss or deduction only if the allocation
has “substantial economic effect.” In any other case, a partner’s share of an item will be determined on the basis of his interest in us, which will be determined by taking into account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon liquidation.
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Andrews Kurth is
of the opinion that, with the exception of the issues described in “—Tax Consequences of Unit Ownership—Section 754 Election” and “—Disposition of Common Units—Allocations Between
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Transferors and Transferees,” allocations under our partnership agreement will be given effect for federal income tax purposes in determining a partner’s share of an item of income,
gain, loss or deduction.
Treatment of Short Sales
A unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered as having disposed of those
units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period:
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any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those units would be fully taxable; and
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while not entirely free from doubt, all of these distributions would appear to be ordinary income.
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Because there is no direct or indirect controlling authority on the issue relating to partnership interests, Andrews Kurth has not rendered an
opinion regarding the tax treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk of gain recognition from
a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their units. The IRS has previously announced
that it is studying issues relating to the tax treatment of short sales of partnership interests. Please read “—Disposition of Common Units—Recognition of Gain or Loss.”
Tax Rates
Under current law, the
highest marginal U.S. federal income tax rate applicable to ordinary income of individuals is 39.6% and the highest marginal U.S. federal income tax rate applicable to long-term capital gains (generally, capital gains on certain assets held for more
than twelve months) of individuals is 20%. Such rates are subject to change by new legislation at any time.
In addition, a 3.8% net
investment income tax, or NIIT, is imposed on certain net investment income earned by individuals, estates and trusts. For these purposes, net investment income generally includes a unitholder’s allocable share of our income and gain realized
by a unitholder from a sale of units. In the case of an individual, the tax will be imposed on the lesser of (i) the unitholder’s net investment income and (ii) the amount by which the unitholder’s modified adjusted gross income exceeds
$250,000 (if the unitholder is married and filing jointly or a surviving spouse), $125,000 (if the unitholder is married and filing separately) or $200,000 (in any other case). In the case of an estate or trust, the tax will be imposed on the lesser
of (i) undistributed net investment income and (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins. The U.S. Department of the Treasury and the IRS have issued
Treasury Regulations that provide guidance regarding the NIIT. Prospective unitholders are urged to consult with their tax advisors as to the impact of the NIIT on an investment in our common units.
Section 754 Election
We will make
the election permitted by Section 754 of the Internal Revenue Code. That election is irrevocable without the consent of the IRS unless there is a constructive termination of the partnership. Please read “—Disposition of Common
Units—Constructive Termination.” The election will generally permit us to adjust a common unit purchaser’s tax basis in our assets (“inside basis”) under Section 743(b) of the Internal Revenue Code to reflect his purchase
price. This election does not apply with respect to a person who purchases common units directly from us. The Section 743(b) adjustment belongs to the purchaser and not to other
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unitholders. For purposes of this discussion, the inside basis in our assets with respect to a unitholder will be considered to have two components: (1) his share of our tax basis in our assets
(“common basis”) and (2) his Section 743(b) adjustment to that basis.
We will adopt the remedial allocation method as to all
our properties. Where the remedial allocation method is adopted, the Treasury Regulations under Section 743 of the Internal Revenue Code require a portion of the Section 743(b) adjustment that is attributable to recovery property that is subject to
depreciation under Section 168 of the Internal Revenue Code and whose book basis is in excess of its tax basis to be depreciated over the remaining cost recovery period for the property’s unamortized Book-Tax Disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6), a Section 743(b) adjustment attributable to property subject to depreciation under Section 167 of the Internal Revenue Code, rather than cost recovery deductions under Section 168, is generally required to be
depreciated using either the straight-line method or the 150% declining balance method. Under our partnership agreement, our general partner is authorized to take a position to preserve the uniformity of units even if that position is not consistent
with these and any other Treasury Regulations. Please read “—Uniformity of Units.”
We intend to depreciate the portion of
a Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or amortization
method and useful life applied to the property’s unamortized Book-Tax Disparity, or treat that portion as non-amortizable to the extent attributable to property which is not amortizable. This method is consistent with the methods employed by
other publicly traded partnerships but is arguably inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a material portion of our assets. To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be taken, we may take
a depreciation or amortization position under which all purchasers acquiring units in the same month would receive depreciation or amortization, whether attributable to common basis or a Section 743(b) adjustment, based upon the same applicable rate
as if they had purchased a direct interest in our assets. This kind of aggregate approach may result in lower annual depreciation or amortization deductions than would otherwise be allowable to some unitholders. Please read “—Uniformity of
Units.” A unitholder’s tax basis for his common units is reduced by his share of our deductions (whether or not such deductions were claimed on an individual’s income tax return) so that any position we take that understates
deductions will overstate the unitholder’s basis in his common units, which may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “—Disposition of Common Units—Recognition of Gain or
Loss.” Andrews Kurth is unable to opine as to whether our method for taking into account Section 743 adjustments is sustainable for property subject to depreciation under Section 167 of the Internal Revenue Code or if we use an aggregate
approach as described above, as there is no direct or indirect controlling authority addressing the validity of these positions. Moreover, the IRS may challenge our position with respect to depreciating or amortizing the Section 743(b) adjustment we
take to preserve the uniformity of the units. If such a challenge were sustained, the gain from the sale of units might be increased without the benefit of additional deductions.
A Section 754 election is advantageous if the transferee’s tax basis in his units is higher than the units’ share of the aggregate
tax basis of our assets immediately prior to the transfer. In that case, as a result of the election, the transferee would have, among other items, a greater amount of depreciation deductions and his share of any gain or loss on a sale of our assets
would be less. Conversely, a Section 754 election is disadvantageous if the transferee’s tax basis in his units is lower than those units’ share of the aggregate tax basis of our assets immediately prior to the transfer. Thus, the fair
market value of the units may be affected either favorably or unfavorably by the election. A basis adjustment is required regardless of whether a Section 754 election is made in the case of a transfer of an interest in us if we have a substantial
built-in loss immediately after the transfer, or if we distribute property and have a substantial basis reduction. Generally, a built-in loss or a basis reduction is substantial if it exceeds $250,000.
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The calculations involved in the Section 754 election are complex and will be made on the basis
of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in accordance with the Internal Revenue Code. The IRS could seek to reallocate some or all of
any Section 743(b) adjustment allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is generally nonamortizable or amortizable over a longer period of time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make will not be successfully challenged by the IRS and that the deductions resulting from them will not be reduced or disallowed altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of units may be allocated
more income than he would have been allocated had the election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the year ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a unitholder who has a taxable year ending on a date other than
December 31 and who disposes of all of his units following the close of our taxable year but before the close of his taxable year must include his share of our income, gain, loss and deduction in income for his taxable year, with the result
that he will be required to include in income for his taxable year his share of more than twelve months of our income, gain, loss and deduction. Please read “—Disposition of Common Units—Allocations Between Transferors and
Transferees.”
Tax Basis, Depreciation and Amortization
The tax basis of our assets will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on
the disposition of these assets. The federal income tax burden associated with the difference between the fair market value of our assets and their tax basis immediately prior to an offering of new units will be borne by our general partner and all
of our unitholders holding interests in us prior to any such offering. Please read “—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction.”
To the extent allowable, we may elect to use the depreciation and cost recovery methods, including bonus depreciation to the extent available,
that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. Please read “—Uniformity of Units.” Property we subsequently acquire or construct may be
depreciated using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure
or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own will likely be required to recapture some or all of those deductions as ordinary income upon a sale of his interest in us. Please read
“—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction” and “—Disposition of Common Units—Recognition of Gain or Loss.”
The costs we incur in selling our units (called “syndication expenses”) must be capitalized and cannot be deducted currently,
ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as syndication expenses.
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Valuation and Tax Basis of Our Properties
The federal income tax consequences of the ownership and disposition of units will depend in part on our estimates of the relative fair market
values, and the initial tax bases, of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and
determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deductions
previously reported by unitholders might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or
Loss
Gain or loss will be recognized on a sale of units equal to the difference between the amount realized and the
unitholder’s tax basis for the units sold. A unitholder’s amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our nonrecourse liabilities. Because the amount
realized includes a unitholder’s share of our nonrecourse liabilities, the gain recognized on the sale of units could result in a tax liability in excess of any cash received from the sale.
Prior distributions from us that in the aggregate were in excess of cumulative net taxable income for a common unit and, therefore, decreased
a unitholder’s tax basis in that common unit will, in effect, become taxable income if the common unit is sold at a price greater than the unitholder’s tax basis in that common unit, even if the price received is less than his original
cost.
Except as noted below, gain or loss recognized by a unitholder, other than a “dealer” in units, on the sale or exchange
of a unit will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of units held for more than twelve months will generally be taxed at the U.S. federal income tax rate applicable to long-term capital
gains. However, a portion of this gain or loss, which will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code to the extent attributable to assets giving rise to
depreciation recapture or other “unrealized receivables” or to “inventory items” we own. The term “unrealized receivables” includes potential recapture items, including depreciation recapture. Ordinary income
attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a unit. Thus, a
unitholder may recognize both ordinary income and a capital loss upon a sale of units. Capital losses may offset capital gains and no more than $3,000 of ordinary income, in the case of individuals, and may only be used to offset capital gains in
the case of corporations. Both ordinary income and capital gain recognized on a sale of units may be subject to the NIIT in certain circumstances. Please read “—Tax Consequences of Unit Ownership—Tax Rates.”
The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a
single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an “equitable apportionment” method, which
generally means that the tax basis allocated to the interest sold equals an amount that bears the same relation to the partner’s tax basis in his entire interest in the partnership as the value of the interest sold bears to the value of the
partner’s entire interest in the partnership. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use the
actual holding period of the common units transferred. Thus, according to the ruling discussed above, a unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according to the
Treasury Regulations, he may designate specific common units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding period of common units transferred
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must consistently use that identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional units or a sale of common units
purchased in separate transactions is urged to consult his tax advisor as to the possible consequences of this ruling and application of the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the taxation of some financial products and securities, including partnership
interests, by treating a taxpayer as having sold an “appreciated” partnership interest, one in which gain would be recognized if it were sold, assigned or terminated at its fair market value, if the taxpayer or related persons enter(s)
into:
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an offsetting notional principal contract; or
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a futures or forward contract;
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in each case, with respect to the partnership interest or
substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal
contract or a futures or forward contract with respect to the partnership interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical
property. The Secretary of the Treasury is also authorized to issue regulations that treat a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as having constructively sold the
financial position.
Allocations Between Transferors and Transferees
In general, our taxable income and losses will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned
among the unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month, which we refer to in this prospectus as the “Allocation Date.” However,
gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a
unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.
Although recently
issued final Treasury Regulations allow publicly traded partnerships to use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders, these regulations do not specifically authorize all aspects of
the proration method we have adopted. Accordingly, Andrews Kurth is unable to opine on the validity of this method of allocating income and deductions between transferor and transferee unitholders. If the IRS were to successfully challenge our
proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. We are authorized to revise our method of allocation between transferor and transferee unitholders, as well as
unitholders whose interests vary during a taxable year, to conform to these Treasury Regulations.
A unitholder who owns units at any time
during a quarter and who disposes of them prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and deductions attributable to that quarter through the month of disposition but will
not be entitled to receive that cash distribution.
Notification Requirements
A unitholder who sells any of his units is generally required to notify us in writing of that sale within 30 days after the sale (or, if
earlier, January 15 of the year following the sale). A purchaser of units who purchases units from another unitholder is also generally required to notify us in writing of that purchase within 30 days
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after the purchase. Upon receiving such notifications, we are required to notify the IRS of that transaction and to furnish specified information to the transferor and transferee. Failure to
notify us of a purchase may, in some cases, lead to the imposition of penalties. However, these reporting requirements do not apply to a sale by an individual who is a citizen of the U.S. and who effects the sale or exchange through a broker who
will satisfy such requirements.
Constructive Termination
We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or
more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our Sponsors and our general
partner collectively own an aggregate 68.9% interest in our capital and profits. Therefore, a transfer by our Sponsors and our general partner of all or a portion of their interests in us could result in a termination of us as a partnership for
federal income tax purposes. Our technical termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two schedules K-1 if
relief was not available, as described below) for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year
ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our
classification as a partnership for federal income tax purposes, but instead we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections, including a new election under
Section 754 of the Internal Revenue Code, and could be subject to penalties if we are unable to determine that a termination occurred. The IRS has announced a publicly traded partnership technical termination relief program whereby, if a publicly
traded partnership that technically terminated requests publicly traded partnership technical termination relief and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for
the year notwithstanding two partnership tax years.
Uniformity of Units
Because we cannot match transferors and transferees of units, we must maintain uniformity of the economic and tax characteristics of the units
to a purchaser of these units. In the absence of uniformity, we may be unable to completely comply with a number of federal income tax requirements, both statutory and regulatory. A lack of uniformity can result from a literal application of
Treasury Regulation Section 1.167(c)-1(a)(6). Any non-uniformity could have a negative impact on the value of the units. Please read “—Tax Consequences of Unit Ownership—Section 754 Election.” We intend to depreciate the portion
of a Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the property’s unamortized Book-Tax Disparity, or treat that portion as nonamortizable, to the extent attributable to property the common basis of which is not amortizable, consistent with the
regulations under Section 743 of the Internal Revenue Code, even though that position may be inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a material portion of our assets.
Please read “—Tax Consequences of Unit Ownership—Section 754 Election.” To the extent that the Section 743(b) adjustment
is attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be taken, we may
adopt a depreciation and amortization position under which all purchasers acquiring units in the same month would receive depreciation and amortization deductions, whether attributable to common basis or a Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest in our assets. If this position is adopted, it may result in lower annual depreciation and
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amortization deductions than would otherwise be allowable to some unitholders and risk the loss of depreciation and amortization deductions not taken in the year that these deductions are
otherwise allowable. This position will not be adopted if we determine that the loss of depreciation and amortization deductions will have a material adverse effect on the unitholders. If we choose not to utilize this aggregate method, we may use
any other reasonable depreciation and amortization method to preserve the uniformity of the intrinsic tax characteristics of any units that would not have a material adverse effect on the unitholders. In either case, and as stated above under
“—Tax Consequences of Unit Ownership—Section 754 Election,” Andrews Kurth has not rendered an opinion with respect to these methods. Moreover, the IRS may challenge any method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained, the uniformity of units might be affected, and the gain from the sale of units might be increased without the benefit of additional deductions. Please read “—Disposition of
Common Units—Recognition of Gain or Loss.”
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident aliens, foreign corporations and other foreign
persons raises issues unique to those investors and, as described below to a limited extent, may have substantially adverse tax consequences to them. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before
investing in our common units. Employee benefit plans and most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject to federal income tax on unrelated business taxable
income. Virtually all of our income allocated to a unitholder that is a tax-exempt organization will be unrelated business taxable income and will be taxable to it.
Non-resident aliens and foreign corporations, trusts or estates that own units will be considered to be engaged in business in the U.S.
because of the ownership of units. As a consequence, they will be required to file federal tax returns to report their share of our income, gain, loss or deduction and pay federal income tax at regular rates on their share of our net income or gain.
Moreover, under rules applicable to publicly traded partnerships, our quarterly distribution to foreign unitholders will be subject to withholding at the highest applicable effective tax rate. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN, W-8BEN-E or applicable substitute form in order to obtain credit for these withholding taxes. A change in applicable law may require us to change these
procedures.
In addition, because a foreign corporation that owns units will be treated as engaged in a U.S. trade or business, that
corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our earnings and profits, as adjusted for changes in the foreign corporation’s “U.S. net equity,”
that is effectively connected with the conduct of a U.S. trade or business. That tax may be reduced or eliminated by an income tax treaty between the U.S. and the country in which the foreign corporate unitholder is a “qualified resident.”
In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Internal Revenue Code.
A foreign unitholder who sells or otherwise disposes of a common unit will be subject to U.S. federal income tax on gain realized from the
sale or disposition of that unit to the extent the gain is effectively connected with a U.S. trade or business of the foreign unitholder. Under a ruling published by the IRS, interpreting the scope of “effectively connected income,” a
foreign unitholder would be considered to be engaged in a trade or business in the U.S. by virtue of the U.S. activities of the partnership, and part or all of that unitholder’s gain would be effectively connected with that unitholder’s
indirect U.S. trade or business. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign common unitholder generally will be subject to U.S. federal income tax upon the sale or disposition of a common unit if (i) he owned
(directly or constructively applying certain attribution rules) more than 5% of our common units at any time during the five-year period ending on the date of such disposition and (ii) 50% or more of the fair market value of all of our assets
consisted of U.S. real property interests at any time during the shorter of the period during which such unitholder held the
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common units or the five-year period ending on the date of disposition. Currently, more than 50% of our assets consist of U.S. real property interests and we do not expect that to change in the
foreseeable future. Therefore, foreign unitholders may be subject to federal income tax on gain from the sale or disposition of their units.
Administrative Matters
Information Returns and
Audit Procedures
We intend to furnish to each unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes his share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will not be reviewed by counsel, we will take various accounting and
reporting positions, some of which have been mentioned earlier, to determine each unitholder’s share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the
Internal Revenue Code, Treasury Regulations or administrative interpretations of the IRS. Neither we nor Andrews Kurth can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any
challenge by the IRS could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year’s tax liability, and possibly may result in an audit of his return. Any audit of a unitholder’s return could result in adjustments not related to
our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of federal tax
audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate
proceedings with the partners. The Internal Revenue Code requires that one partner be designated as the “Tax Matters Partner” for these purposes. Our partnership agreement names our general partner as our Tax Matters Partner.
The Tax Matters Partner has made and will make some elections on our behalf and on behalf of unitholders. In addition, the Tax Matters Partner
can extend the statute of limitations for assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders are bound, of a final partnership administrative adjustment
and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits.
However, only one action for judicial review will go forward, and each unitholder with an interest in the outcome may participate.
A
unitholder must file a statement with the IRS identifying the treatment of any item on his federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Recently enacted legislation applicable to partnership tax years beginning
after 2017 alters the procedures for auditing large partnerships and for assessing and collecting taxes due (including penalties and interest) as a result of a partnership-level federal income tax audit. Under the new rules, unless we elect to issue
revised Schedules K-1 to our partners with respect to an audited and adjusted return, the IRS may assess and collect taxes (including any applicable penalties and interest) directly from us in the year in which the audit is completed. If we are
required to pay taxes, penalties and interest as a result of audit adjustments, cash available for distribution to our unitholders may be substantially reduced. In addition, because payment would be due for the taxable year in which the audit is
completed, unitholders during that taxable year would bear the expense of the adjustment even if they were not unitholders during the audited tax year. Pursuant to this new legislation, we will designate a person (our general partner) to act as the
partnership representative who shall have the sole authority to act on behalf of the partnership with respect to dealings with the IRS under these new audit procedures.
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Additional Withholding Requirements
Withholding taxes may apply to certain types of payments made to “foreign financial institutions” (as specially defined in the
Internal Revenue Code) and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on interest, dividends and other fixed or determinable annual or periodical gains, profits and income from sources within the United
States (“FDAP Income”), or gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States (“Gross Proceeds”) paid to a foreign financial
institution or to a “non-financial foreign entity” (as specially defined in the Internal Revenue Code), unless (i) the foreign financial institution undertakes certain diligence and reporting, (ii) the non-financial foreign entity either
certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from
these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (i) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to
identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to noncompliant foreign financial institutions and certain other account holders.
These rules generally will currently apply to payments of FDAP Income and will apply to payments of relevant Gross Proceeds made on or
after January 1, 2019. Thus, to the extent we have FDAP Income or Gross Proceeds after these dates that are not treated as effectively connected with a U.S. trade or business (please read “—Tax-Exempt Organizations and Other
Investors”), unitholders who are foreign financial institutions or certain other non-U.S. entities may be subject to withholding on distributions they receive from us, or their distributive share of our income, pursuant to the rules described
above.
Prospective investors should consult their own tax advisors regarding the potential application of these withholding provisions to
their investment in our common units.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
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the name, address and taxpayer identification number of the beneficial owner and the nominee;
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whether the beneficial owner is:
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a person that is not a U.S. person;
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a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or
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the amount and description of units held, acquired or transferred for the beneficial owner; and
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specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from dispositions.
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Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons
and specific information on units they acquire, hold or transfer for their own account. A penalty of $250 per failure, up to a maximum of $3,000,000 per calendar year, is imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with the information furnished to us.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or regulations, substantial
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understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed, however, for any portion of an underpayment if it is
shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.
For
individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted on the return:
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for which there is, or was, “substantial authority”; or
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as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return.
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If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an
“understatement” of income for which no “substantial authority” exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns and to take other actions as may be appropriate to permit unitholders to avoid liability for this penalty. More stringent rules apply to “tax shelters,” which we do not believe includes us, or any of
our investments, plans or arrangements.
A substantial valuation misstatement exists if (a) the value of any property, or the adjusted
basis of any property, claimed on a tax return is 150% or more of the amount determined to be the correct amount of the valuation or adjusted basis, (b) the price for any property or services (or for the use of property) claimed on any such return
with respect to any transaction between persons described in Internal Revenue Code Section 482 is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct amount of such price, or (c) the net Internal Revenue Code
Section 482 transfer price adjustment for the taxable year exceeds the lesser of $5 million or 10% of the taxpayer’s gross receipts. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation
misstatement exceeds $5,000 ($10,000 for most corporations). If the valuation claimed on a return is 200% or more than the correct valuation or certain other thresholds are met, the penalty imposed increases to 40%. We do not anticipate making any
valuation misstatements.
In addition, the 20% accuracy-related penalty also applies to any portion of an underpayment of tax that is
attributable to transactions lacking economic substance. To the extent that such transactions are not disclosed, the penalty imposed is increased to 40%. Additionally, there is no reasonable cause defense to the imposition of this penalty to such
transactions.
Reportable Transactions
If we were to engage in a “reportable transaction,” we (and possibly you and others) would be required to make a detailed disclosure
of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a “listed transaction” or
that it produces certain kinds of losses for partnerships, individuals, S corporations, and trusts in excess of $2 million in any single year, or $4 million in any combination of six successive tax years. Our participation in a reportable
transaction could increase the likelihood that our federal income tax information return (and possibly your tax return) would be audited by the IRS. Please read “—Administrative Matters—Information Returns and Audit Procedures.”
Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed
transaction, you may be subject to the following additional consequences:
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accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at “—Administrative Matters—Accuracy-Related Penalties”;
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for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability; and
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in the case of a listed transaction, an extended statute of limitations.
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We do not expect to
engage in any “reportable transactions.”
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject to other taxes, such as state, local and foreign income taxes, unincorporated
business taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which we do business or own property or in which you are a resident. Although an analysis of those various taxes is not presented here,
each prospective unitholder should consider their potential impact on his investment in us. We currently own property or do business in Pennsylvania and West Virginia. Both Pennsylvania and West Virginia impose an income tax on individuals,
corporations and other entities. We may also own property or do business in other jurisdictions in the future. Although you may not be required to file a return and pay taxes in some jurisdictions because your income from that jurisdiction falls
below the filing and payment requirement, you will be required to file income tax returns and to pay income taxes in many of these jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those
requirements. In some jurisdictions, tax losses may not produce a tax benefit in the year incurred and may not be available to offset income in subsequent taxable years. Some of the jurisdictions, including West Virginia, may require us, or we may
elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular unitholder’s income tax liability to
the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. Amounts withheld will be treated as if distributed to unitholders for purposes of determining the amounts distributed by us.
Please read “—Tax Consequences of Unit Ownership—Entity-Level Collections.” Based on current law and our estimate of our future operations, our general partner anticipates that any amounts required to be withheld will not be
material.
It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent
states, localities and foreign jurisdictions, of his investment in us. Accordingly, each prospective unitholder is urged to consult his own tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each
unitholder to file all state, local and foreign, as well as U.S. federal tax returns, that may be required of him. Andrews Kurth has not rendered an opinion on the state, local or foreign or alternative minimum tax consequences of an investment in
us.
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TAX CONSEQUENCES OF OWNERSHIP OF PREFERRED UNITS OR DEBT SECURITIES
A description of the material federal income tax consequences of the acquisition, ownership and disposition of preferred units or
debt securities will be set forth in a prospectus supplement relating to the offering of any preferred units or debt securities, as applicable.
PLAN OF DISTRIBUTION
The securities offered pursuant to this prospectus and any accompanying prospectus supplement may be sold in any of the following ways:
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directly to one or more purchasers;
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through underwriters, brokers or dealers; or
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through a combination of any of these methods of sale.
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In addition, we may from time to time
sell securities in compliance with Rule 144 under the Securities Act, if available, or pursuant to other available exemptions from the registration requirements under the Securities Act, rather than pursuant to this prospectus. In such event, we may
be required by the securities laws of certain states to offer and sell securities only through registered or licensed brokers or dealers.
We will fix a price or prices of our securities at:
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market prices prevailing at the time of any sale under this registration statement;
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prices related to market prices; or
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We may change the price of the securities offered from time to time.
Offers to purchase securities may be solicited directly by us and the sale thereof may be made by us directly to institutional investors or
others. In this case, no underwriters or agents would be involved. We may use electronic media, including the Internet, to sell offered securities directly.
We, or agents designated by us, may directly solicit, from time to time, offers to purchase the securities. Any such agent may be deemed to be
an underwriter as that term is defined in the Securities Act. We will name any agents involved in the offer or sale of the securities and describe any commissions payable by us to these agents in the prospectus supplement. Unless otherwise indicated
in the prospectus supplement, these agents will be acting on a best efforts basis for the period of their appointment. The agents may be entitled under agreements that may be entered into with us to indemnification by us against specific civil
liabilities, including liabilities under the Securities Act. The agents may also be our customers or may engage in transactions with or perform services for us in the ordinary course of business.
If we utilize any underwriters in the sale of the securities in respect of which this prospectus is delivered, we will enter into an
underwriting agreement with those underwriters at the time of sale to them. We will set forth the names of these underwriters and the terms of the transaction in the prospectus supplement, that will be used by the underwriters to make resales of the
securities in respect of which this prospectus is delivered to the public. We may indemnify the underwriters under the relevant underwriting agreement against specific liabilities, including liabilities under the Securities Act. The underwriters or
their affiliates may be customers of, may engage in transactions with and may perform services for us or our affiliates in the ordinary course of business.
82
Agents could make sales in privately negotiated transactions and/or by any other method permitted
by law, including sales deemed to be “at-the-market” offerings as defined in Rule 415 promulgated under the Securities Act, which includes sales made directly on or through the NYSE, the existing trading market for our common units, or
sales made to or through a market maker other than on an exchange.
To the extent that we make sales through one or more underwriters or
agents in at-the-market offerings, we will do so pursuant to the terms of a sales agency financing agreement, equity distribution agreement or other at- the-market offering arrangement between us and the underwriters or agents. If we engage in
at-the-market sales pursuant to any such agreement, we will issue and sell common units through one or more underwriters or agents, which may act on an agency basis or on a principal basis. During the term of any such agreement, we may sell common
units on a daily basis in exchange transactions or otherwise as we agree with the underwriters or agents. The agreement will provide that any common units sold will be sold at prices related to the then prevailing market prices for such securities.
Pursuant to the terms of the agreement, we also may agree to sell, and the relevant underwriters or agents may agree to solicit offers to purchase, blocks of common units. The terms of each such agreement will be set forth in more detail in the
applicable prospectus supplement and any related free writing prospectus.
If we utilize a dealer in the sale of the securities in respect
of which this prospectus is delivered, we will sell those securities to the dealer, as principal. The dealer may then resell those securities to the public at varying prices to be determined by the dealer at the time of resale. We may indemnify the
dealers against specific liabilities, including liabilities under the Securities Act. The dealers or their affiliates may also be our customers or may engage in transactions with, or perform services for us in the ordinary course of business.
A prospectus and accompanying prospectus supplement in electronic form may be made available on the web sites maintained by the underwriters.
The underwriters may agree to allocate a number of securities for sale to their online brokerage account holders. Such allocations of securities for internet distributions will be made on the same basis as other allocations. In addition, securities
may be sold by the underwriters to securities dealers who resell securities to online brokerage account holders.
Because the Financial
Industry Regulatory Authority, Inc., or FINRA, views our common units as interests in a direct participation program, any offering of common units under the registration statement of which this prospectus forms a part will be made in compliance with
Rule 2310 of the FINRA Conduct Rules.
To the extent required, this prospectus may be amended or supplemented from time to time to
describe a specific plan of distribution. The place and time of delivery for the securities in respect of which this prospectus is delivered will be set forth in the accompanying prospectus supplement.
In connection with offerings of securities under the registration statement of which this prospectus forms a part and in compliance with
applicable law, underwriters, brokers or dealers may engage in transactions that stabilize or maintain the market price of the securities at levels above those that might otherwise prevail in the open market. Specifically, underwriters, brokers or
dealers may over-allot in connection with offerings, creating a short position in the securities for their own accounts. For the purpose of covering a syndicate short position or stabilizing the price of the securities, the underwriters, brokers or
dealers may place bids for the securities or effect purchases of the securities in the open market. Finally, the underwriters may impose a penalty whereby selling concessions allowed to syndicate members or other brokers or dealers for distribution
of the securities in offerings may be reclaimed by the syndicate if the syndicate repurchases previously distributed securities in transactions to cover short positions, in stabilization transactions or otherwise. These activities may stabilize,
maintain or otherwise affect the market price of the securities, which may be higher than the price that might otherwise prevail in the open market, and, if commenced, may be discontinued at any time.
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LEGAL MATTERS
Andrews Kurth Kenyon LLP will pass upon certain legal matters relating to the issuance and sale of the securities offered hereby on behalf of
CONE Midstream Partners LP. Additional legal matters may be passed upon for us or any underwriters, dealers or agents, by counsel that we will name in the applicable prospectus supplement.
EXPERTS
The consolidated financial statements of CONE Midstream Partners LP appearing in CONE Midstream Partners LP’s Annual Report (Form 10-K)
for the year ended December 31, 2015 have been audited by Ernst & Young, LLP, independent registered public accounting firm, as set forth in their report thereon included therein, and incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.
Other Expenses of Issuance and Distribution
The following is an estimate of the expenses (all of which are to be paid by the registrant) that we may incur in connection with the
securities being registered hereby.
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SEC registration fee
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$
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86,925
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FINRA filing fee
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$
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113,000
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Fees and expenses of the trustee
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$
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(1
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)
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Printing expenses
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$
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(1
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)
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Legal fees and expenses
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$
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(1
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)
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Accounting fees and expenses
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$
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(1
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)
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Miscellaneous
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$
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(1
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)
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Total
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$
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(1
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)
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(1)
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These fees are calculated based on the securities offered and the number of issuances and accordingly cannot be estimated at this time.
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Item 15.
Indemnification of Directors and Officers
CONE Midstream Partners LP
The section of the prospectus entitled “Our Partnership Agreement—Indemnification” discloses that we will generally indemnify
officers, directors and affiliates of the general partner to the fullest extent permitted by the law against all losses, claims, damages or similar events and is incorporated herein by this reference. Subject to any terms, conditions or restrictions
set forth in the partnership agreement, Section 17-108 of the Delaware Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other persons from and against all claims and demands whatsoever.
We expect that any underwriting agreement to be entered into in connection with the sale of the securities offered pursuant to this
registration statement will provide for indemnification by the underwriters of us, our general partner, our general partner’s directors and our general partner’s officers who sign the registration statement, and any person who controls us
or our general partner, including indemnification for liabilities under the Securities Act.
CONE Midstream Finance Corp.
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or
was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.
Section 145 of the Delaware General Corporation Law also provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or
II-1
was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper.
To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection
therewith;
provided
that indemnification provided for by Section 145 or granted pursuant thereto shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and a corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity or arising out of such person’s status as such whether or not the corporation would have
the power to indemnify such person against such liabilities under Section 145.
In addition, Section 102(b)(7) of the Delaware General
Corporation Law permits Delaware corporations to include a provision in their certificates of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director,
provided
that such provisions shall not eliminate or limit the liability of a director: (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for unlawful payment of dividends or unlawful stock purchases or redemptions; or (iv) for any transactions from which the director derived an
improper personal benefit.
The Certificate of Incorporation of CONE Midstream Finance Corp. currently provides that each director shall
not be personally liable to such corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the Delaware General Corporation Law.
Article 6 of the Bylaws of CONE Midstream Finance Corp. sets forth the extent to which the directors and officers of CONE Midstream Finance
Corp. may be indemnified by CONE Midstream Finance Corp. against liabilities which they may incur while serving in such capacity. Article 6 generally provides that CONE Midstream Finance Corp. shall indemnify the directors and officers of CONE
Midstream Finance Corp. who are or were or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of CONE Midstream Finance Corp. or, while a director, officer, employee or agent of CONE Midstream Finance Corp., is or was serving at the request of CONE Midstream Finance Corp. as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against reasonable expenses (including attorneys’ fees), judgments, fines, penalties, amounts paid in settlement and other
liabilities actually and reasonably incurred by such person in connection with such action, suit or proceeding. Subject to the procedures for indemnification of directors and officers set forth in the Bylaws, the indemnification of the directors and
officers of CONE Midstream Finance Corp. provided for therein is in all other respects substantially similar to that provided for in Section 145 of the Delaware General Corporation Law. Any such indemnification shall continue as to a person who
has ceased to be a director, officer employee or agent of CONE Midstream Finance Corp. and shall inure to the benefit of the heirs, executors, and administrators of such person.
II-2
CONE Midstream GP LLC
Subject to any terms, conditions or restrictions set forth in the limited liability company agreement, Section 18-108 of the Delaware Limited
Liability Company Act empowers a Delaware limited liability company to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.
Under the amended and restated limited liability company agreement of our general partner, in most circumstances, our general partner will
indemnify the following persons, to the fullest extent permitted by law, from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings (whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals):
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•
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any person who is or was an affiliate of our general partner (other than us and our subsidiaries);
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•
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any person who is or was a member, manager, partner, director, officer, employee, agent, fiduciary or trustee of our general partner or any affiliate of our general partner;
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•
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any person who is or was serving at the request of our general partner or any affiliate of our general partner as an officer, director, employee, member, manager, partner, employee, agent, fiduciary or trustee of
another person; and
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•
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any person designated by our general partner.
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Our general partner may purchase insurance
covering its officers and directors against liabilities asserted and expenses incurred in connection with their activities as officers and directors of our general partner or any of its direct or indirect subsidiaries.
Delaware LLC Subsidiary Guarantors
Each of CONE Midstream Operating Company LLC, CONE Midstream DevCo I GP LLC, CONE Midstream DevCo II GP LLC and CONE Midstream DevCo III GP LLC
is a Delaware limited liability company. Section 18-108 of the Delaware Limited Liability Company Act provides that a limited liability company may, subject to such standards and restrictions, if any, as are set forth in its limited liability
company agreement, and has the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.
Each of the limited liability company agreements of each of CONE Midstream Operating Company LLC, CONE Midstream DevCo I GP LLC, CONE
Midstream DevCo II GP LLC and CONE Midstream DevCo III GP LLC provides for the indemnification, in most circumstances, of its members, any person who is or was a member, manager, partner, director, officer, employee, agent, fiduciary or trustee or
any affiliate, any person who is or was serving at its request or any affiliate as an officer, director, employee, member, manager, partner, employee, agent, fiduciary or trustee of another person, or any person its members designate, to the fullest
extent permitted by law, from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all
threatened, pending or completed claims, demands, actions, suits or proceedings (whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals).
Delaware LP Subsidiary Guarantors
Each of CONE Midstream DevCo I LP, CONE Midstream DevCo II LP and CONE Midstream DevCo III LP is a Delaware limited partnership. Subject to any
terms, conditions or restrictions set forth in its partnership agreement, Section 17-108 of the Delaware Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other persons from and against all claims and demands
whatsoever
II-3
Each of the limited partnership agreements of each of CONE Midstream DevCo I LP, CONE Midstream
DevCo II LP and CONE Midstream DevCo III LP provides for the indemnification, in most circumstances, of its partners, any affiliate of its partners, or any officers, directors, shareholders, members, partners, employees, representatives or agents of
a partner or their respective affiliates, any representative, or any employee, officer or agent of it or its subsidiaries, to the fullest extent permitted by law, from and against any and all losses, claims, damages, liabilities (joint or several),
expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings (whether civil, criminal,
administrative or investigative, and whether formal or informal and including appeals).
Item 16.
Exhibits
(a) Exhibits
A list of exhibits
filed with this registration statement on Form S-3 is set forth on the Exhibit Index and is incorporated herein by reference.
Item 17.
Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such information in the registration statement;
provided,
however
, that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by
the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is a part of
the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of
1933 to any purchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part
of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
II-4
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall
be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Provided, however
, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such
effective date.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to
any purchaser in the initial distribution of securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of
any other free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communications that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) Each undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial
bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM PARTNERS LP
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By: CONE MIDSTREAM GP LLC, its General Partner
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By:
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/s/ David M. Khani
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David M. Khani
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Chief Financial Officer
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Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chairman of the Board and Chief Executive Officer (Principal Executive
Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer and Director (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*
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Director
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December 22, 2016
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Kenneth M. Fisher
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*
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Director
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December 22, 2016
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Stephen W. Johnson
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*
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Director
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December 22, 2016
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Angela Minas
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S-1
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SIGNATURE
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TITLE
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DATE
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*
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Director
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December 22, 2016
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John Chandler
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*
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Director
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December 22, 2016
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John Jackson
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM FINANCE CORP.
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By:
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/s/ David M. Khani
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David M. Khani
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Chief Financial Officer
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Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chief Executive Officer and Director
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer and Director (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*
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Director
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December 22, 2016
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Stephen W. Johnson
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*
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Director
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December 22, 2016
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Kenneth M. Fisher
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM OPERATING COMPANY LLC
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By:
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CONE Midstream Partners LP, its sole member
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By:
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CONE Midstream GP LLC, its general partner
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By:
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/s/ David M. Khani
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David M. Khani
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Chief Financial Officer
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Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM DEVCO I GP LLC
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By:
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CONE Midstream Operating Company LLC, its sole member
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By:
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CONE Midstream Partners LP, its sole member
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By:
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CONE Midstream GP LLC, its general partner
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By:
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/s/ David M. Khani
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David M. Khani
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Chief Financial Officer
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Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM DEVCO II GP LLC
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By:
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CONE Midstream Operating Company LLC, its sole member
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By:
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CONE Midstream Partners LP, its sole member
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By:
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CONE Midstream GP LLC, its general partner
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By:
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/s/ David M. Khani
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David M. Khani
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Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM DEVCO III GP LLC
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By:
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CONE Midstream Operating Company LLC, its sole member
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By:
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CONE Midstream Partners LP, its sole member
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By:
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CONE Midstream GP LLC, its general partner
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By:
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/s/ David M. Khani
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|
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David M. Khani
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|
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|
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Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM DEVCO I LP
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By:
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CONE Midstream DevCo I GP LLC, its general partner
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By:
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/s/ David M. Khani
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David M. Khani
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|
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|
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Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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SIGNATURE
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TITLE
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM DEVCO II LP
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By:
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CONE Midstream DevCo II GP LLC, its general partner
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By:
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/s/ David M. Khani
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David M. Khani
|
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|
|
|
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Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
|
|
|
|
|
|
|
SIGNATURE
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TITLE
|
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Canonsburg, State of Pennsylvania, on December 22,
2016.
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CONE MIDSTREAM DEVCO III LP
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By:
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CONE Midstream DevCo III GP LLC, its general partner
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By:
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/s/ David M. Khani
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|
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|
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David M. Khani
|
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|
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|
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Chief Financial Officer
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
|
|
|
|
|
|
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SIGNATURE
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TITLE
|
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DATE
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*
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Chief Executive Officer (Principal Executive Officer)
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December 22, 2016
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John T. Lewis
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/s/ David M. Khani
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Chief Financial Officer (Principal Financial Officer)
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December 22, 2016
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David M. Khani
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*
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Chief Accounting Officer (Principal Accounting Officer)
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December 22, 2016
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Brian R. Rich
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*By:
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/s/ David M. Khani
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Attorney-in-Fact
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S-10
EXHIBIT INDEX
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Exhibit
Number
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Description
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1.1*
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Form of Underwriting Agreement
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4.1†
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Form of Senior Indenture of CONE Midstream Partners LP
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4.2†
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Form of Subordinated Indenture of CONE Midstream Partners LP
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4.3*
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Form of Debt Security of CONE Midstream Partners LP
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4.4†
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Form of Senior Indenture of CONE Midstream Operating Company LLC
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4.5†
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Form of Subordinated Indenture of CONE Midstream Operating Company LLC
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4.6*
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Form of Debt Security of CONE Midstream Operating Company LLC
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5.1
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Opinion of Andrews Kurth Kenyon LLP as to the validity of the securities being registered
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8.1
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Opinion of Andrews Kurth Kenyon LLP relating to tax matters
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12.1†
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Statement Regarding the Computation of Ratio of Earnings to Fixed Charges
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23.1
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Consent of Andrews Kurth Kenyon LLP (included in Exhibit 5.1)
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23.2
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Consent of Ernst & Young LLP, independent registered public accounting firm
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24.1†
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Powers of Attorney (incorporated by reference to the signature pages hereto)
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25.1†
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Form T-1 Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of the Trustee under the Senior Indenture of CONE Midstream Partners LP
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25.2†
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Form T-1 Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of the Trustee under the Subordinated Indenture of CONE Midstream Partners LP
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25.3†
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Form T-1 Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of the Trustee under the Senior Indenture of CONE Midstream Operating Company LLC
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25.4†
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Form T-1 Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of the Trustee under the Subordinated Indenture of CONE Midstream Operating Company LLC
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*
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To be filed by amendment or incorporated by reference in connection with the offering of the securities.
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