Item 1.01. Entry into a Material Definitive Agreement.
Contribution Agreement
On
January 15, 2018, Energy Transfer Partners, L.P. (the “
Partnership
”) entered into a Contribution Agreement (the “
Contribution Agreement
”) with Energy Transfer Partners GP, L.P., the general partner of the
Partnership (“
ETP GP
”), ETC Compression, LLC (“
ETC
” and, together with the Partnership and ETP GP, the “
Contributors
”), USA Compression Partners, LP (“
USAC
”) and, solely for certain
purposes therein, Energy Transfer Equity, L.P. (“
ETE
”), pursuant to which, among other things, the Partnership will contribute to USAC and USAC will acquire from the Partnership all of the issued and outstanding membership interests
of CDM Resource Management LLC (“
CDM
”) and CDM Environmental & Technical Services LLC (“
CDM E&T
” and, together with CDM, the “
CDM Entities
”) for aggregate consideration of approximately
$1.7 billion (the “
Consideration
”). The Consideration consists of (i) 19,191,351 common units representing limited partner interests in USAC (“
USAC Common Units
”), with a value of approximately $335 million,
(ii) 6,397,965 units of a newly authorized and established class of units representing limited partner interests in USAC (“
Class
B Units
”), with a value of approximately $112 million and (iii) an amount in
cash equal to $1.225 billion, subject to certain adjustments (collectively, the “
Contribution
”). The Class B Units that the Partnership will receive will be a new class of partnership interests of
USAC that will have substantially all of the rights and obligations of a USAC Common Unit, except the Class B Units will not participate in distributions made prior to the one year anniversary of the closing date of the Contribution Agreement
(such date, the “
Class
B Conversion Date
”) with respect to USAC Common Units. Following the Class B Conversion Date, each Class B Unit will automatically convert into one USAC Common Unit.
The Contribution Agreement contains customary representations, warranties and covenants by the parties, which are qualified by information in
a confidential disclosure letter provided by the parties. The Contribution Agreement also contains customary
pre-closing
covenants, including the obligation of the CDM Entities and USAC to conduct their
respective businesses in the ordinary course consistent with past practice in all material respects and to refrain from taking specified actions, subject to certain exceptions. Pursuant to the Contribution Agreement, the Contributors have
agreed to indemnify USAC and its affiliates (other than ETE and its affiliates), members, directors, managers, officers, employees and agents against certain losses resulting from any breach of a representation, warranty, agreement or covenant
of the Contributors and for certain other matters. USAC has agreed to indemnify the Contributors and their respective affiliates, equity holders, members, directors, managers, officers, employees and agents against certain losses resulting from any
breach of a representation, warranty, agreement or covenant of USAC.
The Contribution is expected to close in the first half of
2018, subject to customary closing conditions, including (i) the concurrent closing of the GP Purchase (as defined below) and (ii) the transactions contemplated pursuant to that certain Equity Restructuring Agreement, dated as of
January 15, 2018 (the “
Equity Restructuring Agreement
”), by and among ETE, USAC and USAC Compression GP, LLC, the general partner of USAC (“
USAC GP
”), including the cancellation of the incentive distribution
rights in USAC and the conversion of the economic general partner interest in USAC into a
non-economic
general partner interest, shall be able to be consummated immediately following the Closing (as defined
below), and as otherwise described in the Contribution Agreement (the “
Closing
”). The Contribution Agreement also contains a closing condition in connection with the expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Pursuant to the terms of the Contribution Agreement, the Partnership
has agreed to enter into a Registration Rights Agreement with ETE, USAC and USA Compression Holdings, LLC (“
USAC Holdings
”) at the Closing, pursuant to which, among other things, the Partnership will have certain rights to require
USAC to file and maintain the effectiveness of a registration statement with respect to the
re-sale
of the USAC Common Units owned by the Partnership following the Closing (including USAC Common Units issuable
upon the conversion of the Class B Units), and under certain circumstances, to require USAC to initiate underwritten offerings for such USAC Common Units. In addition, subject to certain exceptions, the Partnership will agree not to sell,
transfer or dispose of its USAC Common Units during a holding period that expires upon the earlier of 18 months following the Closing or the date on which USAC Holdings no longer beneficially owns at least 1,000,000 USAC Common Units (the
“
Holding Period
”). Following the expiration of the Holding Period, subject to certain exceptions, the Partnership has agreed not to sell, transfer or dispose of more than 10,000,000 USAC Common Units in any
six-month
period.
2
At the Closing, the Partnership and the CDM Entities will also enter into a Transition Services
Agreement with USAC, pursuant to which the Partnership and its affiliates will provide certain transition services to USAC and its affiliates for a period of 90 days following the Closing.
The foregoing description of the Contribution Agreement does not purport to be complete and is qualified in its entirety by reference to the
complete text of such agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form
8-K
and is incorporated herein by reference.
The Contribution Agreement contains representations and warranties by each of the parties to the Contribution Agreement, which were made only
for purposes of the Contribution Agreement and as of specified dates. The representations, warranties and covenants in the Contribution Agreement were made solely for the benefit of the parties to the Contribution Agreement; may be subject to
limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for purposes of allocating contractual risk between the parties to the Contribution Agreement instead of establishing these matters as
facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as
characterizations of the actual state of facts or condition of the Partnership, USAC or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may
change after the date of the Contribution Agreement, which subsequent information may or may not be fully reflected in the Partnership’s or USAC’s public disclosures.
Purchase Agreement
In connection
with the execution of the Contribution Agreement, the Partnership entered into a Purchase Agreement (the “
GP Purchase Agreement
”), solely for certain purposes set forth therein, with ETE, Energy Transfer Partners, L.L.C. (together
with ETE, the “
GP Purchasers
”), USAC Holdings and, solely for certain purposes therein, R/C IV USACP Holdings, L.P., pursuant to which, among other things, the GP Purchasers will acquire from USAC Holdings (i) all of the
outstanding limited liability company interests in USAC GP and (ii) 12,466,912 USAC Common Units (the “
GP Purchase
”) for cash consideration equal to $250 million.
The foregoing description of the GP Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the
complete text of such agreement, a copy of which is filed as Exhibit 2.2 to this Current Report on Form
8-K
and is incorporated herein by reference.