Item 1.01.
Entry into a Material Definitive Agreement.
On February 13, 2019, EQM Midstream Partners, LP, a Delaware limited partnership (EQM), entered into an agreement and plan of merger (the IDR Merger Agreement) with Equitrans Midstream Corporation, a Pennsylvania corporation (ETRN), EQM Midstream Services, LLC, a Delaware limited liability company and the general partner of EQM (the EQM General Partner), EQGP Holdings, LP, a Delaware limited partnership (EQGP), EQGP Services, LLC, a Delaware limited liability company and the general partner of EQGP (the EQGP General Partner), Equitrans Merger Sub, LP, a Delaware limited partnership (Merger Sub), and certain other parties thereto, pursuant to which, among other things, the parties to the IDR Merger Agreement have agreed to the exchange and cancellation of the outstanding incentive distribution rights (IDRs) and the restructuring of the general partner interest in EQM pursuant to a series of transactions, including the merger of Merger Sub with and into EQGP (the Merger), collectively resulting in, among other things, the cancellation of (a) the IDRs in EQM, (b) the economic portion of the general partner interest in EQM and (c) the issued and outstanding common units representing limited partner interests in EQGP and, as consideration for such cancellation, the receipt by certain affiliates of ETRN of (i) 80 million newly-issued EQM common units and seven million newly-issued Class B units (Class B units), both representing limited partner interests in EQM, and (ii) the retention of the non-economic general partner interest in EQM (the EQM IDR Transaction). In addition, pursuant to the EQM IDR Transaction, the 21,811,643 EQM common units held by EQGP will be cancelled and 21,811,643 EQM common units will be issued pro rata to the holders of EQGP common units immediately prior to the Merger. As a result of the EQM IDR Transaction, (i) the EQGP General Partner will replace the EQM General Partner as the general partner of EQM and (ii) the IDRs and economic general partner interest in EQM will be cancelled and will no longer be outstanding.
The Class B units will be divided into three tranches, with the first tranche of 2.5 million Class B units becoming convertible at the holders option into EQM common units on April 1, 2021, the second tranche of 2.5 million Class B units becoming convertible at the holders option into EQM common units on April 1, 2022, and the third tranche of two million Class B units becoming convertible at the holders option into EQM common units on April 1, 2023 (each, a Class B unit conversion date). Additionally, the Class B units will become convertible at the holders option into EQM common units immediately before a Change of Control (as will be defined in the Amended and Restated EQM Partnership Agreement (as defined below)) of EQM. Until the applicable Class B unit conversion date (or, if earlier, a Change of Control), the Class B units will not be entitled to receive any distributions of available cash. After the applicable Class B unit conversion date (or, if earlier, a Change of Control), whether or not such Class B units have been converted into EQM common units, the Class B units will participate pro rata with the EQM common units in distributions of available cash.
Except with respect to the right to receive distributions prior to the applicable Class B conversion date (or Change in Control), the Class B units have the same rights and obligations as EQM common units. The Class B units will vote as a single class with EQM common units, subject to certain exceptions, including that the Class B units shall have the right to vote as a separate class on matters that adversely affect the rights or preferences of Class B units in relation to other classes of EQM partnership interests in any material respect or as required by law.
In connection with the EQM IDR Transaction, the Second Amended and Restated Agreement of Limited Partnership of EQM, dated October 12, 2018 (the EQM Partnership Agreement), will be amended and restated to, among other things, reflect the cancellation of the IDRs and the restructuring of the general partner interest in EQM, the issuance of the EQM common units and the issuance of the Class B units pursuant to the EQM IDR Transaction and the admission of the EQGP General Partner as the general partner of EQM (as amended and restated, the Amended and Restated EQM Partnership Agreement).
The EQM IDR Transaction is expected to close in February 2019, subject to certain closing conditions. After giving effect to the EQM IDR Transaction, EQM will own, directly or indirectly, 100% of the limited partner interests and all of the non-economic general partner interest in EQGP. Further, after giving effect to the EQM IDR Transaction, ETRN will indirectly own 117,245,455 EQM common units and all seven million Class B units, collectively representing a 59.9% limited partner interest in EQM.
The completion of the EQM IDR Transaction is subject to certain conditions, including, among other things: (a) all required filings, consents, approvals, permits and authorizations of any governmental authority in
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