As filed with the Securities and Exchange Commission on July 28, 2000
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Iroquois Gas Transmission System, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4922 06-1285387
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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One Corporate Drive
Suite 600
Shelton, CT 06484-6211
(203) 925-7200
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------
Jeffrey A. Bruner, Esq.
Vice President, General Counsel and Secretary
Iroquois Gas Transmission System, L.P.
One Corporate Drive
Suite 600
Shelton, CT 06484-6211
(203) 925-7200
(Name, address, including zip code, and telephone number, including
area code, of agent for process)
---------------
with copies to
Faith D. Grossnickle, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
212-848-4000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
<TABLE>
<CAPTION>
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Title of Each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Offering Price Aggregate Registration Fee
Registered per Note Offering Price
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<S> <C> <C> <C> <C>
8.68% Senior Notes due 2010 $200,000,000 100% $200,000,000 $52,800
--------------------------------------------------------------------------------------------------------
</TABLE>
This 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.
================================================================================
<PAGE>
The information in this preliminary 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
preliminary 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 July 28, 2000
Iroquois Gas Transmission System, L.P.
OFFER TO EXCHANGE
8.68% Senior Notes due 2010
for all outstanding
8.68% Senior Notes due 2010
($200,000,000 principal amount outstanding)
of
Iroquois Gas Transmission System, L.P.
Terms of Exchange Offer
o Expires 5:00 p.m., New York City time, on , 2000, unless extended
o Not subject to any other condition other than that the exchange offer
does not violate applicable law or any applicable interpretation of the
Staff of the Securities and Exchange Commission
o All old notes that are validly tendered and not validly withdrawn will
be exchanged
o Tenders of old notes may be withdrawn by you any time prior to 5:00
p.m., New York City time, on the date of the expiration of the exchange
offer
o The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes
o We will not receive any proceeds from the exchange offer
o The terms of the exchange notes to be issued are substantially similar
to the old notes, except for transfer restrictions and registration
rights relating to the old notes
---------------
If you are a broker-dealer that receives exchange notes for your own account
you must acknowledge that you will deliver a prospectus in connection with any
resale of such exchange notes. The letter of transmittal accompanying this
prospectus states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act. You may use this prospectus, as we may amend or supplement
it in the future for your resales of exchange notes. We will make this
prospectus available to any broker-dealer for use in connection with any such
resale for a period of 180 days after the date of expiration of this exchange
offer.
See "Risk Factors" beginning on page 14 for a discussion of certain matters
that should be considered by prospective investors.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000
<PAGE>
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with any other information. If you
receive any unauthorized information, you must not rely on it. We are offering
to exchange notes only in places where the exchange offer or the acceptance of
old notes is permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date of this
prospectus. Our business, financial conditions, results of operations and
prospects may have changed since the date of this prospectus.
FORWARD-LOOKING STATEMENTS
This prospectus includes statements that are "forward-looking" (as
defined in the Private Securities Litigation Reform Act of 1995). We have based
these forward-looking statements on our current expectations and projections
about future events. Words such as "proposed," "believes," "expects,"
"estimates," "may," "intends," "will," "should" or "anticipates" and similar
expressions or their negatives identify forward-looking statements. Examples of
forward-looking statements that are not historical in nature include those
regarding:
o trends and outlook in the natural gas transportation industry
and market;
o forecast of growth in natural gas demand and supply;
o our competitiveness in the natural gas transportation market;
o our business and growth strategies, including attracting new
shippers and expanding our pipeline system to add new markets
not currently served by us;
o the effects of regulations; and
o our anticipated future revenues, capital spending and
financial resources.
All of the forward-looking statements included in this prospectus are
subject to risks and uncertainties that may cause our actual results or
performance to differ from any future results or performance expressed or
implied by the forward-looking statements. These risks and uncertainties
include, among other things:
o competition and other factors that may affect our ability to
maintain our existing shippers or acquire new shippers;
o changes in our business strategy or expansion plans or
inability to achieve our projections;
o regulatory, legislative and judicial developments;
o dependence on our shippers for revenues; and
o dependence on availability of Western Canada natural gas
reserves.
Certain of these factors are discussed in more detail elsewhere,
including, without limitation, under the captions "Risk Factors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Other matters set forth in this prospectus may also cause actual
results in the future to differ materially from those described in the
forward-looking statements. We do not intend to update or revise any
forward-looking statements, whether as a result of new information,
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future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
AVAILABLE INFORMATION
This prospectus incorporates important business and financial
information about us from documents that are not included in or delivered with
this document. You can obtain documents incorporated by reference in this
prospectus (other than exhibits to those documents) by requesting them in
writing or by telephone from us at the following address:
Iroquois Gas Transmission System, L.P.
One Corporate Drive, Suite 600
Shelton, Connecticut 06484-6211
Attention: Paul Bailey
Telephone: (203) 925-7200
You will not be charged for any documents that you request. If you would like to
request documents, please do so by , 2000 in order to receive them before
the exchange offer expires on , 2000.
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-4 under the Securities Act of 1933, as amended
(the "Securities Act") for the registration of the exchange notes offered in
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement, some of which is contained in exhibit and schedules to the
registration statement as permitted by the rules and regulations of the SEC. For
further information, with respect to us or the exchange notes offered in this
prospectus, you should refer to the registration statement, including the
related exhibits and schedules thereto. With respect to each document filed with
the SEC as an exhibit to the registration statement, you should refer to the
exhibits for a more complete description of the matter involved, and each
discussion in this prospectus of any document filed as an exhibit to the
registration statement is qualified in its entirety by reference to the relevant
exhibit.
In connection with the exchange offer, we will become subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the SEC. The registration statement and the reports and other
information we file can be inspected and copied at the Public Reference Room of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional
offices of the SEC located at 7 World Trade Center, New York, New York 10048 and
500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of these
materials may be obtained from the Public Reference Section of the SEC,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates. Information on the operation of the Public Reference Room can
be obtained by calling the SEC at 1-800-SEC-0330. You may also access this
information electronically through the SEC's web page on the Internet at
http://www.sec.gov. This website contains reports, proxy statements and other
information regarding registrants such as ourselves that have filed
electronically with the SEC.
We will furnish to each holder of the exchange notes and the trustee
for the exchange notes copies of the reports required to be filed with the SEC
under the Exchange Act, without cost to such holder. Even if we are not required
to file reports with the SEC, we will make such filings with the SEC.
Furthermore, we will provide the trustee for the exchange notes and each holder
of the exchange notes annual reports containing the information required to be
contained in Form 10-K, and quarterly reports containing the information
required to be contained in Form 10-Q promulgated by the Exchange Act.
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iv
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PROSPECTUS SUMMARY
The following summary highlights selected information from this
document and does not contain all of the information that you should consider
before participating in this exchange offer. You should read the entire
prospectus carefully, including the "Risk Factors" section. Unless otherwise
specified, references in this prospectus to "$" or "dollars" are to United
States dollars. As used in this prospectus, the words "we," "ours," "us" and
"Iroquois" refer to Iroquois Gas Transmission System, L.P. and its subsidiaries,
except where the context otherwise requires.
Our Partnership
We are a Delaware limited partnership. We were formed for the purpose
of constructing, owning and operating a 375-mile interstate natural gas
transmission pipeline from the Canada-United States border near Waddington, New
York to South Commack, Long Island, New York. We commenced full operations on
January 25, 1992, creating a link between markets in the states of Connecticut,
Massachusetts, New Hampshire, New Jersey, New York and Rhode Island, and Western
Canada natural gas supplies. Our pipeline system connects with four major
pipelines in these states, including the pipeline system of TransCanada
PipeLines Limited (the "TransCanada System") in eastern Ontario.
We provide transportation service to our shippers under transportation
service contracts which provide for either firm reserved service or
interruptible service. Firm reserved transportation service contracts are either
long-term (multi-year contracts) or short-term (contracts of less than one
year). Currently we have 33 shippers under long-term firm reserved
transportation service contracts and our pipeline system's contracted capacity
of 987 thousands of dekatherms per day, or MDth/d, is fully subscribed.
Approximately 89% of our capacity is contracted under firm reserved
transportation service contracts which continue until at least 2011.
We are exclusively a transporter of natural gas in interstate commerce
and operate under authority granted by the Federal Energy Regulatory Commission,
or FERC. As initially approved by the FERC, our pipeline system had the capacity
to transport 588 MDth/d of gas under 20 long-term firm reserved transportation
service contracts. In May 1992, the FERC approved construction of our first
compressor station located in Wright, New York. This station went into service
in November 1993 and by that year end, the volumes under contract were increased
to 648.6 MDth/d. A second compressor station, in Croghan, New York, was
commissioned in December 1994, expanding volumes under contract to 758.9 MDth/d.
Our third compressor station, located in Athens, New York, commenced operation
on November 1, 1998 and volumes under contract increased to 997 MDth/d.
In 1999, we had income before taxes of approximately $39.8 million on
net operating revenues of $123.9 million. At December 31, 1999, our total
partners' equity was approximately $227.4 million and our total assets were
$594.9 million. We made cash distributions to our partners of $25.0 million
during 1999.
Our partners and their respective interests in our partnership are as
follows:
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Percentage
Ownership
Ultimate Parent of Partner Name of Partner Interest
-------------------------- --------------- ----------
TransCanada PipeLines TransCanada Iroquois Ltd. 29.0%
Limited TCPL Northeast Ltd. 6.0%
KeySpan Energy Corporation NorthEast Transmission 19.4%
Company
LILCO Energy Systems, Inc. 1.0%
Dominion Resources, Inc. Dominion Iroquois, Inc. 16.0%
The Coastal Corporation(1) ANR Iroquois, Inc. 9.4%
ANR New England Pipeline Co. 6.6%
PG&E Generating Company JMC-Iroquois, Inc. 4.93%
CTG Resources, Inc. TEN Transmission Company 4.87%
New Jersey Resources NJNR Pipeline Company 2.8%
Corporation
--------------------
(1) On January 18, 2000, El Paso Energy Corp. ("El Paso") and The Coastal
Corporation ("Coastal") announced plans for the merger of El Paso and Coastal.
Each share of Coastal common stock will be converted into El Paso common stock.
It is expected that the merger will be completed during the fourth quarter of
2000.
Iroquois Pipeline Operating Company ("IPOC"), our wholly owned
subsidiary, is the operator of our pipeline and is responsible for the
day-to-day management of our pipeline system pursuant to an operating agreement
entered into on January 14, 1989.
Tariff Structure and Rates
We are currently operating under a tariff structure and rates subject
to the jurisdiction of the FERC. Our tariff sets forth the rates and charges
that we may bill our shippers for the transportation of gas over our pipeline
system. The objective of FERC's rate-setting process is to provide an interstate
pipeline with recovery of costs of constructing, owning, operating and
maintaining the pipeline that have been prudently incurred and to afford the
pipeline an opportunity to earn a reasonable rate of return. Our rates for firm
reserved transportation services (the source of most of our revenues) under the
rate schedule in our FERC approved tariff consist of two primary elements: a
"demand" component based on pipeline system capacity reserved and a "variable"
component based on throughput. Nearly all of our costs (including debt service
and equity return) are considered fixed and are recovered through the demand
component in our rates. Variable costs, such as costs incurred to maintain our
compressor stations, are recovered based on the volume of gas transported
through our system. Our rates are reviewed in FERC proceedings known as rate
cases.
The FERC certificate which approved the construction of our pipeline
was issued on November 14, 1990. Included in this certificate was the
requirement that we file two rate cases. The first, filed in 1993, resulted in a
rate decrease of about 6.5% from the initial certificated rates. This decrease
in rates had a minimal impact on our revenues due to the addition of our second
compressor station at Croghan, New York and the subsequent increase in volumes
transported. The second rate case, filed in 1996, led to a rate reduction of
over 32%. This reduction was due to a higher throughput volume and a lower
operating cost. Additionally, FERC imposed a lower rate of depreciation and a
lower rate of
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equity return. To counteract the cashflow impact of this rate reduction and
potential future rate reductions, if any, we are pursuing a strategy of
expansion by adding new markets not currently served by us, as well as
increasing volume and shippers in existing markets along our pipeline system.
During the latter part of 1999, we held negotiations with our shippers
which led to a rate settlement regarding our approved tariff for the next four
years. This settlement was filed with the FERC on December 17, 1999, and
subsequently received FERC approval on February 10, 2000. The settlement
provides for a schedule of rate reductions through the year 2003, generally
precludes additional rate cases during this period initiated by us or any
settling party, and resolves all rate matters outstanding from our previous two
rate cases.
Our Shippers
Currently, we have 33 shippers under long-term firm reserved
transportation service contracts on our pipeline system including major electric
and gas utility companies, marketers, gas producers and independent power
producers. No shipper represents more than 10% of the contracted firm reserved
transportation capacity of our pipeline system. The 10 largest shippers, in
terms of transportation commitments, represent approximately 64% of the
contracted firm reserved transportation capacity of our pipeline system.
Approximately 44% of our pipeline system's firm reserved transportation capacity
is contracted to our partners or their affiliates.
Approximately 73% of our pipeline system's transportation capacity has
been contracted by shippers who are or whose guarantors are rated investment
grade by a nationally recognized credit rating agency. Approximately 21% of our
capacity has been contracted by other shippers who are either non-investment
grade rated or not rated but who have been accepted by us in accordance with our
tariff guidelines as being of sufficient financial strength not to require the
posting of credit support in connection with their transportation service
contracts. The remaining capacity, approximately 6%, has been contracted by
shippers who have agreed to post letters of credit in an amount equal to three
months of demand charges pursuant to their transportation service contract or
who have made other credit support arrangements that we find satisfactory.
Our Business Strategy and Competitive Advantages
Our business strategy is to increase revenues and operating cash flow
by expanding our geographic and customer base in the states of Connecticut,
Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode
Island and Vermont, which we refer to as the Northeast, while maintaining our
existing shippers as their contracts roll over. We will pursue this strategy by
continuing to offer cost effective, reliable transportation services to premium
markets. We are working to make our pipeline system a Northeast hub and the
pipeline system of choice in this region through selective expansions and
development of new products and services.
Expansions
We believe that opportunities exist for future expansion of our
pipeline system by adding incremental markets, installing additional compression
and extending our pipeline system to serve major new end users and to
interconnect with other pipeline systems. In particular:
o We intend to expand our system to target the growing electric
power generation market in the Northeast, with particular
emphasis on proposed facilities that are close to our
mainline. The mainline route, through New York and
Connecticut, provides a number of sites with ready access to
the electric grid. Our pipeline system's high-pressure design
gives us a competitive advantage in serving modern electric
generation facilities.
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o We are able to expand our pipeline system at a low cost
through additional compression and we intend to utilize such
low cost expansion capabilities to add new shippers in new
markets while maintaining competitive rates.
o We will manage the size of our pipeline system expansions to
balance existing and incremental market volumes and avoid
excess capacity.
We have several proposed expansions currently under consideration,
which are discussed in the "Business" section of this prospectus.
Development of New Products and Services
We will continue to develop custom products and services which provide
value to selected market niches, such as the electric power generation sector
and large energy marketers, as well as our traditional customers, the local
distribution companies. Due to the unique capabilities of our "state of the art"
high-pressure pipeline system, we have a distinct advantage in developing a
variety of specialized services which cannot be provided, or provided cost
effectively, by competing pipelines in the Northeast. In particular:
o Our modern facilities enable us to provide a variety of sought
after services which can be customized to provide added value
to the operating capabilities of a particular shipper (for
example, balancing or swing services which allow a shipper,
such as an electric power generator, to modify the amount and
timing of gas deliveries to match the operating profile of its
plant).
o Through market expansions and the opportunities created by our
interconnection with four other major pipelines in the
Northeast (Algonquin Gas Transmission Company, Dominion
Transmission Corporation, Tennessee Gas Pipeline Company and
the TransCanada System), we expect our pipeline system to
become a Northeast hub, providing our shippers with
increasingly diversified sources of gas supply and consumer
markets. The development of our system as a Northeast hub will
effectively create a more liquid market for buying and selling
gas and transportation capacity.
o As our hub strategy develops and we add incremental end-use
markets, we intend to construct or lease storage facilities
which will enhance the attractiveness, availability and
reliability of the services we provide to our shippers.
Competitive Advantages
We believe that we are one of the most technologically advanced
pipelines in the Northeast and have a number of competitive advantages over
other pipeline systems, including:
o The ability to expand our system at a low cost through
additional compression.
o The ability to operate at a pressure considerably higher than
other pipelines in the region.
o The use of up-to-date satellite controls for real-time
operation and measurement to provide operational advantages,
particularly in serving the electric power generation market.
o The ability to deliver gas to our shippers at strategically
important delivery points, in particular, our interconnection
with the New York Facilities System at South Commack, Long
Island.
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o The ability to easily transport gas to some of the largest
growth markets, such as New York City. We also have access to
potential new sites via our existing mainline through the Long
Island Sound, providing us several opportunities to expand
into new market areas that cannot be readily accessed by our
competitors.
Financing
On June 11, 1991, we entered into a $522.6 million loan agreement in
connection with the construction of our pipeline system. The outstanding balance
under the loan agreement and two subsequent expansion loan agreements, which we
refer to as the original loan agreements, at May 2, 2000, was $322.3 million. On
the closing date of the offering of the old notes, we entered into new credit
facilities consisting of a $200 million 9-year term loan facility and a $10
million 364-day revolving credit facility. The outstanding balance under the
original loan agreements was repaid with the proceeds from the old notes and a
$200 million borrowing under the term loan facility on the closing date of the
offering of the old notes.
Pursuant to the original loan agreements, we entered into interest rate
swap agreements to hedge the interest rate on the original loan agreements. As
part of the refinancing, we terminated all of the original swap agreements. The
new credit facilities do not require us to enter into an interest rate swap
agreement. In order to provide interest rate certainty for FERC rate-making and
general business purposes, however, we may enter into new swap agreements, so
that the interest rate on at least 50% of the outstanding balance of new credit
facilities is fixed or capped.
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Summary of the Terms of the Exchange Offer
On May 30, 2000, we issued $200 million principal amount of
unregistered 8.68% senior notes. On the same day, we and the initial
purchasers entered into the exchange and registration rights agreement
in which we agreed that you, as a holder of the old notes, would be
entitled to exchange your notes for registered notes with substantially
identical terms. This exchange offer is intended to satisfy these
rights. After the exchange offer is complete, you will no longer be
entitled to any exchange or registration rights with respect to your
notes. The exchange notes will be our obligations and are entitled to
the benefits of the indenture relating to the old notes. The form and
terms of the exchange notes are identical in all material respects to
the form and terms of the old notes, except:
o the exchange notes have been registered under the Securities
Act, and therefore contain no restrictive legends; and
o the exchange notes are not entitled to the benefits of the
registration rights granted under the exchange and
registration rights agreement.
The Exchange Offer................. We are offering to exchange $1,000
principal amount of 8.68% senior notes due
2010 which have been registered under the
Securities Act of 1933, which we refer to
as exchange notes, for each $1,000
principal amount of our 8.68% senior notes
due 2010, which we refer to as old notes.
As of the date of the prospectus, $200
million in aggregate principal amount of
old notes are outstanding.
We will refer to the exchange notes and
the old notes, together, as the notes.
Resale of the Exchange
Notes......................... Based on interpretative letters of the SEC
staff to third parties unrelated to us, we
believe that you can resell and transfer
exchange notes you receive pursuant to the
exchange offer, without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided
that:
o you are acquiring the exchange notes
in the ordinary course of business;
o you are not participating, do not
intend to participate, and have no
arrangement or understanding with any
person to participate, in the
distribution of the exchange notes;
o you are not a broker-dealer who
purchased the old notes directly from
us for resale pursuant to Rule 144A
or any other available exemption
under the Securities Act; and
o you are not an "affiliate" of ours.
If you wish to accept the exchange offer,
you must represent to us that these
conditions have been met.
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If our belief is inaccurate and you
transfer any exchange note without
delivering a prospectus meeting the
requirements of the Securities Act or
without an exemption from registration of
your notes from such requirements, you may
incur liability under the Securities Act.
We do not assume or indemnify you against
such liability, but we do not believe that
any such liability should exist.
Expiration of Exchange Offer....... The exchange offer will expire at 5:00
p.m., New York City time, on , 2000,
unless we decide to extend the expiration
date.
Accrued Interest on the
Exchange Notes and the
Old Notes..................... The exchange notes will bear interest from
May 30, 2000. If your notes are accepted
for exchange, you will be deemed to have
waived the right to receive any payment in
respect of interest on such notes accrued
from May 30, 2000 to the date of the
issuance of the exchange notes.
Consequently, you will receive the same
interest payment on October 31, 2000 (the
first interest payment date with respect
to the old notes and the exchange notes)
that you would have received had you not
accepted the exchange offer.
Termination of the Exchange
Offer......................... We may terminate the exchange offer if we
determine that our ability to proceed with
the exchange offer could be materially
impaired due to any legal or governmental
action, new law, statute, rule or
regulation or any interpretation of the
staff of the SEC of any existing law,
statute, rule or regulation. We do not
expect any of the foregoing conditions to
occur, although we cannot assure you that
such conditions will not occur. You will
have certain rights against our company
under the registration rights agreement
should we fail to consummate the exchange
offer.
Procedures for Tendering
Old Notes..................... If you wish to participate in the exchange
offer, you must complete, sign and date an
original or faxed letter of transmittal in
accordance with the instructions contained
in the letter of transmittal accompanying
this prospectus. Then you must mail, fax
or deliver the completed letter of
transmittal, together with the old notes
you wish to exchange and any other
required documentation to The Chase
Manhattan Bank, which is acting as
exchange agent. Its address appears on the
letter of transmittal. If you hold old
notes through The Depository Trust Company
("DTC") and wish to participate in the
exchange offer, you must comply with DTC's
Automated Tender Offer Program procedures,
by which you will agree to be bound by the
letter of transmittal.
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Broker-dealers..................... If you are a broker-dealer that will
receive exchange notes for your own
account in exchange for old notes that you
acquired as a result of your market-making
or other trading activities, you will be
required to acknowledge in the letter of
transmittal that you will deliver a
prospectus in connection with any resale
of the exchange notes.
The letter of transmittal states that by
so acknowledging and by delivering a
prospectus, you will not be deemed to
admit that you are an "underwriter" within
the meaning of the Securities Act. You may
use this prospectus, as we may amend or
supplement it in the future for your
resales of exchange notes. We will make
this prospectus available to any
broker-dealer for use in connection with
any such resale for a period of 180 days
after the date of expiration of this
exchange offer. See "Plan of
Distribution."
Special Procedures for
Beneficial Owners............. If your old notes are held through a
broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender such notes, you should contact such
entity promptly and instruct it to tender
your notes on your behalf.
Guaranteed Delivery
Procedures for Old Notes...... If you cannot meet the expiration date
deadline, or you cannot deliver your old
notes, the letter of transmittal or any
other documentation or comply with the
applicable procedures under DTC's
Automated Tender Offer Program on time,
then you may tender your old notes
according to the guaranteed delivery
procedures set forth under "The Exchange
Offer - Guaranteed Delivery Procedures."
Withdrawal Rights.................. You may withdraw the tender of your old
notes at any time prior to 5:00 p.m., New
York City time, on , 2000, the business
day prior to the expiration date, unless
your notes were previously accepted for
exchange.
Consequences of Failure to
Exchange...................... If you are eligible to participate in this
exchange offer and you do not tender your
old notes as described in this prospectus,
you will not have any further registration
or exchange rights. In that case, your old
notes will continue to be subject to
restrictions on transfer. As a result of
such restrictions and the availability of
registered new notes, the old notes are
likely to be a much less liquid securities
than before. The old notes will, following
consummation of the exchange offer, bear
interest at the same rate as the exchange
notes.
Certain U.S. Federal Income
Tax Consequences.............. The exchange of the old notes for exchange
notes pursuant to the exchange offer will
not be a taxable exchange for United
States federal income tax purposes. We
believe that you will
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not recognize any taxable gain or loss
solely as a result of such exchange.
Use of Proceeds.................... We will not receive any proceeds from the
issuance of exchange notes pursuant to the
exchange offer. We will pay all expenses
incident to the exchange offer.
Exchange Agents for
Old Notes..................... Chase Manhattan Bank, the trustee under
the indenture for the old notes, is
serving as the exchange agent in
connection with the exchange offer. The
exchange agent can be reached at The Chase
Manhattan Bank, 55 Water Street, New York,
NY 10041-0199, Attention: Capital Markets
Fiduciary Services. For more information
with respect to the exchange offer, the
telephone number of the exchange agent is
(212) 638-0828 and the facsimile number
for the exchange agent is (212) 638-7375.
The Chase Manhattan Bank also serves as
trustee under the Indenture for the
exchange offer.
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<PAGE>
Description of the Exchange Notes
The following summarized provisions are subject to a number of
important exceptions and qualifications, which are described under the heading
"Description of the Exchange Notes" in this prospectus.
Notes Offered.................... $200,000,000 principal amount of 8.68% senior
notes due 2010.
Ratings.......................... The exchange notes have ratings of "A3" from
Moody's and "BBB+" from S&P.
Maturity Date.................... April 30, 2010.
Interest Payment Dates........... April 30 and October 31 of each year,
commencing on October 31, 2000.
Mandatory Redemption............. The exchange notes will be subject to
mandatory redemption, in whole or in part,
upon the occurrence of certain losses of or
damage to, or any condemnation or other
taking with respect to, our pipeline system.
If any such loss or occurrence is valued at
greater than $100 million, we will redeem the
exchange notes in an amount equal to the loss
proceeds allocable to the exchange notes. If
any such loss or occurrence is valued at
greater than or equal to $10 million but less
than $100 million, we may, at our option,
either rebuild or repair the pipeline or
redeem the exchange notes in an amount equal
to the loss proceeds allocable to the
exchange notes. The redemption price in these
cases will be the principal amount to be
redeemed plus accrued and unpaid interest.
Optional Redemption.............. The exchange notes are redeemable at our
option, in whole or in part, at any time. The
redemption price is the principal amount of
the exchange notes redeemed plus accrued and
unpaid interest plus a make-whole premium
based on a discount rate of 35 basis points
over an appropriate treasury rate.
Obligations Nonrecourse to
Our Partners and
Affiliates.................. Payments of principal, premium if any, and
interest on the exchange notes will be solely
our obligations. None of our affiliates or
partners, affiliates of our partners, or any
officer, director or employee of our partners
or us will guarantee the payment of the
exchange notes or will have any liability for
any of our obligations under the exchange
notes.
Covenants........................ The indenture governing the exchange notes
will contain covenants that, among other
things, will limit our ability to:
o incur additional indebtedness,
o create certain liens,
o enter into sale and leaseback
transactions,
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o initiate certain changes in our firm
reserved transportation service
contracts, certain associated documents
or the operating agreement with IPOC,
which we refer to as the primary
agreements,
o initiate certain changes to, modify or
terminate our rate schedule,
o make certain investments or engage in
new lines of business,
o enter into transactions with affiliates,
o establish subsidiaries,
o make distributions to our partners,
o consolidate, merge or transfer all or
substantially all of our assets, or
o sell certain assets.
We are also required under the indenture,
among other things, to maintain our existence
as a limited partnership, enforce the primary
agreements, provide certain financial
statements to the trustee and maintain
insurance.
Events of Default................ The indenture provides for events of default,
subject to applicable cure periods,
including:
o failure to pay amounts on the exchange
notes and old notes when due,
o failure to pay amounts when due on any
of our other indebtedness aggregating
$10 million or more,
o breach of covenants under the indenture,
and
o bankruptcy or insolvency of our
partnership or any significant
subsidiary.
Cure Rights...................... Any of our partners will have the
unconditional right to cure an event of
default with respect to any of our payment
obligations under the indenture.
Trustee.......................... The Chase Manhattan Bank.
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SUMMARY FINANCIAL INFORMATION
The summary financial information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with our financial statements, including the
notes thereto, appearing elsewhere in this prospectus. The income statement,
balance sheet and cash flow data for the years ended December 31, 1995, 1996,
1997, 1998 and 1999 have been derived from our financial statements, which have
been audited by PricewaterhouseCoopers LLP, independent auditors. The income
statement, balance sheet and cash flow data as of and from the six-month periods
ended June 30, 1999 and 2000 are derived from the unaudited consolidated
statement of Iroquois.
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended June 30,
-------------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------------------------------------------------------------- ----------------------
(In thousands of dollars, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net operating revenues ............... $151,129 $154,379 $153,652 $140,371 $123,919(1) $ 62,824 $ 64,493
Operating Expenses:
Operations ........................... 24,534 22,538 23,988 21,703 21,534 10,045 10,255
Depreciation and amortization ........ 31,416 31,243 32,094 29,795 21,976 10,570 11,933
Taxes other than income taxes ........ 9,697 9,607 10,266 10,390 11,449 5,324 5,520
-------- -------- -------- -------- -------- -------- --------
Total operating expenses ............. 65,647 63,388 66,348 61,888 54,959 25,939 27,708
Operating income ..................... 85,482 90,991 87,304 78,483 68,960 36,885 36,785
Other income and (expenses) .......... (22,496) 1,131 4,180 6,758(2) 1,419 754 939
-------- -------- -------- -------- -------- -------- --------
Income before interest
charges and taxes .................... 62,986 92,122 91,484 85,241 70,379 37,139 37,724
Net interest expense ................. 40,447 37,855 4,990 32,476 30,621 15,406 14,730
-------- -------- -------- -------- -------- -------- --------
Income before taxes .................. 22,539 54,267 56,494 52,765 39,758 22,233 22,994
Provisions for taxes(3) .............. 16,392 22,163 2,408 20,788 15,580 8,672 8,776
-------- -------- -------- -------- -------- -------- --------
Net income ........................... $ 6,147 $ 32,104 $ 34,086 $ 31,977 $ 24,178 $ 13,561 $ 14,218
======== ======== ======== ======== ======== ======== ========
Cash Flow Data:
Net cash provided by operating
activities ........................... $ 72,284 $ 60,589 $ 87,116 $ 83,899 $ 57,961 $ 30,168 $ 30,134
Capital expenditures ................. (7,893) (4,358) (14,719) (14,172) (7,718) (2,628) (3,444)
Other Data:
Ratio of earnings to fixed
charges(4) ........................... 1.56 2.43 2.60 2.59 2.30 2.44 2.56
Net cash available for debt
service(5) ........................... $ 98,724 $114,824 $107,571 $115,283 $ 83,736 $ 44,897 $ 48,828
Mandatory debt service(6) ............ 72,366 68,894 65,602 62,296 59,774 30,153 28,937
Debt service coverage ratio(7) ....... 1.36 1.67 1.64 1.85 1.40 1.49 1.69
Balance Sheet Data (at End of Period):
Net property, plant and equipment .... $617,854 $580,592 $563,766 $548,832 $534,806 $541,006 $526,729
Total assets ......................... 702,555 655,599 624,505 606,870 594,851 609,920 626,188
Long-term debt, including current
maturities ........................... 454,485 423,817 394,111 365,388 336,664 351,043 400,000
Partners' capital .................... 179,488 198,371 199,865 212,630 227,388 234,862 200,382
</TABLE>
----------
(1) Total revenues decreased in 1999 compared to 1998 due to the implementation
of a rate reduction, as more fully described in Note 6 to the financial
statements attached to this prospectus.
(2) Includes settlement income for releasing a shipper from its remaining
long-term firm reserved transportation service contract.
(3) The payment of income taxes is the responsibility of our partners and does
not reduce cash available for debt service. Our approved rates, however,
include an allowance for taxes (calculated as if we were a corporation) and
the FERC requires us to record such taxes in our partnership records to
reflect the taxes payable by our partners as a result of our operations.
These taxes are recorded without regard to whether
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<PAGE>
each partner can utilize its share of our tax deductions. Our rate base,
for rate-making purposes, is reduced by the amount equivalent to
accumulated deferred income taxes in calculating the required return.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. "Earnings" represent the aggregate of (a)
pre-tax income and (b) fixed charges. "Fixed charges" represent interest
(whether expensed or capitalized) and the amortization of total debt
discount and expense.
(5) "Net cash available for debt service" means, for any period, computed on a
cash-basis, the excess of cash receipts over all operating and maintenance
expenditures.
(6) "Mandatory debt service" means the sum of all scheduled interest, premium
(if any) and principal due and payable during such period in respect of all
of our indebtedness, provided that fees, including any consent fees,
payable in connection with the issuance of any additional senior
indebtedness shall be excluded.
(7) "Debt service coverage ratio" means the ratio of (a) net cash available for
debt service for such period to (b) mandatory debt service for such period.
13
<PAGE>
RISK FACTORS
An investment in the exchange notes is subject to numerous risks,
including, but not limited to those set forth below. In addition to the
information contained elsewhere in this prospectus, you should carefully
consider the following risk factors before deciding to exchange your old notes
for exchange notes.
We may not be able to maintain existing shippers or acquire new shippers
As of June 30, 2000, approximately 89% of the capacity of our pipeline
system was contracted through at least November 1, 2011. We cannot give any
assurances that we will be able to extend or replace these contracts at the end
of their initial terms. The extension or replacement of the existing long-term
contracts with our shippers depends on a number of factors beyond our control,
including:
o the supply and price of natural gas in Canada and the United
States;
o competition to deliver gas to the Northeast from alternative
sources of supply;
o the demand for gas in the Northeast;
o whether transportation of gas pursuant to long-term contracts
continues to be market practice; and
o whether our business strategy, including our expansion
strategy, is successful.
If these contracts are not extended or replaced it may impact our cash
flows and ability to service the notes.
We are dependent on the performance of our shippers
We are dependent upon the shippers for revenues from contracted
transportation capacity on our pipeline system. The transportation service
contracts obligate the shippers to pay reservation charges regardless of whether
they transport natural gas on our pipeline system, subject to limited rights in
favor of the shippers in certain circumstances to receive reservation charge
credits. As a result, our profitability and our ability to make payments under
the notes will generally depend upon the continued creditworthiness of the
shippers rather than upon the amount of natural gas transported.
Our rates are calculated on the basis of the assumed contracted
capacity of 987 MDth/d and our revenue projections assume that shippers will pay
these rates as required by their contracts. A prolonged economic downturn in the
energy industry or a broader economic downturn affecting the Northeast, among
other things, could impact the ability of some or all of the shippers to fulfill
their obligations under the transportation service contracts. A failure to pay
by any of the shippers, for any length of time where we do not succeed in
obtaining a replacement shipper, would decrease our revenues and, consequently,
could affect our ability to make payments on the notes.
If we materially breach our obligations under any transportation
service contract, the affected shipper may have various remedies including
termination of its transportation service contract. The occurrence of such an
event could reduce revenues and impair our ability to meet our obligations under
the notes.
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<PAGE>
Changes in regulation and rates may adversely affect our results of operations
Because our pipeline system is an interstate natural gas pipeline,
subject to regulation as a natural gas company under the Natural Gas Act of
1938, as amended (the "Natural Gas Act"), the rates we can charge our shippers
and other terms and conditions of service are subject to FERC review and the
possibility of modification in rate proceedings. The objective of this rate
setting process is to allow us to recover our costs to construct, own, operate
and maintain our pipeline and to afford the pipeline an opportunity to earn a
reasonable rate of return. No assurance can be given that the FERC will not
alter or refine its preferred methodology for establishing pipeline rates and
tariff structure. Under the FERC regulations, shippers have the opportunity to
contest our rates and our tariff structure.
Under the terms of the transportation service contracts and in
accordance with the FERC's rate making principles, we are only permitted to
recover costs associated with the construction and operation of our pipeline
system which are actually, reasonably and prudently incurred and are included in
our pipeline system's regulatory rate base. There can be no assurance that all
costs we incur will be recoverable through our rates.
A decline in the availability of Western Canada natural gas may reduce shippers'
willingness to contract for capacity on our pipeline
Our long-term financial condition is dependent on the continued
availability of Western Canada natural gas for import into the United States. If
the availability of Western Canada natural gas were to decline over the initial
term of our current transportation service contracts, existing shippers may not
extend their contracts and we may be unable to find replacement sources of
natural gas for the capacity. We cannot give any assurances as to the
availability of additional sources of gas that can interconnect with our
pipeline system.
Continued sales of Western Canada natural gas to the United States will
also depend on:
o the level of exploration, drilling, reserves and production of
Western Canada Sedimentary Basin natural gas and the price of
such natural gas;
o the accessibility of Western Canada Sedimentary Basin natural
gas which may be affected by weather, natural disaster or
other impediments to access;
o the price and quality of natural gas available from
alternative United States and Canadian sources; and
o the regulatory environments in the United States and Canada,
including the continued willingness of the governments of both
countries to permit the import to the United States of natural
gas from Canada on a commercially acceptable basis.
Noteholders will not have any recourse against the partners
Payments of principal, premium, if any, and interest on the notes will
be solely our obligation and will be satisfied solely from the revenues realized
in operating our pipeline system and other pipeline related activities.
Noteholders will not have any recourse against any of our partners, whether a
general partner or otherwise, or against their parents and other affiliates for
any failure by us to fulfill our obligations under the notes and the indenture
governing the notes.
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<PAGE>
The revenues from operating our pipeline system are, in the ordinary
course of business, the sole source of repayment of the notes. Accordingly, our
ability to satisfy our obligations under the notes will primarily be a function
of the revenues arising under our transportation service contracts.
Failure of our pipeline operations may impair our ability to meet our
obligations under the notes
There are risks associated with the operation of a complex pipeline
system, such as operational hazards and unforeseen interruptions caused by
events beyond our control. These include adverse weather conditions, accidents,
the breakdown or failure of equipment or processes, the performance of the
facilities below expected levels of capacity and efficiency and catastrophic
events such as explosions, fires, earthquakes, floods, landslides or other
similar events beyond our control. A casualty occurrence might result in injury
or loss of life, extensive property or environmental damage. Liabilities
incurred and interruptions to the operation of the pipeline caused by such an
event could reduce revenues generated by us and increase our expenses, thereby
impairing our ability to meet our obligations under the notes. Insurance
proceeds may not be adequate to cover all liabilities incurred, lost revenues or
increased expenses.
We may not succeed in our planned expansions
In addition to restrictions imposed under the indenture, our ability to
engage in any expansion project will be subject to, among other things, approval
of our management committee and numerous business, economic, regulatory,
competitive and political uncertainties beyond our control. Therefore, we cannot
assure you that any expansion or extension project will be undertaken or, if
undertaken, will be successful.
The success of our planned expansions, once undertaken, may depend on
several factors, including, among others, the following:
o other existing pipelines may provide transportation services
to the area to which we are expanding;
o any entities, upon obtaining the proper regulatory approvals,
may construct new competing pipelines or increase the capacity
of existing competing pipelines;
o a competitor's new or upgraded pipeline could offer
transportation services that are more desirable to shippers
because of location, facilities or other factors; and
o shippers may be unwilling to sign long-term contracts for
service which would make use of a planned expansion.
We will also require additional capital to fund planned expansions of
our pipeline system. If we fail to generate sufficient funds in the future, we
may have to delay or abandon our expansion plans, in which case we will lose the
ability to capitalize expenditures on such abandoned expansions. Also, a
proposed expansion may cost more than planned to complete and such excess costs
may not be recoverable. Our inability to recover any such costs or expenditures
may affect our ability to service our obligations under the notes.
In addition to the operation, maintenance or expansion of our pipeline,
under the indenture governing the notes, we may engage or invest in other lines
of business or activities with certain limitations, including, among others,
activities associated with, or incidental to, the following:
16
<PAGE>
o the processing, storage or shipping of natural gas or natural
gas liquids;
o the installation, and leasing or rental, of fiber optic or
similar cable;
o the construction or operation of facilities for the generation
of electricity using waste heat from our pipeline; and
o the supply of gas for transportation on our pipeline or the
consumption of gas transported by our pipeline.
If we decide to undertake any of these businesses permitted under the
indenture we will be subject to risks customarily associated with such business.
We cannot assure you that our operating results may not be adversely affected by
such risks.
We are subject to laws relating to the protection of the environment
Our operations are subject to federal, state and local laws and
regulations relating to the protection of the environment. Although we believe
that our operations are and will be in substantial compliance with applicable
environmental and safety laws and regulations, risks of substantial costs and
liabilities are inherent in pipeline operations and we cannot assure you that
significant costs and liabilities will not be incurred, including those relating
to claims for damages to property and persons resulting from our operations.
Moreover, it is possible that the development or discovery of other
facts or conditions, such as increasingly stringent federal, state or local
environmental laws and regulations and enforcement policies thereunder, could
result in increased costs and liabilities to us. We are unable to predict the
effect that any future changes in environmental laws and regulations, or the
development or discovery of other facts or conditions, will have on our future
earnings and we cannot assure you that environmental costs incurred by us will
be recoverable under our FERC approved tariff.
A trading market for the exchange notes may not develop
There is no existing market for the exchange notes and we do not intend
to apply for listing of the exchange notes on any securities exchange. We cannot
assure you that a liquid market will develop for exchange notes, that you will
be able to sell your exchange notes at a particular time or that the prices that
you receive when you sell will be favorable. Future trading prices of the
exchange notes will depend on many factors including prevailing interest rates,
our operating results and the market for similar securities.
The initial purchasers have informed us that they intend to make a
market in the exchange notes. However, the initial purchasers are not obligated
to do so and any such market-making activity may be terminated at any time
without notice. If a market for the exchange notes does not develop, you may be
unable to resell the exchange notes for an extended period of time, if at all.
Consequently, a noteholder may not be able to liquidate its investment readily,
and the exchange notes may not be readily accepted as collateral for loans. In
addition, such market-making activity will be subject to restrictions of the
Securities Act and the Exchange Act.
If you do not exchange your old notes, they may be difficult to resell.
If you do not tender your old notes to be exchanged in this exchange
offer, your notes will remain restricted securities and will be subject to
certain transfer restrictions. As restricted securities, your old notes:
17
<PAGE>
o may be resold only if registered pursuant to the Securities
Act, if an exemption from registration is available
thereunder, or if neither such registration nor such exemption
is required by law; and
o shall bear a legend restricting transfer in the absence of
registration or an exemption therefrom.
In addition, a holder of old notes who desires to sell or otherwise
dispose of all or any part of its old notes under an exemption from registration
under the Securities Act, if requested by us, must deliver to us an opinion of
independent counsel experienced in Securities Act matters, reasonably
satisfactory in form and substance to us, that such exemption is available.
To the extent the old notes are tendered and accepted in the exchange
offer, the trading market, if any, for the old notes which are not tendered
would be adversely affected due to a reduction in market liquidity.
18
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes offered hereby. In consideration for issuing the exchange notes
contemplated by this prospectus, we will receive in exchange old notes in like
principal amount. The old notes surrendered in exchange for the exchange notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the exchange notes will not result in any change in our indebtedness. The net
proceeds from the May 30, 2000 private offering of the old notes were
approximately $196,325,000 after deducting the initial purchasers' discounts and
other estimated fees and expenses of the offering. Such net proceeds plus
borrowings under our new credit facilities of $200 million:
o were used to repay the loans under the original loan
agreements incurred in connection with the construction of the
pipeline;
o were used to terminate the swap agreements related to the
original loan agreements;
o were used to make a cash distribution to our partners of
approximately $40 million;
o were used to pay certain fees and expenses in connection with
the offering of the old notes and the refinancing of the
original loan agreements including fees on the new credit
facilities; and
o are available for general corporate purposes.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we are offering to
exchange $1,000 principal amount of exchange notes for each $1,000 principal
amount of old notes. You may tender some or all of your old notes only in
integral multiples of $1,000.
As of the date of this prospectus, $200 million aggregate principal
amount of the old notes are outstanding. This prospectus, together with the
accompanying letter of transmittal, is being sent to all registered holders of
old notes as of , 2000.
We will be deemed to have accepted for exchange validly tendered old
notes when and if we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
of old notes for the purpose of receiving exchange notes from us and delivering
exchange notes to such holders.
If any tendered old notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted old notes will be returned, without
expenses, to the tendering holder thereof as promptly as practicable after the
expiration of the exchange offer.
Holders of old notes who tender in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of old
notes pursuant to the exchange offer. We will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer. It
is important that you read the section "-- Fees and Expenses" below for more
details regarding fees and expenses incurred in the exchange offer.
Expiration Date; Extensions; Amendments
The exchange offer will expire 5:00 p.m., New York City time, on ,
2000, unless, in our sole discretion, we extend it.
We reserve the right:
o to delay accepting any old note;
o to amend the terms of the exchange offer in any manner;
o to extend the exchange offer; or
o to terminate the exchange offer, if any of the conditions set
forth under "-- Termination" below shall have occurred and
shall not have been waived by us.
We will give oral or written notice of any amendment, non-acceptance or
termination to registered holders of the old notes as promptly as practicable.
In the case of any extension, we will notify the exchange agent orally or in
writing of any extension. We will also notify the registered holders of old
notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration of the exchange offer.
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<PAGE>
If we consider an amendment to the exchange offer to be material, we
will promptly inform the holders of old notes of such amendment in a reasonable
manner.
Without limiting the manner by which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
Resale of Exchange Notes
Based upon existing interpretations of the staff of the SEC set forth
in several no-action letters issued to third parties, we believe that the
exchange notes issued pursuant to the exchange offer in exchange for the old
notes may be offered for resale, resold and otherwise transferred by their
holders, without complying with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder:
o is not our "affiliate" (as defined in Rule 405 under the
Securities Act);
o is not participating, and has no arrangement or understanding
with any person to participate, in a distribution of the notes
to be received in the exchange offer;
o is not a broker-dealer that purchased the old notes directly
from us to resell pursuant to Rule 144A or another available
exemption under the Securities Act; and
o is acquiring the exchange notes in the ordinary course of its
business.
Holders of old notes wishing to accept the exchange offer must
represent to us that such conditions have been met.
Each broker-dealer that receives exchange notes in exchange for old
notes held for its own account, as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. The letter of transmittal states that by
so acknowledging and by delivering a prospectus, such broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. The prospectus, as it may be amended or supplemented from time to time, may
be used by such broker-dealer in connection with resales of exchange notes
received in exchange for old notes. We have agreed that, for a period of 180
days after the expiration of the exchange offer, we will make this prospectus
and any amendment or supplement to this prospectus available to any such
broker-dealer for use in connection with any such resale.
Interest on the Exchange Notes
The exchange notes will bear interest from May 30, 2000, payable
semiannually in arrears on April 30 and October 31 of each year, commencing on
October 31, 2000, at the rate of 8.68% per annum. Holders of old notes whose old
notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the old notes accrued from May 30,
2000 until the date of the issuance of the exchange notes. Consequently, holders
who exchange their old notes for exchange notes will receive the same interest
payment on October 31, 2000 that they would have received had they not accepted
the exchange offer.
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<PAGE>
Procedures for Tendering
The term "holder" with respect to the exchange offer means any person
in whose name old notes are registered on our books or the books of any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose old notes are held of record by DTC, who desires to
deliver such old notes by book-entry transfer at DTC, as the case may be.
Only a holder of record of old notes may tender old notes in the
exchange offer. To tender in the exchange offer, a holder must:
o complete, sign and date the letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on
the letter of transmittal guaranteed if the letter of
transmittal so requires; and mail or otherwise deliver the
letter of transmittal or facsimile to the exchange agent prior
to the expiration date; or
o comply with DTC's Automated Tender Offer Program procedures
described below.
In addition, either:
o the exchange agent must receive any corresponding certificate
or certificates representing old notes along with the letter
of transmittal; or
o the exchange agent must receive, before expiration of the
exchange offer, a timely confirmation of book-entry transfer
of old debentures into the exchange agent's account at DTC
according to DTC's Automated Tender Offer Program described
below or a properly transmitted agent's message described
below; or
o the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents at
the address set forth below under "-- Exchange Agent" before expiration of the
exchange offer. Delivery of documents to DTC in accordance with its procedures
does not constitute delivery to the exchange agent.
The tender by a holder of old notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
The method of delivery of old notes and all other required documents,
to the exchange agent is at the election and risk of the holders. Instead of
delivery by mail, we recommend that holders use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No letter of transmittal or old notes should be sent to us.
Any beneficial holder whose old notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the letter of transmittal and delivering his or her old notes, either:
o make appropriate arrangements to register ownership of the old
notes in such holder's name, or
22
<PAGE>
o obtain a properly completed bond power from the registered
holder.
The transfer of record ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal as
described in "--Withdrawal of Tenders" below, as the case may be, must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act, unless the old notes tendered pursuant thereto are tendered:
o by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
o for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed therein, such old notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the old notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the old notes.
If the letter of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
Any financial institution that is a participant in DTC's system may use
DTC's Automated Tender Offer Program to tender. Participants in the program may,
instead of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, transmit their acceptance of the exchange
offer electronically. They may do so by causing DTC to transfer the old notes to
the exchange agent in accordance with its procedures for transfer. DTC will then
send an agent's message to the exchange agent. The term "agent's message" means
a message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation which states that:
o DTC has received an express acknowledgment from the
participant that is tendering old notes; and
o the participant has received and agrees to be bound by the
terms of the letter of transmittal or, in the case of an
agent's message relating to guaranteed delivery, that the
participant has received and agrees to be bound by the
applicable notice of guaranteed delivery.
We will determine in our sole discretion all the questions as to the
validity, form, eligibility (including time of receipt), acceptance and
withdrawal of the tendered old notes. Our determinations will be final and
binding. We reserve the absolute right to reject any and all old notes not
validly tendered or any old notes our acceptance of which would, in the opinion
of our counsel, be unlawful. We also reserve the absolute right to waive any
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within such time as we will determine. Neither we,
the
23
<PAGE>
exchange agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of old notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
old notes will not be deemed to have been made until such irregularities have
been cured or waived. Any old notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the exchange agent to the
tendering holder of such old notes unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date of the
exchange offer.
In addition, we reserve the right in our sole discretion to (a)
purchase or make offers for any old notes that remain outstanding subsequent to
the expiration date, and (b) to the extent permitted by applicable law, purchase
old notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
exchange offer.
By signing the letter of transmittal, each tendering holder of old
notes will represent to us that, among other things:
o any exchange notes that the holder receives will be acquired
in the ordinary course of its business;
o the holder has no arrangement or understanding with any person
or entity to participate in the distribution of the exchange
notes;
o if the holder is not a broker-dealer, that it is not engaged
in and does not intend to engage in the distribution of the
exchange notes;
o if the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for old notes that were
acquired as a result of market-making activities or other
trading activities, that it will deliver a prospectus, as
required by law, in connection with any resale of those
exchange notes (see "Plan of Distribution" below); and
o the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of us or, if the holder is an affiliate,
it will comply with any applicable registration and prospectus
delivery requirements of the Securities Act.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes and (i) whose old notes are
not immediately available, or (ii) who cannot deliver their old notes, the
letter of transmittal, or any other required documents to the exchange agent
prior to the expiration date, or if such holder cannot complete the procedure
under DTC's Automated Tender Offer Program before expiration of the exchange
offer, may tender their old notes if:
o the tender is made through an eligible institution;
o before expiration of the exchange offer, the exchange agent
receives from the eligible institution either a properly
completed and duly executed notice of guaranteed delivery in
the form accompanying this prospectus, by facsimile
transmission, mail or hand delivery, or a properly transmitted
agent's message and notice of guaranteed delivery:
- setting forth the name and address of the holder and
the registered number(s) and the principal amount of
old notes tendered;
24
<PAGE>
- stating that the tender offer is being made by
guaranteed delivery; and
- guaranteeing that, within three business days after
expiration of the exchange offer, the letter of
transmittal, or facsimile of the letter of
transmittal, together with the old notes or a
book-entry confirmation, and any other documents
required by the letter of transmittal will be
deposited by the eligible institution with the
exchange agent; and
o the exchange agent receives the properly completed and
executed letter of transmittal, or facsimile of the letter of
transmittal, as well as all tendered old notes in proper form
for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three
business days after expiration of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery
will be sent to holders who wish to tender their old notes according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old notes may be
withdrawn at any time before expiration of the exchange offer, unless previously
accepted for exchange.
For a withdrawal to be effective:
o the exchange agent must receive a written notice, which may be
by telegram, telex, facsimile transmission or letter, of
withdrawal at the address set forth below under "--Exchange
Agent"; or
o for DTC participants, holders must comply with the appropriate
procedures of DTC's Automated Tender Offer Program system and
the exchange agent must receive an electronic notice of
withdrawal from DTC.
Any notice of withdrawal must:
o specify the name of the person who tendered the old notes to
be withdrawn;
o identify the old notes to be withdrawn, including the
certificate number or numbers and principal amount of the old
notes to be withdrawn;
o be signed by the person who tendered the old notes in the same
manner as the original signature on the letter of transmittal,
including any required signature guarantees; and
o specify the name in which the old notes are to be registered,
if different from that of the withdrawing holder.
If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn old
notes and otherwise comply with the procedures of the facility. We will
determine all questions as to the validity, form and eligibility (including time
of receipt) for such withdrawal notices, and our determination shall be final
and binding on all parties. Any old notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued with respect thereto unless the old notes so withdrawn are
validly tendered.
25
<PAGE>
Any old notes which have been tendered but which are not accepted for exchange
will be returned to the holder without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn old notes may be tendered by following the procedures
described above under "-- Procedures for Tendering" at any time prior to the
expiration date.
Termination of the Exchange Offer
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange notes for, any old notes not
therefore accepted for exchange, and may terminate or amend the exchange offer
as provided in this prospectus before the acceptance of such old notes if:
o any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to
the exchange offer, which, in our reasonable judgment, might
materially impair our ability to proceed with the exchange
offer; or
o any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is
interpreted by the staff of the SEC or court of competent
jurisdiction in a manner, which, in our reasonable judgment,
might materially impair our ability to proceed with the
exchange offer.
If we determine that we may terminate the exchange offer, as set forth
above, we may
o refuse to accept any old notes and return any old notes that
have been tendered to the holders;
o extend the exchange offer and retain all old notes tendered
prior to the expiration of the exchange offer, subject to the
rights of such holders of tendered old notes to withdraw their
tendered old notes, or
o waive such termination event with respect to the exchange
offer and accept all properly tendered old notes that have not
been withdrawn. If such waiver constitutes a material change
in the exchange offer, we will disclose such change by means
of a supplement to this prospectus that will be distributed to
each registered holder of old notes, and we will extend the
exchange offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the old notes, if
the exchange offer would otherwise expire during such period.
Consequences of Failure to Exchange
Old notes that are not exchanged will remain "restricted securities"
within the meaning of Rule 144(a)(3) of the Securities Act. Accordingly, they
may not be offered, sold, pledged or otherwise transferred except:
o to us or to any of our subsidiaries,
o inside the United States to a qualified institutional buyer in
compliance with Rule 144A,
o inside the United States to an institutional accredited
investor that, prior to such transfer, furnishes to the
trustee a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the old
notes, the form of which you can obtain from the trustee and,
if such transfer is in respect of an aggregate principal
amount of old
26
<PAGE>
notes at the time of transfer of less $100,000, an opinion of
counsel acceptable to us that the transfer complies with the
Securities Act,
o outside the United States in compliance with Rule 904 under
the Securities Act,
o pursuant to the exemption from registration provided by Rule
144 under the Securities Act, if available, or
o pursuant to an effective registration statement under the
Securities Act.
The liquidity of the old notes could be adversely affected by the
exchange offer. Following the consummation of the exchange offer, holders of the
old notes will have no further registration rights under the exchange and
registration rights agreement.
Exchange Agent
The Chase Manhattan Bank has been appointed as exchange agent for the
exchange of the old notes. Questions and requests for assistance relating to the
exchange of the old notes should be directed to the exchange agent addressed as
follows:
By Mail or Hand Delivery:
The Chase Manhattan Bank
55 Water Street
New York, NY 10041-0199
Attention: Capital Markets Fiduciary Services
Facsimile Transmission: (212) 638-7375
Confirm by Telephone: (212) 638-0828
Fees and Expenses
We will bear the expenses of soliciting tenders pursuant to the
exchange offer. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail. Additional solicitations may be made by our
officers and regular employees and our affiliates in person, by telegraph or
telephone.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its related reasonable out-of-pocket expenses and accounting
and legal fees. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this prospectus, letters of transmittal and related
documents to the beneficial owners of the old notes and in handling or
forwarding tenders for exchange.
We will pay all transfer taxes, if any, applicable to the exchange of
old notes pursuant to the exchange offer. The tendering holder, however, will be
required to pay any transfer taxes whether imposed on the registered holder or
any other person, if:
o certificates representing exchange notes or old notes for
principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of old notes
tendered;
27
<PAGE>
o tendered old notes are registered in the name of any person
other than the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the
exchange of old notes under the exchange offer.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
28
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
June 30, 2000. This table should be read in conjunction with our financial
statements and the related notes, included elsewhere in this prospectus.
As of June 30, 2000
-------------------
(unaudited, in thousands)
Current portion of long-term debt.................. $ 22,222(1)
Long-term debt:
Loans under the new credit facilities...... 177,778(2)
8.68% senior notes due 2010................ 200,000
-------
Total long-term debt....................... 400,000
-------
Partners' equity........................... 200,382
-------
Total capitalization........................ $600,382
========
--------------
(1) Represents the amount of the term loan under the new credit facilities
which will be due within 12 months and is considered current portion of
long-term debt.
(2) Term loan under the new credit facilities, maturing in 9 years.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with our financial statements, including the notes thereto,
appearing elsewhere in this prospectus. The income statement, balance sheet and
cash flow data for the years ended December 31, 1995, 1996, 1997, 1998 and 1999
have been derived from our financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent auditors. The income statement, balance
sheet and cash flow data as of and from the six-month periods ended June 30,
1999 and 2000 are derived from the unaudited consolidated statement of Iroquois.
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
--------------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
--------------------------------------------------------- --------------------
(In thousands of dollars, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net operating revenues ..................... $151,129 $154,379 $153,652 $140,371 $123,919(1) $ 62,824 $ 64,493
Operating expenses:
Operations ................................. 24,534 22,538 23,988 21,703 21,534 10,045 10,255
Depreciation and amortization .............. 31,416 31,243 32,094 29,795 21,976 10,570 11,933
Taxes other than income taxes .............. 9,697 9,607 10,266 10,390 11,449 5,324 5,520
-------- -------- -------- -------- -------- -------- --------
Total operating expenses ................... 65,647 63,388 66,348 61,888 54,959 25,939 27,708
Operating income ........................... 85,482 90,991 87,304 78,483 68,960 36,885 36,785
Other income and (expenses) ................ (22,496) 1,131 4,180 6,758(2) 1,419 754 939
-------- -------- -------- -------- -------- -------- --------
Income before interest charges and taxes ... 62,986 92,122 91,484 85,24 70,379 37,139 37,724
Net interest expense ....................... 40,447 37,855 34,990 32,476 30,621 15,406 14,730
-------- -------- -------- -------- -------- -------- --------
Income before taxes ........................ 22,539 54,267 56,494 52,765 39,758 22,233 22,994
Provisions for taxes(3) .................... 16,392 22,163 22,408 20,788 15,580 8,672 8,776
-------- -------- -------- -------- -------- -------- --------
Net income ................................. $ 6,147 $ 32,104 $ 34,086 $ 31,977 $ 24,178 $ 3,561 $ 14,218
======== ======== ======== ======== ======== ======== ========
Cash Flow Data:
Net cash provided by operating activities .. $ 72,284 $ 60,589 $ 87,116 $ 83,899 $ 57,961 $ 30,168 $ 30,134
Capital expenditures ....................... (7,893) (4,358) (14,719) (14,172) (7,718) (2,628) (3,444)
Other Data:
Ratio of earnings to fixed charges(4) ...... 1.56 2.43 2.60 2.59 2.30 2.44 2.56
Net cash available for debt service(5) ..... $ 98,724 $114,824 $107,571 $115,283 $ 83,736 $ 44,897 $ 48,828
Mandatory debt service(6) .................. 72,366 68,894 65,602 62,296 59,774 30,153 28,937
Debt service coverage ratio(7) ............. 1.36 1.67 1.64 1.85 1.40 1.49 1.69
Balance Sheet Data (at End of Period):
Net property, plant and equipment .......... $617,854 $580,592 $563,766 $548,832 $534,806 $541,006 $526,729
Total assets ............................... 702,555 655,599 624,505 606,870 594,851 609,920 626,188
Long-term debt, including current maturities 454,485 423,817 394,111 365,388 336,664 351,043 400,000
Partners' capital .......................... 179,488 198,371 199,865 212,630 227,388 234,862 200,382
</TABLE>
(1) Total revenues decreased in 1999 compared to 1998 due to the implementation
of a rate reduction, as more fully described in Note 6 to the financial
statements attached to this prospectus.
(2) Includes settlement income for releasing a shipper from its remaining
long-term firm reserved transportation service contract.
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<PAGE>
(3) The payment of income taxes is the responsibility of our partners. Our
approved rates, however, include an allowance for taxes (calculated as if
we were a corporation) and the FERC requires us to record such taxes in our
partnership records to reflect the taxes payable by our partners as a
result of our operations. These taxes are recorded without regard to
whether each partner can utilize its share of our tax deductions. Our rate
base, for rate-making purposes, is reduced by the amount equivalent to
accumulated deferred income taxes in calculating the required return.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. "Earnings" represent the aggregate of (a)
pre-tax income and (b) fixed charges. "Fixed charges" represent interest
(whether expensed or capitalized) and the amortization of total debt
discount and expense.
(5) "Net cash available for debt service" means, for any period, computed on a
cash basis, the excess of cash receipts over all operating and maintenance
expenditures.
(6) "Mandatory debt service" means the sum of all scheduled interest, premium
(if any) and principal due and payable during such period in respect of all
of our indebtedness, provided that fees, including any consent fees,
payable in connection with the issuance of any additional senior
indebtedness shall be excluded.
(7) "Debt service coverage ratio" means the ratio of (a) net cash for debt
service for such period to (b) mandatory debt service for such period.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
financial statements, including the notes to our financial statements, appearing
elsewhere in this prospectus. Certain information contained in the discussion
and analysis set forth below and elsewhere in this prospectus, including
information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risk and
uncertainties. See "Risk Factors" for a discussion of important factors that
could cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained in this prospectus.
Overview
We own an interstate natural gas pipeline system extending from the
United States-Canada border near Waddington, New York through Connecticut to
South Commack, Long Island, New York. We commenced full operations on January
25, 1992, and are operated by our wholly owned subsidiary, IPOC.
In accordance with our FERC certificate, we were required to submit two
rate cases. Our first rate case filing was approved by the FERC on June 19,
1995, except for one item which involved the recovery of certain legal costs
incurred by us in defense of an investigation discussed elsewhere in this
prospectus. The rates established in such first rate case, which became
effective on February 1, 1995, resulted in a 6.5% reduction from initially
approved rates. Our second rate case was filed on December 31, 1996. As a result
of this filing an additional 31% rate reduction was implemented on an interim
basis, effective August 31, 1998, pursuant to a FERC order issued July 29, 1998
which we refer to as the July 1998 order.
During the latter part of 1999, we held negotiations with our shippers,
which led to the settlement of the second rate case as well as remaining issues
from our first rate case. This settlement was filed with the FERC on December
17, 1999, and subsequently received FERC approval on February 10, 2000. The
settlement provides for a schedule of rate reductions through the year 2003,
generally precludes additional rate cases during this period initiated by us or
any settling party and resolves all rate matters outstanding from our previous
two rate cases.
Results of Operations
<TABLE>
<CAPTION>
Year ended Six months
Revenues and Volumes Delivered December 31, ended June 30,
---------------------------- -----------------
1997 1998 1999 1999 2000
------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues (dollars in millions)
Long-term firm reserved service $149.4 $135.7 $116.6 $59.23 $58.65
Short-term firm/ interruptible/other (1) 4.2 4.7 7.3 3.61 5.90
------ ------- ------- ------ ------
Total revenues $153.6 $140.4 $123.9 $62.84 $64.55
Volumes delivered (million dekatherms)
Long-term firm reserved service 300.8 287.5 290.9 143.98 148.54
Short-term firm/ interruptible/other(1) 32.7 38.0 54.4 24.44 26.02
------ ------- ------- ------ ------
Total volumes delivered 333.5 325.5 345.3 168.42 174.56
</TABLE>
----------
(1) Other revenue includes deferred asset surcharges and park and loan service
revenue.
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<PAGE>
We receive revenues under long-term firm reserved transportation
service contracts with shippers in accordance with service rates approved by the
FERC. We also have interruptible transportation service revenues which, although
small relative to overall revenues, are at the margin and thus can have a
significant impact on our net income. Such revenues include short-term firm
reserved transportation service contracts of less than one-year term as well as
standard interruptible transportation service contracts. While it is common for
pipelines to have some form of required revenue sharing of their interruptible
transportation service revenues with long-term firm reserved service shippers,
we do not. However, we cannot assure you this will be the case in the future.
Total throughput for 1999 increased 19.7 million dekatherms, or Dth, or
6.1% over the 1998 deliveries. Most noticeable are a 49% increase in short-term
firm reserved service and a 39% increase in interruptible volumes transported.
The increase in interruptible and short-term firm reserved service volumes
reflects favorable gas prices, electric power generation demands and higher than
normal cooling loads during the summer period.
As a result of the July 1998 order, our interzone rate was reduced from
$0.65/Dth to $0.47/Dth effective August 31, 1998. The 1998 revenues reflect the
$0.65/Dth for eight months and $0.47/Dth for four months. The long-term firm
reserved service revenues for 1998 using the new rate, comparable to 1999, would
be $112.7 million. Consequently, the additional $23.0 million in 1998 revenues
is attributable to the eight months at the higher rate. The actual rates for
short-term firm reserved and interruptible service are based on day to day
market conditions. Revenue in 1999 for the two services are ahead of 1998 by 73%
or $2.7 million.
Six months ended June 30, 2000 compared to the six months ended June 30, 1999
Revenues. Total revenues for the six months ended June 30, 2000
increased $1.71 million or 2.7% compared to the six months ended June 30, 1999
due primarily to a $.9 million marketing fee earned in the six months ended of
June 30, 2000 compared to the same period of 1999.
Operating Expenses. Operating expenses increased $0.2 million for the
six months ended June 30, 2000 compared to the six months ended June 30, 1999
due to staffing levels and timing of work activities.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $1.4 million for the six months ended June 30, 2000 compared
to the six months ended June 30, 1999. This is primarily the result of a credit
adjustment of $0.8 million, relating to depreciation expense in 1998, that was
processed in January 1999. Consequently, on an adjusted basis the depreciation
and amortization expense has remained stable.
Taxes Other than Income Taxes. Taxes other than income taxes encompass
property and school taxes paid to various jurisdictions for mainline, metering
and compression facilities along the pipeline system of Iroquois. The increase
of $0.2 million for the six months ended June 30, 2000 over the six months ended
June 30, 1999 can be attributed to additional facilities in Athens, NY as well
as general increases in property values.
Other Income and Expenses. Other income and expenses for the six months
ended June 30, 2000 increased $0.2 million over the six months ended June 30,
1999, primarily due to additional interest income derived from the investment of
proceeds from the refinancing activities.
33
<PAGE>
Interest Expense. Interest expense decreased $0.7 million for the six
months ended June 30, 2000 compared to the six months ended June 30, 1999. The
decrease is primarily the result of a lower average long-term debt balance due
to scheduled debt repayment, partially offset by one month of increased debt
expense resulting from the refinancing of $322 million of debt with $400 million
consisting of $200 million of the old notes and borrowings of $200 million under
the new credit facilities.
Year ended December 31, 1999 compared to year ended December 31, 1998
Revenues. Total revenues decreased $16.5 million in 1999 compared to
1998 due to the full year impact of the rate reduction.
Operating Expenses. Operating expenses include operating, maintenance
and administrative expenses for our corporate office in Shelton and field
support for the mainline, metering and compression facilities. Operating
expenses have remained stable at about $18.2 million over the two years 1999 and
1998 despite the addition of the Athens compressor station and other facilities.
Depreciation and Amortization Expense. Depreciation and amortization
expense decreased $7.8 million or by 26% relative to the corresponding 1998
expense. The primary change in depreciation and amortization expense was due to
the new depreciation rates established in the July 1998 order. The 1998
depreciation for transmission plant was a composite rate of 4% for eight months
and 2.8% for four months. The depreciation in 1999 reflected the 2.8%, partially
reduced by a credit of $0.8 million relating to an adjustment carried forward
from the previous year.
Other Income and Expenses. Other income included certain investment
income and income adjustments not recognized elsewhere. Interest income in 1999
was $1.6 million and decreased about $0.3 million compared to 1998 as a result
of lower cash balances and reduced interest rates for investments. Other income
and expenses in 1999 included the write-off of some preliminary engineering
costs and other minor expenses. In 1998 other income of $4.4 million, net
included a lump sum settlement that we received for releasing AG Energy from its
remaining long-term contract obligation. AG Energy, which operates a power
generation facility, negotiated a settlement with Niagara Mohawk Power Corp.
regarding its power supply commitments. AG Energy in turn sought to settle its
obligation with us. We negotiated a settlement with AG Energy to release it from
its long-term firm contract commitments. The proceeds of the settlement had been
reduced in part by some minor expenses that were charged to income in 1998 as
discussed below.
Interest Expense. Interest expense decreased $2.5 million or 8% in 1999
compared to 1998 due solely to a lower average long-term debt balance.
Income Taxes. The provision for income taxes decreased $5.2 million in
1999 compared to 1998 primarily due to the decrease in income before taxes.
Net Income. As a result of the above factors, net income decreased $7.8
million in 1999 compared to 1998.
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenues. The revenues relating to long-term firm reserved service
decreased 9%, or $13.7 million, in 1998 compared to 1997. This reduction was due
mainly to the decline in service rates. The 1997 revenues reflected an interzone
rate of $0.65/Dth for the entire year. In contrast, the 1998 revenues were a
composite of the $0.65/Dth rate for eight months and the new rate of $0.47/Dth
for the remaining four-month period. Also contributing to the decrease in 1998
firm reserved service revenues were six
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months of lost revenue (approximately $0.7 million) due to the settlement of a
long-term firm reserved transportation service contract obligation with AG
Energy.
Long-term firm reserved service deliveries decreased in 1998 compared
to 1997 due primarily to a reduction in load factor (actual deliveries as a
percentage of contracted capacity) for a dual fuel electric generation power
plant in Connecticut. Although the volumes delivered under firm reserved
transportation service contracts decreased, the actual contracted volumes, for
contracts with remaining terms of three years or more, increased 11% at December
31, 1998. The total volumes contracted at December 31, 1998 were 997 MDth/d
compared to 887 MDth/d at December 31, 1997.
Operating Expenses. Operating expenses in 1998 decreased $2.0 million
or by 8% relative to the 1997 corresponding expenditures. This decrease was due
to efficiencies achieved in administration and operations as well as a $1.8
million decrease in legal and regulatory fees relative to 1997.
Depreciation and Amortization Expense. In accordance with the July 1998
order, the depreciation rate for transmission plant (mainline, metering,
compression facilities) was reduced to 2.77% effective August 31, 1998. The
depreciation rate in 1997 and 1998, through August 31, 1998, was 4%. The change
in depreciation rates and the timing of its implementation accounted for a $2.3
million, or 7%, decrease in depreciation in 1998 compared to 1997.
Other Income and Expenses. In 1998 a settlement was reached between us
and AG Energy. In exchange for releasing AG Energy from its remaining long-term
contract obligation, we received a lump sum payment. In 1997, other income
included a non-recurring adjustment which reversed a $1.5 million provision made
in 1996 for the restoration of certain wetlands. Other income in 1997 also
included $0.4 million of other non-recurring adjustments.
Interest Expense. Interest expense decreased $2.2 million in 1998
compared to 1997 due to scheduled repayment of debt. Total long-term debt was
$365.4 million and $394.1 million at December 31, 1998 and December 31, 1997,
respectively.
Income Taxes. The provision for income taxes decreased $1.6 million in
1998 compared to 1997 primarily due to the decrease in income.
Net Income. As a result of the above factors, net income decreased $2.1
million in 1998 compared to 1997.
Liquidity and capital resources
Capital expenditures in 1999 were $7.7 million compared to $14.2
million in 1998 reflecting the reduced level of construction activity over the
period. The Athens compressor station was completed and placed in-service on
November 1, 1998. In 1999 capital activity was restricted to some
post-completion costs for the Athens compressor station, $2.6 million in
preliminary engineering work for the Eastchester/New York City extension and
various general plant purchases. Iroquois expects that if it decides to pursue
any of the proposed expansion projects currently under consideration (see
"Business -- Business Strategy") it may be necessary to fund such projects
through the issuance of additional indebtedness and capital contributions by our
partners in accordance with the partnership agreement.
Capital expenditures in 1998 decreased about $0.5 million compared to
1997. The major expenditure in both years related to the construction of the
compressor station located in Athens, New York.
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Cash flow (defined as net income adjusted for non-cash items such as
depreciation and deferred income taxes) represents the cash generated from
operations available for capital expenditures, partner distributions and other
operational needs. Net cash provided by operating activities decreased by 31% or
$25.9 million in 1999 compared to 1998. Since our service rates are based on
recovering our cost of service, the change in depreciation rates and allowance
for other expenses required by the FERC rate order decreased our service rates
and consequently the total revenues received after the new rates were
implemented August 31, 1998. Net cash provided by operating activities decreased
by $3.2 million, or 3.7%, in 1998 compared to 1997. The reduction was due
primarily to the implementation of the rate decrease which adversely impacted
revenues.
Our working capital requirements have been and will continue to be
supported by a $10 million line of credit provided by a major financial
institution. There was a $3.5 million draw against this working capital facility
in 1999. There was no draw against this working capital facility in either 1998
or 1997.
The long-term portion of debt outstanding at the end of 1999 was $307.9
million, following principal repayments of $28.8 million in 1999 and $28.7
million in 1998. No additional long-term debt was incurred in 1997, 1998 or
1999.
Pursuant to the original loan agreements, we entered into interest rate
swap agreements to hedge the interest rate on the original loan agreements. As
part of the refinancing, we intend to terminate all of the original swap
agreements. The new credit facilities do not require us to enter into an
interest rate swap agreement. In order to provide interest rate certainty for
FERC rate-making and general business purposes, however, we intend to enter into
new swap agreements, so that the interest rate on at least 50% of the
outstanding balance of new credit facilities is fixed or capped.
Other
Because we own and operate an interstate natural gas pipeline system
that provides interstate transmission services, our transmission activities are
subject to regulation by the FERC under the Natural Gas Act and under the
Natural Gas Policy Act of 1978. As a result, our rates and charges for natural
gas transportation, the terms and conditions of the services we offer, the
extension, enlargement or abandonment of our jurisdictional facilities, and our
accounting, among other things, are subject to such regulation.
We are also subject to the National Environmental Policy Act and other
federal and state legislation regulating the environmental aspects of our
business. We believe that we are in substantial compliance with existing
environmental requirements. We believe that, if capital expenditures were
required in the future to meet applicable standards and regulations, the FERC
would grant the requisite rate relief so that, for the most part, such
expenditures and a return thereon would be permitted to be recovered. Based on
current information, we believe that compliance with applicable environmental
requirements is not likely to have a material effect upon our earnings or
competitive position.
The majority of our plant and equipment and inventory is subject to
ratemaking treatment, and under current FERC practices, recovery for increased
costs due to inflation for replacing facilities is limited to prudent,
historical costs. Under current FERC practice, amounts in excess of historical
cost are not recoverable between rate cases, leading to a delay between
incurrence of costs and their recovery. However, we believe that in future rate
cases we will be allowed to recover and earn a return based on increased actual
cost incurred when existing facilities are replaced and new facilities are
placed in service. Cost-based regulation along with competition and other market
factors limit our ability to take inflation into account in pricing services and
products.
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BUSINESS
History
We are a Delaware limited partnership organized in 1989. We were formed
for the purpose of constructing, owning and operating a 375-mile interstate
natural gas transmission pipeline. We currently have a contracted capacity of
987 MDth/d. We serve exclusively as a transporter of natural gas in interstate
commerce under authority granted by the FERC.
Our pipeline system commenced full operations on January 25, 1992,
creating a link between markets in the Northeast and Western Canada natural gas
supplies. Since 1992, we have expanded our system on several occasions to meet
the needs of our shippers.
We have more than doubled the amount of gas that flows through our
pipeline system on an annual basis since 1992, while our transportation rates
have decreased by approximately 36%.
Description of the Pipeline
Pipeline Facilities. Our pipeline system extends 375 miles from the
Canada-United States border near Waddington, New York to South Commack, Long
Island, New York. Our pipeline system offers access to natural gas supplies in
Western Canada to local gas distribution companies, electric utilities, electric
power generators operating in the New York and New England power grids and
natural gas marketers.
Compressor Stations. In May 1992, the FERC approved construction of our
first compressor station located in Wright, New York. This station went into
service in November 1993 and by that year-end, the volumes under contract were
increased to 648.6 MDth/d. A second compressor station, in Croghan, New York,
was commissioned in December 1994, expanding firm reserved service to 758.9
MDth/d. Our third compressor station, located in Athens, New York, commenced
operation on November 1, 1998 and increased volumes under contract to 997
MDth/d.
Metering Stations and Interconnects. We receive natural gas from the
TransCanada System at the Canada-United States border near Waddington, New York
and deliver gas in New York and Connecticut through meters tied directly to end
user markets. Our pipeline system operates and maintains a total of 18 delivery
meters to which we have primary rights with a combined capacity of approximately
3.7 million Dth/d. Each meter station consists of a separate control building
that contains gas measurement equipment and electrical and instrumentation
devices. We have incorporated a manual chart recorder system to maintain
continuous gas measurement in the event of total electronic failure. We also
deliver gas to the other major natural gas pipelines in the Northeast through
our five interconnections with four interstate pipelines, Algonquin Gas
Transmission Company, Dominion Transmission Corporation, Tennessee Gas Pipeline
Company and the TransCanada System. Such interconnections with other pipelines
provide our shippers with access to markets and natural gas supplies across
North America. We also have an interconnection with the New York Facilities
System at South Commack, Long Island. The New York Facilities System is a
pipeline system owned and used by both Consolidated Edison Company of New York,
or Con Ed, and KeySpan Energy Corporation.
Communications. We maintain 24 hour monitoring of our pipeline system
via a computerized data monitoring and control system known as SCADA
(supervisory control and data acquisition) that links all compressor stations
and maintenance bases with our gas control center in Shelton, Connecticut.
Remote facilities along the pipeline route are accessed with the use of multiple
address radio
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communication links to the satellite system which allows our pipeline system to
be operated remotely from the gas control center.
Operations. The gas control center houses the gas management, control
and computer systems required to operate our pipeline system and dispatch gas. A
backup gas control center is located in Oxford, Connecticut. In the event that
neither of these offices is available, our entire pipeline system can be
monitored and operated from the Wright compressor station. We have operated our
pipeline system with regular and continuous maintenance since we commenced
operations. Inspections and tests have been performed at prescribed intervals to
ensure the integrity of the system. These include periodic corrosion surveys,
testing of relief and over-pressure devices and periodic aerial inspections of
the right-of-way, all conforming with United States Department of Transportation
regulations. Such actions have allowed us to maintain high availability of our
system, in particular, our compressors. Availability is a measure of the overall
reliability of a compressor. Based upon our past history, we expect the average
availability of our compressor units to range from 97% to 98%, which we believe
is higher than the rest of the industry. In addition, because multiple
compressor stations are operational, our system is capable of achieving high
levels of throughput even when one or more compressor units are experiencing an
outage.
Title to Properties. We hold the right, title and interest in our
pipeline system. We obtained the right to construct and operate our pipeline
system across certain property through negotiations and through the exercise of
the power of eminent domain, where necessary. We continue to have the power of
eminent domain in each of the states in which we operate our pipeline system. We
believe that we have satisfactory title to all of the property making up our
pipeline system.
Transportation Services and Shippers
Our pipeline system's design capacity is fully subscribed under firm
reserved transportation service contracts with 33 shippers. Under the firm
reserved transportation service contracts, our pipeline receives natural gas on
behalf of such shippers at designated receipt points and transports the gas on a
firm basis up to each shipper's maximum daily quantity. As of December 31, 1999,
at least 89% of the capacity of our pipeline system was contractually committed
through at least November 1, 2011. We have also entered into several short-term
(less than one year) firm reserved transportation service contracts and numerous
interruptible transportation service contracts. Reservation and variable fees
payable under firm reserved transportation service contracts depend on the
volume of gas and the zone within which it is shipped. We are also authorized by
the FERC to enter into "negotiated rate" contracts with shippers who are
provided with a service which varies in some manner from the standard tariff
offering. To date, we have entered into a limited number of negotiated rate
contracts for short-term firm transportation service.
Our system is divided into two zones: zone one covers the mainline from
Waddington to Wright, New York and zone two covers the territory from Wright,
New York through Connecticut to South Commack, Long Island, New York.
Our shippers under firm transportation service contracts consist of
major electric and gas utility companies, marketers, gas producers and
independent electric generating companies. As of December 31, 1999 approximately
73% of our pipeline system's volume was under firm reserved transportation
service contract with shippers who are or whose guarantors are rated investment
grade by a nationally recognized credit rating agency. Approximately 36% of our
pipeline system's volume is under firm reserved transportation service contract
with shippers with a debt rating of "A" or higher. Such shippers include Bay
State Gas Company (28.8 MDth/d), Boston Gas Company (44.1 MDth/d), Brooklyn
Union Gas Company (70.8 MDth/d), New Jersey Natural Gas Company (40.5 MDth/d),
Central Hudson Gas & Electric Corporation (20.2 MDth/d), ConEd (20.2 MDth/d),
KeySpan Gas East Corporation (65.8
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MDth/d), New York State Electric & Gas Corporation (17.2 MDth/d) and Sempra
Energy Trading Services Corp. (50.9 MDth/d). Certain of our shippers are not
rated by credit rating agencies. Non-rated or non-investment grade rated
shippers account for approximately 21% of our pipeline system's volume. We have
determined under internal credit standards that those shippers or their
guarantors are creditworthy so that they are not required to post credit support
in connection with their transportation service contracts. Approximately 6% of
the capacity has been contracted by shippers who have agreed to post letters of
credit in an amount equal to three months of demand charges pursuant to their
transportation service contracts or who have made other credit support
arrangements that we find satisfactory.
Business Strategy
Our business strategy is to increase revenues and operating cash flow
by expanding our geographic and customer base in the Northeast while maintaining
our existing shippers as their contracts roll over. We will pursue this strategy
by continuing to offer cost effective, reliable transportation services to
premium markets. We are working to make our pipeline system a Northeast hub and
the pipeline system of choice in this region through selective expansion and
development of new products and services.
Expansions
We believe that opportunities exist for future expansion of our
pipeline system by adding incremental markets, installing additional compression
and extending our pipeline system to serve major new end users and to
interconnect with other pipeline systems. In particular:
o We intend to expand our system to target the growing electric
power generation market in the Northeast, with particular
emphasis on proposed facilities that are close to our
mainline. The mainline route, through New York and
Connecticut, provides a number of sites with ready access to
the electric grid. Our pipeline system's high-pressure design
gives us a competitive advantage in serving modern electric
generation facilities.
o We are able to expand our pipeline system at a low cost
through additional compression and we intend to utilize such
low cost expansion capabilities to add new shippers in new
markets while maintaining competitive rates.
o We will manage the size of our pipeline system expansions to
balance existing and incremental market volumes and avoid
excess capacity.
In addition to restrictions imposed under the indenture, our ability to
engage in any expansion or extension project will be subject to, among other
things, approval of our management committee and numerous business, economic,
regulatory, competitive and political uncertainties beyond our control.
Therefore, we cannot assure you that any expansion or extension project will be
undertaken or, if undertaken, will be successful.
Summary of Proposed Expansions
The following proposed expansions are currently under consideration:
o The proposed Eastchester/New York City extension consists of a
29-mile mainline extension running from our mainline on Long
Island near Northport, through the Long Island Sound to
Eastchester, New York. As currently planned, the line would
proceed on
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land for two miles, connecting with the northern section of
ConEd's gas distribution facilities. In the past, ConEd has
experienced reliability concerns on its system due to its
overdependence on gas supplies currently entering the western
side of its territory. In developing the Eastchester/New York
City extension, we are working closely with ConEd to alleviate
these operating concerns. We believe that because of our
location and ability to utilize Long Island Sound, an
additional means of access to the New York City market can be
developed with minimal environmental and land owner or
right-of-way issues. In contrast, other competing proposals
must access this market through congested and expensive areas.
Initial engineering has begun on this expansion in order to
achieve a proposed November 2002 in-service date. On April 28,
2000 we filed an application with FERC pursuant to section
7(c) of the Natural Gas Act for a certificate of public
convenience and necessity to construct and operate the
Eastchester/New York City extension.
o The proposed extension from Wright, New York to Albany, New
York is targeted to access a new market area that we do not
currently serve.
o The Shoreham extension has been proposed to serve a proposed
repowering of the Shoreham power station located on Long
Island, New York. The current schedule for generation
requirements at this site is 2005. Other sites in this area
are under study by power developers. When the original
pipeline was built to cross Long Island Sound, a provision was
made to install an undersea tap that will permit us to install
this line with minimal construction on land. This extension
would also support growth on eastern Long Island.
o The Millstone lateral is designed to provide service from the
mainline facility in Milford, Connecticut along the coast to
the Millstone nuclear power station site. The expectation is
that this site will be used for a new power station after the
nuclear units are retired. We are currently investigating the
markets available in this area beyond the plant.
o The Southern Hudson lateral would be an alternative to the
Millennium Pipeline currently under development by Columbia
Gas Transmission System, MCN Energy Group, TransCanada
PipeLines and Westcoast Energy. This lateral would represent a
40-mile interconnection from Pleasant Valley, New York to the
New York-New Jersey border.
There can be no assurance that any of the above proposed expansions
will be undertaken.
Development of New Products and Services
We will continue to develop custom products and services which provide
value to selected market niches, such as the electric power generation sector
and large energy marketers, as well as our traditional customers, the local
distribution companies. Due to the unique capabilities of our "state of the art"
high-pressure pipeline system, we have a distinct advantage in developing a
variety of specialized services which cannot be provided, or provided cost
effectively, by competing pipelines in the Northeast. In particular:
o Our modern facilities enable us to provide a variety of sought
after services which can be customized to provide added value
to the operating capabilities of a particular shipper (for
example, balancing or swing services which allow a shipper,
such as an electric power generator, to modify the amount and
timing of gas deliveries to match the operating profile of its
plant).
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o Through market expansions and the opportunities created by our
interconnects with four other major pipelines in the Northeast
(Algonquin Gas Transmission Company, Dominion Transmission
Corporation, Tennessee Gas Pipeline Company and the
TransCanada System), we expect our pipeline system to become a
Northeast hub, providing our shippers with increasingly
diversified sources of gas supply and consumer markets. The
development of our system as a Northeast hub will effectively
create a more liquid market for buying and selling gas and
transportation capacity.
o As our hub strategy develops and we add incremental end-use
markets, we intend to construct or lease storage facilities
which will enhance the attractiveness, availability and
reliability of the services we provide to our shippers.
Demand for Gas
We are a market driven pipeline. Our business strategy is based on the
demand for gas in the Northeast. The Northeast is comprised of approximately 12
million natural gas customers, who account for 19% of all natural gas customers
in the United States. In 1998, customers in the Northeast consumed approximately
3,000 TBtu of natural gas, representing approximately 15% of total United States
natural gas demand of approximately 20,000 TBtu.
The Northeast has experienced a steady increase in natural gas demand
between 1993 and 1997. Demand dropped in 1998 primarily due to warm winter
weather. The overall natural gas demand in the Northeast is expected to grow by
2-3% per year through 2025. The bulk of the growth in the Northeast is expected
to occur in the electric generation sector which is projected to grow by 5-8%
per year.
The increase in natural gas usage by the electric generation sector
results from the combined effects of continued growth in electricity demand,
deregulation of the electricity market and increasing environmental
requirements. Approximately 38,000 megawatts of natural gas-fired generation
capacity has been proposed for the Northeast, requiring 1,241 TBtu per year of
natural gas. Although not all will be built, these units will add new capacity
and replace some of the older, inefficient units in the Northeast. Combined
cycle plants may also, in the longer term, replace nuclear units, which are
likely to be retired rather than have their licenses renewed. Electric sector
demand will also require some unique features, including a guarantee of minimum
pressure levels and swing services designed to meet rapid changes in electricity
demand. Currently, we are the only system in the Northeast able to guarantee
these pressure levels due to the compression installed on our pipeline system.
The Northeast residential, commercial, and industrial sectors are
expected to show modest growth per year through 2025. Natural gas remains
overwhelmingly the fuel of choice in the industrial sector, while the commercial
and residential sectors in the Northeast have historically experienced lower
usage.
Natural gas demand in the Northeast is highly seasonal. The peak months
for natural gas demand occur in the winter season for the residential,
commercial, and industrial sectors. For the electric generation sector, the peak
months occur in the summer season. The summer peaking needs of electric
generators help balance seasonality and level out our pipeline's throughput.
Gas Supply
The Western Canada Sedimentary Basin is currently, and is expected to
remain, our pipeline system's primary source of natural gas. Sable Island and
other natural gas discoveries offshore of Nova Scotia may also provide sizeable
gas supplies in the future. Advances in technology will increase the
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ultimate recoverable reserves from the Western Canada Sedimentary Basin and
offshore basins and bring gas supplies on stream that are currently not
economical to produce.
The Western Canada Sedimentary Basin constitutes the major natural gas
producing area of Canada, characterized by abundant, relatively low cost natural
gas reserves, a reliable and expanding transportation infrastructure and
competitive prices. The Western Canada Sedimentary Basin contains as much as 335
trillion cubic feet, or Tcf, of conventional marketable natural gas and an
additional 75 Tcf of unconventional marketable natural gas from coalbed methane.
This compares to the potential undiscovered recoverable resource of 357 Tcf from
the Gulf of Mexico and 30 Tcf from Offshore Nova Scotia.
FERC Regulation and Tariff Structure
General. We are subject to extensive regulation by the FERC as a
"natural gas company" under the Natural Gas Act. Under the Natural Gas Act and
the Natural Gas Policy Act of 1978, the FERC has jurisdiction over us with
respect to virtually all aspects of our business, including transportation of
gas, rates and charges, construction of new facilities, extension or abandonment
of service and facilities, accounts and records, depreciation and amortization
policies, the acquisition and disposition of facilities, the initiation and
discontinuation of services, and certain other matters. We, where required, hold
certificates of public convenience and necessity issued by the FERC covering our
facilities, activities and services.
Our rates and charges for transportation in interstate commerce are
subject to regulation by the FERC under the applicable FERC regulations. FERC
regulations and our FERC approved tariff allow us to establish and collect rates
designed to give us an opportunity to recover all actually and prudently
incurred operations and maintenance costs of our pipeline system, taxes,
interest, depreciation and amortization and a regulated equity return. The FERC
has granted us the authority to negotiate rates with certain current and
potential shippers. The flexibility of such rates will allow us to respond to
market conditions, as well as permit us to negotiate rates or a rate formula
that will meet the specific needs of individual shippers. The ability to
negotiate rates will be an important tool in attracting the flourishing electric
generation market to our system.
Rates charged by natural gas companies may not exceed the just and
reasonable rates approved by the FERC. In addition, natural gas companies are
prohibited from granting any undue preference to any person, or maintaining any
unreasonable difference in their rates or terms and conditions of service.
In general, there are two methods available for changing the rate
charged to shippers, provided that the transportation service contracts do not
bar such changes. Under Section 4 of the Natural Gas Act and applicable FERC
regulations, a pipeline may voluntarily seek a change, generally by providing at
least 30 days' prior notice to the FERC of the proposed changes and filing the
appropriate rate change application. If the FERC determines that a proposed rate
change may not be just and reasonable as required by the Natural Gas Act, then
the FERC may suspend the rate change for up to five months and set the matter
for an investigation. Subsequent to any suspension ordered by the FERC, the
proposed change may be placed in effect by the pipeline pending final FERC
review. If the pipeline chooses to do this, any increase reflected in the
proposed changes will, in the ordinary course of events, be collected subject to
refund. We are currently under no obligation to make any such filing under
Section 4 of the Natural Gas Act. Under Section 5 of the Natural Gas Act, on its
own motion or based on a complaint filed by a customer of the pipeline or other
interested person, the FERC may initiate a proceeding seeking to compel a
pipeline to change any rate or term or condition of service which is on file. If
the FERC determines that the existing rate or condition is unjust, unreasonable,
unduly discriminatory or preferential then any rate reduction or change in
service term or condition which is ordered at the
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conclusion of such a proceeding is generally effective prospectively from the
date of the order requiring such change.
The nature and degree of regulation of natural gas companies have
changed significantly during the past 10 years, and there is no assurance that
further substantial changes will not occur or that existing policies and rules
will not be applied in a new or different manner.
Regulatory Proceedings. On November 29, 1996, we submitted a general
rate change application to the FERC, and in the December 31, 1996 order known as
the suspension order, the FERC permitted the proposed rates to become effective
(with one exception noted below). On July 29, 1998, the FERC issued the July
1998 order, which modified significant portions of an earlier administrative law
judge's initial decision, resulting in a reduction of our 100% load-factor
interzone maximum rate. We filed a request for rehearing of the July 1998 order,
and by order issued March 11, 1999, the FERC granted rehearing of one aspect of
the July 1998 order and permitted us to utilize an equity structure of 35.21% in
designing our rates. We then filed a petition for review of other aspects of the
July 1998 order in the United States Court of Appeals for the District Court of
Columbia Circuit.
In addition to addressing our recently filed rate change, the
suspension order granted summary disposition on one issue outstanding from our
prior rate proceeding. The FERC, on June 19, 1995, approved a stipulation and
consent agreement in our prior rate proceeding which resolved all issues except
for the accounting and recovery of legal defense costs incurred in connection
with certain criminal and civil investigations into the initial construction of
our pipeline system. We sought, and FERC denied, rehearing of its orders
regarding those legal defense costs in our prior rate proceeding. On April 18,
1997, we filed a petition for review of the FERC orders addressing legal defense
costs in the United States Court of Appeals for the District of Columbia. The
suspension order directed us to remove approximately $11.7 million in plant and
associated costs from our proposed rate base. We sought rehearing of the
suspension order regarding this issue, which was subsequently denied by the
FERC. Following such denial, we filed a petition for review of the suspension
order with regard to legal defense costs in the United States Court of Appeals
for the District of Columbia, which the court consolidated with our earlier case
regarding the same issue.
After extensive negotiations with the various parties, on December 17,
1999, we filed with the FERC an offer of settlement, which we refer to as the
rate settlement. By order dated February 12, 2000, the FERC approved the rate
settlement, effectively resolving all remaining issues in our rate proceedings
as described above. The principal elements of the rate settlement are:
o a reduction in maximum demand rates phased-in over a three
year period beginning January 1, 2001;
o elimination of the proposed legal defense costs surcharge and
agreement of all parties not to seek recovery of such costs;
o withdrawal of certain pending petitions for review regarding
FERC actions on our general rate change application;
o a rate moratorium under which we may not file to increase
rates pursuant to Section 4 of the Natural Gas Act prior to
January 1, 2004 and no party may file for reductions in rates
pursuant to Section 5 of the Natural Gas Act prior to April 1,
2003 or receive such reductions prior to January 1, 2004 (the
rate settlement contains certain limited exceptions to the
moratorium for tariff changes not intended to effect changes
in our firm reserved service quality or rates); and
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o retention by Iroquois of revenues associated with new volumes,
facilities, services or classes of service added after
November 1, 1999.
As provided in the rate settlement, our Zone 2 demand rate will
decrease by $0.00973/Dth effective January 1, 2001, by $0.02433/Dth effective
January 1, 2002; and by $0.01460/Dth effective January 1, 2003 for a total
cumulative reduction of $0.04866/Dth. The rate settlement also provides for
similar reductions in other Iroquois rates. The total estimated revenue impact
of these rate reductions is $2.3 million in 2001, $5.7 million in 2002 and $3.4
million in 2003 based on 1999 long-term firm reserved transportation service
contracts. We do not expect these reductions in our service rates to have a
material adverse impact on our ability to make payments on the notes.
Rulemaking on FERC's Regulation of Transportation Services. On February
9, 2000, the FERC adopted its Order No. 637. The order provided the following:
o to institute a two-year waiver of price ceilings on short-term
released capacity (the FERC may later consider a permanent
waiver based on the experience gained through this
experiment);
o to allow pipelines to make pro forma tariff filings proposing
peak and off-peak rates for short-term services;
o to allow pipelines to propose term-differentiated rates for
short-term and long-term services, with any "excess" revenues
shared equally with long-term customers;
o to change regulations regarding scheduling procedures,
capacity segmentation, and pipeline penalties to allow
shippers to utilize pipeline capacity more efficiently;
o to narrow the right of first refusal for future long-term
contracts while protecting the right of captive customers to
renew long-term contracts; and
o to improve reporting requirements to increase price
transparency and provide additional information on individual
transactions to assist the FERC in its effort to monitor the
functioning of natural gas markets.
Order No. 637 is intended to increase efficiency as the market for
natural gas continues to become more open and competitive. As a result of Order
No. 637, interstate pipelines should have greater flexibility in tailoring the
firm reserved services they offer to customer requirements and customers should
have improved opportunities to resell their firm reserved service in the
secondary market, thus potentially enhancing the value of firm pipeline service
to customers.
On May 19, 2000, the FERC adopted Order No. 637-A, which addressed the
requests for rehearing of Order No. 637. The rehearing order largely denied
rehearing on the above-referenced Order No. 637 matters, but granted rehearing,
in part, to make clarifying adjustments to the regulations regarding penalties,
reporting requirements and the right-of-first refusal.
While Order No. 637 requires some significant changes in the
functioning of the secondary market for firm capacity, its implementation should
not materially affect the level of revenues we receive. We will have to incur
some costs to modify our tariff and information systems to allow us to comply
with Order No.'s 637 and 637-A. However, we do not expect these expenditures to
be material.
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Insurance
Our insurance program includes general liability insurance, auto
liability insurance, worker's compensation insurance and all-risk property,
boiler and machinery and business interruption insurance, in amounts which, in
our reasonable good faith opinion, are no less favorable than the insurance
coverage carried by companies engaged in similar businesses and owning
properties similar to ours.
Safety Regulations
Our operations are subject to regulation by the United States
Department of Transportation under the Natural Gas Pipeline Safety Act of 1969,
as amended, which we refer to as the NGPSA, relating to the design,
installation, testing, construction, operation and management of our pipeline
system. The NGPSA requires any entity that owns or operates pipeline facilities
to comply with applicable safety standards, to establish and maintain inspection
and maintenance plans and to comply with such plans.
The NGPSA was amended by the Pipeline Safety Act of 1992 to require the
Department of Transportation's Office of Pipeline Safety to consider protection
of the environment when developing minimum pipeline safety regulations. In
addition, the amendments required that the Department of Transportation issue
pipeline regulations concerning, among other things, the circumstances under
which emergency flow restriction devices should be required, training and
qualification standards for personnel involved in maintenance and operation, and
requirements for periodic integrity inspections, as well as periodic inspection
of facilities in navigable waters which could pose a hazard to navigation or
public safety. In addition, the amendments narrowed the scope of gas pipeline
exemption pertaining to underground storage tanks under the Resource
Conservation and Recovery Act. We believe our operations comply in all material
respects with the NGPSA, but the industry, including us, could be required to
incur additional capital expenditures and increased costs depending upon final
regulations issued by the Department of Transportation under the NGPSA.
Environmental Matters
Environmental laws and regulations have changed substantially and
rapidly over the last 20 years, and we anticipate that there will be continuing
changes. Increasingly strict federal, state or local environmental restrictions,
limitations and regulations have resulted in increased operating costs for us,
and it is possible that the costs of compliance with environmental laws and
regulations will continue to increase. To the extent that environmental costs
are normal costs of doing business, these costs would be recoverable under our
tariff.
Based on current information, we do not anticipate any material change
in environmental laws that will have a material adverse effect on us.
Current Operations. At each of our three natural gas compressor
stations, environmental standards and controls are routinely monitored and, to
date have been found to be in compliance in all material respects with all
environmental permits and regulations.
Settlement of Federal and State Investigations. On May 23, 1996, as
part of a "global" resolution of federal criminal and civil investigations of
the construction of certain of our pipeline facilities, IPOC pled guilty to four
felony violations of the Clean Water Act and entered into consent decrees under
the Clean Water Act in four federal judicial districts. Although not a named
defendant, we signed the plea agreement and consent decrees and are bound by
their terms. We also entered into related settlements with the State of New
York, the FERC and the Department of Transportation. Under these various
agreements, we and IPOC agreed to the payment of $22 million in fines and
penalties and are taking
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certain actions and adopting a number of procedures to reduce our risk of
noncompliance with environmental regulations in the future. In August 1996, as a
result of settlement of the federal proceedings, IPOC was placed by the
Environmental Protection Agency on a list which excludes IPOC from federal
financial and other assistance under federal programs and limits IPOC's ability
to do business with U.S. government agencies. This has not had and we do not
expect it to have a material adverse impact on our business.
Employees
We do not directly employ our personnel. Our personnel and services are
provided to us by IPOC, our wholly owned subsidiary, pursuant to the operating
agreement with IPOC. We reimburse IPOC for all reasonable expenses incurred in
operating our pipeline system including salaries and wages and related taxes and
benefits. As of December 31, 1999, IPOC had 94 employees. Pursuant to the
operating agreement, certain field operating and maintenance services are
provided to us by Tennessee Gas Pipeline Company, which we refer to as Tennessee
Gas. Such services include, but are not limited to, routine and emergency
repairs, right-of-way upkeep and surveillance and engineering and technical
services. As of December 31, 1999, 21 Tennessee Gas employees are dedicated to
our system. Some Tennessee Gas personnel share their time between the Tennessee
Gas system and our pipeline system. The field service agreement with Tennessee
Gas is in effect to December 31, 2000, and year to year thereafter, until
terminated by either party with one year's notice. IPOC has notified Tennessee
Gas of its intention to take over the field operation from Tennessee Gas in
2001.
Legal Matters
We are not a party to any litigation that would reasonably be expected
to have a material impact on our financial condition or results of operations.
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<PAGE>
SUMMARY OF PRINCIPAL AGREEMENTS
The following is a brief summary of certain provisions of our principal
agreements. Such summaries do not purport to be complete and are qualified in
their entirety by reference to the respective agreements.
Transportation Service Contracts
We provide firm and interruptible transportation service on an open
access, first-come, first-served basis to any entity desiring transportation,
subject to capacity availability, the terms of our FERC approved tariff (which
includes rate schedules for firm reserved and interruptible transportation
service and park and loan service) and our gas transportation service contracts.
Principal provisions of the transportation contracts for firm reserved,
interruptible and park and loan service are summarized below.
Transportation Contracts for Firm Reserved Service
We have 36 transportation contracts with 33 shippers for firm reserved
service, which we furnish under our FERC approved tariff. Currently, our
pipeline system's design capacity is fully subscribed under such contracts. The
firm reserved transportation service contracts provide for transportation
service by us of natural gas on behalf of shippers between the interconnection
points on our pipeline system. These contracts remain effective year to year
after the initial term unless terminated by the shippers or by us, subject to
relevant notice provisions and certain rights of first refusal described below.
Reservation. Shippers under firm reserved transportation service
contracts reserve the right to cause us to receive from or for the account of
shippers at each receipt point on any day such quantities of natural gas up to
the maximum input quantity for such receipt point as set forth on the schedule
attached to such contracts. We are required to make available to or on behalf of
shippers at each delivery point on any day the equivalent quantity not to exceed
the maximum equivalent quantity for each delivery point as set forth on the
schedule attached to such contracts.
Rate. The minimum and maximum rates for the firm reserved service are
set forth in our FERC approved tariff. We have the ability to discount rates to
certain shippers, on a non-discriminatory basis, for the competitive purposes
specified in our FERC approved tariff. In all cases, the firm reserved service
rate is in two parts: a monthly demand charge based on the maximum capacity
reserved under the contract (without regard to actual usage), and a commodity
charge based on the actual capacity used. We retain the right to apply to the
FERC for rate changes; the shippers retain the right to oppose any such rate
changes.
Availability. The availability of firm reserved service is governed by
our FERC approved tariff. Service will be made available for the term and
quantities specified by the shipper when the shipper meets the qualifications
set forth in our tariff, and firm capacity is available. Firm reserved service
takes priority over interruptible service.
Billing. The provisions governing monthly billing and payment are set
forth in the general terms and conditions of our FERC approved tariff. Invoices
are submitted to the shippers by the ninth business day after the end of the
month. If actual amounts are not known, we may submit estimated invoices subject
to later adjustment. Payments are due by the 20th day of the month (or, in the
case of estimated invoices, 10 days after receipt of such invoices).
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Capacity Release. Our FERC approved tariff provides the opportunity for
each shipper under the firm reserved transportation service contracts to release
all or any part of the capacity it has reserved under such contracts on a
temporary or permanent basis for any length of time for use by a replacement
shipper. The releasing shipper's transportation demand charge must be credited
each month by the transportation demand charge billed to replacement shippers.
Such releasing shipper remains liable to us for the full amount of the
transportation demand charge.
Term. There is no minimum or maximum term for firm reserved
transportation service contracts. Upon expiration of the initial term, the
contract will continue from year to year, unless terminated. Shippers may
terminate their contracts only after providing one year's notice. Following any
such termination, we will offer the open capacity to potential shippers.
Correspondingly, we may elect to terminate a long-term firm reserved
transportation service contract after its initial term. In that event, we must
provide the existing shipper with written notice, which is based on the initial
term of the contract. Contracts for more than five years require 30 months'
written notice to terminate. Contracts between 30 months or more but less than
five years require 18 months' prior written notice. Contracts for more than one
year but less than 30 months require 12 months' written notice prior to
termination. The original shipper has the right of first refusal to recontract
for the available capacity provided that such shipper matches the bids proffered
by potential shippers or recontracts for a period of at least five years.
Transfer and Assignment. Firm reserved transportation service contracts
are not transferable to a non-affiliated entity without the prior consent of the
other party.
Nonrecourse Obligations. Our firm reserved transportation service
contracts are nonrecourse to our partners and to IPOC except, in the case of
IPOC, where the claim results from its gross negligence or willful misconduct.
Transportation Contracts for Interruptible Service
We also provide interruptible transportation service for a variety of
shippers, utilizing capacity in excess of the shippers' subscriptions under the
firm reserved transportation service contracts which the shippers under these
contracts from time to time do not require to meet their needs.
Availability. The availability of interruptible service is also
governed by our FERC approved tariff. Service will be made available for the
term and quantities specified by the shipper when the shipper meets the
qualifications set forth in our tariff and interruptible capacity is available.
If these conditions are satisfied, then service will be made available for the
term and quantities specified by the shipper. Firm reserved service takes
priority over interruptible service, which is subject to such curtailment or
interruption as we deem necessary.
Rates. The minimum and maximum rates for interruptible service are set
forth in our FERC approved tariff according to zone. We have the ability to
discount the rates to certain shippers, on a non-discriminatory basis, for the
competitive purposes specified in our FERC approved tariff. In all cases, the
rate is a one-part commodity rate, with no monthly demand charge component. We
retain the right to apply to the FERC for rate changes; the shippers retain the
right to oppose any such rate changes.
Billing. The provisions governing monthly billing and payment are set
forth in the general terms and conditions of our FERC approved tariff and are
the same as those for firm reserved service.
Term. There is no minimum or maximum term for interruptible service.
Either party may terminate upon 90 days' prior written notice to the other
following expiration of the initially agreed term.
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Transfer and Assignment. Interruptible transportation service contracts
are not transferable to a non-affiliated entity without the prior consent of the
other party.
Nonrecourse Obligations. Our interruptible transportation service
contracts are nonrecourse to our partners and to IPOC except, in the case of
IPOC, where the claim results from its gross negligence or willful misconduct.
Park and Loan Service Contracts
We provide a specialized service, referred to as park and loan, which
provides the shippers, particularly gas marketers, with considerable flexibility
in how natural gas is delivered to the shippers' facilities. Under the terms of
this service, shippers may "store" natural gas on our pipeline system for future
delivery. The shippers may also "borrow" gas from our pipeline system with
repayment in kind at a later date. We were the first pipeline system in the
Northeast to offer park and loan services to shippers. The rates for the park
and loan service are specified in the rate schedule in our FERC approved tariff,
provided, however, that we may render park and loan service at a discounted
rate. We believe that our ability to offer the park and loan service enhances
the value our shippers receive from our other transportation services.
Shipper Guarantees
Our FERC approved tariff requires that, subject to certain exceptions,
firm transportation shippers must have an investment grade rating or obtain a
written shipper guarantee from a third party with an investment grade rating.
Such shipper guarantees provide that, if a shipper fails to perform any of its
financial obligations under its firm reserved transportation service contract,
then the shipper guarantor shall perform such obligations in a timely fashion.
Operating Agreement
On January 10, 1989, we entered into the operating agreement with IPOC
pursuant to which we appointed IPOC as our operator. The operating agreement was
amended as of February 28, 1997.
IPOC has the authority to execute the following contracts on our
behalf, without the approval of the management committee:
o firm reserved transportation service contracts for a term not
to exceed one year and not requiring incremental expansion of
the pipeline;
o interruptible transportation service contracts;
o capacity release agreements;
o transportation contracts with replacement shippers; and
o park and loan service contracts.
Design, Construction, Operation, Maintenance and Administration
Responsibilities. IPOC has responsibility for the day-to-day management of the
design, construction, operation, maintenance and administration of the
facilities. It is authorized, without prior approval by the management
committee, to develop and construct facilities which (1) do not exceed the cost
of $1 million, (2) are constructed pursuant to our FERC certificate, and (3)
have been included in the most recent budget approved by the
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management committee. In addition, IPOC and Tennessee Gas have executed the
field service agreement pursuant to which Tennessee Gas performs certain
operating and maintenance responsibilities for our pipeline system. Tennessee
Gas' principal responsibilities involve:
o provision of field operation and maintenance services;
o preparation of budgets and maintenance of accounts for field
operation; and
o maintenance of records and accounts related to our operation
and maintenance.
IPOC retains responsibility for receiving and accepting transportation
volume nominations from our shippers and scheduling such volumes for dispatch.
Tennessee Gas' compensation is limited to monthly reimbursement of all costs
incurred in performing its responsibilities under the field service agreement
with Tennessee Gas. The field service agreement with Tennessee Gas is in effect
until December 31, 2000, and year to year thereafter until terminated on twelve
months' notice. IPOC has notified Tennessee Gas of its intention to take over
the field operation from Tennessee Gas in 2001.
Employees, Consultants and Contractors. IPOC may use the services of
our partners' corporate affiliates on its behalf or the services of independent
contractors. IPOC pays the reasonable expenses in connection with employee
salaries and administrative expenses it or any of our partners' affiliates has
incurred. IPOC will require its employees and contractors to perform their
responsibilities in accordance with sound industry practice and in compliance
with all relevant laws and regulations.
Financial and Accounting. We will reimburse IPOC for all reasonable
costs incurred on our behalf. We may, within 24 months of the expenditure,
dispute any expenditure incurred by IPOC in connection with the design,
construction, operation, maintenance or administration of our facilities on the
ground that it was not reasonable, authorized or proper. IPOC is responsible for
reviewing from time to time the rates and fees charged for transportation
services and recommending revisions in rates and fees to reflect changes in
costs or other conditions of service.
Agent. In performing services pursuant to the operating agreement, IPOC
acts as our agent.
Intellectual Property. Any inventions or copyrights developed by IPOC
or its employees in performance of services under the operating agreement will
be assigned to us.
Indemnification, Claims, Litigation, Insurance and Liability. IPOC will
indemnify and hold us harmless from and against all acts or failures to act by
IPOC which are not within the scope of the operating agreement and claims for
non-payment by persons employed by IPOC. We have included a provision in each
transportation service contract requiring the shipper, in the absence of gross
negligence or willful misconduct, to waive all claims against IPOC in connection
with the performance of its duties. All claims against us arising out of the
design, construction, operation, maintenance or administration of the
facilities, not covered by insurance, will be settled, litigated or defended by
IPOC, when (1) the amount involved is less than $100,000, no injunctive or
similar relief is sought, and no criminal sanction is sought, or (2) the action
is one for which IPOC is required to provide indemnification. Otherwise, the
management committee will control the settlement or defense of such claims.
Insurance. IPOC will carry and maintain insurance which it reasonably
deems adequate to protect itself, its officers, agents and employees against all
actions, claims, demands, costs and liabilities arising out of negligence. We
and IPOC agree that any claim against us may be made only against our assets and
not against our partners or their assets, other than their interests in us.
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Term. The operating agreement will continue until November 30, 2011 and
yearly thereafter, subject to termination by either party upon one year's
written notice.
Termination. Either party may terminate the operating agreement by
written notice to the other party in the event of a material default by one
party in the performance of its obligations and such material default continues
for 60 days after notice to the defaulting party by the other party. The
operating agreement will also terminate upon one year's prior notice to us from
IPOC, when:
o any of our partners which is an affiliate of IPOC is deemed
under the terms of the partnership agreement to have withdrawn
from our partnership, unless 65% of the interests of the
remaining partners vote to retain IPOC as operator within 30
days of the withdrawal of such affiliate;
o any of our partners which is an affiliate of IPOC transfers
all or substantially all of its partnership interest, unless
permitted under certain sections of our partnership agreement;
o we are dissolved;
o we and IPOC mutually agree to terminate the operating
agreement; or
o IPOC becomes bankrupt or insolvent.
Survival of Obligations. The termination of the operating agreement
will not release either party from any obligation which it owes to the other
party arising from any transaction, commitment or agreement entered into, loss,
cost, damage, expense or liability which occurred or arose prior to termination.
Force Majeure. If either party, by reason of a force majeure, is unable
to perform its obligations, then upon one party giving notice to the other
party, the obligations of both parties will be suspended for the period of such
force majeure condition.
Partnership Agreement
Our partnership agreement is dated as of November 30, 1989 and was
amended as of February 28, 1997 and January 27, 1999.
Voting. For the purposes of voting under the partnership agreement, the
partners are organized into three blocs: a "Canadian bloc," an "LDC bloc," and a
"U.S. interstate bloc"; the blocs hold interests in the partnership of 35%, 33%
and 32%, respectively.
o the Canadian bloc is comprised of TransCanada Iroquois Ltd.
and TCPL Northeast Ltd.;
o the LDC bloc is comprised of NorthEast Transmission Company,
TEN Transmission Company, NJNR Pipeline Company, LILCO Energy
Systems, Inc. and JMC Iroquois, Inc.; and
o the U.S. interstate bloc is comprised of ANR New England
Pipeline Co., Dominion Iroquois, Inc. and ANR Iroquois, Inc.
Each partner in a bloc agrees to vote in the same manner as all other
partners in that bloc pursuant to a bloc voting agreement.
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Expansion. The partnership agreement requires us not to incur any
material costs or obligations with respect to an incremental expansion which
will modify, improve or expand our pipeline system or be obligated under any
financing commitment related to such incremental expansion (except for a normal
financing commitment fee) until certain conditions are met, including:
o transportation service contracts for the use of the capacity
of such incremental expansion have been executed with one or
more shippers approved by the management committee; and
o the management committee has approved a commitment to
construct or acquire such incremental expansion. The votes
required shall be 65% of the percentage interests of our
partners and the vote of at least one general partner from
each of the voting blocs.
Capital Contributions. Each partner is obligated to make a cash capital
contribution to the equity required to construct any incremental expansion to
our pipeline system which has been approved by the management committee in an
amount equal to its percentage partnership interest, less any amounts previously
contributed or committed under the financing commitments. Each partner is also
required to contribute capital for operating costs in an amount equal to its
percentage partnership interest, if approved by certain percentage interests of
the partners as set forth in the partnership agreement. If a partner defaults on
making a required capital contribution, such partner will have been deemed to be
withdrawn from the partnership; if the management committee determines that the
unpaid capital contribution is required by the partnership to meet its cash
needs, the remaining partners shall make the required contribution.
Allocation of Profits and Losses. All profits and losses of the
partnership are allocated to the partners in accordance with their respective
percentage interests in the partnership unless otherwise agreed by the partners.
Distributions. Distributions are determined by the management committee
and made to all partners simultaneously in proportion to their respective
percentage interests, unless the management committee determines otherwise or
such distribution would result in a default under any of our agreements.
Management. All major policies are decided by the management committee
and operating responsibility has been delegated to IPOC, subject to supervision
and review by the management committee. The management committee consists of
representatives for each partner. The partnership agreement requires approval of
65% of the management committee for certain actions, including:
o approval of the operating budget;
o execution of interim financing agreements and commitments
relating to our pipeline system and any amendments thereto;
and
o capital contributions for operating costs of $10 million or
less.
At least a 75% affirmative vote of the management committee is required
for certain actions, including:
o execution of permanent financing agreements and commitments
related to our pipeline system;
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o distributions to the partners; and
o capital contributions for operating costs exceeding $10
million.
We also have an executive committee, the members of which are also
members of the management committee, which has the following responsibilities:
o to review and authorize proposed expenditures not otherwise
permissible under the terms of the operating agreement;
o to review and recommend approval of financing, incremental
expansions, and other proposals;
o to review and make recommendations to the management committee
on significant policy issues and business plans; and
o to perform certain other duties set forth in the terms of
reference for the executive committee.
The partnership agreement provides for four other committees: an audit
committee (the members of which are also members of the management committee), a
finance advisory committee, a legal advisory committee and a human resources
committee (the members of which are also members of the management committee).
Limitation of Liabilities. Except as provided by law or as otherwise
agreed in writing, our liabilities are to be satisfied first by our assets, and
then by our partners if our assets are not sufficient. However, the aggregate
liability of any limited partner is limited to the sum of:
o the amount of such limited partner's capital account in
addition to any unpaid installment of capital contributions
and accrued interest; plus
o any distributions made to such limited partner if the fair
value of our remaining assets after the distribution is not
sufficient to pay our outstanding liabilities, excluding
partners' liabilities due to capital contributions; plus
o cash capital contributions returned to such limited partner,
for one year after such return; and the amount of any
wrongfully returned part of such partner's capital
contribution, for three years after such return.
Limited Transfer of Partnership Interests and Withdrawal. Partners may
only transfer their partnership interests under certain limited circumstances. A
partner shall be deemed to have withdrawn from our partnership if that partner
is subject to an order of bankruptcy or insolvency.
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MANAGEMENT
Executive Officers
The following table sets forth the names, ages and positions of the
executive officers of IPOC.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Craig R. Frew 49 President
Paul Bailey 53 Vice President and Chief Financial Officer
Jeffrey A. Bruner 41 Vice President, General Counsel and Secretary
Herbert A. Rakebrand III 43 Vice President, Marketing and Transportation
David J. Warman 42 Vice President, Engineering and Operations
</TABLE>
Craig R. Frew is President of IPOC. Mr. Frew has 28 years of experience
in the natural gas industry. Mr. Frew joined TransCanada PipeLines Limited in
1976 and transferred to IPOC in 1994 while TransCanada PipeLines Limited was the
operator of our pipeline system. With TransCanada PipeLines Limited, Mr. Frew
held a number of senior management positions including the position of President
of its wholly owned subsidiary, Western Gas Marketing Limited, from 1989 to
1993. Mr. Frew currently serves on the board of directors of the New England Gas
Association and the Interstate Natural Gas Association.
Paul Bailey is Vice President and Chief Financial Officer of IPOC. Mr.
Bailey has 18 years of experience in the natural gas industry and an additional
14 years in the electric industry. Mr. Bailey joined TransCanada PipeLines
Limited in 1982 and transferred to IPOC in 1992 while TransCanada PipeLines
Limited was the operator of our pipeline system. With TransCanada PipeLines
Limited, Mr. Bailey held a variety of senior management positions in the
accounting and finance areas of the company. From 1968 to 1982 Mr. Bailey was
employed by Ontario Hydro and held a number of positions in the accounting and
financial planning departments.
Jeffrey A. Bruner is Vice President, General Counsel and Secretary of
IPOC. Mr. Bruner joined IPOC in 1992. Prior to joining IPOC he was with Transco
Energy Company for eight years where he held various positions in the legal
department, including the position of General Attorney in charge of the legal
department for Transcontinental Gas Pipe Line Corporation, an interstate
pipeline affiliate of Transco Energy.
Herbert A. Rakebrand III is Vice President of Marketing and
Transportation of IPOC. Mr. Rakebrand has 20 years of experience in the natural
gas industry. Mr. Rakebrand assisted in establishing our transportation
department, having joined IPOC in 1991 prior to the pipeline being placed in
service. From 1980 to 1991 Mr. Rakebrand was employed by the Long Island
Lighting Company. Mr. Rakebrand held various positions in the gas engineering
and gas supply departments.
David J. Warman is Vice President of Engineering and Operations of
IPOC. Mr. Warman joined TransCanada PipeLines Limited in 1982 and transferred to
IPOC in 1990 while TransCanada PipeLines Limited managed the construction of our
pipeline system. With TransCanada PipeLines Limited, Mr. Warman held a number of
positions in the engineering area, in particular pipeline design, materials
engineering, pipeline construction and project management.
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Management Committee Composition
The representatives on our management committee are employed at
affiliates of our partners. The following table sets forth the names of the
representatives on our management committee, the names of the affiliates of our
partners at which they are employed and the names of relevant partners.
<TABLE>
<CAPTION>
Name Affiliate at Which Employed Partner Represented
---- --------------------------- -------------------
<S> <C> <C>
James M. Lane ANR Pipeline Company ANR Iroquois, Inc./ANR New
England Pipeline Co.
Paul D. Koonce Dominion Resources, Inc. Dominion Iroquois, Inc.
Reginald L. Babcock CTG Resources, Inc. TEN Transmission Company
Charles A. Daverio KeySpan Energy Corporation NorthEast Transmission Company,
LILCO Energy Systems, Inc.
Jay B. Corn New Jersey Resources Corporation NJNR Pipeline Company
Peter Lund PG&E Gas Transmission JMC-Iroquois, Inc.
Paul MacGregor TransCanada Transmission TransCanada Iroquois Ltd./TCPL
Northeast Ltd.
</TABLE>
James M. Lane has over 30 years experience in the natural gas industry
having spent the last 20 years with The Coastal Corporation. In his current
position, Mr. Lane is responsible for managing the day-to-day business affairs
of ANR Storage Company, Mid Michigan Gas Storage Company and four joint venture
companies, and the business administrative functions of ANR Pipeline Company's
Storage Operations which are all affiliates of The Coastal Corporation. In
addition, Mr. Lane manages Coastal's business interests in 8 joint ventures.
Paul D. Koonce joined Dominion Resources, Inc. as Senior Vice
President, Commercial Operations in January 1999. He is responsible for various
businesses of Dominion's regulated companies. From 1982 through 1992 he worked
for East Tennessee Natural Gas, Entrade Corporation, Texas Gas Transmission,
Transcontinental Gas Pipeline Corporation and in 1992 joined Sonat Marketing
Company where he was promoted to Senior Vice President of Sonat Energy Services
and was later named Executive Vice President of Sonat Power Systems.
Reginald L. Babcock has served as Vice President, General Counsel and
Secretary of CTG Resources, Inc. since 1997. From 1993 to 1996 Mr. Babcock was
Vice President - Corporate Services and General Counsel and Secretary of
Connecticut Natural Gas Corporation, and from 1996 to 1997 he was the Vice
President - Administrative Services and General Counsel.
Charles A. Daverio has served as Vice President of KeySpan Energy
Trading Services, LLC since December 1996. He joined KeySpan Energy Corporation
in 1976 as an associate engineer. He held various supervisory and managerial
positions in the Nuclear Engineering Department, Gas Supply and Planning, and
Gas Operators from 1979 through 1993. Mr. Daverio serves as the representative
of KeySpan Energy Corporation on the management committee. Mr. Daverio is a
member of the board of the Huntington Arts Council.
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Jay B. Corn is the Vice President - Corporate Development of New Jersey
Resources Corporation and NJR Energy Holdings Corporation, a wholly owned
subsidiary of New Jersey Resources Corporation. Mr. Corn has served as a member
of the management committee of Iroquois since June 1995.
Peter Lund has been Vice President-Pipeline Marketing and Development
of PG&E National Energy Group, since March 2000. Prior to his current role, Mr.
Lund served as Vice President - Transportation and Storage Operations of PG&E
Gas Transmission. Before joining PG&E Gas Transmission Northwest in 1988, Lund
worked as a resource analyst for Pacific Gas and Electric Company and as a
mineral exploration geologist for various firms. In addition, Mr. Lund is a
board member of the Pacific Coast Gas Association, the Private Industry Sponsors
of the Canadian Energy Research Institute and a board member and former
president of the Northwest Gas Association.
Paul F. MacGregor has served as Vice President of North American
Pipeline Ventures TransCanada since September 1999. Mr. MacGregor is responsible
for the business activities of TransCanada's non-regulated pipeline services and
investments. In addition, he oversees TransCanada's ownership interests in its
Canadian and U.S. pipeline investments. Mr. MacGregor joined TransCanada in 1981
and since then he held various positions including in Facilities Planning and
Vice President, North American Pipeline Investments for TransCanada's energy
transmission business unit.
Compensation of the Executive Officers
Summary Compensation Table. The following summary compensation table
sets forth information regarding compensation for fiscal year 1999 paid to the
President and each of four other most highly compensated executive officers of
IPOC who were serving as such as of December 31, 1999. All compensation to the
executive officers is paid by IPOC and reimbursed by us.
<TABLE>
<CAPTION>
All Other
Name and Salary Bonus Compensation
Principal Position Year ($) (1) ($) ($) (2)
------------------ ---- ------- --- -------
<S> <C> <C> <C> <C>
Craig R. Frew 1999 $ 256, 913.55 $ 111,150.00 $ 10,000.00
President
Paul Bailey 1999 $ 177,177.00 $ 46,000.00 $ 8,695.75
Vice President and Chief
Financial Officer
Jeffrey A. Bruner 1999 $ 142,506.00 $ 38,500.00 $ 7,215.26
Vice President, General Counsel
and Secretary
Herbert A. Rakebrand III 1999 $ 145,002.00 $ 43,500.00 $ 7,340.06
Vice President, Marketing
and Transportation
David J. Warman 1999 $ 115,011.00 $ 29,000.00 $ 5,840.55
Vice President, Engineering
and Operations
</TABLE>
-----------------------------
(1) Includes salary paid in lieu of vacation for Messrs. Frew, and Rakebrand of
$9,692.55 and $2,500.00, respectively during 1999.
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<PAGE>
(2) The amounts presented in this column represent matching contributions made
by IPOC under the Iroqouis Pipeline Operating Company Savings Plan (the
"401(k) Plan") and the IPOC Supplemental 401(k) Savings Plan (the
"Supplemental Plan"). Under the 401(k) Plan, which is generally available
to all employees, IPOC currently matches a participant's tax-deferred
contributions by an amount equal to 100% of such contribution for each
year, up to 5% of the participant's annual compensation. Under the
Supplemental Plan, IPOC currently matches the tax-deferred contributions by
a select group of management or highly compensated employees in an amount
equal to 100% of such contribution for each year, up to 5% of the
participant's annual compensation, less any matching contributions
allocated to the participant's account under the 401(k) Plan. The following
contributions were made during 1999 under the 401(K) Plan: Mr. Frew
received $8,000; Mr. Bailey received $8,000; Mr. Bruner received $7,215.26;
Mr. Rakebrand received $7,340.06; and Mr. Warman received $5,840.55. In
addition, under the Supplemental Plan, Mr. Frew received $2,000 and Mr.
Bailey received $697.75 in 1999.
Pension Plans
IPOC sponsors a qualified non-contributory, cash balance retirement
plan covering substantially all of its employees and an excess retirement plan
covering certain key employees. Under the pension plan, each participant is
given a hypothetical account balance which is credited with a specified
percentage of a portion of the participant's covered compensation based on his
or her age and service. The excess pension plan is an unfunded pension
arrangement that provides certain highly compensated employees with the benefit
that they would have been entitled to but for the limitations set forth in the
Internal Revenue Code of 1986, as amended. In addition, under the excess pension
plan, the benefits provided to Messrs. Frew, Bailey and Warman take into account
their years of service with TransCanada Pipelines Limited. The benefits under
the excess pension plan are not subject to the provisions of the Internal
Revenue Code that limit the compensation used to determine benefits and the
amount of annual benefits payable under the qualified pension plan.
The following table illustrates, for representative annual covered
compensation and years of benefit service classifications, the annual retirement
benefit that would be payable to employees under both the non-contributory cash
balance retirement plan and the excess pension plan if they retired in 2000 at
age 65, based on the straight-life annuity form of benefit payment and not
subject to deduction or offset. In calculating the benefits shown in the
following table, salaries were assumed to remain level and hypothetical account
balances were assumed to grow at 6.53% per year.
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<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
---------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
---------------------------- ---------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
150,000 50,894 77,225 114,910 159,181 222,770
200,000 69,245 105,196 156,597 217,210 304,171
250,000 87,597 133,167 198,285 275,240 385,571
300,000 105,949 161,137 239,972 333,268 466,971
350,000 124,300 189,107 281,659 391,298 548,372
400,000 142,652 217,078 323,346 449,328 629,773
450,000 161,003 245,049 365,034 507,357 711,172
500,000 179,355 273,019 406,721 565,386 792,572
</TABLE>
The number of years of credited service, as of December 31, 1999, for
Messrs. Frew, Bailey, Bruner, Rakebrand and Warman are 23.50, 17.33, 7.58, 8.33
and 17.42, respectively. These numbers include the credited service with
TransCanada Pipelines Limited pursuant to the excess pension plan.
Supplemental Executive Retirement Agreements
Mr. Frew is a party to a supplemental executive retirement agreement,
dated July 1, 1997 that provides a guaranteed retirement benefit of 60% of his
average annual compensation, including salary and bonus for the three highest
consecutive calendar years during his employment with IPOC. This amount is
reduced by any retirement benefits that Mr. Frew is entitled to pursuant to the
IPOC pension plan and excess pension plan, certain TransCanada Pipelines pension
plans, the IPOC 401(k) plan and his social security benefits.
Mr. Bailey is party to a similar supplemental executive retirement
agreement dated July 1, 1997; however, Mr. Bailey's guaranteed retirement
benefit is 40% of his three-year average annual compensation.
Performance Share Unit Plan
Effective as of January 1, 1999, IPOC adopted a performance share unit
plan (the "Performance Plan") which provides financial incentives to certain key
executives. All key employees of IPOC and its subsidiaries are eligible to
participate in the Performance Plan. The participants for each year will be
selected by the compensation committee. Participants are awarded "phantom
shares" of the partnership ("Performance Units") which are valued annually based
upon our year-end book value and our average return on rate base equity. The
payout value of the Performance Units is based on the sum of (i) the value of
the Performance Units at the end of a performance period and (ii) the amount of
dividends per Performance Unit during the period. Payment on the Performance
Units is made in cash within 30 days following completion of our audited
financial statements.
The Performance Units generally vest over five years, with 50% of each
award vesting at the end of the third year and 25% vesting at the end of each of
the fourth and fifth years. Upon a termination of a participant's employment
with IPOC or its subsidiaries, for any reason other than death, disability, or
retirement, all unvested Performance Units will be forfeited. Upon a termination
due to the participant's death, disability or retirement, the committee may, in
its sole discretion, provide for the vesting and payment of any unvested
Performance Units.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Partners
We are a limited partnership wholly owned by our partners. The
following information summarizes the ownership interest of our partners:
<TABLE>
<CAPTION>
Percentage
Ownership Nature of
Ultimate Parent Name of Partner Interest Ownership
--------------- --------------- -------- ---------
<S> <C> <C> <C>
TransCanada PipeLines Limited TransCanada Iroquois Ltd. 29.0% G.P.(1)
TCPL Northeast Ltd. 6.0% G.P.
KeySpan Energy Corporation NorthEast Transmission Company 19.4% G.P.=18.07%,
L.P.(2)=1.33%
LILCO Energy Systems, Inc. 1.0% G.P.
Dominion Resources, Inc. Dominion Iroquois, Inc. 16.0% G.P.
The Coastal Corporation(3) ANR Iroquois, Inc. 9.4% G.P.
ANR New England Pipeline Co. 6.6% G.P.
PG&E Generating Company JMC-Iroquois, Inc. 4.93% G.P.=4.57%, L.P.=.36%
CTG Resources, Inc. TEN Transmission Company 4.87% G.P.=4.46%, L.P.=.41%
New Jersey Resources NJNR Pipeline Company 2.8% G.P.
Corporation
</TABLE>
-------------------
(1) G.P. refers to a general partner of our partnership.
(2) L.P. refers to a limited partner of our partnership.
(3) On January 18, 2000 El Paso Energy Corp. ("El Paso") and The Coastal
Corporation ("Coastal") announced plans for the merger of El Paso and
Coastal. Each share of Coastal common stock will be converted into El
Paso common stock. It is expected that the merger will be completed
during the fourth quarter of 2000.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships with Partners
Certain of our partners transport natural gas on our pipeline system,
at rates, terms and conditions contained in our FERC approved tariff. We also
lease a right-of-way easement on Long Island, New York, from the Long Island
Lighting Company, the predecessor to KeySpan Energy Corporation, the parent of
our general partner, LILCO Energy Systems, Inc., which requires annual payments
escalating 5% a year over the 39-year term of the lease.
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<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The following is a summary of material provisions of the indenture
governing the notes but does not restate the indenture in its entirety. You can
find the definitions of certain capitalized terms used in the following
subheading "-- Certain Definitions." We urge you to read the indenture because
it, not this description, defines your rights as holders of the exchange notes.
A copy of the proposed form of indenture is available for inspection at our
offices and, upon the written request, will be provided at no charge. See "--
Information Available to Noteholders."
General
The exchange notes are to be issued under the same indenture dated as
of May 30, 2000, between Iroquois and The Chase Manhattan Bank, as trustee under
which the old notes were issued. The exchange notes will be issued initially in
registered form without coupons and in denominations of $100,000 and any
integral multiple of $1,000 in excess thereof.
The indenture provides for the issuance of the exchange notes and
additional securities as we may from time to time authorize, subject to the
limitations in the indenture.
The exchange notes will be senior, unsecured and unsubordinated
obligations ranking pari passu with all of our other senior, unsecured and
unsubordinated obligations.
Principal Amount, Interest Rate, Final Maturity and Payment
The exchange notes are limited in the aggregate principal amount of
$200 million, bear interest beginning on May 30, 2000, or from the most recent
date to which interest has been paid or provided for at 8.68% per annum and will
mature on April 30, 2010.
Payment of Interest
Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months and will be payable in cash on April 30 and October 31 of
each year, beginning October 31, 2000 to the Person in whose name that exchange
note is registered at the close of business on the Regular Record Date for such
interest.
Additional Securities
The indenture provides significant limitations on our ability to Incur
additional Indebtedness. The indenture, however, does permit us to issue
additional securities, subject to specified restrictions. Any such additional
securities will be pari passu with the exchange notes then Outstanding.
Mandatory Redemption
General Provisions. The exchange notes are subject to mandatory
redemption upon the occurrence of certain losses of or damage to, or any
condemnation or other taking (any such event, with respect to any Property, an
"Event of Loss") with respect to the Pipeline.
We must mail notice of any such redemption to each Holder of an
exchange note which is to be redeemed (in whole or in part) at such Holder's
address of record not less than 30 days nor more than 60 days before the
redemption date. In addition, we shall provide written notice of redemption of
exchange notes to be redeemed to a responsible officer of the trustee in
accordance with the terms of the indenture.
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<PAGE>
On and after any such redemption date, interest shall cease to accrue on the
exchange notes (or portion of the principal amount thereof) that are redeemed.
No later than 45 days prior to the date on which any mandatory
redemption of exchange notes is to be made pursuant to the indenture, we will
deliver to the trustee a statement reasonably satisfactory to a responsible
officer of the trustee, certified by one of our senior officers, of the
occurrence of the applicable event and such senior officer's estimate of the
amount of the net proceeds thereof.
In the event of a Catastrophic Loss. In the event there shall occur an
Event of Loss with respect to the Pipeline for which the total Loss Proceeds
payable in respect of the lost or damaged Property are greater than $100 million
we shall redeem exchange notes in an amount equal to the Pro Rata Portion of the
Loss Proceeds (which Pro Rata Portion shall be calculated as at the date which
is two business days prior to the redemption date of such redeemed notes), in
whole or in part ratably among each series at a redemption price equal to the
outstanding principal amount thereof plus accrued and unpaid interest thereon to
the redemption date.
In the event of a Material Loss. In the event there shall occur an
Event of Loss with respect to the Pipeline for which total Loss Proceeds payable
in respect of the lost or damaged Property are greater than or equal to $10
million but less than $100 million we may, at our option, rebuild or repair the
Pipeline or redeem the exchange notes in an amount equal to the Pro Rata Portion
of the Loss Proceeds (which Pro Rata Portion shall be calculated as at the date
which is two business days prior to the redemption date of such redeemed notes),
in whole or in part ratably among each series at a redemption price equal to the
outstanding principal amount thereof plus accrued and unpaid interest thereon to
the redemption date.
Optional Redemption
The indenture provides that we will have the right at any time to
redeem all or any portion of any series of the notes, in whole or in part, at a
redemption price equal to the unpaid principal amount thereof to be redeemed
plus accrued and unpaid interest thereon to the redemption date, plus the
Make-Whole Premium on a redemption date that we will establish.
We will mail notice of any such redemption to each Holder of an
exchange note which is to be redeemed (in whole or in part) at such Holder's
address of record not less than 30 days nor more than 60 days before the
redemption date. In addition, we will provide notice of redemption of exchange
notes to be redeemed to the trustee in accordance with the terms of the
indenture. On and after any such redemption date, interest shall cease to accrue
on the exchange notes (or portion of the principal amount thereof), that are
redeemed.
Ratings
The exchange notes have a rating of "A3" from Moody's Investors
Service, Inc., or Moody's, and "BBB+" from Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc., or S&P. There is no assurance that
any such credit rating will remain in effect for any given period of time or
that such rating will not be lowered, suspended or withdrawn entirely by the
applicable rating agency, if, in such rating agency's judgment, circumstances so
warrant. Any such lowering, suspension or withdrawal of any rating may have a
material adverse effect on the market price or marketability of the exchange
notes.
62
<PAGE>
Settlement and Payment
The exchange notes are expected to trade in the DTC's settlement
system. If a Holder holding exchange notes through DTC sells exchange notes to
any purchaser that will not hold such notes in DTC, the trade will settle and
clear by delivery of definitive notes. The information in this prospectus
concerning DTC and DTC's book-entry system has been obtained from sources that
we believe to be reliable, but we take no responsibility for the accuracy
thereof.
Negative Covenants
Limitation on Asset Sales. We will not consummate any Asset Sale,
unless:
o the consideration received by us is at least equal to the fair
market value of the assets sold or disposed of; and
o at least 90% of the consideration received consists of cash or
Temporary Cash Investments or the assumption of our Indebtedness
(other than Indebtedness to any Subsidiary),
provided that we are irrevocably and unconditionally released from all liability
under such Indebtedness.
In the event and to the extent that we receive Net Cash Proceeds from
one or more Asset Sales occurring on or after the closing date of the offering
of the old notes we will within six months after the receipt of such Net Cash
Proceeds:
o apply an amount equal to the Pro Rata Portion of such Net Cash
Proceeds to consummate an Offer to Purchase notes owing to a
Person other than us or any of our Subsidiaries at a purchase
price equal to 100% of the principal amount thereof plus accrued
interest (if any) to the Payment Date; or
o invest an equal amount or enter into a definitive agreement
committing to so invest within 12 months after the date of such
agreement, in Property (other than current assets) of a business
or businesses meeting certain requirements.
Limitations on Actions with Respect to Primary Agreements. We will not
agree or consent to any termination, modification, supplement or waiver of any
Primary Agreement, nor shall we initiate any change to the tariff, if we
reasonably determine that such termination, modification, supplement or waiver
of any such Primary Agreement or change to the tariff would individually or
collectively with all other such terminations, modifications, supplements and
waivers of the Primary Agreement and changes to the tariff, reasonably be
expected to have a Material Adverse Effect.
Limitations on Liens. We will not, and will not permit our Subsidiaries
to, create, incur, assume or suffer to exist any Lien upon any of our Property,
whether now owned or hereafter acquired other than:
o a Lien that also equally and ratably secures the Senior Debt;
o a Lien that is created in favor of a governmental entity,
mechanic, materialman or lessor in the ordinary course of
business and payment of which is not overdue for a period of more
than 30 days, but not in any event Liens in favor of a lessor in
a sale-leaseback transaction;
63
<PAGE>
o a Lien that is the result of a court judgment as to which all
rights of appeal have not terminated and is bonded or pledged or
enforcement of which will not have a Material Adverse Effect on
us;
o a Lien that extends, renews or replaces in whole or in part a
Lien referred to herein (other than any additional Lien described
in the eighth bullet point below);
o a Lien that secures pledges or deposits under worker's
compensation, unemployment insurance and other social security
legislation;
o a Lien that consists of easements, rights-of-way and other
similar encumbrances and does not interfere with our business or
operations;
o a Lien granted by a Subsidiary upon any of the Subsidiary's
assets to secure Nonrecourse Indebtedness; and
o any additional Lien, provided that the Indebtedness secured by
such Lien, plus all other Indebtedness secured by Liens
(including Indebtedness for Capitalized Lease Obligations but
excluding Indebtedness secured by Liens otherwise permitted by
the first through seventh bullet points above) plus leases under
sale-leaseback transactions which we have not elected to treat as
an Asset Sale, does not exceed 3% of Total Capitalization of our
partnership.
Limitations on Indebtedness. We will not Incur additional Indebtedness
unless
o there shall be No Ratings Downgrade as a result of such
Incurrence;
o immediately after giving effect to such Incurrence, the ratio of
our Indebtedness (excluding Affiliate Subordinated Debt) to Total
Capitalization does not exceed 75%; and
o no Default or Event or Default shall have occurred and be
continuing at the time of such Incurrence, and no Default or
Event of Default shall result from such Incurrence;
provided, however, that notwithstanding these restrictions we may Incur
additional Indebtedness consisting of:
o Indebtedness outstanding at any time in accordance with the terms
of the new credit agreement (other than revolving credit loans
under the new credit facilities), provided that any amendment to
such credit agreement which increases the amount or alters the
tenor or average life of Indebtedness outstanding by more than
one year must satisfy the requirements of the first, second and
third bullet points of the preceding paragraph above;
o Indebtedness Incurred for any expenditure required by law;
provided that at the time such Indebtedness is Incurred we
satisfy the requirement set forth under the second bullet point
of the preceding paragraph above;
o Indebtedness (i) in respect of performance, surety or appeal
bonds provided in the ordinary course of business; (ii) under
Currency Agreements and Interest Rate Agreements; provided that
such agreements (a) are designed solely to protect us against
fluctuations in foreign currency exchange rates or interest rates
and are not for speculative purposes and (b) do not increase the
Indebtedness of the obligor outstanding
64
<PAGE>
at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (iii)
arising from agreements providing for customary indemnification,
adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance
bonds securing any of our obligations pursuant to such
agreements, in any case Incurred in connection with the
disposition of any business or assets (other than guarantees of
Indebtedness Incurred by any Person acquiring all or any portion
of such business or assets for the purpose of financing such
acquisition), in a principal amount not to exceed the gross
proceeds actually received by us in connection with such
disposition;
o Indebtedness of ours, to the extent the net proceeds thereof are
promptly deposited to defease the notes as described under
"Defeasance";
o Affiliate Subordinated Debt;
o Indebtedness of Iroquois Incurred to refinance Indebtedness
existing from time to time, provided such Indebtedness is in a
principal amount no greater than the Indebtedness being repaid
(excluding fees, including any consent fees, payable in
connection with the issuance of any refinancing Indebtedness),
has a longer final maturity and greater average life than the
Indebtedness being repaid and except in the case of Indebtedness
Incurred to refinance a series of notes under the indenture,
satisfies the requirement set forth under the first bullet point
of the preceding paragraph above;
o Indebtedness of $10 million Incurred from time to time under any
working capital facility permitted pursuant to the "Working
Capital Facility" covenant below; and
o Indebtedness of ours (in addition to Indebtedness permitted under
the first through seventh bullet point above) in an aggregate
principal amount outstanding at any time (together with
refinancings thereof) not to exceed $35 million, provided that at
the time such Indebtedness is Incurred we satisfy the requirement
set forth under the second and third bullet points of the
preceding paragraph above.
Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that we may Incur
pursuant to this "Limitation on Indebtedness" covenant shall not be deemed to be
exceeded, with respect to any outstanding Indebtedness, due solely to the result
of fluctuations in interest rates designated in any Interest Rate Agreement or
the exchange rates of currencies.
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
new credit agreement on or prior to the closing date of the offering of the old
notes shall be treated as Incurred pursuant to the first bullet point of the
proviso of this "Limitation on Indebtedness" covenant and (2) guarantees, Liens
or obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included. For purposes of clarification and not limitation, any Lien incurred by
us or any Subsidiary shall not be treated as a separate Incurrence of
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, we, in our sole discretion, shall classify, and from time to time may
reclassify, such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses; provided, however, that we
may only reclassify Affiliate Subordinated Debt if, at the time of such
65
<PAGE>
reclassification, we would be permitted to make a Distribution in the amount of
such reclassified Affiliate Subordinated Debt pursuant to the "Limitations on
Distributions" covenant below.
Limitations on Distributions. We will not declare or make any
Distribution at any time unless:
o no Default or Event of Default shall have occurred and be
continuing or would occur as a result of declaring or making such
Distribution,
o the ratio of Indebtedness to Total Capitalization after giving
effect to such intended Distribution does not exceed 75%,
o (i) our Debt Service Coverage Ratio for the last four calendar
quarters taken as a whole prior to the date of such intended
Distribution is at least 1.25 to 1 and (ii) if the then current
rating of the notes is below BBB+ from S&P or below A3 from
Moody's, our Projected Debt Service Coverage Ratio for the next
four calendar quarters from such date of Distribution is expected
to be at least 1.25 to 1, both as certified by us in an officer's
certificate delivered to a responsible officer of the trustee
provided that this shall not apply in the case of any
Distribution made in the twelve months prior to the Final
Maturity Date of Non Amortizing Notes if, after making such
Distribution, the cash on hand of Iroquois and the expected
Operating Cash Flow for the period commencing on the date of such
Distribution and ending on the Final Maturity Date of such Non
Amortizing Notes will be sufficient to enable Iroquois to make
the Debt Service Payment due on such Final Maturity Date as
certified by Iroquois in an officer's certificate delivered to a
responsible officer of the trustee, and
o after making such Distribution, our cash on hand and the expected
Operating Cash Flow for the period commencing on the date of such
Distribution and ending on the next scheduled Debt Service
Payment Date (excluding cash on hand and expected Operating Cash
Flow, if any, relied on in connection with satisfying the
requirements of the proviso to (ii) of the third bullet point
above) and amounts available under any working capital facility
described under "Working Capital Facility" below to the next
scheduled Debt Service Payment Date will be sufficient to enable
us to make all of the payments of Senior Debt principal and
interest falling due between the date of such Distribution and
such Debt Service Payment Date, including the Debt Service
Payment due on such date, excluding any principal and interest
due on the Final Maturity Date of Non Amortizing Notes, the
payment of which will be satisfied by expected Operating Cash
Flow and cash on hand pursuant to the proviso to (ii) of the
third bullet point above, as certified by us in an officer's
certificate delivered to a responsible officer of the trustee.
Existence/Prohibition on Fundamental Changes. We will not consolidate
with or merge into, or convey, transfer or lease all or substantially all of our
assets to, any person, unless
o we are the continuing Person in any such merger or consolidation
or the Person (if other than us) which is the continuing Person
in any such merger or consolidation or which acquires all or
substantially all of our assets is a corporation, partnership or
trust organized under the laws of the United States or any state
or the District of Columbia and expressly assumes our obligations
under the notes and the indenture;
o immediately after such transaction, we or such other person, as
the case may be, are not in default in the performance of any
covenants or conditions contained in the indenture or notes; and
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<PAGE>
o there shall be No Ratings Downgrade as a result of such
transaction.
Limitation on Sale-Leaseback Transactions. We will not enter into any
sale-leaseback transaction involving any of our Properties whether now owned or
hereafter acquired, whereby we sell or transfer such Properties and then or
thereafter lease such Properties or any part thereof or any other Properties
which we intend to use for substantially the same purpose or purposes as the
Properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease secures or relates to industrial revenue or
pollution control bonds issued in compliance with the "Limitations on
Indebtedness" covenant above; or (ii) either the sale-leaseback transaction is
in compliance with the eighth bullet point of the "Limitation on Liens"
covenant, or we, within 6 months after the sale or transfer of any assets or
Properties is completed, apply an amount not less than the net proceeds received
from such sale in accordance with the first or second bullet point of the second
paragraph of the "Limitation on Asset Sales" covenant described above.
Limitation on Lines of Business and Investments. We will not, and will
not permit our Subsidiaries to, engage or invest in any business activity other
than:
o the business contemplated by the Transaction Agreements and this
prospectus;
o activities associated with, or incidental to, the operation,
maintenance or expansion of the Pipeline or the storage of
natural gas;
o activities associated with, or incidental to, (i) the processing
or shipping of natural gas, (ii) the processing, shipping or
storage of natural gas liquids, (iii) the installation, and
leasing or rental, of fiber optic or similar cable or (iv) the
construction or operation of facilities for the generation of
electricity using waste heat from the Pipeline, in all such cases
related to the operation of the Pipeline; or
o activities (including investments) associated with, or intended
to induce, the supply of gas for transportation on the Pipeline
or the consumption of gas transported by the Pipeline;
provided that in no circumstance shall we engage or invest in, or permit our
Subsidiaries to engage or invest in, (A) any business or activity related to the
exploration and production of hydrocarbons or (B) any business or activity
described in the third and fourth bullet points above that would cause our and
our Subsidiaries' Consolidated Net Tangible Assets attributable to all our and
their businesses and investments described in the third and fourth bullet points
above to exceed 10% of the amount of our and our Subsidiaries' Consolidated Net
Tangible Assets attributable to all our and their businesses and investments
described in the first and second bullet points above.
Limitation on Investments. We will not, directly or indirectly, make
any Investment, other than Permitted Investments and Investments made with
amounts from which we may otherwise have made Distributions in accordance with
the "Limitations on Distributions" covenant above.
Limitation on Transactions with Affiliates. Except as contemplated by
any agreement between us and an Affiliate, our partner or an Affiliate of our
partner in existence on the closing date of the offering of the old notes and
any successor agreement, if at any time we enter into or become a party to any
material agreement or arrangement with an Affiliate, our partner or an Affiliate
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<PAGE>
of our partner, such agreement or arrangement shall be on terms no more
favorable to the Affiliate, our partner or an Affiliate of our partner, as the
case may be, than those that would be offered to parties that are not
Affiliates, our partners or Affiliates of our partners.
Abandonment. We will not voluntarily abandon the Pipeline or otherwise
cease to pursue operations of the Pipeline for a period of more than 180 days.
Affirmative Covenants
Maintenance of Existence. We will at all times:
o preserve and maintain in full force and effect our existence as a
limited partnership under the laws of the State of Delaware and
our qualification to do business in each other jurisdiction in
which the conduct of our business requires such qualification
except where the failure to so qualify could not reasonably be
expected to have a Material Adverse Effect;
o preserve and maintain all of our rights, privileges and
franchises necessary for the construction, ownership and
operation of the Pipeline in accordance with the Primary
Agreements, except to the extent that failure so to preserve or
maintain would not result in a Material Adverse Effect; and
o comply in all respects with the provisions of the Primary
Agreements, except to the extent that failure to comply would not
result in a Material Adverse Effect. We will not amend our
organizational documents in any manner that could reasonably be
expected to have a Material Adverse Effect.
Books and Records. We will keep proper books of records and accounts in
which full, true and correct entries shall be made of all of our transactions in
accordance with United States generally accepted accounting principles in the
United States as in effect from time to time ("GAAP") and regulatory accounting
principles in the United States and will allow the trustee to inspect such books
of records and accounts from time to time upon reasonable notice.
Enforcement of Primary Agreements. We will enforce all of our rights
under, perform all actions required of us to comply with our obligations under,
and maintain in full force and effect, the Primary Agreements, unless the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
Financial Statements. We will furnish to the trustee:
o as soon as available, but in any event within 90 days after the
end of each fiscal year our consolidated balance sheet at the end
of such year and the related consolidated statements of income,
our partners' equity and cash flows for such year, prepared in
accordance with GAAP and audited by independent certified public
accountants of recognized standing in the United States of
America and setting forth in each case in comparative form the
figures for the previous year;
o within 90 days after the end of each fiscal year ending after the
date hereof, an officer's certificate, stating whether or not to
the best knowledge of the signers thereof we are in default in
the performance and observance of any of the terms, provisions
and conditions of the indenture (without regard to any period of
grace or requirement of notice provided
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hereunder) and, if we are in default, specifying all such
defaults and the nature and status thereof of which we may have
knowledge;
o concurrently with the delivery of the financial statements
referred to above, we will calculate and deliver to the trustee
the Debt Service Coverage Ratio for the calendar year (or portion
thereof) most recently ended and the Projected Debt Service
Coverage Ratio for the next succeeding calendar year along with
reasonable details of such calculations; and
o as soon as available, but in any event within 45 days after the
end of the first three quarterly periods of each fiscal year, our
unaudited consolidated balance sheet as of the end of each
quarter and the related unaudited consolidated statements of
income, our partners' equity and cash flows for such quarter and
the portion of the fiscal year through the end of each such
quarter, prepared in accordance with GAAP setting forth in
comparative form the figures for the previous year and certified
by our chief financial officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments).
Notices. Promptly upon obtaining knowledge thereof, we will give notice
to the trustee of any Default or Event of Default, together with a description
of any action being taken or proposed to be taken with respect thereto.
Maintenance of Rating. We will furnish to each of S&P and Moody's then
rating the notes the information referred to under "Financial Statements" and
"Other Information" above, together with such other information as such rating
agency may reasonably request in order to enable such rating agency to continue
to rate the notes.
Maintenance of Properties. We will cause the Pipeline to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in our judgment may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
Payment of Notes. We will pay the principal of, premium, if any, and
interest on the notes on the dates and in the manner provided in the notes and
in the indenture. An installment of principal, premium, if any, or interest
shall be considered paid on the date due if the trustee or paying agent (other
than us or any Affiliate) holds on that date money designated for and sufficient
to pay the installment. If we or any Affiliate acts as paying agent, an
installment of principal, premium, if any, or interest shall be considered paid
on the due date. Upon any bankruptcy or reorganization procedure relative to us,
the trustee shall serve as the paying agent, if any, for the notes.
We will pay interest on overdue principal and premium, if any, and
interest on overdue installments of interest, to the extent lawful, at the rate
per annum of 2% above the interest rate on the respective notes.
Maintenance of Insurance. We will provide or cause to be provided, for
ourself, insurance (including appropriate self-insurance) against loss or damage
of the kinds customarily insured against by companies similarly situated and
owning like properties, including, but not limited to, products liability
insurance and public liability insurance, with reputable insurers or with the
government of the United States, or an agency or instrumentality thereof, in
such amounts, with such deductibles and by such
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methods as shall be customary for companies similarly situated in the industry
in which we are then conducting business.
Reports to the SEC and Reports to Holders. At all times from and after
the earlier of (i) the date of the commencement of an exchange offer or the
effectiveness of the shelf registration statement and (ii) the date that is six
months after the closing date of the offering of the old notes, in either case,
whether or not we are then required to file reports with the SEC, we will file
with the SEC all such reports and other information as it would be required to
file with the SEC by Section 13(a) or 15(d) under the Exchange Act if it were
subject thereto and as if it was a United States issuer. We will supply the
trustee and each Holder or shall supply to the trustee for forwarding to each
such Holder together with written directions to forward such reports to such
Holder, without cost to such Holder, copies of such reports and other
information. In addition, at all times prior to the earlier of the date of the
registration with the SEC and the date that is six months after the closing date
of the offering of the old notes, we will, at our cost, deliver to each Holder
of notes quarterly and annual reports substantially equivalent to those which
would be required by the Exchange Act. In addition, at all times prior to the
registration with the SEC, upon the request of any Holder or any prospective
purchaser of the notes designated by a Holder, we will supply to such Holder or
such prospective purchaser the information required under Rule 144A under the
Securities Act.
Payment of Taxes and Other Claims. We will pay or discharge and shall
cause each of our Subsidiaries to pay or discharge, or cause to be paid or
discharged, before the same shall become delinquent (i) all material taxes,
assessments and governmental charges levied or imposed upon (a) us or any such
Subsidiary, (b) the income or profits of any such Subsidiary which is a
corporation or (c) our property or the property of any such Subsidiary and (ii)
all material lawful claims for labor, materials and supplies that, if unpaid,
might by law become a lien upon our property or the property of any such
Subsidiary; provided that we will not be required to pay or discharge, or cause
to be paid or discharged, any such tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established.
Maintenance of All Rights to All Pipeline Related Property. We will
maintain all rights to all Pipeline related property unless the failure to do so
will not have a Material Adverse Effect.
Restrictions on the Establishment of Subsidiaries. We will have no
Subsidiaries except for Subsidiaries which are limited to the lines of business
set forth above in "Limitations on Lines of Business and Investments." We will
not permit our Subsidiaries to Incur Indebtedness except for Nonrecourse
Indebtedness and Indebtedness which is guaranteed by us, provided that we are
permitted to Incur such Indebtedness in accordance with the "Limitations on
Indebtedness" covenant described above.
Compliance with Laws and Regulations. We will, and will cause our
Subsidiaries to, comply with all laws, ordinances, government rules,
regulations, or court decrees to which our property or assets may be subject,
except where failure to comply would not result in a Material Adverse Effect.
Permits; Approvals. We will, and will cause our Subsidiaries to,
possess all licenses, certificates, authorizations and permits issued by
federal, state or foreign regulatory bodies which are necessary or desirable for
the ownership of our property or our Subsidiaries' properties or the conduct of
our business or our Subsidiaries' businesses as so conducted, except where
failure to possess such licenses, certificates, authorization or permits would
not have a Material Adverse Effect.
Working Capital Facility. We will maintain a working capital facility
in the amount of at least $10 million with a Working Capital Lender. We are
required to repay all amounts borrowed under the facility on at least one
occasion in each year.
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Events of Default and Remedies Under the Indenture
Certain Events. The following events constitute "Events of Default"
under the indenture with respect to the notes:
o we fail to pay any principal or premium, if any, or interest or
Liquidated Damages, if any, on any note when the same becomes due
and payable, whether at Stated Maturity or required prepayment or
by acceleration or otherwise and such failure to pay continues
for a period of 5 days;
o we (i) fail to be in compliance with the "Existence/Prohibition
on Fundamental Changes" covenant; (ii) fail to comply with the
"Limitation on Liens" covenant; or (iii) fail to comply with the
"Limitations on Distributions" covenant;
o we fail to perform or observe any of our obligations or covenants
(other than covenants described in the second bullet point above)
contained in the indenture (or in any modification or supplement
hereto), and such failure has resulted in a Material Adverse
Effect and such failure shall continue uncured for 30 or more
days;
o any representation, warranty or certification in the indenture by
us or in any certificate furnished to the trustee pursuant to the
provisions of the indenture shall prove to have been false as of
the time made or furnished in any material respect and such
misrepresentation has resulted in a Material Adverse Effect and
shall continue uncured for 30 or more days;
o we default in the payment when due (after any applicable grace
period) of any principal of or interest on any of our other
Indebtedness aggregating $10 million or more; or any event
specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if
the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause, such Indebtedness to become
due, or to be prepaid in full (whether by redemption, purchase,
offer to purchase or otherwise), prior to its stated maturity and
such event is not cured or waived pursuant to the terms of such
Indebtedness or such Indebtedness is accelerated prior to the end
of any related cure period;
o a court having jurisdiction in the premises enters a decree or
order for (i) relief in respect of us or any Significant
Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of us or any
Significant Subsidiary or for all or substantially all of our
Property or, of any Significant Subsidiary or (iii) the winding
up or liquidation of our affairs or, any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days;
o we or any Significant Subsidiary (i) commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order
for relief in an involuntary case under any such law, (ii)
consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of us or any Significant Subsidiary or for
all or
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substantially all of our property and assets or any Significant
Subsidiary or (iii) effects any general assignment for the
benefit of creditors;
o a final judgment or judgments for the payment of money in excess
of $10 million in the aggregate shall be rendered by one or more
courts, administrative tribunals or other bodies having
jurisdiction over us and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 60 days from the
date of entry thereof and we shall not, within said period of 60
days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
o (i) we file with FERC for the abandonment of the Pipeline, (ii)
FERC shall issue a final, non-appealable order for the
abandonment of the Pipeline, or (iii) we shall otherwise abandon
the Pipeline.
o any other Event of Default provided in a Series Supplemental
Indenture or provided in a management committee resolution under
which a series of notes is issued.
Any partner shall have the right, but not the obligation, to cure any
payment default in the first, fifth or eighth bullet point above within the
respective grace period set forth in such clauses, and, if such payment default
is cured, such payment default shall not constitute an Event of Default under
the indenture.
Enforcement of Remedies. If an Event of Default with respect to the
notes (other than an Event of Default described in the sixth or seventh bullet
point under "-- Certain Events" above) occurs, then in every such case the
trustee or the Holders of not less than 25% in principal amount of the
Outstanding notes may declare the unpaid principal amount (including any
premium) of all the notes to be due and payable immediately, by a notice in
writing to us (and to the trustee, if given by Holders), and upon any such
declaration such principal amount (and premium) shall become immediately due and
payable. Upon the occurrence and continuation of an Event of Default described
in the sixth or seventh bullet point under "-- Certain Events" above, the
principal amount of all the notes (including any premium) shall automatically,
and without any declaration or other action on the part of the trustee or any
Holder, become immediately due and payable.
At any time after such a declaration of acceleration with respect to
the notes has been made and before a judgment or decree for payment of the money
due has been obtained by the trustee as provided in the indenture, the Holders
of a majority in principal amount of the Outstanding notes of each series
experiencing such Event of Default, by written notice to us and the trustee, may
rescind and annul such declaration and its consequences (which rescission shall
not affect any subsequent default or impair any right consequent thereon) if:
o there has been paid or deposited with the trustee a sum
sufficient to pay
(i) all overdue interest on the notes of each series
experiencing such Event of Default,
(ii) the principal of (and premium, if any, on) any notes which
have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates
prescribed therefor in the notes,
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(iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates
prescribed therefor in the notes, and
(iv) all sums paid or advanced by the trustee under the
indenture and the reasonable compensation, expenses,
disbursements and advances of the trustee, its agents and
counsel, and
o all Events of Default with respect to the notes, other than the
non-payment of the principal of the notes which have become due
solely by such declaration of acceleration, have been cured or
waived by the Holders of not less than a majority in principal
amount of Outstanding notes of each series experiencing such
Event of Default as provided in the indenture.
Control by Holders. The Holders of a majority in principal amount of
the Outstanding notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with respect to the
notes, provided that: (i) such direction shall not be in conflict with any rule
of law or with the indenture and would not involve the trustee in personal
liability and (ii) the trustee may take any other action deemed proper by the
trustee which is not inconsistent with such direction.
Amendments and Supplements
We and the trustee may amend or supplement the indenture without the
consent of the Holders for certain specified purposes, including among others
for any of the following purposes:
o to evidence the succession of another entity to us;
o to add to our covenants or to surrender any right or power
conferred in the indenture upon us;
o to add any additional Events of Default;
o to add to, change or eliminate any provisions of the indenture in
respect of one or more series of notes issued thereunder,
provided that any such addition, change or elimination (i) shall
neither (a) apply to notes issued thereunder created prior to the
execution of such supplemental indenture and entitled to the
benefit of such provision nor (b) modify the rights of any holder
of such notes with respect to such provision or (ii) shall become
effective only when there are no such notes Outstanding;
o to secure the notes issued under the indenture; and
o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to any series of notes.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding notes issued under the indenture of each
series affected by such supplemental indenture, we and the trustee may amend or
supplement the indenture for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the indenture or of
modifying in any manner the rights of the Holders of notes of any series issued
thereunder; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding note affected thereby:
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o change the Stated Maturity of the principal of, or any
installment of principal of or rate of interest on, any note
issued thereunder, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the
redemption thereof;
o reduce the percentage in principal amount of the Outstanding
notes of any series issued thereunder, the consent of whose
Holders is required for any amendment, supplement or waiver; or
o modify any of the provisions of the sections of the indenture
concerning supplemental indentures or waivers of past defaults.
A supplemental indenture that changes or eliminates any covenant or
other provision of the indenture which has expressly been included solely for
the benefit of one or more particular series of notes issued thereunder, or
which modifies the rights of the Holders of notes of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
the indenture of the Holders of notes of any other series.
Satisfaction and Discharge of the Indenture
The indenture shall upon our written request cease to be of further
effect (except as to (1) any surviving rights of registration of transfer or
exchange of notes of any series issued thereunder expressly provided for therein
and (2) our obligations with respect to any notes for whose payments money has
been deposited in trust as set forth in "Defeasance and Discharge" below), and
the trustee shall execute instruments acknowledging satisfaction and discharge
of the indenture, when:
o either (i) all notes issued under the indenture theretofore
authenticated and delivered (other than (a) notes which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in the indenture and (b) notes for whose payment money
has been deposited in trust or segregated and held in trust by us
and thereafter repaid to us or discharged from such trust, as
provided in the indenture) have been delivered to the trustee for
cancellation or (ii) all such notes not theretofore delivered to
the trustee for cancellation (a) have become due and payable, (b)
will become due and payable at their Stated Maturity within one
year, or (c) are to be called for redemption within one year
under arrangements satisfactory to the trustee and us, in the
case of (a), (b) or (c) described in clause (ii) above, has
deposited or caused to be deposited with the trustee in trust for
such purpose money in an amount sufficient to pay and discharge
the entire indebtedness on such notes, for principal and any
premium and interest to the date of such deposit (in the case of
notes which have become due and payable) or to the Stated
Maturity or redemption date, as the case may be;
o we have paid or caused to be paid all other sums payable
thereunder by us; and
o we have delivered to the trustee an officer's certificate and an
opinion of counsel each stating that all conditions precedent
provided in the indenture with respect to the satisfaction and
discharge of the indenture have been complied with.
Defeasance
Defeasance and Discharge. The indenture will provide that we will be
deemed to have paid and will be discharged from any and all obligations in
respect of the notes on the 123rd day after the deposit referred to below, and
the provisions of the indenture will no longer be in effect with respect to the
notes
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(except for, among other matters, certain obligations to register the
transfer or exchange of the notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust) if:
o we have deposited with the trustee, in trust, money and/or United
States Government Obligations that through the payment of
interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the notes
on the Stated Maturity of such payments in accordance with the
terms of the indenture and the notes,
o we have delivered to the trustee (i) either (a) an opinion of
counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of our
exercise of our option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred, which
opinion of counsel must be based upon (and accompanied by a copy
of) a ruling of the Internal Revenue Service to the same effect
unless there has been a change in applicable federal income tax
law after the closing date of the offering of the old notes such
that a ruling is no longer required or (b) a ruling directed to
the trustee received from the Internal Revenue Service to the
same effect as the aforementioned opinion of counsel and (ii) an
opinion of counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of
the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law,
o immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default, shall have occurred and be
continuing on the date of such deposit or during the period
ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to
which we or any of our Subsidiaries is a party or by which we or
any of our Subsidiaries is bound, and
o if at such time the notes are listed on a national securities
exchange, we have delivered to the trustee an opinion of counsel
to the effect that the notes will not be delisted as a result of
such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
indenture further will provide that certain customary covenants and Events of
Default will no longer be in effect upon, among other things, the deposit with
the trustee, in trust, of money and/or United States Government Obligations that
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the notes on the Stated Maturity of
such payments in accordance with the terms of the indenture and the notes, the
satisfaction of the provisions described in (iii) of the second, third and
fourth bullet points in "Defeasance and Discharge" above and the delivery by us
to the trustee of an opinion of counsel to the effect that, among other things,
the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
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Nature of Recourse on the Exchange Notes
Payments of principal of, premium, if any, and interest on the exchange
notes will be solely our obligations. No recourse shall be had in the event of
any non-performance by our partnership of any such obligations to any assets or
properties of our partners or any of our partners or any Affiliate of any of our
partners or of us or any partner, incorporator, officer, director or employee
thereof.
Trustee
There shall at all times be one trustee under the indenture, which
shall be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least US $1 billion and having outstanding debt which is rated
"A2" by Moody's and "A" by S&P (or such similar equivalent rating) or higher,
subject to supervision or examination by Federal or State authority. We agree to
indemnify and hold harmless the trustee in connection with the acceptance or
administration of the trust or trusts under the indenture or in connection with
the exchange notes, except for liability which results from the negligence or
bad faith on the part of the trustee.
The trustee may resign at any time by giving us written notice. The
trustee may be removed at any time by act of the Holders of a majority in
principal amount of the Outstanding notes, delivered to the trustee and to us.
We may remove the trustee if at any time (i) the trustee shall cease to be
eligible under the terms of the indenture, (ii) the trustee shall be incapable
of acting, or (iii) upon certain events of insolvency with respect to the
trustee. We shall give notice of each resignation and removal of the trustee and
each appointment of a successor trustee to all Holders.
Information Available to Noteholders
We are obligated to provide to the trustee, among other things, (i)
quarterly unaudited and annual audited financial statements, (ii) notices of any
Event of Default or Default under the indenture and (iii) copies of any
amendment or supplement to any Primary Agreement that would reasonably be
expected to have a Material Adverse Effect.
Certain Definitions
"Additional Senior Indebtedness" means Indebtedness of Iroquois for
borrowed money Incurred after the closing date of the offering of the old notes
and ranking pari passu in right of payment with all other Senior Debt.
"Affiliate" of a specified Person means any other Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with the Person specified, or who holds or beneficially
owns 10% or more of the equity interest in the Person specified or 10% or more
of any class of voting securities of the Person specified.
"Affiliate Subordinated Debt" means unsecured Indebtedness of Iroquois
held by any Affiliates, any Partner or an Affiliate of any Partner and
subordinated to the Senior Debt.
"Asset Sale" means any sale, transfer, sale-leaseback transaction or
other disposition (excluding a merger or consolidation which is in compliance
with the "Existence/Prohibition on Fundamental Changes" covenant) in one
transaction or a series of related transactions by Iroquois to any Person of (i)
all or any of the Capital Stock of any Subsidiary, (ii) all or substantially all
of the property and assets of an operating unit or business of ours or any of
our Subsidiaries or (iii) any other property and assets of
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Iroquois outside the ordinary course of our business that is not governed by the
provisions of the indenture applicable to mergers, consolidations and sales of
our assets; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets, (b)
Distributions permitted to be made under the "Limitations on Distributions"
covenant, or (c) sales or other dispositions of assets which constitute (i)
redundant, obsolete or worn-out property, tools or equipment no longer used or
useful in our business and any inventory or other property sold or disposed of
in the ordinary course of business and on ordinary business terms and (ii)
dispositions contemplated by the Primary Agreements or replacement or successor
agreements.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, outstanding on the closing date
of the old notes, including, without limitation, all partnership interests,
common stock and preferred stock.
"Capitalized Lease Obligations" means, for any Person, all obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under regulatory accounting principles, and, for purposes herein, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
"Catastrophic Loss" means an Event of Loss with respect to the Pipeline
for which the total Loss Proceeds payable in respect of the lost or damaged
Property are greater than $100,000,000.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement, the counterparty to which
has capital, surplus and undivided profits aggregating in excess of $250 million
(or the foreign currency equivalent thereof) and has outstanding debt which is
rated "A2" by Moody's and "A" by S&P ( or such similar equivalent rating) or
higher.
"Debt Service Coverage Ratio" means, for any period, the ratio of (a)
Operating Cash Flow for such period to (b) Mandatory Debt Service for such
period.
"Debt Service Payment" means the sum of interest, principal, premium,
if any, and liquidated damages pursuant to the registration rights agreement, if
any, with respect to the Outstanding notes payable on each Debt Service Payment
Date.
"Debt Service Payment Date" means, with respect to the notes of any
series, the debt service payment dates specified in the Series Supplemental
Indenture or management committee resolution and officer's certificate issued
pursuant thereto, commencing on the date specified therein and ending on the
date each of the notes or the indenture is satisfied and discharged pursuant to
the indenture.
"Default" means any event or circumstance which with notice or lapse of
time or both would become an Event of Default.
"Distribution" means all partnership distributions of Iroquois (in
cash, property of Iroquois or obligations) or other payments or distributions on
account of, or the purchase, redemption, retirement or other acquisition by
Iroquois of, any portion of any partnership interest in Iroquois, and any
payments on Affiliate Subordinated Debt.
"Event of Default" means the events listed on "Events of Default and
Remedies Under the Indenture -- Certain Events" above.
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"Event of Loss" means an event which causes all or a portion of the
Pipeline to be damaged, destroyed or rendered unfit for normal use for any
reason whatsoever, including, without limitation, any compulsory transfer or
taking or transfer under threat of compulsory transfer or taking of any material
part of the Pipeline by any Government Instrumentality.
"Fair Market Value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the management committee, whose determination
shall be conclusive if evidenced by a management committee resolution.
"Final Maturity Date" means, with respect to any note or any
installment of principal thereof or interest thereon, as at any date of
determination, the latest date specified in such note as the fixed date on which
the principal of such note or such installment of principal or interest is due
and payable of any note then Outstanding.
"Government Instrumentality" of any country means such country and its
government and any ministry, department, political subdivision, instrumentality,
agency, corporation or commission under the direct or indirect control of such
country.
"Guarantee Obligations" means as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the guaranteeing person has issued a reimbursement,
counter indemnity or similar obligation, in either case guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
(the "primary obligations") of any other third Person (the "primary obligor") in
any manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (A) for the purchase
or payment of any such primary obligation or (B) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof; provided, however, that the
term Guarantee Obligation shall not include (y) endorsement of instruments for
deposit or collection in the ordinary course of business or obligations to
reimburse or indemnify a provider of surety or performance bonds incurred in the
ordinary of business or (z) obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than obligations
described in the first, second, fifth or sixth bullet point of the definition of
"Indebtedness") entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed on later than the third business day
following receipt by such Person of a demand for reimbursement).
"Holders" means the registered owners of the notes as shown on the
Security Register maintained for that purpose.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of Indebtedness.
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"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(i) all indebtedness of such Person for borrowed money;
(ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of credit
or other similar instruments (including reimbursement
obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit)
securing obligations (other than obligations described in (i) or
(ii) above or (v), (vi) or (vii) below) entered into in the
ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if drawn upon, to the
extent such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for
reimbursement);
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is
due more than six months after the date of placing such property
in service or taking delivery and title thereto or the
completion of such services, except Trade Payables;
(v) all Capitalized Lease Obligations;
(vi) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by
such Person; provided that the amount of such Indebtedness shall
be the lesser of (A) the Fair Market Value of such asset at such
date of determination and (B) the amount of such Indebtedness;
(vii) all Guarantee Obligations; and
(viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate
Agreements
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided that
(A) the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, (B) money borrowed and set aside at
the time of the Incurrence of any Indebtedness in order to prefund the payment
of the interest on such Indebtedness shall not be deemed to be "Indebtedness" so
long as such money is held to secure the payment of such interest and (C)
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement, the counterparty to which has capital, surplus and
undivided profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A2" by Moody's and
"A" by S&P (or such similar equivalent rating) or higher.
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"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of Iroquois or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For purposes herein, a Person shall be deemed to own subject to a Lien
any Property that it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other title
retention agreement (other than an operating lease) relating to such Property.
"Liquidated Damages" means all liquidated damages then owing pursuant
to a registration rights agreement relating to notes.
"Loss Proceeds" means all net proceeds from an Event of Loss,
including, without limitation, condemnation proceeds and insurance proceeds or
other amounts actually received on account of an event which causes all or a
substantial portion of the Pipeline to be damaged, destroyed or rendered unfit
for normal use, provided, however, solely for purposes of calculating a Material
Loss or Catastrophic Loss, proceeds of delayed opening or business interruption
insurance shall not be included.
"Make-Whole Premium" means,
(a) with respect to all of the notes of any series to be redeemed, an
amount calculated as of the date set for the redemption of the
notes (the "redemption date") as follows:
(i) the average life of the remaining scheduled payments of
principal in respect of the outstanding notes of such
series (the "Remaining Average Life") shall be calculated
as of the redemption date;
(ii) the yield to maturity shall be calculated for the United
States Treasury security having a maturity as close as
practicable to the Remaining Average Life and trading in
the secondary market at the price closest to par (the
"Primary Issue");
(iii) the discounted present value of the then remaining
scheduled payments of principal and interest (but excluding
that portion of any scheduled payment of interest that is
actually due and paid on the redemption date) in respect of
the Outstanding notes of such series shall be calculated as
of the redemption date using a discount factor equal to the
sum of (a) the yield to maturity for the Primary Issue,
plus (b) 35 basis points; and
(iv) the amount of premium in respect of notes of such series to
be redeemed shall be an amount equal to (a) the discounted
present value of such notes to be redeemed determined in
accordance with clause (iii) above minus (b) the unpaid
principal amount of such notes on the redemption date;
provided, however, that the premium shall not be less than
zero; and
(b) with respect to any security, the amount obtained by multiplying
(i) the aggregate Make-Whole Premium determined as set forth
above by (ii) the ratio of the Outstanding
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principal amount of such note on the redemption date to the
aggregate Outstanding principal amount of all notes of such
series on the redemption date.
"Mandatory Debt Service" means, for any period, the sum of all
scheduled interest, premium, if any, and principal due and payable during such
period in respect of all Indebtedness of Iroquois; provided that fees, including
any consent fees, payable in connection with the issuance of any Additional
Senior Indebtedness shall be excluded.
"Material Adverse Effect" means a material adverse effect on (a) the
ability of Iroquois to perform its obligations under the indenture, (b) the
material rights and remedies of any Senior Parties under the Senior Debt
Agreements, or (c) the timely payments of any principal or interest on any of
the Senior Debt.
"Material Loss" means an Event of Loss with respect to the Pipeline for
which the total Loss Proceeds payable in respect of the lost or damaged Property
are more than $10,000,000 and equal to or less than $100,000,000.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of Iroquois and its Subsidiaries, taken as a whole, (iii) payments
made to repay Indebtedness or any other obligation outstanding at the time of
such Asset Sale that either (A) is secured by a Lien on the property or assets
sold or (B) is required to be paid as a result of such sale and (iv) appropriate
amounts to be provided by Iroquois or any Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Non Amortizing Notes" means any series of notes with (a) a fixed term
at the time of issue of five years or longer and (b) scheduled payment terms
providing for 35% or more of the initial principal amount of such notes to
become due and payable on the Final Maturity Date of such notes.
"Nonrecourse Indebtedness" means Indebtedness as to which the holder
thereof shall have no recourse with respect to the non-performance of the
obligations of the debtor or obligor under such Indebtedness to make payments of
principal of, premium, if any, and interest on such Indebtedness against any
Person other than such debtor or obligor, including, but not limited to
Iroquois, and any such Indebtedness shall specifically so state.
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"No Ratings Downgrade" means that the ratings on the notes are
reaffirmed after consideration of a proposed applicable event as being equal to
or higher than the then current rating on the notes, no earlier than 60 days
prior to the proposed applicable event, by both of Moody's and S&P.
"Offer to Purchase" means an offer to purchase notes by Iroquois from
the Holders commenced by mailing a notice to the trustee and each Holder
stating:
(i) the covenant pursuant to which the offer is being made and that
all notes validly tendered will be accepted for payment on a pro
rata basis;
(ii) the purchase price and the date of purchase (which shall be a
business day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Payment Date");
(iii) that any note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless Iroquois defaults in the payment of the purchase
price, any note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment
Date;
(v) that Holders electing to have a note purchased pursuant to the
Offer to Purchase will be required to surrender the note,
together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the note completed, to the
paying agent at the address specified in the notice prior to the
close of business on the business day immediately preceding the
Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on
the third business day immediately preceding the Payment Date, a
telegram, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of notes delivered for
purchase and a statement that such Holder is withdrawing his
election to have such notes purchased; and
(vii) that Holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased
portion of the notes surrendered; provided that each note
purchased and each new note issued shall be in a principal amount
$1,000 or integral multiples thereof and further provided that if
a global note is purchased in part, the new global note shall be
in a denomination equal to the principal amount of the
unpurchased portion of the global note.
On the Payment Date, Iroquois shall (i) accept for payment on a pro
rata basis notes or portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the paying agent money sufficient to pay the purchase price of
all notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the trustee all notes or portions thereof so accepted together
with an officers' certificate specifying the notes or portions thereof accepted
for payment by Iroquois. The paying agent shall promptly wire to the Holders of
notes so accepted payment in an amount equal to the purchase price, and the
trustee shall promptly authenticate and mail to such Holders a new note equal in
principal amount to any unpurchased portion of the note surrendered; provided
that each note purchased and each new note issued shall be in a principal amount
of $1,000 or integral multiples thereof. Iroquois will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The trustee shall act as the paying agent for an Offer to Purchase. Iroquois
will comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and
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regulations are applicable, in the event that Iroquois is required to repurchase
notes pursuant to an Offer to Purchase.
"Operating Agreement" means the amended and restated operating
agreement dated as of February 28, 1997, between Iroquois Pipeline Operating
Company and Iroquois and any successor.
"Operating Cash Flow" means, for any period, the excess, if any, of (a)
all Revenues received during such period over (b) all Operating Expenses paid
during such period other than any nonrecurring Operating Expenses incurred in
connection with the issuance or retirement of any Senior Debt.
"Operating Expenses" means, for any period, the sum, computed without
duplication, of all cash operating and maintenance expenses and required
reserves in respect of such expenses of Iroquois including, without limitation:
o expenses of administering and operating the Pipeline and of
maintaining it in good repair and operating condition payable by
us during such period;
o direct operating and maintenance costs of the Pipeline
(including, without limitation, all payments due and payable
under the Operating Agreement and any ground leases and excluding
any necessary maintenance-level capital expenditures which are
not fully recoverable within one year) payable by us during such
period;
o insurance costs payable by us during such period;
o sales and excise taxes payable by us with respect to the
transportation of natural gas during such period;
o franchise taxes payable by Iroquois during such period;
o federal, state and local income taxes payable by Iroquois during
such period;
o costs and fees attendant to the obtaining and maintaining in
effect the government approvals payable by Iroquois during such
period; and
o legal, accounting and other professional fees attendant to any of
the foregoing items payable by Iroquois during such period.
Operating Expenses excludes, to the extent otherwise included,
depreciation for such period.
"Outstanding" means, with respect to notes, as of the date of
determination, all notes authenticated and delivered under the indenture,
except:
o notes canceled by the trustee or delivered to the trustee for
cancellation;
o notes for whose payment or redemption money in the necessary
amount has been deposited with the trustee or any paying agent in
trust or set aside and segregated in trust by Iroquois (if
Iroquois shall act as its own paying agent) for the Holders of
such notes; provided that, if such notes are to be redeemed,
notice of such redemption has been duly given pursuant to the
indenture or provision therefor satisfactory to the trustee has
been made;
o notes as to which defeasance has been effected; and
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o mutilated, lost or stolen notes which have been paid or in
exchange for or in lieu of which other notes have been
authenticated and delivered pursuant to the indenture, other than
any such notes in respect of which there shall have been
presented to the trustee proof satisfactory to it that such notes
are held by a bona fide purchaser in whose hands such notes are
valid obligations of Iroquois;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding notes have given, made or taken any request,
demand, authorization, direction, notice, consent, waiver or other action
hereunder as of any date, (A) the principal amount of an original issue discount
security which shall be deemed to be Outstanding shall be the amount of the
principal thereof which would be due and payable as of such date upon
acceleration of the maturity thereof to such date pursuant to the indenture, (B)
if, as of such date, the principal amount payable at the stated maturity of a
note is not determinable, the principal amount of such note which shall be
deemed to be Outstanding shall be the amount as specified or determined under
the indenture, (C) the principal amount of a note denominated in one or more
foreign currencies or currency units which shall be deemed to be Outstanding
shall be the U.S. dollar equivalent, determined as of such date in the manner
provided in the indenture, of the principal amount of such note (or, in the case
of a note described in clause (A) or (B) above, of the amount determined as
provided in such clause), and (D) notes owned by Iroquois or any other obligor
upon the notes or any Partner, or any Affiliate of Iroquois or any Partner or of
such other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent, waiver or other
action, only notes which the trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
trustee the pledgee's right so to act with respect to such notes and that the
pledgee is not Iroquois or any other obligor upon the notes or any affiliate of
Iroquois or of such other obligor.
"Partner" means any partner under the Partnership Agreement.
"Partnership Agreement" means the amended and restated limited
partnership agreement, dated February 28, 1997, among the Partners.
"Permitted Investments" means:
o any Temporary Cash Investment;
o loans and advances to officers and employees of Iroquois or any
of its Subsidiaries in an aggregate principal amount at any time
outstanding not exceeding $2 million;
o any Interest Rate Agreement entered and Currency Agreements into
in the ordinary course of business and not for speculative
purposes;
o Investments existing on the closing date of the offering of the
old notes and set forth on Schedule 1.1 to the indenture and any
extensions, renewals or reinvestments thereof, so long as the
aggregate amount of all Investments pursuant thereto is not
increased at any time above the aggregate amount of such
Investments existing on the date of the indenture;
o Investments representing Capital Stock or obligations issued to
Iroquois or any of its Subsidiaries in settlement of claims
against any other Person by reason of a composition or
readjustment of debt or a reorganization of any debtor of
Iroquois or any Subsidiary;
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o Investment acquired by Iroquois or any of its Subsidiaries in
connection with any Asset Sale permitted under the indenture to
the extent such Investments are non-cash proceeds;
o Investments consisting of extension of trade credit or security
deposits made in the ordinary course of business; and
o Investments in businesses or activities permitted under
"Limitation on Lines of Business and Investments" above provided
that such Investment is funded entirely and specifically by a
capital contribution to Iroquois by its partners in accordance
with the Partnership Agreement.
"Person" means any natural person, corporation, partnership, firm,
association, Government Instrumentality, or any other entity whether acting in
an individual, fiduciary or other capacity.
"Pipeline" means the 375 mile, mainline interstate pipeline facilities
extending from the United States - Canada border at Waddington, New York, to
South Commack, Long Island, New York together with all appurtenant facilities
and any future expansions or extensions of these facilities.
"Primary Agreements" means the Transportation Agreements, the Shipper
Guarantees and the Operating Agreement and all succeeding agreements thereto.
"Projected Debt Service Coverage Ratio" means, at any time of
determination thereof, a projection of the Debt Service Coverage Ratio for a
period which includes, or consists entirely of, future periods, prepared by
Iroquois in good faith based upon assumptions believed by Iroquois to be
reasonable.
"Property" means any right or interest in or to assets or property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Pro Rata Portion" means, with respect to Loss Proceeds (or any other
amount), as of any date, an amount equal to the product of such Loss Proceeds
(or other amount) multiplied by a fraction, (x) the numerator of which shall
equal the principal amount of the Outstanding notes and (y) the denominator of
which shall equal the sum of (i) the principal amount of the Outstanding notes
and (ii) the outstanding principal amount of all other Senior Debt at such date
(including, with respect to the new credit agreement, (a) the total revolving
credit commitment at such date (or if then terminated, the outstanding principal
amount of the revolving credit loans), and (b) the outstanding principal amount
of the term loans).
"Redemption Price" means the price to be paid by Iroquois for the notes
that are redeemed under Section 3.2 or Section 3.3 of the indenture.
"Regular Record Date", for the Stated Maturity of any installment of
principal of any note of a series, or payment of interest thereon, means the
15th day (whether or not a business day) next preceding such Stated Maturity, or
any other date specified for such purpose in the form of the note of such series
attached to the management committee resolution or Series Supplemental Indenture
relating to such series.
"Revenues" means all revenues accruing to us, calculated in accordance
with GAAP. "Revenues" shall include all cash distributions made to us by our
Subsidiaries which are not subject to repayment by law or by contract and shall
exclude all revenues accruing to such Subsidiaries that are not so distributed.
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"Security Register" means any register which Iroquois shall cause to be
kept the corporate trust office of the trustee (and in any other office or
agency of Iroquois in a place of payment) in which, to such reasonable
regulations as it may prescribe, Iroquois provides for the registration of notes
and of transfers and exchanges of notes.
"Senior Debt" means Indebtedness in respect of the notes and the new
credit agreement and any Additional Senior Indebtedness.
"Senior Debt Agreements" means all agreements, documents and
instruments evidencing and/or securing the Senior Debt or pursuant to which
Senior Debt is issued.
"Senior Parties" means the Persons that have extended, or that are
obliged to extend, credit to Iroquois pursuant to the Senior Debt Agreements and
any agent, trustee or similar representative of any such persons appointed
pursuant to any Senior Debt Agreement, including the trustee.
"Series Supplemental Indenture" shall mean an indenture supplemental to
the indenture entered into by Iroquois and the trustee for the purpose of
establishing, in accordance with the indenture, the title, form and terms of the
notes of any series; "Series Supplemental Indentures" shall mean each and every
Series Supplemental Indenture.
"Shipper Guarantees" means those agreements providing financial and
performance guarantees to Iroquois on behalf of certain shippers under firm
reserved transportation service contracts.
"Significant Subsidiary" means IPOC (or any successor operator of the
Pipeline) and any of our Subsidiaries which meet any of the following
conditions:
o Our and our other Subsidiaries' investments in and advances to
such Subsidiary exceed 10% of our total assets and our
Subsidiaries' total assets consolidated as of the end of the most
recently completed fiscal year; or
o Our and our other Subsidiaries' proportionate share of the total
assets (after intercompany eliminations) of such Subsidiary
exceeds 10% of our total assets and our Subsidiaries' total
assets consolidated as of the end of the most recently completed
fiscal year; or
o Our and our other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items
and cumulative effect of a change in accounting principle of such
Subsidiary exceeds 10% of such of our income and of our
Subsidiaries consolidated for the most recently completed fiscal
year.
"Stated Maturity" means when used with respect to any note or any
installment of principal thereof or interest thereon, the date specified in such
note as the fixed date on which the principal of such note or such installment
of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
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"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or Canada or
any agency thereof or obligations fully and unconditionally
guaranteed by the United States of America or Canada or any
agency thereof;
(ii) time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized
under the laws of the United States of America or any state
thereof, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $250 million and has
outstanding debt which is rated "A2" by Moody's and "A" by S&P
(or such similar equivalent rating) or higher or any money-market
fund having assets in excess of $250 million consisting of
obligations described in this clause sponsored by a registered
broker dealer or mutual fund distributor;
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above
entered into with a bank or trust company meeting the
qualifications described in clause (ii) above;
(iv) commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate
of Iroquois) organized and in existence under the laws of the
United States of America or any state thereof with a rating at
the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to
S&P; and
(v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A"
by S&P or at least "A2" by Moody's.
"Total Capitalization" means, as of any date, the sum of (a) the
Indebtedness of Iroquois on such day plus (b) all amounts that would be shown as
Partners' equity on a balance sheet of Iroquois as of such date prepared in
accordance with GAAP.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transaction Agreements" means, collectively, the Senior Debt
Agreements and the Primary Agreements.
"Transportation Agreements" means the contracts between us and our
shippers for transportation services on our pipeline which may be firm
transportation service contracts that are long-term (multi-year) or short-term
(less than one year) or interruptible transportation service contracts.
"United States Government Obligations" means direct obligations of the
United States of America or any agency thereof or obligations fully and
unconditionally guaranteed by the United States of America or any agency
thereof.
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"Working Capital Lender" means a bank or trust company which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $500 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A2" by Moody's and "A" by S&P (or such similar
equivalent rating) or higher.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Old Notes
On May 30, 2000, we issued $200.0 million aggregate principal amount of
the old notes. For a description of the material terms of the old notes, see
"Description of the Exchange Notes."
Senior Credit Facility
Simultaneously with the closing of the offering of the old notes, we
entered into a new credit agreement with the lenders named therein, The Chase
Manhattan Bank, as Agent, and Chase Securities Inc., as Lead Arranger. The new
credit agreement consists of (i) a $200 million 9-year term loan facility and
(ii) a $10 million 364-day revolving credit facility subject to certain
conditions. Under the terms of the new credit agreement, the term loan facility
was fully drawn on the closing date of the offering of the old notes and applied
in part to repay indebtedness incurred by us in connection with the development
and construction of our pipeline system. The revolving credit facility will be
available for working capital and general corporate purposes.
Term Loan Facility
The term loan facility will amortize with thirty-five equal quarterly
installments of $5,555,555, commencing on September 30, 2000, with the remaining
unpaid principal balance to be paid on the final maturity date thereof.
Revolving Credit Facility
The revolving credit facility is available as revolving credit advances
from financial close of the new credit agreement until 364 days thereafter, and
is annually extendable in the lenders' sole discretion if requested by us for
successive 364-day periods. The revolving credit facility has no scheduled
reduction in availability. Final repayment is due on all amounts outstanding
under the revolving credit facility on the date which 365 days from the date of
the credit agreement, unless extended. The new credit agreement provides that
certain conditions precedent be met for advances under the revolving credit
facility, including the absence of any defaults under the new credit agreement.
Prepayment
In addition to the scheduled repayment dates described above, the new
credit agreement requires us to make mandatory prepayments of outstanding
amounts under the new credit facilities in the event that an event of loss
occurs with respect to our pipeline system for which the estimated total loss
proceeds payable in respect of the lost or damaged property (as determined by us
reasonably and in good faith) is (a) greater than $100 million or (b) greater
than $10 million and equal to or less than $100 million if we (in our sole
discretion) do not determine, within three months of receipt of such proceeds,
to rebuild or repair our pipeline system. In such event, we will prepay the new
credit facilities and the notes (on a pro rata basis among the notes and the
senior debt) in an amount equal to the amount of the net proceeds received by or
on behalf of us on account of such event of loss (including, without limitation,
insurance proceeds or other amounts actually received on account of such event
of loss) which is allocable to the new credit facilities and the notes.
Indebtedness under the new credit agreement may be voluntarily prepaid
by us in whole or in part without premium or penalty.
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Any mandatory or optional prepayment of amounts outstanding under the
new credit facilities shall be applied in reverse order of their scheduled
maturities first, to the term loan facility pro rata among its scheduled
maturities of principal in reverse order of their scheduled maturities and
second, to the revolving credit facility, in each case plus all accrued and
unpaid interest to the date fixed for prepayment on the principal amount so
prepaid plus any related breakage or swap unwind costs.
Interest Rate and Fees
Amounts outstanding under the term loan facility and the revolving
credit facility will bear interest, at our option, at either one-, two-, three-
six or twelve-month or longer LIBOR plus specified interest margins per annum,
depending on the ratings of the notes at the time. The interest margin may be
reduced or increased for advances under both the term loan facility and the
revolving credit facility if in the future we receive higher or lower ratings,
respectively, on the notes.
We will pay a facility fee on the daily average of the revolving credit
commitments (regardless of utilization thereof) at a specified rate per annum,
depending upon the ratings of the notes at the time. In addition, we will pay
certain agency and other fees in connection with the new credit facilities.
Covenants
The new credit agreement also contains general covenants which limit
our ability to incur debt and liens, to pay dividends, to dispose of assets, to
merge or consolidate, to make investments and to engage in certain other
activities and transactions.
Events of Default
The new credit agreement contains events of default customary for
similar financings, including non-payment of principal and interest thereunder,
defaults with respect to certain other indebtedness, failure to observe certain
covenants set forth in the new credit agreement, materially incorrect
representation or warranty, certain judgment defaults, certain
bankruptcy-related events, revocation of material permits or government
consents, material damage to or abandonment of our pipeline system and certain
defaults under the Employee Retirement Income Security Act of 1974, as amended.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relevant to the purchase, ownership and disposition of the notes
and to the exchange of old notes for exchange notes. The following summary is
not binding on the U.S. Internal Revenue Service (the "IRS") or the courts and
we cannot assure you that the IRS or any court will take a similar view with
respect to the tax consequences described below. For purposes of this
discussion, the term "U.S. Holder" means a beneficial owner of a note that, for
United States federal income tax purposes, is (i) an individual citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
State federal income taxation regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over its
administration, and one or more United States persons have the authority to
control all substantial decisions of the trust. The term "Non-U.S. Holder" means
any beneficial owner of a note other than a U.S. Holder.
The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed Treasury
regulations, published rulings and other pronouncements of the IRS and court
decisions, all as currently in effect and all of which are subject to change,
possibly on a retroactive basis. This summary does not discuss all of the United
States federal income tax considerations that may be relevant to a holder of
notes. Moreover, it applies only to those persons who hold the notes as "capital
assets" (generally, assets held for investment), and does not address the tax
consequences to special classes of investors, including:
o financial institutions,
o tax-exempt organizations,
o insurance companies,
o persons holding notes as part of a straddle, hedge or
conversion transaction, or
o persons whose functional currency is not the United States
dollar.
State, local or foreign tax consequences of the purchase, ownership and
disposition of the notes are not summarized. Purchasers of notes should consult
their own tax advisors with respect to the particular consequences to them of
the purchase, ownership and disposition of the notes and the applicability of
any state, local or foreign tax laws, as well as with respect to the possible
effects of changes in United States federal and other tax laws.
Exchange Offer
The exchange of old notes for exchange notes pursuant to the exchange
offer will not be a taxable event for United States federal income tax purposes.
Accordingly, a holder will not recognize taxable gain or loss as a result of
such exchange and will have the same adjusted tax basis and holding period in
the exchange notes as such holder had in the old notes immediately before the
exchange.
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U.S. Holders
Stated Interest on the Notes. Payments of stated interest on the notes
generally will be taxable to a U.S. holder as ordinary interest income at the
time it is accrued or received in accordance with the holder's method of
accounting for United States federal income tax purposes.
Market Discount. If a U.S. Holder purchases a note for less than its
principal amount, the difference will be treated as a "market discount" for U.S.
federal income tax purposes, subject to a de minimus exception.
Under the market discount rules, a U.S. Holder will be required to
treat any payment on a note, or any gain on its sale, exchange, retirement or
other disposition, as ordinary income to the extent of the accrued market
discount which was not previously included in gross income. If the note is
disposed of in a non-taxable transaction (other than a nonrecognition
transaction described in section 1276(c) of the Code), accrued market discount
will be taxable to the U.S. Holder as ordinary income as if the U.S. Holder had
sold the note at its fair market value. In addition, a U.S. Holder may be
required to defer, until the maturity of a note or its earlier disposition
(including a non-taxable transaction other than a transaction described in
section 1276(c) of the Code), the deduction of all or a portion of the interest
expense in respect of any indebtedness incurred or continued to purchase or
carry the note. Market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of the
note, unless the U.S. Holder elects to accrue on a constant-yield basis.
A U.S. Holder of a note may elect to include market discount in income
as it accrues -- on either a ratable or constant-yield basis. If a U.S. Holder
makes this election, the rules regarding the treatment of gain upon the
disposition of the note and upon the receipt of certain cash payments as
ordinary income and regarding the deferral of interest deductions will not
apply. If a U.S. Holder elects to include market discount in income as it
accrues, the election will apply to all market discount obligations acquired
during or after the first taxable year to which the election applies. This
election may not be revoked without the consent of the IRS.
Amortizable Bond Premium. If a U.S. Holder purchases a note for more
than the amount payable at maturity (or on the earlier call date), that excess
will be considered an "amortizable bond premium." Holder may elect to amortize
the premium to offset the interest from the note that would otherwise be
required to be included in gross income (subject to special rules for early
redemption provisions). In any tax year, the holder can only use as much of the
premium as the constant yield method would allocate to that year. The U.S.
Holder's adjusted tax basis in the note will be reduced by the amount of bond
premium offset against interest. If a U.S. Holder elects to amortize the premium
to offset the interest from the note, the election will apply to all debt
instruments acquired during or after the first taxable year to which the
election applies. This election may not be revoked without the consent of the
IRS.
Disposition of the Notes. Generally, any sale, redemption or other
taxable disposition of a note will result in taxable gain or loss equal to the
difference between the sum of the amount of cash and the fair market value of
property received (other than amounts attributable to accrued but unpaid stated
interest on a note) and the holder's adjusted tax basis in the note. For this
purpose, a holder's adjusted tax basis in a note typically would equal the cost
of the note, increased by the amount of accrued market discount previously
included in such holder's gross income, and decreased by previously amortized
bond premium and all payments previously received by such holder (other than
payments of stated interest), in respect of the note. Any gain or loss upon a
sale or other disposition of a note by a U.S. Holder generally will be capital
gain or loss (except to the extent of accrued market discount, if any, that has
not been previously included in gross income, when amount generally will be
taxable as ordinary income), and will
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be long-term capital gain or loss if the note has been held by the holder for
more than one year. Certain non-corporate holders (including individuals) are
eligible for preferential rates of United States federal income taxation in
respect of long-term capital gains. The deduction of capital losses is subject
to certain limitations under United States federal income tax laws.
Non-U.S. Holders
In general, payments of principal or interest on the notes by us or any
paying agent to a beneficial owner of a note that is a Non-U.S. Holder will not
be subject to United States federal income or withholding tax, provided that, in
the case of interest, (i) such Non-U.S. Holder does not own, actually or
constructively, 10% or more of our total profits or capital interests, within
the meaning of Section 871(h)(3) of the Code, (ii) such Non-U.S. Holder is not a
controlled foreign corporation that is related, directly or indirectly, to us,
(iii) such Non-U.S. Holder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (iv) the certification requirements under Section
871(h) or Section 881(c) of the Code and the Treasury regulations thereunder
(summarized below) are satisfied.
A Non-U.S. Holder of a note will not be subject to United Stated
federal income tax on gains realized from on the sale, exchange, retirement or
other disposition of a note (other than amounts attributable to stated interest,
which may be subject to the rules described above) unless (i) the Non-U.S.
Holder is an individual who is present in the United States for 183 days or more
in the taxable year of the sale, exchange, retirement or other disposition, and
certain conditions are met, (ii) the gain is effectively connected with the
conduct by the Non-U.S. Holder of a trade or business in the United States and,
if certain tax treaties apply, is attributable to a United States permanent
establishment maintained by the Non-U.S. Holder, or (iii) the Non-U.S. Holder is
subject to Code provisions applicable to certain United States expatriates.
A note held by an individual who is not a citizen or resident of the
United States at the time of his death will not be subject to United States
federal estate tax as a result of the individual's death, provided that, at the
time of such individual's death, the individual does not own, actually or
constructively, 10% or more of our total profits or capital interests, and
payments with respect to such note would not have been effectively connected
with the conduct by such individual of a trade or business in the United States.
To satisfy the certification requirements noted above, (i) the
beneficial owner of a note must certify, under penalties of perjury, to us or
our paying agent that the owner is a Non-U.S. Holder and must provide the
owner's name, address and U.S. taxpayer identification number ("TIN"), if any,
which certification may be made on IRS Form W-8BEN, or (ii) a securities
clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business and holds the note on
behalf of the beneficial owner must certify, under penalties of perjury, to us
or our paying agent that such certificate has been received from the beneficial
owner and must furnish the payor with a copy thereof.
For payments made after December 31, 2000, in the case of the notes
held by a foreign partnership that is not a withholding foreign partnership, IRS
Form W-8IMY must be provided to us or our paying agent by the partnership, in
addition to providing us or our paying agent with an IRS Form W-8BEN received
from each partner.
If a Non-U.S. Holder of a note is engaged in a trade or business in the
United States, and if interest on the note or gain realized on the sale,
exchange, retirement or other disposition of the note is effectively connected
with the conduct of the trade or business (and, if a tax treaty applies, is
attributable to a United States permanent establishment maintained by the
Non-U.S. Holder), the Non-U.S. Holder, although exempt from United States
federal withholding tax (provided that certain certification
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<PAGE>
requirements are met), generally will be subject to regular United States
federal income tax on the interest or gain in the same manner as if it were a
U.S. Holder. In lieu of the certificate described above (with respect to
non-effectively connected interest), the Non-U.S. Holder will be required to
provide us or our paying agent with a properly executed IRS Form 4224 (or, after
December 31, 2000, a Form W-8ECI) in order to claim an exemption from United
States federal withholding tax. In addition, any such effectively connected
interest or gain received by a foreign corporation may be subject to an
additional "branch profits tax" at a 30% rate or a lower rate specified by an
applicable income tax treaty, subject to certain adjustments.
Backup Withholding
A holder may be subject, under certain circumstances, to backup
withholding at a 31 percent rate with respect to payments of interest received
on, and proceeds from the sale or other disposition (through a broker) of, a
note. Backup withholding generally applies only if the holder:
o fails to furnish his or her TIN to us (or to another relevant
payor) in the required manner,
o furnishes an incorrect TIN and the IRS so notifies us (or such
other payor),
o is notified by the IRS that he or she has failed to properly
report payments of interest or dividends and, thus, is subject
to withholding, or
o fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN
provided is his or her correct TIN and that he or she is not
subject to backup withholding.
Any amount withheld from a payment to a holder under the backup
withholding rules is allowable as a credit against such holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS. Certain holders (including, among others, corporations)
are not subject to backup withholding. Holders should consult their tax advisors
as to their qualification for exemption from back-up withholding and the
procedure for obtaining such an exemption.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO THE PARTICULAR CIRCUMSTANCES OF
A HOLDER OF NOTES. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THEIR
SPECIFIC TAX CONSEQUENCES TO THEM, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 days after the expiration of the exchange offer, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until 90 days after the
effectiveness of this registration statement, all dealers effecting transactions
in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration of the exchange offer we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the old
notes) other than commissions or concessions of any broker-dealers and will
indemnify the holders of the old notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the exchange notes will be passed upon for Iroquois by
Shearman & Sterling, New York, New York.
EXPERTS
The balance sheets of Iroquois Gas Transmission System, L.P. as of
December 31, 1999 and 1998 and the related statements of income, Partners'
equity and cash flows for the years ended December 31, 1999, 1998 and 1997
included in this prospectus and registration statement have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report,
appearing therein and are included in reliance upon such report given upon the
authority of such firms as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants...............................................................................F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 1999, December 31, 1998, June 30, 2000
(unaudited) and June 30, 1999 (unaudited) ....................................................F-3
Consolidated Statements of Income for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997 and the six months ended June 30,
2000 (unaudited) and June 30, 1999 (unaudited)............................................... F-4
Statements of Changes in Partners' Equity for the years ended December 31, 1999, 1998
and 1997 and six months ended June 30, 2000 (unaudited).......................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997 and the six months ended June 30, 2000
(unaudited) and June 30, 1999 (unaudited) ....................................................F-6
Notes to Financial Statements...................................................................................F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Iroquois
Gas Transmission System, L.P.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in partners' equity and of cash flows
present fairly, in all material respects, the financial position of Iroquois Gas
Transmission System, L.P. and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 11, 2000
F-2
<PAGE>
IROQUOIS GAS TRANSMISSION SYSTEM
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
------------ -------
1999 1998 2000 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Current Assets:
Cash and temporary cash investments $ 27,375 $ 27,356 $ 63,899 $ 40,551
Accounts receivable - trade 6,938 7,191 4,651 7,497
Accounts receivable - affiliates 5,440 3,835 5,484 2,977
Other current assets 3,422 2,490 2,697 1,808
--------- --------- --------- ---------
Total Current Assets 43,175 40,872 76,731 52,833
--------- --------- --------- ---------
Natural Gas Transmission Plant:
Natural gas plant in service 773,588 770,118 774,571 772,899
Construction work in progress 3,292 1,868 5,705 1,715
--------- --------- --------- ---------
776,880 771,986 780,276 774,614
Accumulated depreciation and amortization (242,074) (223,154) (253,547) (233,608)
--------- --------- --------- ---------
Net Natural Gas Transmission Plant 534,806 548,832 526,729 541,006
--------- --------- --------- ---------
Other Assets and Deferred Charges:
Regulatory assets - income tax related 12,767 13,838 13,931 13,244
Regulatory assets - other 2,226 2,414 2,132 2,320
Other assets and deferred charges 1,877 914 6,665 517
Total Assets and Deferred Charges 16,870 17,166 22,728 16,081
--------- --------- --------- ---------
TOTAL ASSETS $ 594,851 $ 606,870 $ 626,188 $ 609,920
========= ========= ========= =========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable $ 3,645 $ 4,228 $ 3,402 $ 2,597
Accrued interest 4,781 5,211 2,791 4,796
Short-term borrowings 3,500 -- -- --
Current portion of long-term debt 28,789 28,723 22,222 28,756
Other current liabilities 5,290 5,177 4,890 2,961
--------- --------- --------- ---------
Total Current Liabilities 46,005 43,339 33,305 39,110
--------- --------- --------- ---------
Long-Term Debt 307,875 336,665 377,778 322,287
Other Non-current Liabilities 816 398 792 417
--------- --------- --------- ---------
308,691 337,063 378,590 322,704
--------- --------- --------- ---------
Amounts Equivalent to Deferred Income Taxes:
Generated by Partnership 70,037 62,274 75,813 66,419
Payable by Partners (57,270) (48,436) (61,882) (53,175)
--------- --------- --------- ---------
Total Amounts Equivalent to Deferred Income Taxes 12,767 13,838 13,931 13,244
--------- --------- --------- ---------
Commitments and Contingencies (Note 6)
Total Liabilities 367,463 394,240 425,806 375,058
--------- --------- --------- ---------
Partners' Equity 227,388 212,630 200,382 234,862
--------- --------- --------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY
$ 594,851 $ 606,870 $ 626,188 $ 609,920
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
IROQUOIS GAS TRANSMISSION SYSTEM
CONSOLIDATED STATEMENTS OF INCOME
(thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------- ----------------------
1999 1998 1997 2000 1999
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net Operating Revenues $ 123,919 $ 140,371 $ 153,652 $ 64,493 $ 62,824
Operating Expenses:
Operations 21,534 21,703 23,988 10,255 10,045
Depreciation and Amortization 21,976 29,795 32,094 11,933 10,570
Taxes Other than Income Taxes 11,449 10,390 10,266 5,520 5,324
--------- --------- --------- --------- ---------
Total Operating Expenses 54,959 61,888 66,348 27,708 25,939
--------- --------- --------- --------- ---------
Operating Income 68,960 78,483 87,304 36,785 36,885
--------- --------- --------- --------- ---------
Other Income and (Expenses):
Interest Income 1,644 1,908 2,105 1,042 754
Allowance for Equity Funds Used
During Construction -- 457 245 18 --
Other, Net (225) 4,393 1,830 (121) --
--------- --------- --------- --------- ---------
1,419 6,758 4,180 939 754
Income Before Interest Charges and Taxes 70,379 85,241 91,484 37,724 37,639
Interest Expense:
Interest Expense 30,621 33,169 35,409 14,752 15,406
Allowance for Borrowed Funds Used
During Construction -- (693) (419) 22 --
Net Interest Expense 30,621 32,476 34,990 14,730 15,406
--------- --------- --------- --------- ---------
Income Before Taxes 39,758 52,765 56,494 22,994 22,233
Provision for Taxes 15,580 20,788 22,408 8,776 8,672
--------- --------- --------- --------- ---------
Net Income $ 24,178 $ 31,977 $ 34,086 $ 14,218 $ 13,561
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
IROQUOIS GAS TRANSMISSION SYSTEM
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
(thousands of dollars)
PARTNERS' EQUITY
BALANCE AT DECEMBER 31, 1996 $198,371
Net income 1997 34,086
Taxes payable by Partners:
Federal income taxes 18,802
State income taxes 2,309
Other state taxes 1,297
--------
22,408
Equity distributions to Partners (55,000)
--------
PARTNERS' EQUITY
BALANCE AT DECEMBER 31, 1997 $199,865
========
Net income 1998 $31,977
Taxes payable by Partners:
Federal income taxes 17,440
State income taxes 2,127
Other state taxes 1,221
--------
20,788
Equity distributions to Partners (40,000)
--------
Balance at December 31, 1998 $212,630
========
Net income 1999 $24,178
Taxes payable by Partners:
Federal income taxes 13,367
State income taxes 1,089
Other state taxes 1,124
--------
15,580
Equity distributions to Partners (25,000)
--------
Balance at December 31, 1999 $227,388
========
Net income for the period ended June 30, 2000 $14,218
Taxes payable by Partners
Federal income taxes 7,850
State income taxes 361
Other state taxes 565
--------
8,776
Equity distributions to Partners (50,000)
--------
Balance at June 30, 2000 $200,382
========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
IROQUOIS GAS TRANSMISSION SYSTEM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
------------------------------------ ----------------------
1999 1998 1997 2000 1999
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 24,178 $ 31,977 $ 34,086 $ 14,218 $ 13,560
--------- --------- --------- --------- ---------
Adjusted for the following:
Depreciation and amortization 21,976 29,795 32,094 11,933 10,570
Allowance for equity funds used during construction -- (457) (245) (18) --
Deferred regulatory asset-income tax related 1,071 548 664 (1,164) 594
Amounts equivalent to deferred income taxes (1,071) (548) (664) 1,164 (594)
Income and other taxes payable by partners 15,580 20,788 22,408 9,939 8,078
Other assets and deferred charges (1,007) (28) (197) (23) 320
Changes in working capital:
Accounts receivable (1,352) 3,276 844 2,243 552
Other current assets (932) (323) 345 (5,544) 1,651
Accounts payable (583) (679) 705 (363) (1,932)
Accrued interest (430) (402) (810) (1,990) (415)
Other liabilities 531 (48) (2114) (279) (2,216)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 57,961 83,899 87,116 30,116 30,168
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (7,718) (14,172) (14,719) (3,426) (2,628)
--------- --------- --------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (7,718) (14,172) (14,719) (3,426) (2,628)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Long-term borrowings -- -- -- 400,000 --
Partner distributions (25,000) (40,000) (55,000) (50,000) --
Repayments of long-term debt (28,724) (28,723) (29,706) (307,876) --
Short-term borrowings 3,500 -- -- -- --
Repayment of short-term borrowings (32,289) (14,345)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (50,224) (68,723) (84,706) 9,835 (14,345)
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS 19 1,004 (12,309) 36,525 13,195
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF YEAR 27,356 26,352 38,661 27,374 27,356
--------- --------- --------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF YEAR $ 27,375 $ 27,356 $ 26,352 $ 63,899 $ 40,551
========= ========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 31,051 $ 33,571 $ 35,898 $ 14,031 $ 15,808
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
IROQUOIS GAS TRANSMISSION SYSTEM
NOTES TO FINANCIAL STATEMENTS
(1) Description of Partnership
Iroquois Gas Transmission System, L.P. ("Iroquois" or the "Company") is
a Delaware limited partnership formed for the purpose of constructing, owning
and operating a natural gas transmission pipeline from the Canada-United States
border near Waddington, NY, to South Commack, Long Island, NY. In accordance
with the limited partnership agreement, the Partnership shall continue in
existence until October 31, 2089, and from year to year thereafter, until the
Partners elect to dissolve the Partnership and terminate the limited partnership
agreement.
Effective December 31, 1998, Alenco Iroquois Pipeline, Inc. sold its
interest in the Company to TCPL Northeast Ltd. The partners consist of
TransCanada Iroquois Ltd. (29.0%), North East Transmission Co. (19.4%), Dominion
Iroquois, Inc. (16.0%), ANR Iroquois, Inc. (9.4%), ANR New England Pipeline Co.
(6.6%), TCPL Northeast Ltd. (6.0%), JMC-Iroquois, Inc. (4.93%), TEN Transmission
Company (4.87%), NJNR Pipeline Company (2.8%), and LILCO Energy Systems, Inc.
(1.0%). The Iroquois Pipeline Operating Company, a wholly owned subsidiary, is
the administrative operator of the pipeline.
Income and expenses are allocated to the Partners and credited to their
respective equity accounts in accordance with the partnership agreements and
their respective percentage interests.
Distributions to Partners are made concurrently to all Partners in
proportion to their respective partnership interests. Total cash distributions
of $25.0 million, $40.0 million and $55.0 million were made during 1999, 1998
and 1997, respectively.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles and with accounting for
regulated public utilities prescribed by the Federal Energy Regulatory
Commission (the "FERC"). Generally accepted accounting principles for regulated
entities allow the Company to give accounting recognition to the actions of
regulatory authorities in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of
Certain Types of Regulation." In accordance with SFAS No. 71, the Company has
deferred recognition of costs (a regulatory asset) or has recognized obligations
(a regulatory liability) if it is probable that such costs will be recovered or
obligation relieved in the future through the rate-making process.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and Iroquois Pipeline Operating Company, a wholly owned subsidiary.
Intercompany transactions have been eliminated in consolidation.
Cash and Temporary Cash Investments
Iroquois considers all highly liquid temporary cash investments
purchased with an original maturity date of three months or less to be cash
equivalents. Cash and temporary cash investments of $27.4 million in 1999,
consisting primarily of low risk mutual funds, are carried at cost, which
approximates market. At December 31, 1999, 1998 and 1997, $9.7 million, $11.0
million and $10.6 million, respectively, of cash and temporary cash investments
were held to satisfy the terms of the Loan Agreement (refer to Note 3).
F-7
<PAGE>
Natural Gas Plant in Service
Natural gas plant in service is carried at original cost. The majority
of the natural gas plant in service is categorized as natural gas transmission
plant which was depreciated over 20 years on a straight line basis from the
in-service date through January 31, 1995. Commencing February 1, 1995, the
transmission plant was depreciated over 25 years on a straight-line basis as a
result of a rate case settlement. Effective August 31, 1998 the depreciation
rate was changed to 2.77% (36 years average life) in accordance with the FERC
rate order issued July 29, 1998. The general plant is depreciated on a
straight-line basis over five years.
Construction Work in Progress
At December 31, 1999, construction work in progress included
preliminary construction costs relating to the proposed Eastchester expansion
project and other ongoing minor capital projects.
Allowance for Funds Used During Construction
The allowance for funds used during construction (the "AFUDC")
represents the cost of funds used to finance natural gas transmission plant
under construction. The AFUDC rate includes a component for borrowed funds as
well as equity. The AFUDC is capitalized as an element of natural gas plant in
service.
Provision for Taxes
The payment of income taxes is the responsibility of the Partners and
such taxes are not normally reflected in the financial statements of
partnerships. Iroquois' approved rates, however, include an allowance for taxes
(calculated as if it were a corporation) and the FERC requires Iroquois to
record such taxes in the Partnership records to reflect the taxes payable by the
Partners as a result of Iroquois' operations. These taxes are recorded without
regard as to whether each Partner can utilize its share of the Iroquois tax
deductions. Iroquois' rate base, for rate-making purposes, is reduced by the
amount equivalent to accumulated deferred income taxes in calculating the
required return.
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred taxes are provided based upon,
among other factors, enacted tax rates which would apply in the period that the
taxes become payable, and by adjusting deferred tax assets or liabilities for
known changes in future tax rates. SFAS No. 109 requires recognition of a
deferred income tax liability for the equity component of AFUDC.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classifications.
Revenue Recognition Policy
Revenues are recognized as services are provided.
(3) Financing
On June 11, 1991, Iroquois entered into a loan agreement which provided
a loan facility totaling $522.6 million to be amortized over a 14-year period
commencing November 1, 1992. During 1993, Iroquois entered into
F-8
<PAGE>
Expansion Loan Agreement No. 1 in the amount of $17.6 million to construct the
Wright Compressor Station. This loan would mature in November 2007. During 1995,
Iroquois entered into Expansion Loan Agreement No. 2 in the amount of $13.4
million to finance the Croghan Compressor Station, which would mature in
November 2008. On May 30, 2000, Iroquois exercised its option to prepay these
three loans in full.
As of December 31, 1999, Iroquois was party to interest rate swap
transactions for aggregate notional principal amounts of $537.6 million. The
interest rate swaps relating to the original loan and Expansion Loan No. 1 are
$537.6 million which are being amortized over 14 years in accordance with the
principal repayment schedule provided in the Loan Agreement. The interest rate
and margin over the term of the swaps average 7.615% and 1.159%, respectively.
The interest rate swap for Expansion Loan No. 2 expired November 2, 1998 at
which time the interest rate became based upon daily LIBOR plus an average
margin of 1.153% over the term of the loan. The Original Loan Agreement requires
that at least 50% of the original debt is hedged by interest rate swaps. The
fair value of the interest rate swaps is the estimated amount that Iroquois
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and current creditworthiness of the
swap counterparties. The fair value of the interest rate swaps were ($8.6)
million, ($39.2) and ($29.1) million at December 31, 1999, 1998 and 1997
respectively. All interest rate swap agreements were terminated during the first
six months of 2000.
On May 30, 2000, Iroquois completed a private offering of $200 million
of 8.68% senior notes due 2010, which will be exchanged in a registered offering
for notes with substantially identical terms ("Senior Notes"). Also on May 30,
2000, Iroquois entered into a credit agreement with certain financial
institutions providing for a term loan facility of $200 million ("Term Loan
Facility") and a $10 million of 364-day revolving credit facility. The Term Loan
Facility will amortize over nine years. As of June 30, 2000 the revolving credit
facility remains undrawn. The proceeds from the Senior Notes and Term Loan
Facility were used to repay borrowing under the above mentioned three loan
agreements, terminate related interest rate swap agreements, make a cash
distribution to our partners of $40 million, to pay certain financing fees and
expenses and for general corporate purposes.
During the first six months of 2000, Iroquois paid approximately $.91
million for the termination of its entire portfolio of interests rate swap
agreements, which had aggregate notional principal amount of $437.6 million.
Under the provisions of SFAS No. 71, Iroquois intends to recover these costs and
therefore will defer and amortize these amounts over the life of the original
loan agreements.
At June 30, 2000, the outstanding principal balance on each of the
Senior Notes and Term Loan Facility was $200 million. The combined schedule of
repayments is as follows (in millions):
Year Scheduled Repayment
---- -------------------
2000 $11.1
2001 $22.2
2002 $22.2
2003 $22.2
2004 $22.2
Thereafter $300.1
F-9
<PAGE>
At December 31, 1999, the short-term borrowings consisted of an
unsecured line of credit which permits borrowings up to a maximum of $10 million
at a rate equal to the lower of the lenders' alternate base rate or one, two or
three month LIBOR plus 3/8% per annum. This facility expired in May 2000. As of
December 31, 1999, $3.5 million was outstanding under this agreement at an
annual interest rate of 6.8363%. The line of credit contains a subjective
acceleration clause as its most restrictive covenant.
(4) Concentrations of Credit Risk
Iroquois' cash and temporary cash investments and trade accounts
receivable represent concentrations of credit risk. Management believes that the
credit risk associated with cash and temporary cash investments is mitigated by
its practice of limiting its investments to low risk mutual funds, rated Aaa by
Moody's Investors Service and AAA by Standard and Poor's, and its cash deposits
to large, highly rated financial institutions. Management also believes that the
credit risk associated with trade accounts receivable is mitigated by the
restrictive terms of the FERC gas tariff which requires customers to pay for
service within 20 days after the end of the month of service delivery.
(5) Gas Transportation Contracts
As of December 31, 1999, Iroquois was providing multi-year firm
reserved transportation service to 34 shippers of 987.5 MDth/d of natural gas
which breaks down as follows:
Remaining Term in Years Quantity in MDth/d
----------------------- ------------------
3-10 109.2
11-15 758.8
16-20 119.5
-----
Total 987.5
=====
The long-term firm reserved service gas transportation contracts expire
between October 31, 2011 and August 1, 2018.
(6) Commitments and Contingencies
Regulatory Proceedings
FERC Docket No. RP97-126
------------------------
On November 29, 1996, Iroquois submitted a general rate change
application to the Federal Energy Regulatory Commission ("FERC" or "Commission")
in Docket No. RP97-126-000. In an order issued on December 31, 1996 ("Suspension
Order"), the Commission accepted and suspended the rates, permitted them to
become effective (with one exception noted below) on January 1, 1997, and
established a hearing. Pursuant to that Suspension Order, the Presiding
Administrative Law Judge conducted a hearing on all issues raised by Iroquois'
filing, which was concluded on August 28, 1997.
Following the December 31, 1997 issuance of an Initial Decision ("1997
Initial Decision") by the Presiding Administrative Law Judge, on January 30,
1998 Iroquois filed its brief on exceptions vigorously opposing certain aspects
of the 1997 Initial Decision. On July 29, 1998 the Commission issued its "Order
Affirming in Part and Reversing in Part Initial Decision" ("July 29 Order")
which modified significant portions of the 1997 Initial Decision. Iroquois'
filing in compliance with the July 29, Order was accepted and the lower rates
became effective on August 31, 1998. In addition, on August 28, 1998 Iroquois
filed a request for rehearing of the July 29 Order. By order issued March 11,
1999 ("March 11 Order") the Commission granted rehearing on one aspect of the
July 29 Order. The March 11 Order reversed the earlier decision on Iroquois'
capital structure and permitted Iroquois to utilize an equity structure of
35.21% (in place of the 31.85% required by the July 29 Order) in designing its
rates. This resulted in an increase of approximately 1(cent) per Dth in
Iroquois' 100% load factor interzone rate. All other
F-10
<PAGE>
requests for rehearing of the July 29 Order were denied. Iroquois filed a
petition for review of these orders in the United States Court of Appeals for
the District of Columbia Circuit docketed as D.C. Cir. No. 99-1175. This case
has been consolidated with D.C. Cir. No. 99-1177, which involves a petition for
review of these same orders that was filed by Selkirk Cogen Partners, L.P. and
MassPower (customers of Iroquois). These matters are before the court, but the
parties have agreed to stay the procedural schedule pending Commission approval
of the rate settlement described below. As a result of the Commission's February
10, 2000 approval of that settlement, the petitions for review are expected to
be withdrawn in March, 2000.
The Suspension Order granted summary disposition on one issue: as a
result of the Commission's December 20 Opinion in Docket No. RP94-72 (discussed
below), Iroquois was ordered to remove approximately $11.7 million in plant and
associated costs from its proposed rate base. This resulted in an additional
reduction in Iroquois' test-period revenues of approximately $2.0 million from
those set forth in the filing. Iroquois sought rehearing (on January 30, 1997)
of the Suspension Order. This was denied by the Commission by an order issued
August 5, 1997 ("August 5 Order"). On September 3, 1997, Iroquois filed a
Petition for Review of the Commission's Suspension and August 5 Orders in the
United States Court of Appeals for the District of Columbia Circuit, docketed as
D.C. Cir. No. 97-1533, which was consolidated with D.C. Cir. No. 97-1276
(discussed below).
FERC Docket No. RP94-72
-----------------------
The Commission, on June 19, 1995, approved a Stipulation and Consent
Agreement in Iroquois' prior rate proceeding in Docket No. RP94-72, which
resolved all issues except for the accounting and recovery of legal defense
costs incurred in connection with certain criminal and civil investigations into
the initial construction of the Iroquois facility. A hearing was held on this
reserved issue on April 5, 1995. On July 19, 1995 the Presiding Administrative
Law Judge issued an Initial Decision ("1995 Initial Decision") that would have
permitted Iroquois to capitalize those legal defense costs and recover $4.1
million (the dollar amount of such costs which Iroquois filed to recover in
Docket No. RP94-72) from its customers. Various participants, including the
Commission Staff, filed exceptions to the 1995 Initial Decision with the
Commission (which were opposed by Iroquois on September 7, 1995). On December
20, 1996 the Commission issued an order reversing the 1995 Initial Decision and
disallowing recovery of the legal defense costs at issue. Iroquois filed a
request for rehearing of the Commission's December 20 Order on January 21, 1997.
By Order issued March 3, 1997, the Commission denied rehearing.
Consolidated Proceedings
------------------------
Iroquois filed a petition for review of the December 20 and March 3
Orders in the United States Court of Appeals for the District of Columbia
Circuit on April 18, 1997 in D.C. Cir. No. 97-1276. The court on July 21, 1998
issued a decision reversing the Commission's December 20 and March 3 Orders as
well as the Suspension and August 5 Orders and remanded the matter to the agency
for further proceedings. The court subsequently denied rehearing of its opinion
on November 13, 1998 and issued its mandate. On June 16, 1999 the Commission
issued an "Order on Remand and Establishing Rehearing" ("June 16 Order"). The
June 16 Order concluded that a hearing was necessary to determine whether
Iroquois' incurrence of the legal defense expenditures was prudent and set forth
the procedures and burdens which were to govern that hearing. A preliminary
conference to establish a procedural schedule and to clarify the positions of
the participants was convened on July 12, 1999. As a result of the Commission's
February 10, 2000 approval of the rate settlement described below, these issues
have been resolved, subject to rehearing of such order.
Settlement
----------
After extensive negotiations, on December 17, 1999 Iroquois, with the
support of all active participants, filed with the Commission a settlement of
all of the above outstanding rate matters. Pursuant to the settlement the
parties have agreed to a rate moratorium whereby, with limited exceptions, no
new rates could be placed in effect on Iroquois' system until January 1, 2004.
During the period of the moratorium, Iroquois is required to reduce its 100%
load factor interzone rate by approximately 4.8(cent) per dekathem
(approximately 1(cent) in 2001, an additional 2.4(cent) in 2002 and an
additional 1.4(cent) in 2003). In addition, Iroquois has waived its right to
seek in any future rate proceedings to recover defense costs associated with the
criminal and civil investigations into the initial construction of the Iroquois
facility. These costs have been removed from the proposed rate base and
reflected in the Company's
F-11
<PAGE>
results from operations in previous years; therefore there is no impact on the
results from operations for the year ending December 31, 1999. Finally, under
the settlement Iroquois, Selkirk Cogen Partners, L.P. and MassPower have agreed
to withdraw their petitions for review in D.C. Cir. Nos. 99-1175 and 99-1177. No
comments in opposition to the settlement were filed. By letter order issued
February 10, 2000, the Commission approved the rate settlement without
modification. The settlement became effective on March 10, 2000.
Legal Proceedings -- Other
Iroquois is party to various other legal actions incident to its
business. However, management believes that no material losses will result from
such proceedings.
Leases
Iroquois leases its office space under operating lease arrangements.
The leases expire at various dates through 2003 and are renewable at Iroquois'
option. Iroquois also leases a right-of-way easement on Long Island, New York,
from the Long Island Lighting Company ("LILCO"), a general partner, which
requires annual payments escalating 5% a year over the 39-year term of the
lease. In addition, Iroquois leases various equipment under non-cancelable
operating leases. During the years ended December 31, 1999, 1998 and 1997,
Iroquois made payments of $1.0 million, $0.9 million and $1.0 million,
respectively, under operating leases which were recorded as rental expense.
Future minimum rental payments under operating lease arrangements are as follows
(millions of dollars):
Year Amount
2000 $0.8
2001 $0.7
2002 $0.7
2003 $0.4
2004 $0.1
Thereafter $4.6
(7) Income Taxes
Deferred income taxes which are the result of operations will become
the obligation of the Partners when the temporary differences related to those
items reverse. The Company recognizes a decrease in the Amounts Equivalent to
Deferred Income Taxes account for these amounts and records a corresponding
increase to Partners' equity. Deferred income taxes with respect to the equity
component of AFUDC remain on the accounts of the Partnership until the related
deferred regulatory asset is recognized.
Total income tax expense includes the following components (thousands
of dollars):
Six Months Ended U.S. State
June 30, 2000: Federal State Other Total
---------------- ------- ----- ----- -----
Current $3,238 $ 926 $ -- $4,164
Deferred 4,081 531 -- 4,612
------ ------ ------ ------
Total $7,319 $1,457 $ -- $8,776
====== ====== ====== ======
U.S. State
1999 Federal State Other Total
---- ------- ----- ----- -----
Current $5,082 $ 540 $1,124 $6,746
Deferred 8,285 549 -- 8,834
------ ------ ------ -------
Total $13,367 $1,089 $1,124 $15,580
======= ====== ====== =======
F-12
<PAGE>
U.S. State
1998 Federal State Other Total
---- ------- ----- ----- -----
Current $8,910 $1,793 $1,221 $11,924
Deferred 8,530 334 -- 8,864
------ ------ ------ -------
Total $17,440 $2,127 $1,221 $20,788
======= ====== ====== =======
U.S. State
1997 Federal State Other Total
---- ------- ----- ----- -----
Current $9,812 $1,872 $1,297 $12,981
Deferred 8,990 437 -- 9,427
------- ------ ------ --------
Total $18,802 $2,309 $1,297 $22,408
======= ====== ====== =======
For the years ended December 31, 1999, 1998 and 1997, the effective tax
rate differs from the Federal statutory rate due principally to the impact of
state taxes.
Deferred income taxes included in the income statement relate to the
following (thousands of dollars):
<TABLE>
<CAPTION>
Six Months
Ended June 30, 2000 1999 1998 1997
------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Depreciation $4,243 $8,930 $4,224 $4,882
Deferred regulatory asset (38) (70) (71) (71)
Property taxes -- 23 27 21
Legal costs 43 (16) 104 (43)
Accrued expenses (43) 16 (104) 613
Alternative minimum tax credit 537 (37) 4,487 3,872
Other (130) (12) 197 153
------ ----- ------ ------
Total deferred taxes $4,612 $8,834 $8,864 $9,427
====== ====== ====== ======
</TABLE>
The components of the net deferred tax liability are as follows
(thousands of dollars):
<TABLE>
<CAPTION>
At June 30, 2000 1999 1998 1997
---------------- ---- ---- ----
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
Alternative minimum tax credit $2,236 $2,773 $1,407 $5,894
Accrued expenses 5,517 5,474 5,490 5,386
---------- --------- --------- --------
Total deferred tax assets 7,753 8,247 6,897 11,280
DEFERRED TAX LIABILITIES:
Depreciation and related items (63,302) (59,072) (48,834) (44,647)
Deferred regulatory asset (845) (883) (953) (1,024)
Property taxes (879) (879) (856) (829)
Legal costs (4,705) (4,662) (4,678) (4,573)
Other (577) (707) (719) (523)
---------- --------- --------- --------
Total deferred tax liabilities (70,308) (66,203) (56,040) (51,596)
Net deferred tax liabilities (62,555) (57,956) (49,143) (40,316)
Less deferral of tax rate change 673 686 707 743
---------- --------- --------- --------
Deferred taxes-operations (61,882) (57,270) (48,436) (39,573)
---------- --------- --------- --------
Deferred tax related to equity AFUDC (13,258) (12,081) (13,131) (13,643)
Deferred tax related to change in tax rate (673) (686) (707) 743
---------- --------- --------- --------
Total deferred taxes $ (75,813) $ (70,037) $ (62,274) $(53,959)
========== ========= ========= ========
</TABLE>
F-13
<PAGE>
(8) Related Party Transactions
Operating revenues and amounts due from related parties were primarily
for gas transportation services. Amounts due from related parties are shown net
of payables, if any.
The following table summarizes Iroquois' related party transactions
(millions of dollars):
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 1999
------------------------------ ----
Payments Due Revenue Payments Due Revenue
to from from to from from
Related Related Related Related Related Related
Parties Parties Parties Parties Parties Parties
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
TransCanada
TransCanada Iroquois Ltd. $0.1 $0.4 $3.9 Iroquois Ltd. $0.5 $1.3 $7.7
NorthEast Transmission NorthEast Transmission
Company -- 1.0 3.0 Company -- -- --
Dominion Iroquois, Inc. -- -- -- Dominion Iroquois, Inc. -- -- --
ANR Iroquois, Inc. -- 0.3 1.7 ANR Iroquois, Inc. -- 0.3 3.7
JMC-Iroquois, Inc. -- 1.4 8.7 JMC-Iroquois, Inc. -- 1.4 16.4
TEN Transmission Company -- 0.6 3.7 TEN Transmission Company -- 0.6 9.0
NJNR Pipeline Company -- 0.6 3.5 NJNR Pipeline Company -- 0.7 7.1
LILCO Energy Systems,
LILCO Energy Systems, Inc. -- 1.0 5.6 Inc. 0.1 1.0 11.4
-- --- --- --- --- ----
Totals $0.1 $5.3 $30.1 Totals $0.6 $5.3 $55.3
==== ==== ===== ==== ==== =====
<CAPTION>
1998 1997
---- ----
Payments Due Revenue Payments Due Revenue
to from from to from from
Related Related Related Related Related Related
Parties Parties Parties Parties Parties Parties
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
TransCanada TransCanada
Iroquois Ltd. $0.5 $0.2 $0.5 Iroquois Ltd. $0.6 $(0.2) $1.8
NorthEast Transmission 15.0 NorthEast Transmission
Company -- -- Company -- 1.4 16.6
Dominion Iroquois, Inc. -- -- 2.7 Dominion Iroquois, Inc. -- 0.9 6.2
ANR Iroquois, Inc. -- 0.4 2.8 ANR Iroquois, Inc. -- 0.3 0.7
JMC-Iroquois, Inc. -- 0.9 12.7 TEN Transmission
TEN Transmission Company -- 0.5 5.9
Company -- 0.4 5.4 NJNR Pipeline Company -- 0.8 9.5
NJNR Pipeline Company -- 0.6 8.6 LILCO Energy Systems,
LILCO Energy Systems, Inc. 0.1 1.0 14.5 Inc. 0.1 1.3 15.4
--- --- ---- --- --- ----
Totals $0.6 $3.5 $62.2 Totals $0.7 $5.0 $56.1
==== ==== ===== ==== ==== =====
</TABLE>
(9) Retirement Benefit Plans
During 1997, the Company established a noncontributory retirement plan
("Plan") covering substantially all employees. Pension benefits are based on
years of credited service and employees' career earnings, as defined in the
Plan. The Company's funding policy is to contribute, annually, an amount at
least equal to that which will satisfy the minimum funding requirements of the
Employee Retirement Income Security Act plus such additional amounts, if any, as
the Company may determine to be appropriate from time to time.
F-14
<PAGE>
During 1997 and 1998 the Company also adopted excess benefit plans
(EBP's) that provide retirement benefits to executive officers and other key
management staff. The EBP's recognize total compensation and service that would
otherwise be disregarded due to Internal Revenue Code limitations on
compensation in determining benefits under the regular retirement plan. The
EBP's are not funded and benefits are paid when due from general corporate
assets.
The following table represents the two plans combined funded status and
amounts included in the consolidated balance sheets (thousands of dollars):
At December 31
--------------------------------------
1999 1998 1997
---- ---- ----
Benefit obligation $ 1,456 $ 926 $ 323
Less: fair value of plan assets 862 315 --
------- ------ ------
Funded status $ (504) $ (611) $ (323)
------- ------ -------
Accrued benefit cost $ 361 $ (323) $ (323)
======= ====== =======
Net Pension costs for the two plan's included in the consolidated
statement of income include the following components (thousands of dollars):
At December 31
--------------------------------------
1999 1998 1997
---- ---- ----
Benefit cost $ 435 $ 367 $ 323
Employer contribution $ 520 $ 323 $ 0
Benefits paid $ 20 $ 33 $ 0
The assumptions used in determining the pension obligation at December
31, 1999, 1998 and 1997 were:
Discount rate 7.00%
Compensation progression rate 5.00%
Expected long-term rate of return N/A
The Company offers a defined contribution retirement plan with a 401(k)
provision to its employees working over 1,000 hours, with over one year of
service. The employees' contributions are matched dollar for dollar by Iroquois
up to 5% of base pay. These costs are recognized on a monthly basis and funding
is made on a pay-as-you-go basis. The Company's matching contributions to the
401(k) plan during 1999, 1998 and 1997 were $253,900, $236,500 and $191,100,
respectively. Iroquois does not provide post-retirement health or life insurance
benefits.
F-15
<PAGE>
<TABLE>
<S> <C>
No dealer, salesperson or other person has been
authorized to give any information or to make any Offer to Exchange
representation not contained in this prospectus, and, if 8.68% Senior Notes due 2010
given or made, such information or representation must for all outstanding
not be relied on as having been authorized by Iroquois. 8.68% Senior notes due 2012
This prospectus does not constitute an offer to sell or a ($200,000,000 principal
solicitation of an offer to buy any of the securities amount outstanding)
offered hereby in any jurisdiction to any person to whom
it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this prospectus nor any sale made Iroquois Gas Transmission System, L.P.
hereunder shall, under any circumstances, create any
implication that the information herein is correct as of
any time subsequent to the date hereof or that there has
been no change in the affairs of Iroquois since that date.
</TABLE>
Table of Contents
Page
----
FORWARD-LOOKING STATEMENTS...........................II
PROSPECTUS SUMMARY....................................1
RISK FACTORS.........................................14
USE OF PROCEEDS......................................19
THE EXCHANGE OFFER...................................20
CAPITALIZATION.......................................29
SELECTED HISTORICAL FINANCIAL
INFORMATION..........................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...........................................32
BUSINESS.............................................37
SUMMARY OF PRINCIPAL AGREEMENTS......................47
MANAGEMENT...........................................54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................59
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.........................................60
DESCRIPTION OF THE EXCHANGE NOTES....................61
DESCRIPTION OF CERTAIN INDEBTEDNESS..................89
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS.......................................91
PLAN OF DISTRIBUTION.................................95
LEGAL MATTERS........................................96
EXPERTS..............................................96
INDEX TO FINANCIAL STATEMENTS.........................1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 9.10 of the Amended and Restated Limited Partnership Agreement
(which is being filed as Exhibit 3.01 with this Registration Statement) provides
that the Registrant shall indemnify and save harmless the members of each
committee of the Registrant against all actions, claims, demands, costs and
liabilities arising out of the acts (or failure to act) of such persons in good
faith within the scope of their authority in the course of the Registrant's
business, and such persons shall not be liable for any obligations, liabilities
or commitments incurred by or on behalf of the Registrant as a result of any
such acts (or failure to act).
Section 17-108 of Delaware Revised Uniform Limited Partnership Act
provides that a limited partnership may, and shall have the power to, indemnify
and hold harmless any partner or other person from and against any and all
claims and demands whatsoever, subject to such standards and restrictions, if
any, as are set forth in its partnership agreement.
Article 10 of IPOC's Certificate of Incorporation provides that, to the
fullest extent permitted by the Delaware General Corporation Law, a director of
IPOC shall not be liable to IPOC or its stockholders for monetary damage for
breach of fiduciary duty as a director.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL)
permits a corporation to include in its certificate of incorporation a provision
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 provision 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 which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL (relating to unlawful payment of dividends
and unlawful stock purchase and redemption) or (iv) for any transaction from
which the director derived an improper personal benefit.
Article VI Section 1 of IPOC's By-laws (the "By-laws"), provides that
IPOC shall, to the full extent permitted by applicable law, indemnify any person
(and the heirs, executors and administrators of such person), who, by reason of
the fact that he is or was a director, officer, employee or agent of IPOC or of
a constituent corporation absorbed by IPOC in a consolidation or merger or is or
was serving at the request of IPOC or such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, was or is a party or is threatened to be
made a party to (a) 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 IPOC), against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with any such action, suit or proceeding,
or (b) any threatened, pending or completed action or suit by or in the right of
IPOC to procure a judgment in its favor, against expenses (including attorney's
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit.
Article VI Section 1 of IPOC's By-laws further provides that any
indemnification by IPOC shall be only made in the manner and to the extent
authorized by applicable law, and any such indemnification shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled.
Article VI Section 2 of IPOC's By-laws provides that IPOC shall have
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of IPOC, or is or was serving at the
request of IPOC as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
II-1
<PAGE>
arising out of his status as such, whether or not IPOC would have the power to
indemnify him against such liability under applicable law.
Section 145 of the DGCL makes provision for the indemnification of
officers and directors in terms sufficiently broad to indemnify officers and
directors of IPOC under certain circumstances from liabilities (including
reimbursement for expenses incurred) arising under the Securities Act.
See Item 22 of this Registration Statement regarding the position of
the Securities and Exchange Commission on indemnification for liabilities
arising under the Securities Act.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
See the index to exhibits appears immediately following the
signature pages of this Registration Statement.
(b) Financial Statement Schedules
Not applicable
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act 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 securities (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.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4 within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction that was not
the subject of and included in the Registration Statement when it became
effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
undersigned Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Shelton,
Connecticut on the 28th day of July, 2000.
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.,
as Registrant
By: Iroquois Pipeline Operating Company,
its Agent
By: /s/ Paul Bailey
--------------------------------------
Name: Paul Bailey
Title: Vice President & Chief
Financial Officer
By: /s/ Craig R. Frew
-------------------------------------
Name: Craig R. Frew
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of July, 2000. Each person whose signature
appears below hereby authorizes Paul Bailey and Craig R. Frew and each of them,
with full power of substitution, to execute in the name and on behalf of such
person any amendment or any post-effective amendment to this Registration
Statement and to file the same, with any exhibits thereto and other documents in
connection therewith, making such changes in this Registration Statement as the
Registrant deems appropriate, and appoints Paul Bailey and Craig R. Frew and
each of them, with full power of substitution, attorney-in-fact to sign any
amendment and any post-effective amendment to this Registration Statement and to
file the same, with any exhibits thereto and other documents in connection
therewith.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ Paul Bailey Vice President and Chief Financial Officer of
--------------------------------------- Iroquois Pipeline Operating Company
Paul Bailey
/s/ Craig R. Frew President of Iroquois Pipeline Operating
---------------------------------------
Craig R. Frew
/s/ Nicholas A. Rinaldi Controller of Iroquois Pipeline Operating Company
---------------------------------------
Nicholas A. Rinaldi
/s/ Paul F. MacGregor Representative on the Management Committee
---------------------------------------
Paul F. MacGregor
/s/ Charles A. Daverio Representative on the Management Committee
---------------------------------------
Charles A. Daverio
/s/ James M. Lane Representative on the Management Committee
---------------------------------------
James M. Lane
/s/ Paul D. Koonce Representative on the Management Committee
---------------------------------------
Paul D. Koonce
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
1.1 Purchase Agreement, dated May 22, 2000, by and among the
Registrant, Chase Securities Inc. and Credit Suisse First Boston
(the "Initial Purchasers").
3.1 Amended and Restated Limited Partnership Agreement of the
Registrant dated as of February 28, 1997 among the partners of
the Registrant.
3.2 First Amendment to Amended and Restated Limited Partnership
Agreement of the Registrant dated as of January 27, 1999 among
the partners of the Registrant.
4.1 Indenture dated as of May 30, 2000 between the Registrant and the
Chase Manhattan Bank, as trustee (the "Trustee") for $200,000,000
aggregate principal amount of 8.68% senior note due 2010.
4.2 First Supplemental Indenture, dated as of May 30, 2000 between
the Registrant and the Trustee for $200,000,000 aggregate
principal amount of 8.68% senior note due 2010.
*4.3 Form of Exchange Note.
4.4 Exchange and Registration Rights Agreement dated as of May 30,
2000 among the Registrant and Initial Purchasers for $200,000,000
aggregate principal amount of 8.68% Senior notes due 2010.
*5.1 Opinion and Consent of Shearman & Sterling regarding validity of
the exchange notes.
10.1 Credit Agreement among the Registrant, The Chase Manhattan Bank,
as administrative agent, Bank of Montreal, as syndication agent
and Fleet National Bank, as documentation agent, and other
financial institutions, dated May 30, 2000.
10.2 Amended and Restated Operating Agreement dated as of February 28,
1997 between Iroquois Pipeline Operating Company and the
Registrant.
10.3 Agreement Between Iroquois Pipeline Operating Company and
Tennessee Gas Pipeline Company with respect to operating
pipelines of the Registrant dated as of March 15, 1991.
10.4 FERC Gas Tariff, First Revised Volume No. 1 of the Registrant
filed with the Federal Energy Regulatory Commission.
10.5 Stipulation and Agreement dated as of December 17, 1999 between
the Registrant, the Federal Energy Regulatory Commission Staff
and all active participants in Docket Nos. RP94-72-009,
FA92-59-007, RP97-126-015, and RP97-126-000 as approved by the
Federal Energy Regulatory Commission on February 10, 2000.
10.6 Supplemental Executive Retirement Agreement dated as of July 1,
1997 between the Registrant and Craig R. Frew.
10.7 Supplemental Executive Retirement Agreement dated as of July 1,
1997 between the Registrant and Paul Bailey.
10.8 Supplementary Pension Plan of Iroquois Pipeline Operating Company
adopted on December 31, 1998.
10.9 Performance Share Unit Plan of Iroquois Pipeline Operating
Company effective as of January 1, 1999.
<PAGE>
12.1 Statements regarding computation of ratios.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent public accountants
of the Registrant.
*23.2 Consent of Shearman & Sterling (included in Exhibit 5.1).
*24.1 Power of Attorney (included in signature pages to Registration
Statement).
25.1 Statement of Eligibility of the Trustee, on Form T-1
27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
----------
* To be filed by Amendment
