Item 1.01.
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Entry into a Material Definitive Agreement.
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Series A Preferred Unit Purchase Agreement
On August 8, 2016, CSI Compressco LP, a Delaware limited partnership (the Partnership), entered into a
Series A Preferred Unit Purchase Agreement (the Unit Purchase Agreement) with the purchasers party thereto (collectively, the Purchasers) to issue and sell in a private placement (the Private Placement) an
aggregate of 4,374,454 Series A Convertible Preferred Units representing limited partner interests in the Partnership (the Preferred Units) for a cash purchase price of $11.43 per Preferred Unit (the Issue Price),
resulting in total net proceeds to the Partnership, after deducting offering expenses, of approximately $48 million. The Purchasers include, among others, HBC MLP LLC or certain of its affiliates (the Lead Purchaser) and CSI Compressco
Investment LLC (CSI Investment), an affiliate of CSI Compressco GP, Inc., a Delaware corporation (the General Partner) and the general partner of the Partnership. CSI Investment purchased $10 million of Preferred Units in the
Private Placement. The Lead Purchaser was granted a 45-day option to purchase up to an additional $20 million of Series A Preferred Units on the same terms and conditions. The closing of the Private Placement (the Closing) occurred on
August 8, 2016. Proceeds from the Private Placement will be used to reduce the Partnerships outstanding indebtedness.
Set
forth below is a summary of the material terms and conditions of the Unit Purchase Agreement and the Preferred Units.
Pursuant to the
Unit Purchase Agreement, in connection with the Closing, the General Partner executed a Second Amended and Restated Agreement of Limited Partnership of the Partnership (the Amended and Restated Partnership Agreement) to, among other
things, authorize and establish the rights and preferences of the Preferred Units. The Preferred Units are a new class of equity security that will rank senior to all classes or series of equity securities of the Partnership with respect to
distribution rights and rights upon liquidation. The holders of Preferred Units (each, a Preferred Unitholder) will receive quarterly distributions in kind in additional Preferred Units, equal to an annual rate of 11.00% of the Issue
Price ($1.2573 per unit annualized), subject to certain adjustments. The rights of the Preferred Units include certain anti-dilution adjustments, including adjustments for economic dilution resulting from the issuance of Common Units below a
particular price.
A ratable portion of the Preferred Units will be converted each month over a period of thirty months beginning in the
seventh calendar month following the Closing (each, a Conversion Date), subject to certain provisions of the Amended and Restated Partnership Agreement that may delay or accelerate all or a portion of such monthly conversions. On each
Conversion Date, the Preferred Units will convert into common units representing limited partner interests in the Partnership (Common Units) in an amount equal to, with respect to each Preferred Unitholder, the number of Preferred Units
held by such Preferred Unitholder divided by the number of Conversion Dates remaining, subject to adjustment as described in the Amended and Restated Partnership Agreement, with the conversion price determined by the trading price of the Common
Units over the month prior to such Conversion Date, among other factors, and as otherwise impacted by the existence of certain conditions related to the Common Units. The Partnership may, at its option, pay cash, or a combination of cash and Common
Units, to the Preferred Unitholders instead of issuing Common Units on any Conversion Date, subject to certain restrictions as described in the Amended and Restated Partnership Agreement.
In addition, each Purchaser may convert its Preferred Units, generally on a one-for-one basis and subject to adjustment for certain splits,
combinations, reclassifications or other similar transactions and certain anti-dilution adjustments, in whole or in part, at any time following May 31, 2017 so long as any conversion is not for less than $250,000 or such lesser amount, if such
conversion relates to all of such Purchasers remaining Preferred Units. The Partnership has the right to be reimbursed for any cash distributions paid with respect to Common Units issued in any such optional conversion until
March 31, 2018. The Preferred Units will vote on an as-converted basis with the Common Units and will have certain other rights to vote as a class with respect to any amendment to the Amended and Restated Partnership Agreement that would affect
any rights, preferences or privileges of the Preferred Units, as more fully described in the Amended and Restated Partnership Agreement.
In addition, upon certain events involving a change of control, each holder of the Preferred Units may elect to (a) convert its Preferred
Units to Common Units at the then-applicable conversion rate, (b) if the Partnership is not the surviving entity (or if the Partnership is the surviving entity, but its Common Units will cease to be listed on a National Securities Exchange),
require the Partnership or the acquiring entity, as applicable, to either (i) deliver a
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security in the surviving entity that has substantially similar rights, preferences and privileges as the Preferred Units or (ii) redeem each Preferred Unit held by such Preferred Unitholder
at a redemption price per Preferred Unit equal to 120% of the greater of (A) $11.43 and (B) the intrinsic value of the Preferred Units determined as of the applicable date of determination or (c) if the Partnership is the surviving
entity and its Common Units continue to be listed or admitted to trading on a National Securities Exchange, continue to hold the Preferred Units.
No Preferred Unitholder may transfer any Preferred Units without the prior written consent of the Partnership unless, after giving effect to
such transfer, the transferee will own at least $5 million of the Preferred Units. However, each Preferred Unitholder shall be able to transfer any Preferred Units owned by such Preferred Unitholder to its affiliates or to any other Preferred
Unitholder, subject to certain restrictions described in the Amended and Restated Partnership Agreement. Additionally, other than with respect to transfers by a Preferred Unitholder to its affiliates, each Preferred Unitholder granted to the
Partnership and to TETRA Technologies, Inc. (TETRA) a right of first refusal to purchase any Preferred Units that such Preferred Unitholder may propose to transfer.
In connection with the Closing, the Partnership has agreed to pay a transaction fee equal to 3% of the aggregate purchase price to Evercore
Group L.L.C. The Unit Purchase Agreement contains customary representations, warranties and covenants of the Partnership and the Purchasers, and Partnership has agreed to indemnify the Purchasers against certain losses resulting from breaches of its
representations, warranties and covenants. The Unit Purchase Agreement also provides for an expense reimbursement of up to $200,000 in connection with certain fees of counsel to the Purchasers.
CSI Investment is a wholly owned subsidiary of TETRA. Through its various wholly owned subsidiaries, TETRA owns approximately 42% of the
Partnerships outstanding Common Units and approximately 20% of the Partnerships outstanding Preferred Units, plus the approximately 2% general partner interest. Additionally, the General Partner, which holds the Partnerships
incentive distribution rights, is a wholly owned subsidiary of TETRA. Through the General Partner, TETRA manages and controls the Partnership.
The foregoing description of the Unit Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the
Unit Purchase Agreement, a copy of which is filed as Exhibit 10.1 hereto and is incorporated into this report by reference.
Registration Rights
Agreement
On August 8, 2016, in connection with the Closing, the Partnership entered into a Registration Rights Agreement
(the Registration Rights Agreement) with the Purchasers relating to the registered resale of the Common Units issuable upon conversion of the Preferred Units, including any Preferred Units issued in kind pursuant to the terms of the
Amended and Restated Partnership Agreement. Pursuant to the Registration Rights Agreement, the Partnership is required to file or cause to be filed a registration statement for such registered resale at its expense no later than 90 days after the
Closing and is required to cause the registration statement to become effective no later than 180 days after the Closing, subject to certain liquidated damages set forth in the Registration Rights Agreement if such obligations are not met.
The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference
to the Registration Rights Agreement, a copy of which is filed as Exhibit 4.1 hereto and is incorporated into this report by reference.