Item 1.01
|
Entry into a Material Definitive Agreement.
|
Acquisition of Crimson Midstream Holdings, LLC
On February 4, 2021, CorEnergy Infrastructure Trust, Inc., a real estate investment trust (“REIT”) organized as a Maryland corporation (“CorEnergy” or the “Company”) acquired a 49.5% interest
in Crimson Midstream Holdings, LLC (“Crimson”), with the right to acquire 100%, in exchange for a combination of cash on hand of approximately $74.6 million (after giving effect to initial working capital adjustments), commitments to issue
approximately $118.4 million of new common and preferred equity (also after giving effect to the initial working capital adjustments), contribution of the Grand Isle Gathering System (“GIGS”) (valued for the purposes of the transaction at $50
million) to the sellers and $105.0 million in new term loan and revolver borrowings, all as detailed further below (the “Transaction”). Crimson is a California Public Utilities Commission (“CPUC”) regulated crude oil pipeline owner and
operator, and its assets include four critical infrastructure pipeline systems spanning approximately 1,800 miles across northern, central and southern California, connecting California crude production to in-state refineries. The acquired
assets qualify for REIT treatment under established IRS regulations and the Company’s Private Letter Ruling (PLR).
To effect the Transaction, on February 4, 2021 the Company entered into and consummated a Membership Interest Purchase Agreement (the “MIPA”) with CGI Crimson Holdings, L.L.C. (“Carlyle”),
Crimson, and John D. Grier. Pursuant to the terms of the MIPA, the Company acquired all of the Class C Units of Crimson owned by Carlyle, which represents 49.5% of all of the issued and outstanding membership interests of Crimson for
approximately $66.0 million in cash (net of working capital adjustments) and the transfer to Carlyle the Company’s interest in GIGS. The Company also entered into to a $105.0 million Amended and Restated Credit Agreement with Wells Fargo (as
further described below). Additional information concerning the new credit agreement is set forth under Item 2.03 of this Current Report on Form 8-K and incorporated herein by reference. The MIPA also contains standard representations,
warranties, covenants and indemnities.
Simultaneously, Crimson, the Company, Mr. Grier and certain affiliated trusts of Mr. Grier (collectively with Mr. Grier, the “Grier Members”) entered into the Third Amended and Restated Limited
Liability Company Agreement (“Third LLC Agreement”) of Crimson. Pursuant to the terms of the Third LLC Agreement, the Grier Members’ outstanding membership interests in Crimson were exchanged for 1,613,202 Class A-1 Units of Crimson, 2,436,000
Class A-2 Units of Crimson and 2,450,142 Class A- 3 Units of Crimson, which, as described below, may eventually be exchangeable for shares of the Company’s common and preferred stock. Additionally, 495,000 Class C-1 Units (representing 49.5%
of the voting interests under the Third LLC Agreement) were issued to the Company in exchange for the former Class C Units acquired from Carlyle and 505,000 Class C-1 Units (representing 50.5% of the voting interests under the Third LLC
Agreement) were issued to the Grier Members, in exchange for the Class C Units held by Grier prior to the Transaction.
Under the Third LLC Agreement, the Company has the right to designate two of the four managers of Crimson, which shall initially be David J. Schulte, the Company’s Chief Executive Officer and
President, and Todd Banks, a member of the Company’s Board of Directors. The Grier Members have the right to designate the other two managers, which shall initially be Mr. Grier and Larry Alexander, President of Crimson. All material business
decisions and actions will require supermajority approval of the Crimson managers; provided, however, that Mr. Grier will make decisions regarding the day-to-day operations of the assets regulated by the CPUC. Change of control of the CPUC
regulated assets is subject to the approval of the CPUC (“CPUC Approval”), which is expected to occur in the third quarter of 2021.
Upon CPUC Approval, the parties will enter into a Fourth Amended and Restated LLC Agreement of Crimson (“Fourth LLC Agreement”), which will, among other things, (i) give the Company control of
Crimson and its assets and (ii) provide the Grier Members and Management Members (as defined below) the right to exchange their entire interest in Crimson for securities of the Company as follows:
|
●
|
Class A-1 Units will become exchangeable for up to 1,613,202 shares of a newly created Series C Preferred Stock of the Company (“Series C Preferred”), which may be converted by the holder into up to 1,716,172 of the Company’s
depositary shares, each representing 1/100th of a share of the Company’s 7.375% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred”);
|
|
●
|
Class A-2 Units will become exchangeable for up to 2,436,000 shares of a newly created Series B Preferred Stock of the Company (“Series B Preferred”), which will be convertible, following approval of the Company’s existing
stockholders in compliance with the rules of the New York Stock Exchange (“NYSE”), into up to 8,675,214 additional shares of a new non-listed Class B Common Stock of the Company (“Class B Common Stock”), with such conversion to occur
automatically assuming stockholder approval is received; and
|
|
●
|
Class A-3 Units will become exchangeable for up to 2,450,142 shares of the newly created Class B Common Stock.
|
Class B Common Stock will eventually be converted into the common stock of the Company (“Common Stock”) on the occurrence of the earlier of the following: (i) the occurrence of the third
anniversary of the closing date of the Transaction or (ii) the satisfaction of certain conditions related to an increase in the relative dividend rate of the Common Stock. The terms of Series C Preferred, Series B Preferred and Class B Common
Stock are further described below in Item 3.03 of this Current Report on Form 8-K, which is incorporated herein by reference.
Prior to CPUC approval, the terms of the Third LLC Agreement provide the Grier Members the right to receive any distributions that the Company’s Board of Directors determines would be payable
if they held the shares of Class B Common Stock, Series B Preferred, and Series C Preferred, respectively. Following CPUC Approval, the terms of the Fourth LLC Agreement provide that such rights will continue until the Grier Members elect to
exchange the Crimson units for the related securities of the Company. In addition, after CPUC Approval, certain Crimson units held by the Grier Members are expected to be transferred to other individuals currently managing Crimson (the
“Management Members”).
In connection with the Transaction, the Company entered into a Registration Rights Agreement with the Grier Members (the “Registration Rights Agreement”). The Management Members are expected
to become parties to the Registration Rights Agreement in the future. The Registration Rights Agreement, subject to the terms thereof, provides for certain demand and piggyback registration rights in favor of the Grier Members (and the
Management Members, once they become parties), subject to customary underwriter cutbacks, to require the Company to file a shelf registration statement covering the resale of listed Company securities they may ultimately acquire upon conversion
of new securities issued pursuant to the Transaction (as further described in Section 3.03 below). The Company has agreed to pay certain fees and expenses relating to registrations under the Registration Rights Agreement. The Registration
Rights Agreement also restricts the transfer by a holder of any outstanding shares of Class B Common Stock for one year from February 4, 2021, except to an affiliate of such holder for estate planning purposes.
As described above, a portion of the consideration paid to Carlyle pursuant to the MIPA was the transfer of the Company’s interest in GIGS. In connection with the disposition, on February 4,
2021, the Company and Grand Isle Corridor, LP, the Company’s subsidiary (“Grand Isle”), entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with Energy XXI GIGS Services, LLC, Energy XXI Gulf Coast, Inc. and
CEXXI, LLC (the “EXXI Entities”). Energy XXI GIGS Services, LLC (“EGC Tenant”) is the tenant under the Lease Agreement, dated June 30, 2015 with Grand Isle (the “GIGS Lease”). Grand Isle initially received a Guaranty dated June 22, 2015 from
Energy XXI Ltd. in connection with the original purchase of the GIGS, which was assumed by Energy XXI Gulf Coast, Inc., as guarantor of the obligations of EGC Tenant pursuant to the terms of the Assignment and Assumption of Guaranty and Release
dated December 30, 2016 (as assigned and assumed, the “Landlord Guaranty”).
Pursuant to the terms of the Settlement Agreement, the Company and Grand Isle released the EXXI Entities for any and all claims, except for the Environmental Indemnity under the GIGS Lease,
which shall survive, and the EXXI Entities released the Company and Grand Isle from any and all claims. As previously disclosed in the Company’s periodic reports, the Company had initiated litigation to enforce its rights under the GIGS Lease,
including for non-payment of rent. The parties have agreed to jointly dismiss such litigation in connection with the Settlement Agreement. Additionally, the GIGS Lease and Landlord Guaranty were cancelled and terminated.
The foregoing descriptions of the MIPA, the Third LLC Agreement, the Registration Rights Agreement, and Settlement Agreement are qualified in their entirety by reference to the full text of the
MIPA, the Third LLC Agreement, the Registration Rights Agreement, and Settlement Agreement, copies of which are filed as Exhibits 2.1, 10.17, 10.18 and 10.19 to this Current Report on Form 8-K and are incorporated in this Item 1.01 by
reference. The foregoing description of the Fourth LLC Agreement is qualified in its entirety by reference to the full text of the form of Fourth LLC Agreement, a copy of which is provided as Exhibit C to the Third LLC Agreement, filed as
Exhibit 10.17 to this Current Report on Form 8-K and is incorporated in this Item 1.01 by reference.
Internalization of the Manager
On February 4, 2021, the Company entered into a Contribution Agreement with Richard C. Green, Rick Kreul, Rebecca M. Sandring, Sean DeGon, Jeff Teeven, Jeffrey E. Fulmer, David J. Schulte (as
Trustee of the DJS Trust under Trust Agreement dated July 18, 2016), and Campbell Hamilton, Inc., which is an entity controlled by David J. Schulte (collectively, the “Contributors”), and Corridor InfraTrust Management, LLC, a Delaware limited
liability company and the Company’s external manager (the “Manager”).
Consummation of the transactions contemplated in the Contribution Agreement will result in the internalization of the management of the Company (the “Internalization”). Following the
Internalization, the Company will own all material assets of the Manager currently used in the conduct of its business and will be managed by officers and employees who currently work for the Manager and who are expected to become employees of
the Company as a result of the Internalization.
In payment of the aggregate Internalization consideration (the “Internalization Consideration”), the Company will issue to the Contributors, on a pro rata basis (i) 1,153,846 shares of Common
Stock, (ii) 683,761 shares of the newly created Class B Common Stock described in Item 3.03 below, and (iii) 170,213 depositary shares of Series A Preferred (collectively with the Common Stock and Class B Common Stock, the “REIT Stock”).
Contemporaneously with execution of the Contribution Agreement, the Company and the Manager entered into the First Amendment (the “First Amendment”) to the Management Agreement dated as of May
8, 2015 (as amended, the “Management Agreement”) that has the effect of (i) reducing the amount paid to the Manager until closing of the Internalization or termination of the Contribution Agreement and (ii) provides payment to the Manager to
enable distribution of payments to employees of the Manager as approved by the independent directors of the Company and pending closing of the Contribution Agreement. The Contribution Agreement acknowledges the funding of the distribution of
the payments by the Manager pursuant to the First Amendment in connection with closing of the Internalization.
At closing of the Internalization, the Company will enter into a registration rights agreement in substantially similar to the form of the Registration Rights Agreement entered into with the
Grier Members. Notwithstanding any registration rights, and pursuant to the Contribution Agreement: (i) subject to certain exceptions to sell a number of shares to pay tax obligations in connection with the Internalization, neither Campbell
Hamilton, Inc. nor David J. Schulte (as Trustee of the DJS Trust under Trust Agreement dated July 18, 2016) will be permitted to sell or otherwise transfer any of the shares of Common Stock received in connection with the Internalization for a
period of twelve months commencing on the closing date of the Internalization and (ii) no Contributor may sell or otherwise transfer any shares of Class B Common Stock issued to such party.
The Contribution Agreement can be terminated by the mutual agreement of the parties before or after stockholder approval and can be terminated by any party if the issuance of additional REIT
Stock resulting from the Internalization is not approved by the Company’s stockholders. If the Contribution Agreement is terminated, the existing Management Agreement and Administrative Agreement will revert to the previous revenue formula and
otherwise remain in full force and effect.
In connection with the Contribution Agreement, each Contributor has agreed that, for twenty-four (24) months after closing, it will not compete with the Company or solicit its employees,
subject to certain exceptions as forth in the Contribution Agreement.
David J. Schulte is the Company’s Chief Executive Officer, Chairman and a member of the Company’s Board of Directors, Rebecca M. Sandring and Jeff Fulmer are both executive officers of the
Company, and Rick Kreul, Sean DeGon and Jeff Teeven are all officers of the Company, and all of such individuals are current employees of the Manager. These individuals have interests in the Internalization that differ from those of our
stockholders, as each will have a direct or indirect beneficial interest in a portion of the consideration received by the Contributors in the Internalization.
In light of the above relationships, the Company’s Board of Directors formed a special committee comprised entirely of independent and disinterested directors (the “Special Committee”) in
connection with the Internalization. The Special Committee received a fairness opinion from Evercore, its independent financial advisor, that the consideration to be paid pursuant to the Contribution Agreement is fair, from a financial point of
view, to the Company.
The Company will seek stockholder approval of the Internalization in compliance with the rules of the NYSE. The Contribution Agreement requires that the Internalization be approved at a meeting
by the affirmative vote of at least a majority of the votes cast by the stockholders entitled to vote on the matter, other than the votes of shares held by any of the Contributors or their affiliates. Such approval will constitute approval of
the issuance of the Company’s securities as required under Section 312.03(b) of the New York Stock Exchange Listed Company Manual, which requires stockholder approval prior to the issuance of common stock, or securities exchangeable for common
stock, in excess of one percent (1%) of the Company’s outstanding shares in a transaction with a related party.
The foregoing summary of the Contribution Agreement and First Amendment are qualified in their entirety by reference to the Contribution Agreement and First Amendment, copies of which are filed
as Exhibits 2.2 and 10.20 to this Current Report on Form 8-K and are incorporated in this Item 1.01 by reference.
Item 1.02
|
Termination of Material Definitive Agreement.
|
Termination of GIGS Lease
Upon the closing of the MIPA and the Transaction, the sale of GIGS was complete and the Company, Grand Isle and EXXI Entities entered into the Settlement Agreement, which terminated the GIGS
Lease and Landlord Guaranty.
As previously disclosed in the Company’s periodic reports filed with the SEC, prior to termination, base rent starting July 2020 increased from $3.2 million per month to $4.0 million per month
for the remainder of the year. In addition, the Company was eligible for a participating variable rent component based on daily volume increases over base daily volumes defined in the Lease. There were no participating rents paid in 2019 or
2020. On April 1, 2020, the EGC Tenant ceased paying rent due and did not resume paying rent through the date of the Settlement Agreement disclosed in Item 1.01 of this Current Report on Form 8-K.
The information regarding the disposition of GIGS and the termination of the GIGS Lease and Landlord Guaranty under the heading “Acquisition of Crimson Midstream Holdings, LLC” in Item 1.01 of
this Current Report on Form 8-K, as well as additional financial information related to the disposition of GIGS set forth in the second paragraph of Item 2.01 of this Current Report on Form 8-K, is incorporated herein by reference.
Termination of Regions Credit Facility
On February 4, 2021, in connection with entering into the credit facility described in Item 2.03, the Company terminated its amended and restated credit facility dated as of July 28, 2017 by
and between the Company and Regions Bank, as lender and administrative agent for other participating lenders (the “Prior Credit Facility”). The Prior Credit Facility had a 5-year term maturing on July 28, 2022 and provided for borrowing
commitments of up to $161.0 million, consisting of (i) $160.0 million secured revolving line of credit facility, subject to borrowing base limitations, and (ii) $1.0 million secured revolving line of credit facility at the MoGas subsidiary
level. Borrowings under the credit facility generally bore interest on the outstanding principal amount using a LIBOR pricing grid that equaled a LIBOR rate plus an applicable margin of 2.75 percent to 3.75 percent, based on the Company’s
senior secured recourse leverage ratio. Total availability was subject to a borrowing base. The Prior Credit Facility contained, among other restrictions, certain financial covenants including the maintenance of certain financial ratios, as
well as default and cross-default provisions customary for transactions of this nature (with applicable customary grace periods). On the date of termination, there was no indebtedness outstanding under this facility, and the loan documents
providing for the facility, and the security interests securing it, were terminated and released.
The termination of the Prior Credit Facility will result in the write-off of the remaining deferred debt costs. As of September 30, 2020, the Company had $1.1 million of deferred debt costs
outstanding, which were presented as an asset in the Consolidated Balance Sheet.